Registration Nos. 33-10615
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 13 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 84 /X/
(Check appropriate box or boxes.)
---------------
Standish, Ayer & Wood Investment Trust
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to Rule 485(b)
/ / On (date) pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)(1)
/X/ On May 1, 1997 pursuant to Rule 485(a)(1)
/ / 75 days after filing pursuant to Rule 485(a)(2)
/ / On (date) pursuant to Rule 485(a)(2)
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Rule 24f-2 Notice for the fiscal year ended
December 31, 1996 was filed on or about February 24, 1997.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Standish International Equity Fund
Cross-Reference Sheet Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A Prospectus
Form Item Cross-Reference
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis "Fund Comparison Highlights"
and "Expense Information"
Item 3. Condensed Financial "Financial Highlights"
Information
Item 4. General Description Cover Page, "The Funds
of Registrant and Their Shares", "Investment
Objectives and Policies",
"Description of Securities and
Related Risks", "Investment
Techniques and Related Risks"
and "Information about the
Master-Feeder Structure"
Item 5. Management of the Fund "Management" and "Custodian,
Transfer Agent and Dividend
Disbursing Agent"
Item 6. Capital Stock and "The Funds and Their Shares",
Other Securities "Purchase of Shares",
"Redemption of Shares",
"Dividends and Distributions"
and "Federal Income Taxes"
Item 7. Purchase of Securities Cover Page and "Purchase of
Being Offered Shares"
Item 8. Redemption or "Redemption of Shares"
Repurchase
Item 9. Pending Legal Proceedings Not Applicable
- -------------
* This Post-Effective Amendment to the Registrant's Registration Statement is
being filed with respect to the series of the Registrant set forth above and
does not affect the Prospectuses and Statements of Additional Information of any
additional series of the Registrant.
<PAGE>
Statement of Additional
Part B Information Cross-
Form Item Reference
Item 10. Cover Page Cover Page
Item 11. Table of Contents "Contents"
Item 12. General Information
and History Not Applicable
Item 13. Investment Objectives "Investment Objectives
and Policies and Policies" and "Investment
Restrictions"
Item 14. Management of the Fund "Management"
Item 15. Control Persons and "Management"
Principal Holders
of Securities
Item 16. Investment Advisory and "Management"
Other Services
Item 17. Brokerage Allocation "Portfolio Transactions"
Item 18. Capital Stock and "The Funds and Their Shares"
Other Securities
Item 19. Purchase, Redemption "Redemption of Shares" and
and Pricing of Securities "Determination of Net Asset
Being Offered Value"
Item 20. Tax Status "Taxation"
Item 21. Underwriters Not Applicable
Item 22. Calculation of "Calculation of Performance
Performance Data Data"
Item 23. Financial Statements "Experts and Financial
Statements"
</TABLE>
<PAGE>
[PINE CONE LOGO]
STANDISH GROUP OF EQUITY FUNDS
PROSPECTUS
APRIL 30, 1997
The Standish Group of Equity Funds includes the Standish Equity Fund, the
Standish Small Capitalization Equity Fund, the Standish Small Capitalization
Equity Fund II and the Standish International Equity Fund. Each Fund is
organized as a separate diversified investment series of Standish, Ayer & Wood
Investment Trust, an open end investment company. The Equity Fund, Small
Capitalization Equity Fund and Small Capitalization Equity Fund II invest
exclusively in the Standish Equity Portfolio, Standish Small Capitalization
Equity Portfolio and Standish Small Capitalization Equity Portfolio II,
respectively, each an open end investment company. Standish, Ayer & Wood, Inc.
("Standish") is the investment adviser to the Equity Portfolio, the Small
Capitalization Equity Portfolio, and the Small Capitalization Equity Portfolio
II. Standish International Management Company, L.P. ("SIMCO"), Boston,
Massachusetts, is the investment adviser to the International Equity Fund.
Standish and SIMCO are referred to in the Prospectus as the "Adviser" or the
"Advisers."
Investors may purchase shares in the Funds without charge from Standish Fund
Distributors, L.P. An application may be obtained by calling (800) 221-4795.
The Advisers seek to add value by capturing improving business momentum at
reasonable valuations. Their style blends quantitative and fundamental analysis
to find those stocks or markets where estimates of earnings are being revised
upwards but whose valuation does not yet reflect this positive trend. Standish
has been providing investment counseling to mutual funds, other institutional
investors and high net worth individuals for more than sixty years. Standish
offers a broad array of investment services that includes U.S., international
and global management of fixed income and equity securities for mutual funds and
separate accounts. SIMCO serves as Standish's international research and
investment arm for both debt and equity securities in all countries outside of
the United States. Privately held by twenty-two employee/directors and
headquartered in Boston, Massachusetts, Standish employs over eighty investment
professionals with a total staff of more than two hundred.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated April 30,
1997, as amended or supplemented from time to time. The Statement of Additional
Information is incorporated by reference into this Prospectus and is available
without charge upon request from (800) 221-4795.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. An investment in shares of the Funds involves
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of the Funds are not available for sale in every state. This Prospectus
is not intended to be an offer to sell shares, nor may an offer to purchase
shares be accepted from investors, in those states where shares of the Funds may
not legally be sold. Contact Standish Fund Distributors to determine whether the
Funds are available for sale in your state.
1
<PAGE>
[On inside front cover]
Table of Contents
Page
Fund Comparison Highlights.............................................4
Expense Information....................................................5
Financial Highlights...................................................6
Investment Objectives and Policies....................................10
The Equity Fund.......................................................10
The Small Capitalization Equity Fund..................................11
The Small Capitalization Equity Fund Ii...............................11
The International Equity Fund.........................................12
Description of Securities and Related Risks...........................12
Investment Techniques and Related Risks...............................15
Information about the Master-feeder Structure.........................17
Calculation of Performance Data.......................................18
Dividends and Distributions...........................................18
Purchase of Shares....................................................18
Net Asset Value.......................................................19
Exchange of Shares....................................................19
Redemption of Shares..................................................20
Management............................................................21
Federal Income Taxes..................................................23
The Funds and Their Shares............................................24
Custodians............................................................24
Transfer Agent and Dividend Disbursing Agent..........................24
Independent Accountants...............................................24
Legal Counsel.........................................................24
Tax Certification Instructions........................................24
2
<PAGE>
<TABLE>
<CAPTION>
FUND COMPARISON HIGHLIGHTS
The following table highlights information contained in this Prospectus
and is qualified in its entirety by the more detailed information contained
within. For a complete description of each Fund's distinct investment objective
and policies, see "Investment Objectives and Policies," "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks."
There can be no assurance that a Fund's investment objective will be achieved.
- --------------------------- ------------------------- ------------------------- ------------------------ ---------------------
Equity Fund Small Capitalization Small Capitalization International Equity
Equity Fund Equity Fund II Fund
- --------------------------- ------------------------- ------------------------- ------------------------ ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Objective Long-term growth of Long-term growth of Long-term growth of Long-term capital
capital through capital through capital growth through
investment primarily in investment primarily in investment in a
equity and equity and diversified
equity-related equity-related portfolio of foreign
securities of companies securities of small equity securities
which appear to be capitalization
undervalued companies
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Key Strategy Emphasize stocks Emphasize rapidly Emphasize rapidly Emphasize stocks
believed to offer above growing, high quality growing, high quality and markets
average potential for companies with market companies with market believed to offer
capital growth through capitalizations less capitalizations less than above average
the use of statistical than $700 million that $1 billion that are potential for
modeling techniques are involved with value involved with value capital growth
and fundamental added products or added products or through the use of
analysis services services statistical modeling
techniques
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Market Capitalization of No limit; general range $700 million or less $1 billion or less No limit; general
Companies Focused on is medium to large range is medium to
by the Fund capitalization large capitalization
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Foreign Securities Yes; no limit for Yes; limited to 15% of Yes; limited to 15% of Yes; without limit,
securities listed on a total assets. total assets. including up to 25%
U.S. exchange or traded of total assets in
in the U.S. securities of
over-the-counter issuers located in
("OTC") market but emerging markets
limited to 10% of total
assets for foreign
securities which are
not so listed or
traded.
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Benchmark Index S&P 500 Russell 2000, Russell 2000, EAFE Index
Russell 2000 Growth, Russell 2000 Growth,
S&P 500 S&P 500
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
</TABLE>
3
<PAGE>
EXPENSE INFORMATION
Total operating expenses are based on expenses for each Fund's fiscal year ended
December 31, 1996. Total operating expenses for the Equity Fund include expenses
of the Fund and the Equity Portfolio, for the Small Capitalization Equity Fund
include expenses of the Fund and the Small Capitalization Equity Portfolio, and
for the Small Capitalization Equity Fund II include expenses of the Fund and the
Small Capitalization Equity Portfolio II. The Trusts' Trustees believe that
total operating expenses of the Equity Fund, the Small Capitalization Equity
Fund and the Small Capitalization Equity Fund II are approximately equal to or
less than what would be the case if the Funds did not invest all of their
investable assets in their respective Portfolios.
<TABLE>
<CAPTION>
Small Small
Equity Capitalization Capitalization International
Fund Equity Fund Equity Fund II Equity Fund
Shareholder Transaction Expenses
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Annual Operating Expenses (as a percentage of average net
assets)
Management Fees (after applicable limitation) 0.50% 0.60% 0.00%* 0.00%
12b-1 Fees None None None None
Other Expenses (after applicable expense limitation)+ 0.21% 0.15% 0.00%* 0.50%*
----- ----- ------ ------
Total Operating Expenses (after applicable expense 0.71% 0.75% 0.00%* 0.50%*
===== ===== ====== =====-
limitation)
- ----------
* Standish has voluntarily and temporarily agreed to limit certain expenses of
the Small Cap II Fund and International Equity Fund. In the absence of such
agreements, the Management Fees, Other Expenses and Total Operating Expenses (as
a percentage of average daily net assets for the fiscal year ended December 31,
1996) would have been: Small Cap II Fund--0.60%, 1.55% and 2.15%, respectively;
and International Equity Fund--0.50%, 0.79% and 1.29%, respectively.
+ Other Expenses include custodian and transfer agent fees, registration costs,
payments for insurance, and audit and legal services.
Example
Hypothetically assume that each Fund's annual return is 5% and that its total
operating expenses are exactly as described. For every $1,000 invested, an
investor would have paid the following expenses if an account were closed after
the number of years indicated:
Small Small International
Capitalization Capitalization Equity
Equity Fund Equity Fund Equity Fund II Fund
After 1 Year $7 $8 $0 $5
After 3 Years 23 25 0 16
After 5 Years 41 43 0 28
After 10 Years 91 95 0 63
The purpose of the table is to assist investors in understanding the various
costs and expenses that an investor in each Fund will bear directly or
indirectly. The example is included solely for illustrative purposes and should
not be considered a representation of future performance or expenses. Actual
expenses may be more or less than those shown. See "Management" for additional
information about each Fund's expenses.
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for periods after 1992 have been audited by Coopers
& Lybrand L.L.P., independent accountants, whose reports, together with the
Financial Statements of the Funds, are incorporated into the Statement of
Additional Information. Financial highlights for prior periods were audited by
other independent accountants. The Funds' annual reports, which contain
additional information about Fund performance, may be obtained from Standish
Fund Distributors without charge.
<TABLE>
<CAPTION>
EQUITY FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996** 1995 1994 1993 1992* 1991*,+
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $34.81 $28.66 $30.89 $26.28 $25.66 $20.00
------------- ------------- ------------- ------------- ------------- -------------
Income from investment operations
Net investment income $0.60 $0.76 $0.45 $0.50 $0.56 $0.46
Net realized and unrealized gain (loss)
on investments 8.52 9.94 (1.62) 5.57 1.81 6.17
------------- ------------- ------------- ------------- ------------- -------------
Total from investment operations $9.12 $10.70 ($1.17) $6.07 $2.37 $6.63
------------- ------------- ------------- ------------- ------------- -------------
Less distributions declared to shareholders
From net investment income (0.56) (0.78) (0.44) (0.47) (0.54) (0.35)
From realized gain on investments (4.58) (3.77) (0.62) (0.99) (1.19) (0.62)
From paid-in capital - - - - (0.02) -
Total distributions declared to shareholders (5.14) (4.55) ($1.06) ($1.46) ($1.75) ($0.97)
------------- ------------- ------------- ------------- ------------- -------------
Net asset value - end of period $38.79 $34.81 $28.66 $30.89 $26.28 $25.66
============= ============= ============= ============= ============= =============
Total return3 26.84% 37.55% (3.78%) 20.79% 9.52% 33.45%t
Net assets at end of period (000 omitted) $105,855 $88,523 $86,591 $72,916 $14,679 $7,498
Ratios (to average daily net assets)/Supplemental Data
Expenses**1 0.71% 0.69% 0.70% 0.80% 0.00% 1.00%t
Net investment income** 1.53% 2.05% 1.55% 1.29% 2.52% 1.92%t
Portfolio turnover2 41% 159% 182% 192% 92% 86%
Average Commission Rate Paid2 $0.0499
- -------------
**For the year ended December 31, 1996 and the three-year period ended December
31, 1993, the investment adviser did not impose a portion of its advisory fee.
If this voluntary reduction had not been undertaken, the net investment income
per share and the ratios would have been:
Net Investment Income per share $0.59 $0.47 $0.34 $0.23
Ratios (to average net assets)
Expenses 0.72% 0.97% 1.00% 1.99%
Net Investment Income 1.52% 1.12% 1.52% 0.93%
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 2, 1991 (start of business) to December 31,
1991.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996 y in securities. The portfolio
turnover and average
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directlfolio are 78% and $0.0483,
respectively. broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the PortS&P 500
Index. The average annual total return of the
3 The Fund's performance benchmark is the S&P 500 Index. See "Calculation of
Performance Data" for a description of the S&P 500 Index for each year
since the Fund's inception was as follows (this total return information is
not audited):
Total Return: 1996 1995 1994 1993 1992 1991
S&P 500 22.96% 37.58% 1.32% 10.08% 7.63% 30.47%
5
<PAGE>
SMALL CAPITALIZATION EQUITY FUND
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
Net asset value - beginning of period $53.46 $42.15 $48.97 $39.83 $39.99
Income from investment operations
Net investment income(loss) -- -- -- ($0.07) ($0.11)
Net realized and unrealized gain (loss)
on investments 9.29 12.57 (1.84) 11.31 4
Total from investment operations 9.29 $12.57 ($1.84) $11.24 $3.89
Less distributions declared to shareholders
From net investment income __ __ __ __ __
From realized gains on investments (9.79) (1.26) (4.98) (2.1) (4.05)
From paid-in capital __ __ __ __ __
Total distributions declared to shareholders ($9.79) ($1.26) ($4.98) ($2.10) ($4.05)
Net asset value - end of period $52.96 $53.46 $42.15 $48.97 $39.83
Total return3 17.36% 29.83% (3.66)% 28.21% 9.74%
Net assets at end of period (000 omitted) $244,131 $180,470 $107,591 $85,141 $50,950
Ratios (to average net assets)
/Supplemental Data
Expenses1 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment income (0.44%) (0.30)% (0.27)% (0.18)% (0.38)%
Portfolio turnover2 28% 112% 130% 144% 101%
Average Broker Commission Rate2 $0.0450 __ __ __ __
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996 advisory fee. If this
voluntary reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $ (0.01)
Ratios (to average net assets):
Expenses 0.76%
Net investment income (0.45%)
+ For the period from August 31, 1990 (start of business) to December 31,
1990.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities. The portfolio
turnover and average broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the Portfolio are
76% and $0.04335 respectively.
3 The Fund's performance benchmarks are the S&P 500 Index, the Russell 2000
Index and the Russell 2000 Growth Index. See "Calculation of Performance
Data" for a description of these indices. The average annual total return
of these indices for each year since the Fund's inception was as follows
(this total return information is not audited):
<PAGE>
SMALL CAPITALIZATION EQUITY FUND
Year Ended December 31,
(continued)
- --------------------------------------------------------------------------------
1991* 1990*+
Net asset value - beginning of period $27.57 $26.24
Income from investment operations
Net investment income(loss) ($0.04) $0.01
Net realized and unrealized gain (loss)
on investments 17.87 1.33
Total from investment operations $17.83 $1.34
Less distributions declared to shareholders
From net investment income __ ($0.01)
From realized gains on investments (5.35) __
From paid-in capital (0.06) __
Total distributions declared to shareholders ($5.41) ($0.01)
Net asset value - end of period $39.99 $27.57
Total return3 64.71% 15.35%t
Net assets at end of period (000 omitted) $35,418 $13,273
Ratios (to average net assets)
/Supplemental Data
Expenses1 0.87% 1.48%t
Net investment income (0.15)% 0.17%t
Portfolio turnover2 96% 13%
Average Broker Commission Rate2 __ __
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996 advisory fee. If this
voluntary reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $ (0.01)
Ratios (to average net assets):
Expenses 0.76%
Net investment income (0.45%)
+ For the period from August 31, 1990 (start of business) to December 31,
1990.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities. The portfolio
turnover and average broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the Portfolio are
76% and $0.04335 respectively.
3 The Fund's performance benchmarks are the S&P 500 Index, the Russell 2000
Index and the Russell 2000 Growth Index. See "Calculation of Performance
Data" for a description of these indices. The average annual total return
of these indices for each year since the Fund's inception was as follows
(this total return information is not audited):
Total Return: 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
S&P 500 22.96% 37.58% 1.32% 10.08% 7.63% 39.47% (3.16)%
Russell 2000 16.53% 28.44% (1.83)% 10.89% 18.42% 41.64% (19.52)%
Russell 2000 Growth
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SMALL CAPITALIZATION EQUITY FUND II
For the period December 23, 1996
(commencement of operations)
through December 31, 1996
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value - beginning of period $20.00
Income from investment operations
Net investment income(1) 0.00
Net realized and unrealized gain (loss)
on investments 0.39
Total from investment operations 0.38
Less distributions declared to shareholders
From net investment income __
From realized gain __
From paid-in capital
Total distributions declared to shareholders __
Net asset value - end of period $20.39
Total return1 __
Net assets at end of period (000 omitted) $484
Ratios (to average net assets)
/Supplemental Data
Expenses1* N/A 2
Net investment income* N/A 2
Portfolio turnover
Average Commission Rate Paid
----------------
* Computed on an annualized basis.
1 Includes the Fund's share of Portfolio allocated expenses.
2 Ratios are not meaningful due to the short period of operations. All
expenses were reimbursed by the investment adviser.
Total Return: 1996
----
S&P 500 22.96%
Russell 2000 16.53%
Russell 2000 Growth
4 Ratios are not meaningful due to the short period of operations. All
expenses were reimbursed by the investment advisor.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.54 $23.12 $26.74 $19.78 $22.20
Income from investment operations
Net investment income $0.47 $0.04 $0.21 $0.26 $0.26
Net realized and unrealized gain (loss) on 1.28 0.45 (2.08) 7.29 (2.47)
investments
Total from investment operations $1.75 $0.49 ($1.87) $7.55 ($2.21)
Less distributions declared to shareholders
From net investment income ($0.51) ($0.12) ($0.23) ($0.21)
In excess of net investment income (0.36)
From realized gains on investments (1.53) (0.07) (1.63)
Total distributions declared to shareholders ($2.04) ($0.07) ($1.75) ($0.59) ($0.21)
Net asset value - end of period $23.25 $23.54 $23.12 $26.74 $19.78
Total return3 7.44% 2.14% (6.99%) 38.27% (9.95%)
Net assets at end of period $47,739 $59,47 3 $104,43 5 $92,419 $56,539
(000 omitted)
Ratios (to average net assets) /Supplemental
Data
Expenses 0.50%** 1.22% 1.23% 1.34% 1.53%
Net investment income 1.80%** 1.76% 1.52% 1.09% 1.18%
Portfolio turnover 163% 108% 75% 98% 98%
Average Broker Commission Rate Per Share $0.00921
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
**The investment adviser voluntarily waived a portion of its investment
advisory fee. Had this action not been undertaken, the net investment income
per share and the ratios would have been:
Net investment income per share $0.27
Ratios (to average daily net assets)
Expenses 1.29%
Net investment income 1.01%
+ For the period from August 31, 1988 (start of business) to December 31,
1988.
1 Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
2 The Fund's performance benchmark is the Europe, Asia, Far-East ("EAFE")
Index. See "Calculation of Performance Data" for a description of the EAFE
Index. The average annual total return of the EAFE Index for each year
since the Fund's inception was as follows (this total return information is
not audited):
Total Return: 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
EAFE 6.04% 11.22% 7.79% 32.57% (12.19)% (12.12)% (23.43)% 10.61% 0.60%
8
<PAGE>
INTERNATIONAL EQUITY FUND
Year Ended December 31,
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1991* 1990* 1989* 1988*,+
Net asset value - beginning of period $20.16 $23.10 $20.07 $20.00
Income from investment operations
Net investment income $0.33 $0.55 $0.49 $0.06
Net realized and unrealized gain (loss) on 2.02 (2.67) 3.23 0.01
investments
Total from investment operations $2.35 ($2.12) $3.72 $0.07
Less distributions declared to shareholders
From net investment income ($0.30) ($0.41) ($0.50)
In excess of net investment income
From realized gain (0.01) (0.41) (0.19)
Total distributions declared to shareholders ($0.31) ($0.82) ($0.69) $0.00
Net asset value - end of period $22.20 $20.16 $23.10 $20.07
Total return3 11.73% (9.44%) 18.79% 5.32%t
Net assets at end of period $47,077 $24,872 $19,141 $10,158
(000 omitted)
Ratios (to average net assets) /Supplemental
Data
Expenses 1.54% 1.60% 1.60% 1.60%+
Net investment income 1.30% 2.19% 2.29% 3.90%+
Portfolio turnover 27% 48% 38% 0%
Average Commission Rate Paid Per Share
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT STRATEGY FOR THE STANDISH
GROUP OF EQUITY FUNDS
Each Fund is an actively managed diversified portfolio consisting primarily of
equity and equity-related securities. Each Fund is managed to achieve long-term
growth of capital. The Equity Fund seeks to achieve its objective by investing
primarily in equity and equity-related securities of companies which appear to
be undervalued. The Small Capitalization Equity Fund ("Small Cap Fund") and the
Small Capitalization Equity Fund II ("Small Cap II Fund") seek to achieve their
respective objectives by focusing on equity and equity-related securities of
small capitalization companies. The Small Cap Fund invests primarily in
securities of companies with market capitalizations less than $700 million while
the Small Cap II Fund invests primarily in securities of companies with market
capitalizations less than $1 billion. The International Equity Fund seeks to
achieve its objective by investing in a diversified portfolio of foreign equity
securities. The Equity Fund, the Small Cap Fund and the Small Cap II Fund each
invests all of its investable assets in a corresponding Portfolio. These Funds
are sometimes referred to in this Prospectus as the Standish Feeder Funds. This
structure, where one fund invests all of its investable assets in another
investment company, is described below under the caption "Information About The
Master-Feeder Structure."
The Advisers seek to add value to portfolios of securities by finding companies
with improving business momentum whose securities have reasonable valuations.
For the Equity Fund and the International Equity Fund, the Advisers utilize both
quantitative and fundamental analysis to find stocks whose estimates of earnings
are being revised upwards but whose valuation does not yet reflect this positive
trend. For the Small Cap and Small Cap II Funds, Standish emphasizes small
capitalization companies that have developed strong sector or industry positions
and have produced solid balance sheets.
The equity and equity-related securities in which each Fund invests include
exchange-traded and over-the-counter common and preferred stocks 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 by U.S. or foreign companies, although not all Funds invest to the
same extent in securities of foreign issuers. Please refer to each Fund's
specific investment objective and policies and "Description of Securities and
Related Risks" for a more comprehensive list of permissible securities and
investments.
* * *
Each Fund's specific investment objective, policies and strategies are set forth
below to assist the investor in differentiating each Fund's unique
characteristics. Because of the uncertainty inherent in all investments, no
assurance can be given that a Fund will achieve its investment objective. See
"Description of Securities and Related Risks" and "Investment Techniques and
Related Risks" below for additional information.
THE EQUITY FUND
The investment objective and characteristics of the Equity Fund correspond
directly to those of the Equity Portfolio in which the Fund invests all of its
investable assets. The following is a discussion of the investment objective and
policies of the Equity Portfolio.
Investment Objective. The Equity Portfolio's investment objective is to achieve
long-term growth of capital through investment primarily in equity and equity-
related securities of companies which appear to be undervalued.
Principal Investments. Under normal circumstances, at least 80% of the Equity
Portfolio's total assets will be invested in equity and equity-related
securities.
Investment Strategies. The Equity Portfolio follows a disciplined investment
strategy, emphasizing stocks which Standish believes offer above average
potential for capital growth. Although the precise application of the discipline
will vary according to market conditions, Standish intends to use statistical
modeling techniques that utilize stock specific factors (e.g., current price
earnings ratios, stability of earnings growth, forecasted changes in earnings
growth, trends in consensus analysts' estimates, and measures of earnings
results relative to expectations) to identify equity securities that are
attractive as purchase candidates. Once identified, these securities will be
subject to further fundamental analysis by Standish's professional staff before
they are included in the Equity Portfolio's holdings. Securities selected for
inclusion in the Equity Portfolio's holdings will represent various industries
and sectors.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Equity 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. OTC market. The
Portfolio may not invest more than 10% of its total assets in such securities
which are not so listed or traded.
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The Equity 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., or AAA, AA, or A by
Standard and Poor's Ratings Group, Duff and Phelps, Inc. or Fitch Investors
Service, Inc., or, if unrated, determined by Standish to be of comparable credit
quality. Up to 5% of the Equity Portfolio's total assets invested in convertible
debt securities and preferred stocks may be rated Baa by Moody's or BBB by
Standard & Poor's, Duff, or Fitch. The Equity Portfolio may enter into
repurchase agreements, engage in short selling and invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. The Equity Portfolio may 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 "Description of Securities and Related Risks" and "Investment
Techniques and Related Risks" below for additional information.
THE SMALL CAPITALIZATION
EQUITY FUND
The investment objective and characteristics of the Small Cap Fund correspond
directly to those of the Small Capitalization Equity Portfolio ("Small Cap
Portfolio") in which the Fund invests all of its investable assets. The
following is a discussion of the investment objectives and policies of the Small
Cap Portfolio.
Investment Objective. The Small Cap Portfolio's investment objective is to
achieve long-term growth of capital through investment primarily in equity and
equity-related securities of small capitalization companies.
Principal Investments. Under normal circumstances, at least 80% of the Small Cap
Portfolio's total assets will be invested in equity and equity-related
securities of small capitalization companies. The Small Cap Portfolio will focus
its investments in small capitalization companies that have market
capitalizations less than $700 million. When Standish believes that securities
of small capitalization companies are overvalued, the Small Cap Portfolio may
invest in securities of larger, more mature companies, provided that such
investments do not exceed 20% of the Portfolio's total assets. The Small Cap
Portfolio may participate in initial public offerings for previously privately
held companies which are expected to have market capitalizations less than $700
million after the consummation of the offering, and whose securities are
expected to be liquid after the offering.
Investment Strategies. The Small Cap Portfolio will pursue investments in
rapidly growing, high quality companies that are involved with value added
products or services. These companies will have market capitalizations less than
$700 million, although the Small Cap Portfolio may include securities of larger,
more mature companies. Companies with small market capitalizations may have more
limited operating histories and/or less experienced management than larger
capitalization companies and may pose additional risks.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Small Cap Portfolio may invest up to 15% of its
total assets in equity and equity-related securities of foreign issuers,
including issuers located in emerging markets. The Small Cap Portfolio may enter
into repurchase agreements, engage in short selling and invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. The Small Cap Portfolio may purchase and
sell put and call options, enter into futures contracts, purchase and sell
options on such futures contracts and engage in currency transactions. See
"Description of Securities and Related Risks" and "Investment Techniques and
Related Risks" below for additional information.
THE SMALL CAPITALIZATION
EQUITY FUND II
The investment objective and characteristics of the Small Cap II Fund correspond
directly to those of the Small Capitalization Equity Portfolio II ("Small Cap II
Portfolio") in which the Fund invests all of its investable assets. The
following is a discussion of the investment objectives and policies of the Small
Cap II Portfolio.
Investment Objective. The Small Cap II Portfolio's investment objective is to
achieve long term growth of capital.
Principal Investments. Under normal circumstances, at least 80% of the Small Cap
II Portfolio's total assets will be invested in equity and equity-related
securities of small capitalization companies. The Small Cap II Portfolio will
focus its investments in small capitalization companies on those with market
values less than $1 billion. When Standish believes that securities of small
capitalization companies are overvalued, the Small Cap II Portfolio may invest
in securities of larger, more mature companies, provided that such investments
do not exceed 20% of the Portfolio's total assets. The Small Cap II Portfolio
may participate in initial public offerings for previously privately held
companies which are generally expected
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to have market capitalizations less than $1 billion after the consummation of
the offering, and whose securities are expected to be liquid after the offering.
Investment Strategies. The Small Cap II Portfolio will pursue investments in
rapidly growing, high quality companies that are involved with value added
products or services. These companies will have market capitalizations less than
$1 billion. Companies with small market capitalizations may have more limited
operating histories and/or less experienced management than larger
capitalization companies and may pose additional risks.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Small Cap II Portfolio may invest up to 15% of its
total assets in equity and equity-related securities of foreign issuers,
including issuers located in emerging markets. The Small Cap II Portfolio may
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. The Small Cap II
Portfolio may also purchase and sell put and call options, enter into futures
contracts, purchase and sell options on such futures contracts and engage in
currency transactions. See "Description of Securities and Related Risks" and
"Investment Techniques and Related Risks" below for additional information.
THE INTERNATIONAL EQUITY FUND
Investment Objective. The International Equity Fund's investment objective is to
obtain long-term capital growth through investment in a diversified portfolio of
foreign equity securities. Capital growth is expected to result primarily from
appreciation of the equity securities held in the Fund's portfolio; however, the
Fund may take advantage of changes in currency exchange rates in an effort to
realize additional capital appreciation. Income received on the Fund's
investments is incidental to the Fund's primary objective to obtain long-term
capital growth.
Principal Investments. Under normal circumstances, at least 65% of the
International Equity Fund's total assets will be invested in equity and
equity-related securities of companies located in the foreign countries
represented in the Morgan Stanley Capital International World Index (the "MSCI
Index") and the Europe, Australia, Far East Index (the "EAFE Index"), Canada
and, to a limited extent, emerging markets. The Fund intends to be invested in a
broad range of foreign countries, but is not required to invest in each country
represented in the EAFE Index or to invest in those countries in accordance with
their weightings in the EAFE Index. The Fund intends to invest in a minimum of
five countries.
Up to 25% of the Fund's total assets may be invested in securities of issuers
doing business in emerging markets, provided that not more than 5% of the Fund's
total assets may be invested in issuers located in any one emerging market.
SIMCO considers an emerging equity market to be any country that is not
represented in the MSCI World Index, which is an index of stocks in developed
markets.
Investment Strategy. The Fund follows a disciplined investment strategy,
emphasizing stocks and markets which SIMCO believes offer above average
potential for capital growth. Although the precise application of the discipline
varies according to market conditions, SIMCO uses statistical modeling
techniques that utilize stock and market specific factors to identify equity
securities and markets that are attractive as purchase candidates. These factors
include current and historical price multiple ratios and trends in consensus
analysis estimates. Once identified, these securities and markets are subject to
further review by the Fund's portfolio manager before they are included in the
Fund's portfolio. Securities selected for inclusion in the Fund's portfolio will
represent various industries and sectors.
Other Investments. The Fund may invest in fixed income securities such as bonds,
notes, Eurodollar securities and other debt obligations issued by the U.S.
government, its agencies, authorities and sponsored enterprises, foreign
governments and their political subdivisions, and corporate issuers located in
or doing business in foreign countries. These fixed income securities will be
rated at the time of investment A or better by Moody's, Standard & Poor's, Duff
or Fitch or, if unrated, determined by SIMCO to be of comparable credit quality.
The Fund may invest in preferred stocks of an issuer of any credit quality if
the common stocks of the issuer are not available to the Fund for investment.
The Fund may enter into repurchase agreements, engage in short selling and
invest in restricted and illiquid securities. The Fund may purchase and sell put
and call options, enter into futures contracts, purchase and sell options on
such futures contracts and engage in currency transactions. See "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks"
below for additional information.
DESCRIPTION OF SECURITIES
AND RELATED RISKS
The following sections include descriptions of specific securities and the risks
that are associated with the purchase of a particular type of security or the
utilization of a specific investment technique. For
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purposes of the discussion in this section and the "Investment Techniques and
Related Risks" section of this Prospectus, the use of the term "Fund" or "Funds"
refers to each of the Equity Portfolio, the Small Cap Portfolio, the Small Cap
II Portfolio and the International Equity Fund, unless otherwise noted.
Common Stocks. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of 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 Small Cap and Small Cap II Portfolios invests
primarily, and the other Funds 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 a 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 a Fund 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. A Fund'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 International Equity Fund may invest in foreign
securities without limit. The Small Cap Portfolio and the Small Cap II Portfolio
limit their investments in foreign securities to 15% of their respective total
assets, including securities of foreign issuers that trade on a U.S. exchange or
in the U.S. OTC market. The Equity Fund 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.
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 (e.g., 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 on transactions in
foreign securities may be higher than those 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 a Fund's
investments are
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denominated relative to the U.S. dollar will affect the Fund'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 a Fund's securities are quoted
would reduce the Fund's net asset value per share.
The International Equity Fund may invest any portion of its assets in securities
denominated in a particular currency. The portion of the International Equity
Fund's assets invested in securities denominated in non-U.S. currencies will
vary depending on market conditions.
Each Fund 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 hedge against changes in foreign currency exchange rates, although the
Equity, the Small Cap and Small Cap II Portfolios have 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 second currency. See "Strategic Transactions" within the
"Investment Techniques and Related Risks" section for a further discussion of
the risks associated with currency transactions.
Emerging Markets. The International Equity Fund is permitted to invest up to 25%
of its total assets in issuers located in emerging markets. The Equity, Small
Cap and Small Cap II Portfolios may invest up to 10% of their total assets in
issuers located in emerging markets generally and up to 3% of their 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
Fund's investments and the availability to the Fund 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 Fund'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").
Money Market Instruments and Short-Term Securities. Although each Fund intends
to stay invested in equity and equity-related securities to the extent practical
in light of its objective, each Fund 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 Small Cap Portfolio
and Small Cap II Portfolio may hold up to 20% of their total assets in money
market instruments and Short-Term Obligations without regard to the liquidity
needs of their portfolios. Each Fund may also maintain cash balances and invest
in money market instruments and Short-Term Obligations without limitation as a
temporary defensive measure.
Money market instruments in which the Funds invest 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
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commercial paper, bank obligations, repurchase agreements and other debt
obligations of U.S. and foreign issuers. At least 95% of a Fund'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 a Fund'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.
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 a Fund is downgraded below
the minimum rating, the Adviser will determine whether to retain that security
in the Fund's portfolio.
INVESTMENT TECHNIQUES
AND RELATED RISKS
Strategic Transactions. Each Fund 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 each Fund may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing their investment objectives, each Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity indices and other financial instruments; purchase and sell
financial futures contracts and options thereon; and, to the extent a Fund
invests in foreign securities denominated in foreign currencies, enter into
currency transactions such as forward foreign currency exchange contracts, cross
currency forward contracts, currency futures contracts, cross 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 a portfolio
resulting from securities markets, currency exchange rate or interest rate
fluctuations, to seek to protect unrealized gains in the value of portfolio
securities, to facilitate the sale of such securities for investment purposes,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved.
The ability of a Fund to utilize Strategic Transactions successfully will depend
on Standish's ability to predict pertinent market and interest rate movements,
which cannot be assured. Each Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. The
Funds' activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such
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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 a Fund, 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 a Fund can
realize on its investments or cause a Fund 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 a Fund'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 a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and 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, a
Fund 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, it can limit any
potential gain which might result from an increase in value of such position.
The loss incurred by a Fund in writing options on futures and entering into
futures transactions is potentially unlimited.
The use of currency transactions can result in a Fund 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. Each Fund will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes to 3% of net
assets. In calculating a Fund'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. See the Statement
of Additional Information for further information regarding the use of Strategic
Transactions.
Repurchase Agreements. Each Fund (except the International Equity Fund) may
invest up to 10% of its net assets in repurchase agreements. The International
Equity Fund is not subject to the same limit, except that investments in
repurchase agreements maturing in more than 7 days are subject to the Fund's 15%
limit on investments in illiquid securities. In a repurchase agreement, a Fund
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 a Fund 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.
Short Sales. Each Fund may engage in short sales and short sales against the
box. In a short sale, a Fund 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,
a Fund 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 Fund delivers the security (or an identical security) to
cover the short position. The Fund receives the net proceeds from the short
sale. When a Fund enters into a short sale other than against the box, the Fund
must first borrow the security to make delivery to the buyer and must place cash
or liquid assets in a segregated account with the Fund'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 a Fund's net assets.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities; however, the Equity Portfolio, the Small Cap
Portfolio and Small Cap II Portfolio invest 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 Boards of Trustees have 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 Boards of
Trustees, however, retain oversight and
16
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are 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.
Investments in Other Investment Companies. Each Fund is permitted to invest up
to 10% of its total assets in shares of 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 Funds may invest in issuers
in those markets primarily through specifically authorized investment funds. In
addition, each Fund 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 & 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 a Fund
and thus indirectly by its shareholders. It may also result in a Fund's
realization of larger amounts of short-term capital gains, distributions from
which are taxable to shareholders as ordinary income and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code. See "Financial Highlights" for each Fund's
portfolio turnover rates.
Short-Term Trading. Each Fund 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.
Investment Restrictions. The investment objectives of the Portfolios and the
Small Capitalization Equity Fund II are not fundamental and may be changed by
the Boards of Trustees without the approval of shareholders. The investment
objectives of the Equity Fund, the International Equity Fund and the Small
Capitalization Equity Fund are fundamental and may not be changed without a vote
of the applicable Fund's shareholders. If there is a change in a Fund's
investment objectives, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial situation. Each
Portfolio's and Fund's investment policies set forth in this Prospectus are
non-fundamental and may be changed without shareholder approval, except that the
Equity Fund's 10% limit on repurchase agreements is fundamental. Each Fund and
Portfolio has adopted fundamental policies which may not be changed without the
approval of the Funds' shareholders. See "Investment Restrictions" in the
Statement of 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 a Fund's assets will not constitute a
violation of the restriction.
INFORMATION ABOUT THE
MASTER-FEEDER STRUCTURE
Each Standish Feeder Fund seeks to achieve its investment objective by investing
all of its investable assets in its corresponding Portfolio, which has an
identical investment objective. Each of the Standish Feeder Funds is a feeder
fund and its corresponding Portfolio is the master fund in a so-called master-
feeder structure. The International Equity Fund purchases securities directly
and maintains its own individual portfolio.
In addition to the Standish Feeder Funds, other feeder funds may invest in these
Portfolios, and information about these other feeder funds is available from
Standish Fund Distributors. The other feeder funds invest in the Portfolios on
the same terms as the Funds and bear a proportionate share of the Portfolios'
expenses. The other feeder funds may sell shares on different terms and under a
different pricing structure than the Funds, which may produce different
investment results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment adviser or find a substitute master fund. Withdrawal of a Fund's
interest in its Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If a Fund is requested to vote on a matter affecting its
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Portfolio, the Fund will call a meeting of the Fund's shareholders to vote on
the matter. The Fund will vote on any matter at the meeting of the Portfolio's
investors in the same proportion that the Fund's shareholders voted on the
matter. The Fund will vote the shares held by Fund shareholders who do not vote
in the same proportion as the shares of Fund shareholders who do vote.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or the Portfolio Trust, as the case may be, have adopted
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are trustees of the Trust and of
the Portfolio Trust.
CALCULATION OF PERFORMANCE DATA
From time to time, each Fund may advertise its annual total return is determined
by computing the average annual percentage change in the value of $1,000
invested at the maximum public offering price for specified periods ending with
the most recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative, average,
year- by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules.
From time to time, a Fund may compare its performance in publications with that
of other mutual funds with similar investment objectives, to stock and other
relevant indices, and to performance rankings prepared by recognized mutual fund
statistical services. In addition, a Fund's performance may be compared to
alternative investment or savings vehicles or to indices or indicators of
economic activity.
The EAFE Index. The EAFE Index is a market capitalization weighted foreign
securities index which is widely used to measure the performance of European,
Australian, and Far Eastern stock markets. The EAFE Index currently includes
over 1,000 companies drawn from the following 20 countries: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.
The S&P 500 Index. The S&P 500 Index is a market weighted compilation of 500
common stocks selected on a statistical basis by Standard & Poor's. Total return
for the S&P 500 Index assumes reinvestment of dividends. The S&P 500 Index is
typically composed of issues in the following sectors: industrial, financial,
public utilities and transportation. Most stocks that comprise the S&P 500 Index
are traded on the New York Stock Exchange, although some are traded on the
American Stock Exchange and in the over-the-counter market.
The Russell 2000 Index. The Russell 2000 Index is composed of approximately
2,000 small capitalization common stocks and is generally representative of
unmanaged small capitalization stocks in the U.S. markets. A company's stock
market capitalization is the total market value of its floating outstanding
shares.
The Russell 2000 Growth Index. The Russell 2000 Growth Index is composed of
approximately 2,000 small capitalization common stocks and is generally
considered to be representative of those Russell 2000 companies with higher
price-to-book ratios and forecasted growth.
DIVIDENDS AND DISTRIBUTIONS
The Funds' dividends from short-term and long-term capital gains, if any, after
reduction by capital losses, will be declared and distributed at least annually,
as will dividends from net investment income. In determining the amounts of its
dividends, the Equity Fund, Small Cap Fund and Small Cap II Fund will take into
account their share of the income, gain or loss, expense, and any other tax
items of its corresponding Portfolio. Dividends from net investment income and
capital gains distributions, if any, are automatically reinvested in additional
shares of the applicable Fund unless the shareholder elects to receive them in
cash.
PURCHASE OF SHARES
Shares of the Funds may be purchased from Standish Fund Distributors, which
offers the Funds' shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good order by Standish Fund Distributors and payment for the shares is
received by the Fund's custodians (the "Custodians"). Investors Bank & Trust
Company serves as custodian for the Equity Fund, Small Cap Fund and Small Cap II
Fund and Morgan Stanley Trust Company serves as custodian for the International
Equity Fund. Please see each Fund's account application or call (800) 221- 4795
for instructions on how to make payment for shares to the Custodians. Each Fund
requires minimum initial investments of $100,000. Additional investments must be
in amounts of at least $10,000. Certificates for Fund shares are generally not
issued. Shares of the Funds may also be purchased through securities dealers.
Orders for the purchase of Fund shares received by dealers by the close of
regular
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trading on the New York Stock Exchange ("NYSE") on any business day and
transmitted to Standish Funds Distributor or its agent by the close of its
business day (normally 4:00 p.m., New York City time) will be effected as of the
close of regular trading on the NYSE on that day, if payment for the shares is
also received by the Custodians that day. Otherwise, orders will be effected at
the net asset value per share determined on the next business day. It is the
responsibility of dealers to transmit orders so they will be received by
Standish Fund Distributors before the close of its business day. Shares of a
Fund purchased through dealers may be subject to transaction fees on purchase or
redemption, no part of which will be received by the Funds, Standish Fund
Distributors or the Advisers.
In the sole discretion of the Trust, each Fund may accept securities instead of
cash for the purchase of shares. The Trust will ask the applicable Adviser to
determine that any securities acquired by the Funds in this manner are
consistent with the investment objective, policies and restrictions of the
applicable Fund. The securities will be valued in the manner stated below. The
purchase of shares of a Fund for securities instead of cash may cause an
investor who contributed them to realize a taxable gain or loss with respect to
the securities transferred to the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the offering
of a Fund's shares, (ii) to reject purchase orders when in the best interest of
a Fund, (iii) to modify or eliminate the minimum initial or subsequent
investment in Fund shares and (iv) to eliminate duplicate mailings of Fund
material to shareholders who reside at the same address. A Fund's investment
minimums do not apply to accounts for which Standish or any of its affiliates
serves as investment adviser or to employees of Standish or any of its
affiliates or to members of such persons' immediate families. A Fund's
investment minimums apply to the aggregate value invested in omnibus accounts
rather than to the investment of the underlying participants in the omnibus
accounts.
NET ASSET VALUE
Each Fund's net asset value per share is computed each day on which the NYSE is
open as of the close of regular trading on the NYSE (normally 4:00 p.m., New
York City time). The net asset value per share is calculated by determining the
value of all a Fund's assets (the value of their investments in the
corresponding Portfolio and other assets in the case of the Standish Feeder
Funds), subtracting all liabilities and dividing the result by the total number
of shares outstanding. Portfolio securities are valued at the last sale prices
on the exchange or national securities market on which they are primarily
traded. Securities not listed on an exchange or national securities market or
securities for which there were no reported transactions are valued at the last
quoted bid prices. Securities for which market prices are not readily available
and all other assets are valued at fair value as determined in good faith by the
applicable Adviser in accordance with procedures approved by the Trustees. Money
market instruments with less than sixty days remaining to maturity when acquired
by a Fund are valued on an amortized cost basis unless the Trustees determine
that amortized cost does not represent fair value. If a Fund acquires a money
market instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date unless the
Trustees determine during such sixty-day period that amortized cost does not
represent fair value.
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 Funds' transfer agent, 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 Funds' 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.
EXCHANGE OF SHARES
Shares of the Funds may be exchanged for shares of one or more other funds in
the Standish fund family subject to the terms and restrictions imposed on the
purchase of shares of such funds. Shares of a fund redeemed in an exchange
transaction are valued at the net asset value next determined after the exchange
request is received by Standish Fund Distributors or its agent. Shares of a fund
purchased in an exchange transaction are valued at the net asset value next
determined after the exchange request is received by
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Standish Fund Distributors or its agent and payment for the shares is received
by the fund into which shares are to be exchanged. Until receipt of the purchase
price by the fund into which shares are to be exchanged (which may take up to
three business days), your money will not be invested. To obtain a current
prospectus for any of the other funds in the Standish fund family, please call
(800) 221-4795. Please consider the differences in investment objectives and
expenses of a fund as described in its prospectus before making an exchange.
Written Exchanges. Shares of the Funds may be exchanged by written order to
Standish Fund Distributors, One Financial Center, Boston, Massachusetts 02111. A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as described under "Written Redemption" below.
Telephone Exchanges. Shareholders who elect telephone privileges may exchange
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Proper
identification will be required for each telephone exchange. Please see
"Telephone Transactions" below for more information regarding telephone
transactions.
General Exchange Information. All exchanges are subject to the following
exchange restrictions: (i) the fund into which shares are being exchanged must
be lawfully available for sale in your state; (ii) exchanges may be made only
between funds that are registered in the same name, address and, if applicable,
taxpayer identification number; and (iii) unless waived by the Trust, the amount
to be exchanged must satisfy the minimum account size of the fund to be
exchanged into. Exchange requests will not be processed until payment for the
shares of the current Fund has been received by Standish Fund Distributors. The
exchange privilege may be changed or discontinued and may be subject to
additional limitations upon sixty (60) days' notice to shareholders, including
certain restrictions on purchases by market-timer accounts.
REDEMPTION OF SHARES
Shares of the Funds may be redeemed or repurchased by the methods described
below at the net asset value per share next determined after receipt by Standish
Fund Distributors or its agent of a redemption or repurchase request in proper
form. Redemptions will not be processed until a completed account application
and payment for the shares to be redeemed have been received.
Written Redemption. Shares of each Fund may be redeemed by written order to
Standish Fund Distributors, One Financial Center, 26th Floor, Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered. Signature(s) must be guaranteed by a
member of either the Securities Transfer Association's STAMP program or the
Exchange's Medallion Signature Program or by any one of the following
institutions, provided that the institution meets credit standards established
by Investors Bank & Trust Company, the Funds' transfer agent: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. Standish Fund Distributors reserves the right to waive the
requirement that signatures be guaranteed. Additional supporting documents may
be required in the case of estates, trusts, corporations, partnerships and other
shareholders that are not individuals. Redemption proceeds will normally be paid
by check mailed within three business days of receipt by Standish Fund
Distributors of a written redemption request in proper form. If shares to be
redeemed were recently purchased by check, the Funds may delay transmittal of
redemption proceeds until such time as they are assured that good funds have
been collected for the purchase of the shares. This may take up to fifteen (15)
days in the case of payments made by check.
Telephone Redemption. Shareholders who elect telephone privileges may redeem
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Redemption proceeds
will be mailed or wired in accordance with the shareholder's instruction on the
account application to a pre-designated account. Redemption proceeds will
normally be paid promptly after receipt of telephone instructions, but no later
than three business days thereafter, except as described above for shares
purchased by check. Redemption proceeds will be sent only by check payable to
the shareholder of record at the address of record, unless the shareholder has
indicated, in the initial application for the purchase of shares, a
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commercial bank to which redemption proceeds may be sent by wire. These
instructions may be changed subsequently only in writing, accompanied by a
signature guarantee, and additional documentation in the case of shares held by
a corporation or other entity or by a fiduciary such as a trustee or executor.
Wire charges, if any, will be deducted from redemption proceeds. Proper
identification will be required for each telephone redemption.
Repurchase Order. In addition to written redemption of Fund shares, Standish
Fund Distributors may accept telephone orders from brokers or dealers for the
repurchase of Fund shares. Brokers and dealers are obligated to transmit
repurchase orders to Standish Fund Distributors promptly prior to the close of
Standish Fund Distributors' business day (normally 4:00 p.m.). Brokers or
dealers may charge for their services in connection with a repurchase of Fund
shares, but neither the Trust nor Standish Fund Distributors imposes a charge
for share repurchases.
Telephone Transactions. By maintaining an account that is eligible for telephone
exchange and redemption privileges, the shareholder authorizes the Advisers,
Standish Fund Distributors, the Trust and the Custodians to act upon
instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, the shareholder acknowledges that, as long as
the Funds employ reasonable procedures to confirm that telephone instructions
are genuine, and follow telephone instructions that they reasonably believe to
be genuine, neither the Advisers, Standish Fund Distributors, the Trust, the
applicable Fund, the Custodians, nor their respective officers or employees,
will be liable for any loss, expense or cost arising out of any request for a
telephone redemption or exchange, even if such transaction results from any
fraudulent or unauthorized instructions.
Depending upon the circumstances, the Funds intend to employ personal
identification or written confirmation of transaction procedures, and if they do
not, a Fund may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone transaction requests will be recorded. Shareholders
may experience delays in exercising telephone transaction privileges during
periods of abnormal market activity. During these periods, shareholders should
transmit redemption and exchange requests in writing.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than the
cost of the shares, depending upon the market value of the applicable Fund's or
Portfolios' portfolio investments at the time of redemption or repurchase. The
Funds intend to pay cash for all shares redeemed, but under certain conditions,
the Funds may make payments wholly or partially in securities for this purpose.
Please see the Statement of Additional Information for further information.
Each Fund may redeem, at net asset value, the shares in any account which has a
value of less than $25,000 as a result of redemptions or transfers. Before doing
so, the Fund will notify the shareholder that the value of the shares in the
account is less than the specified minimum and will allow the shareholder 30
days to make an additional investment to increase the value of the account to an
amount equal to or above the stated minimums.
MANAGEMENT
Trustees. Each Fund is a separate investment series of the Trust, a
Massachusetts business trust. Under the terms of the Agreement and Declaration
of Trust establishing the Trust, the Trustees of the Trust are ultimately
responsible for the management of its business and affairs. Each Portfolio is a
separate investment series of the Standish, Ayer & Wood Master Portfolio
("Portfolio Trust"), a master trust fund organized under the laws of the State
of New York. Under the terms of the Declaration of Trust, each Portfolio's
affairs are managed under the supervision of the Portfolio Trust's Trustees. See
"Management" in the Statement of Additional Information for more information
about the Trustees and officers of the Trust and the Portfolio Trust.
Investment Advisers. Standish, Ayer & Wood, Inc., ("Standish"), One Financial
Center, Boston, Massachusetts 02111, serves as investment adviser to the Equity
Portfolio, Small Cap Portfolio and Small Cap II Portfolio pursuant to separate
investment advisory agreements. Standish is a Massachusetts corporation
incorporated in 1933 and is a registered investment adviser under the Investment
Advisers Act of 1940.
Standish International Management Company, L.P. ("SIMCO"), One Financial Center,
Boston, MA 02111, serves as investment adviser to the International Equity Fund
pursuant to an investment advisory agreement and manages the International
Equity Fund's investments and affairs subject to the supervision of the Trustees
of the Trust. SIMCO is a Delaware limited partnership which was organized in
1991 and is a registered investment adviser under the Investment Advisers Act of
1940. The general partner of SIMCO is Standish, which holds a 99.98% partnership
interest. The limited partners, who each hold a 0.01% interest in SIMCO, are
Walter M. Cabot, Sr., Director and Senior Adviser to Standish, and D.
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Barr Clayson, Chairman of the Board and a Director of SIMCO and a Managing
Director of Standish. Ralph S. Tate, a 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 and a Director 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 SIMCO managed
approximately $[ ] billion of assets.
The Equity Portfolio's portfolio managers are Ralph S. Tate and David C.
Cameron. Mr. Tate and Mr. Cameron have been primarily responsible for the
day-to-day management of the Fund's portfolio 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 each served as a Director and Vice
President of Standish and a Director of SIMCO (since 1995 for Mr. Cameron).
The International Equity Fund's portfolio manager is Remi J. Browne, who has
been primarily responsible for the day-to-day management of the Fund's portfolio
since December 1996. During the past five years, Mr. Browne has served as Vice
President and Chief Investment Officer of SIMCO and Vice President of Standish
since 1996 and as Managing Director of Ark Asset Management Company, New York,
prior thereto.
The Small Capitalization Equity Portfolio's portfolio manager is Nicholas S.
Battelle. Mr. Battelle has been primarily responsible for the day-to-day
management of the Fund's portfolio since its inception in August, 1990 and of
the Portfolio's portfolio since the Fund's conversion to the master-feeder fund
structure on May 3, 1996. During the past five years, Mr. Battelle has served as
a Vice President as well as a Director of Standish.
The Small Capitalization Equity Portfolio II's portfolio has two portfolio
managers: Mr. Nicholas S. Battelle and Mr. Andrew L. Beja. Mr. Battelle has been
primarily responsible for the day-to-day management of the Portfolio since 1990.
During the past five years, Mr. Battelle has served as a Vice President as well
as a Director of Standish. Mr. Beja has been associated with Standish since
March 1996 as Senior Analyst on the small capitalization company team and is a
Vice President of Standish. Prior to joining Standish, Mr. Beja was a Vice
President and analyst at Advest, Inc. from 1985-1996.
Subject to the supervision and direction of the Trustees of the Trust and the
Portfolio Trust, Standish manage the Portfolios' investments and SIMCO manages
the International Equity Fund's investments in accordance with their respective
investment objectives and policies, recommend investment decisions, place orders
to purchase and sell securities and permit the Portfolios' and the Funds to use
the name "Standish." For these services, each Portfolio pays Standish and the
International Equity Fund pays SIMCO a monthly fee at a stated annual percentage
rate of such Portfolio's ("Fund's") average daily net asset value:
Actual Rate
Contractual Paid for the
Advisory Year Ended
Fee Annual December 31,
Rate 1996
Equity Portfolio 0.50% 0.50%
Small Cap Equity Portfolio 0.60% 0.60%
Small Cap Equity II Portfolio 0.60% 0.00%*
International Equity Fund 0.80% 0.00%*
- ----------
* The applicable Adviser has voluntarily and temporarily agreed to limit total
expenses (excluding brokerage commissions, taxes and extraordinary expenses) of
the Small Cap II Fund and the International Equity Fund to 0.00% and 0.50% of
the applicable Fund's average daily net assets. The Advisers may terminate or
revise these agreements at any time although they have no current intention to
do so. If an expense limit is exceeded, the compensation due to an Adviser shall
be proportionately reduced by the amount of such excess by a reduction or refund
thereof, subject to readjustment during the period during which such limit is in
place.
Administrator. Standish serves as administrator to the Equity Fund, Small Cap
Fund and Small Cap II Fund. As administrator, Standish manages the affairs of
these Funds, provides all necessary office space and services of executive
personnel for administering the affairs of the Funds, and allows these Funds to
use the name "Standish." For these services, Standish currently does not receive
any additional compensation. The Trustees of the Trust may determine in the
future to compensate Standish for its administrative services.
Expenses. Each Portfolio and each Fund bears the expenses of its respective
operations other than those incurred by the respective Adviser under the
investment advisory agreements or the administration agreement.
Each Portfolio pays investment advisory fees; bookkeeping, share pricing and
custodian fees and expenses; expenses of notices and reports to interest
holders; and expenses of the Portfolio's administrator.
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Each Standish Feeder Fund pays shareholder servicing fees and expenses, expenses
of prospectuses, statements of additional information and shareholder reports
which are furnished to existing shareholders. Each Standish Feeder Fund and its
corresponding Portfolio pays legal and auditing fees; registration and reporting
fees and expenses. The International Equity Fund, since it does not invest in a
corresponding portfolio, bears all of the expenses listed above for both the
Portfolios and the Funds. Expenses of the Trust which relate to more than one
series are allocated among such series by Standish in an equitable manner.
Standish Fund Distributors bears the distribution expenses attributable to the
offering and sale of Fund shares without subsequent reimbursement.
Each Fund's total annual operating expenses for the fiscal year ended December
31, 1996 are described above under the caption "Financial Highlights."
Portfolio Transactions. Subject to the supervision of the Trustees of the Trust
and the Portfolio Trust, the Advisers select the brokers and dealers that
execute orders to purchase and sell portfolio securities for the Portfolios and
the International Equity Fund. The Advisers will generally seek to obtain the
best available price and most favorable execution with respect to all
transactions for the Portfolios and the International Equity Fund. The Advisers
may also consider the extent to which a broker or dealer provides research to
the Advisers and the number of Fund shares sold by the broker or dealer in
making their selection.
FEDERAL INCOME TAXES
Each Fund is a separate entity for federal tax purposes and presently qualifies
and intends to continue to qualify for taxation as a "regulated investment
company" under the Code. If it qualifies for treatment as a regulated investment
company, each Fund will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
Shareholders which are taxable entities or persons will be subject to federal
income tax on dividends and capital gain distributions made by the Funds.
Dividends paid by a Fund from net investment income, certain net foreign
currency gains, and any excess of net short-term capital gain over net long-term
capital loss will be taxable to shareholders as ordinary income, whether
received in cash or reinvested in Fund shares. No portion of such dividends paid
by the International Equity Fund is expected to qualify for the corporate
dividends received deduction under the Code. A portion of such dividends paid by
the other Funds will generally qualify for that deduction, subject to certain
requirements and limitations under the Code. Dividends paid by a Fund from net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), called "capital gain distributions," will be taxable to
shareholders as long-term capital gains, whether received in cash or reinvested
in Fund shares and without regard to how long the shareholder has held shares of
the Fund. Capital gain distributions do not qualify for the corporate dividends
received deduction. Dividends and capital gain distributions may also be subject
to state and local or foreign taxes. Redemptions (including exchanges) and
repurchases of shares are taxable events on which a shareholder may recognize a
gain or loss.
The International Equity Fund and the Portfolios may be subject to foreign taxes
with respect to income or gains from certain foreign investments, which will
reduce the yield or return from such investments. The International Equity Fund
may, but the other Funds are not likely to, qualify to elect to pass certain
qualifying foreign taxes through to shareholders. If this election is made,
shareholders would include their shares of qualified foreign taxes in their
gross incomes (in addition to any actual dividends and distributions) and might
be entitled to a corresponding federal income tax credit or deduction.
Shareholders will receive appropriate information from the Trust if this
election is made for any year.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the applicable Fund with their correct taxpayer identification
number and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
nonresident alien withholding at the rate of 30% (or a lower rate provided by an
applicable tax treaty) on amounts treated as ordinary dividends from the Funds
and, unless a current IRS Form W-8 or an acceptable substitute is furnished to
the applicable Fund, to backup withholding on certain payments from that Fund.
After the close of each calendar year, the Funds will send a notice to
shareholders that provides information about the federal tax status of
distributions to shareholders for such calendar year.
23
<PAGE>
THE FUNDS AND THEIR SHARES
The Trust was organized on August 13, 1986 as a Massachusetts business trust. In
addition to the Funds offered in this Prospectus, the Trust offers other series
to the public. Shareholders of each Fund are entitled to one full or fractional
vote for each share of that Fund. There is no cumulative voting and shares have
no preemption or conversion rights. All series of the Trust vote together except
as provided in the 1940 Act or the Declaration of Trust. The Trust does not
intend to hold annual meetings of shareholders. The Trustees will call special
meetings of shareholders to the extent required by the Trust's Declaration of
Trust or the 1940 Act. The 1940 Act requires the Trustees, under certain
circumstances, to call a meeting to allow shareholders to vote on the removal of
a Trustee and to assist shareholders in communicating with each other.
Certificates for Fund shares are not issued.
The Portfolio Trust was organized on January 18, 1996 as a New York trust. In
addition to the Portfolios, the Portfolio Trust offers interests in other series
to certain qualified investors. See "Information about the Master- Feeder
Structure" above for additional information about the Portfolio Trust.
Inquiries concerning the Funds should be made by contacting Standish Fund
Distributors at the address and telephone number listed on the back cover of
this Prospectus.
Although each Fund is offering only its own shares, since the Funds use this
combined Prospectus, it is possible that one Fund might become liable for a
misstatement or omission in this Prospectus regarding another Fund. The Trustees
have considered this factor in approving the use of this combined Prospectus.
CUSTODIANS
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as custodian for all cash and securities of the Portfolios and the Equity
Fund, Small Cap Equity Fund and Small Cap Equity II Fund.
Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201,
serves as custodian for all cash and securities of the International Equity
Fund.
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as the Funds' transfer agent, dividend disbursing agent and Investors
Bank & Trust also provides accounting services to the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109
and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI, serves
as independent accountants for the Trust and the Portfolio Trust, respectively,
and will audit the Funds' and Portfolios' financial statements annually.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust and Standish and its affiliates.
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions and
exchanges be reported to the IRS and that 31% be withheld if you fail to provide
your correct Taxpayer Identification Number ("TIN") and the TIN-related
certifications contained in the Account Purchase Application ("Application") or
you are otherwise subject to backup withholding. A Fund will not impose backup
withholding as a result of your failure to make any certification, except the
certifications in the Application that directly relate to your TIN and backup
withholding status. Amounts withheld and forwarded to the IRS can be credited as
a payment of tax when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minors Act, the TIN of the minor should be furnished. If you
do not have a TIN, you may apply for one using forms available at local offices
of the Social Security Administration or the IRS, and you should write "Applied
For" in the space for a TIN on the Application.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and underline "exempt" in section 2(a)
of the TIN section of the Application to avoid possible erroneous withholding.
Non-resident aliens and foreign entities may be subject to withholding of up to
30% on certain distributions received from the Funds and must provide certain
certifications on IRS Form W- 8 to avoid backup withholding with respect to
other payments. For further information, see Code Sections 1441, 1442 and 3406
and/or consult your tax adviser.
24
<PAGE>
STANDISH FUNDS GROUP OF EQUITY FUNDS
Investment Adviser
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
(Equity Fund,
Small Capitalization Equity Fund and
Small Capitalization Equity Fund II)
Investment Adviser
Standish International Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
(International Equity Fund)
Principal Underwriter Independent Accountants
Standish Fund Distributors, L.P. Coopers & Lybrand L.L.P.
One Financial Center One Post Office Square
Boston, MA 02111 Boston, Massachusetts 02109
Custodian Custodian
Investors Bank & Trust Company Morgan Stanley Trust Company
89 South Street One Pierrepont Plaza
Boston, Massachusetts 02111 Brooklyn, New York 11201
(Equity Fund, (Standish International Equity Fund)
Small Capitalization Equity Fund and
Small Capitalization Equity Fund II)
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
----------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus or
in the Statement of Additional Information, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
25
<PAGE>
[ ], 1997
STANDISH GROUP OF EQUITY FUNDS
STANDISH EQUITY FUND
STANDISH INTERNATIONAL EQUITY FUND
STANDISH SMALL CAPITALIZATION EQUITY FUND
STANDISH SMALL CAPITALIZATION EQUITY FUND II
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information is not a prospectus,
but expands upon and supplements the information contained in the combined
Prospectus dated April 30, 1997, as amended and/or supplemented from time to
time (the "Prospectus"), of the Standish Equity Fund ("Equity Fund"), the
Standish Small Capitalization Equity Fund ("Small Cap Fund"), the Standish Small
Capitalization Equity Fund II ("Small Cap II Fund") and the Standish
International Equity Fund ("International Equity Fund"), each a separate
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"). This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by writing or calling
the Trust's principal underwriter, Standish Fund Distributors, L.P. (the
"Principal Underwriter"), at the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
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CONTENTS
Investment Objective and Policies....................................1
Investment Restrictions.............................................11
Calculation of Performance Data.....................................16
Management .........................................................19
Redemption of Shares................................................30
Portfolio Transactions..............................................31
Brokerage Commissions...............................................32
Determination of Net Asset Value....................................32
The Funds and Their Shares..........................................33
The Portfolio and its Investors.....................................34
Taxation............................................................34
Additional Information..............................................38
Experts and Financial Statements....................................38
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INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objectives and policies of each
Fund. The following discussion supplements the description of the Funds'
investment policies in the Prospectus.
The Equity Fund invests all of its investible assets in the Standish Equity
Portfolio (the "Equity Portfolio"). The Small Cap Equity Fund invests all of its
investible assets in the Standish Small Capitalization Equity Portfolio (the
"Small Cap Portfolio"). The Small Cap Equity Fund II invests all of its
investible assets in the Standish Small Capitalization Equity Portfolio II (the
"Small Cap II Portfolio"). These three Funds are sometimes referred to in this
Statement of Additional Information as Standish Feeder Funds.
Each Portfolio is a series of the Standish, Ayer and Wood Master Portfolio
(the "Portfolio Trust"), an open-end management investment company, and each
Portfolio has the same investment objective and restrictions as its
corresponding Fund. Standish, Ayer and Wood, Inc. ("Standish") is the investment
adviser to the Portfolios. Standish International Management Company, L.P.
("SIMCO") is the investment adviser to the International Equity Fund. Both
Standish and SIMCO are sometimes referred to herein as the "Adviser" or
collectively as the "Advisers".
The Prospectus describes the investment objective of the Standish Feeder
Funds and the Portfolios and summarizes the investment policies they will
follow. Since the investment characteristics of the Standish Feeder Funds
correspond directly to those of their respective Portfolios, the following
discusses the various investment techniques employed by the Portfolios. See the
Prospectus for a more complete description of each Fund's and each Portfolio's
investment objective, policies and restrictions. For purposes of the discussion
in this section of this Statement of Additional Information, the use of the term
"Fund" or "Funds" refers to each of the Equity Portfolio, the Small Cap
Portfolio, the Small Cap II Portfolio and the International Equity Fund, unless
otherwise noted.
Suitability and Risk Factors. An investor should not expect, and the Funds do
not intend, that each Fund will provide an investment program which meets all of
the requirements of that investor. The companies in which the Small Cap and
Small Cap II Portfolios invest generally reinvest their earnings, and dividend
income should not be expected. Also, notwithstanding the Funds' 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 each Fund.
Common Stocks. The common stocks of small growth companies in which the Small
Cap Portfolio invests typically have market capitalizations up to $700 million.
The common stocks of the companies in which the Small Cap II Portfolio invests
typically have market capitalizations up to $1 billion. Morningstar Mutual
Funds, a leading mutual fund monitoring service, includes in the small- cap
category all funds with median portfolio market capitalizations of less than $ 1
billion. Their investments are expected to emphasize companies involved with
value added products or services in expanding industries. At times, particularly
when Standish believes that the securities of small companies are overvalued,
their portfolios may include securities of larger, more mature companies,
provided that the value of the securities of such larger, more mature companies
shall not exceed 20% of each Portfolio's net assets. Both Portfolios will
attempt to reduce risk by diversifying their investments within the investment
policies set forth in the Prospectus and will invest in publicly traded equity
securities and, excluding equity securities received as distributions on
portfolio securities, will not normally hold equity securities which are
restricted as to disposition under federal securities laws or are otherwise
illiquid or not readily marketable.
Foreign Securities. Foreign securities may be purchased and sold on foreign
stock exchanges or in over-the-counter markets (but persons
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affiliated with a Fund 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, 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 each
Fund 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 a Fund's shareholders.
Investors should understand that the expense ratio of each Fund may be
higher than that of investment companies investing exclusively in domestic
securities because of the cost of maintaining the custody of foreign securities.
The Funds may invest in foreign securities which take the form of
sponsored and unsponsored American Depository Receipts and Shares ("ADRs" and
"ADSs"), Global Depository Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts" and
"Depository Shares"). ADRs and ADSs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. Prices of
ADRs and ADSs are quoted in U.S. dollars and are traded in the United States on
exchanges or over-the-counter and are sponsored and issued by domestic banks.
EDRs and EDSs and GDRs and GDSs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and EDSs and GDRs and GDSs are not necessarily quoted in the
same currency as the underlying security. To the extent that a Fund acquires
Depository Receipts or Shares through banks which do not have a contractual
relationship with the foreign issuer of the security underlying the Depository
Receipts or Shares to issue and service such Depository Receipts or Shares
(unsponsored Depository Receipts or Shares), there may be an increased
possibility that the Fund 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 Depository Receipt or Share may not
inure to the benefit of the holder of such Depository Receipt or Share. Further,
the lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts or Shares does not eliminate all
the risks inherent in investing in securities of non- U.S. issuers. The market
value of Depository 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 Depository Receipt or Share and the underlying securities are
quoted. However, by investing in Depository Receipts or Shares, such as ADRs or
ADSs, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
Strategic Transactions. Each Fund may, but is not required to, utilize various
other investment strategies as described below to seek to hedge various market
risks (such as interest rates, currency exchange rates, 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 Funds may change over time as new instruments and
strategies are developed or regulatory changes occur.
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In the course of pursuing its investment objective, a Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity, indices and other financial instruments; purchase and sell
financial futures contracts and options thereon; enter into various interest
rate transactions such as swaps, caps, floors or collars; and enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used in an attempt to protect against possible changes in
the market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities market or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities. In addition to the hedging transactions
referred to in the preceding sentence, Strategic Transactions may also be used
to enhance potential gain in circumstances where hedging is not involved
although each Fund will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for such purposes to not more than 3% of its
net assets at any one time and, to the extent necessary, each Fund 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 each Fund's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if the Adviser believes that a Fund
is underweighted in cyclical stocks and overweighted in consumer stocks, the
Fund may buy a cyclical index call option and sell a cyclical index put option
and sell a consumer index call option and buy a consumer index put option. Under
such circumstances, any unrealized loss in the cyclical position would be netted
against any unrealized gain in the consumer position (and vice versa) for
purposes of calculating the Fund's net loss exposure. The ability of a Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. Each
Fund will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. A Fund's activities involving Strategic
Transactions may be limited by the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") for qualification as a regulated
investment company
Risks of Strategic Transactions. Strategic Transactions have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. The writing of put and call
options may result in losses to a Fund, 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 a Fund can realize on its investments
or cause a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund 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
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. The writing of options
could significantly increase the Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads. In
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<PAGE>
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, a Fund 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 a Fund in writing
options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each Fund will attempt to limit its net
loss exposure resulting from Strategic Transactions entered into for non-hedging
purposes to not more than 3% of its net assets at any one time. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. Finally, entering into futures contracts would create a
greater ongoing potential financial risk than would purchases of options where
the exposure is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of a Fund's assets in special accounts, as described
below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised) the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, a Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. A Fund may purchase a call option
on a security, futures contract, index, currency or other instrument to seek to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may 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.
Each Fund 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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A Fund's ability to close out its position as a purchaser or seller of
an exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct 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. A Fund will
generally sell (write) OTC options that are subject to a buy- back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. OTC options purchased by a Fund, and
portfolio securities covering the amount of a Fund'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 each Fund'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. Each Fund 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 a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund 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 a Fund sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
Each Fund may purchase and sell (write) call options on 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 a Fund must be "covered" (i.e., the Fund 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,
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each Fund 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
Fund's net exposure on its written option position. Even though the Fund will
receive the option premium to help offset any loss, the Fund may incur a loss if
the exercise price is below the market price for the security subject to the
call at the time of exercise. A call sold by a Fund also exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.
Each Fund may purchase and sell (write) put options on securities
including equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities indices, currencies and futures contracts. A Fund will not sell
put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that a Fund may be required to buy the underlying
security at a price above the market price.
Options on Securities Indices and Other Financial Indices. Each Fund may also
purchase and sell (write) call and put options on securities indices and other
financial indices. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement. For example, an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the differential between the closing price of the index and the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount upon exercise of the option. In addition to the
methods described above, each Fund 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. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures. Futures are
generally bought and sold on the commodities exchanges where they are listed and
involve payment of initial and variation margin as described below. All futures
contracts entered into by a Fund 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 a Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). The purchase of futures contracts creates a
corresponding obligation by a Fund, as purchaser to purchase a financial
instrument at a specific time and price. Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such position
upon exercise of the option.
Each Fund'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
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regulation as a commodity pool operator. Those regulations currently provide
that a Fund 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 Fund, after taking into account unrealized profits and losses on such
positions. Typically, maintaining a futures contract or selling an option
thereon requires a Fund to deposit with its custodian for the benefit of a
futures commission merchant, 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 Fund. If a Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to seek to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value or
to enhance potential gain. Currency transactions include currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed-upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. A Fund may enter
into over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) whose obligations are determined to be of
equivalent credit quality by the Adviser.
Each Fund's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
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Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Fund has or in which the Fund
expects to have portfolio exposure. For example, a Fund may hold a French
security and the Adviser may believe that French francs will deteriorate against
German marks. The Fund would sell French francs to reduce its exposure to that
currency and buy German marks. This strategy would be a hedge against a decline
in the value of French francs, although it would expose the Fund to declines in
the value of the German mark relative to the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, a Fund may also engage
in proxy hedging. Proxy hedging is often used when the currency to which a
Fund'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 a Fund's portfolio securities are or
are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the 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 a Fund 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 Fund is engaging in proxy hedging. If a Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component transactions"), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of each Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or
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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
each Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter into
these transactions primarily for hedging purposes, including, but not limited
to, preserving a return or spread on a particular investment or portion of its
portfolio, protecting against currency fluctuations, or protecting against an
increase in the price of securities a Fund 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,
each Fund will attempt to limit its net loss exposure resulting from swaps,
caps, floors and collars and other Strategic Transactions entered into for such
purposes to not more than 3% of its net assets at any one time. A Fund will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund 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.
A Fund 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 Fund receiving or paying, as the case may
be, only the net amount of the two payments. A Fund 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 which issue debt that is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of each Fund's policy regarding illiquid securities, unless it is determined,
based upon continuing review of the trading markets for the specific security,
that such security is liquid. The Boards of Trustees of the Trust and the
Portfolio Trust have adopted guidelines and delegated to the Adviser the daily
function of determining and monitoring the liquidity of swaps, caps, floors and
collars. The Boards of Trustees, however, retain oversight focusing on factors
such as valuation, liquidity and availability of information and are ultimately
responsible for such determinations. The staff of the SEC currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
each Fund's limitation on investing in illiquid securities.
Eurodollar Contracts. Each Fund may make investments in Eurodollar contracts.
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Eurodollar contracts are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the United States. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) lesser availability than in the United States of data on which to make
trading decisions, (ii) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iii) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, (iv) lower trading volume and
liquidity, and (v) other complex foreign political, legal and economic factors.
At the same time, Strategic Transactions may offer advantages such as trading in
instruments that are not currently traded in the United States or arbitrage
possibilities not available in the United States.
Use of Segregated Accounts. Each Fund will hold securities or other instruments
whose values are expected to offset its obligations under the Strategic
Transactions. A Fund will cover Strategic Transactions as required by
interpretive positions of the SEC. A Fund will not enter into Strategic
Transactions that expose the Fund to an obligation to another party unless it
owns either (i) an offsetting position in securities or other options, futures
contracts or other instruments or (ii) cash, receivables or liquid securities
with a value sufficient to cover its potential obligations. A Fund 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 Funds'
custodian would maintain the value of such segregated account equal to the
prescribed amount by adding or removing additional cash or other assets to
account for fluctuations in the value of the account and the Fund's obligations
on the underlying Strategic Transactions. Assets held in a segregated account
would not be sold while the Strategic Transaction is outstanding, unless they
are replaced with similar assets. As a result, there is a possibility that
segregation of a large percentage of a Fund's assets could impede portfolio
management or the Fund'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, each Fund may invest all or a portion of its assets
in money market instruments or short-term interest-bearing securities. They 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
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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 a Fund 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 a Fund and is
unrelated to the interest rate on the instruments. The instruments acquired by
the Funds (including accrued interest) must have an aggregate market value in
excess of the resale price and will be held by the Funds' 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 Funds.
The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by a Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Short-Term Debt Securities. For defensive or temporary purposes, each Fund 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. Each Fund places no restrictions on portfolio turnover and
it may sell any portfolio security without regard to the period of time it has
been held, except as may be necessary to enable the Fund to maintain its status
as a regulated investment company under the Internal Revenue Code. A Fund 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 Funds and the Portfolios have adopted the following fundamental
policies. Each Fund's and Portfolio's fundamental policies cannot be changed
unless the change is approved by a "vote of the outstanding voting securities"
of the Fund or the Portfolio, as the case may be, which phrase as used herein
means the lesser of (i) 67% or more of the voting securities of the Fund or the
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund or the Portfolio are present or
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represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund or the Portfolio.
Standish Equity Fund and Equity Portfolio
As a matter of fundamental policy, the Equity Portfolio (Fund) may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
government securities.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts (except 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
(Fund) 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; however, the Fund may not make any
additional investments while its outstanding borrowings exceed 5% of
the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio (Fund)
may enter into repurchase agreements and except that the Fund may enter
into repurchase agreements with respect to 10% of the value of its net
assets.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor
approval, in accordance with applicable laws, regulations or regulatory policy.
The Portfolio (Fund) may not:
a. 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 Fund's borrowings exceed 5% of
its net assets (this restriction is fundamental with respect to the
Fund, but not the Portfolio).
Notwithstanding any fundamental or non-fundamental policy, the Equity
Fund may invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an
open-end management investment company
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with substantially the same investment objective as the Equity Fund.
International Equity Fund
As a matter of fundamental policy, the International Equity Fund may
not:
1. 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.
2. Issue senior securities, borrow money or pledge or mortgage its assets,
except that the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes (but not investment purposes) in an
amount up to 15% of the current value of its total assets, and pledge
its assets to an extent not greater than 15% of the current value of
its total assets to secure such borrowings; however, the Fund may not
make any additional investments while its outstanding borrowings exceed
5% of the current value of its total assets.
3. Make loans, except that the Fund may purchase or hold a portion of an
issue of publicly distributed debt instru ments, purchase negotiable
certificates of deposit and bankers' acceptances, and enter into
repurchase agreements.
4. Invest more than 25% of the current value of its total assets in any
single industry (not including obligations of the U.S. Government or
its agencies and instrumentalities).
5. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities the Fund may
be deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Fund
may purchase marketable securities of companies which deal in real
estate, real estate mortgage loans or interests therein.
7. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities).
8. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial futures contracts and options on
financial futures contracts and engage in foreign currency exchange
transactions.
The following restrictions are not fundamental policies and may be
changed by the Trustees without shareholder approval, in accordance with
applicable laws, regulations or regulatory policy. The Fund may not:
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 assets in securities which are illiquid.
Small Capitalization Equity Fund and Small
Capitalization Equity Portfolio
As a matter of fundamental policy, the Small Cap Portfolio (Fund) may
not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction
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<PAGE>
shall not apply to U.S. Government securities.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts except that the
Portfolio (Fund) may purchase and sell financial futures contracts and
options on financial futures contracts and engage in 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
(Fund) 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; however, the Fund may not make any
additional investments while its outstanding borrowings exceed 5% of
the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio (Fund)
may enter into repurchase agreements with respect to 10% of the value
of its net assets.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor
approval, in accordance with applicable laws, regulations or regulatory policy.
The Portfolio (Fund) may not:
a. 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 Fund's borrowings exceed 5% of
its net assets (this restriction is fundamental with respect to the
Fund, but not the Portfolio).
Notwithstanding any fundamental or non-fundamental policy, the Small
Cap Fund may invest all of its assets (other than assets which are not
"investment securities" (as defined in the 1940 Act) or are excepted by the SEC)
in an open-end management investment company with substantially the same
investment objective as the Small Cap Fund.
Small Capitalization Equity Fund II and Small
Capitalization Equity Portfolio II
As a matter of fundamental policy, the Small Cap Portfolio II (Fund)
may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government
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securities or mortgage-backed securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing
money in accordance with paragraph 3 below, making loans in accordance
with paragraph 8 below, the issuance of shares of beneficial interest
in multiple classes or series, the deferral of trustees' fees, the
purchase or sale of options, futures contracts, forward commitments and
repurchase agreements entered into in accordance with the Portfolio's
(Fund's) investment policies or within the meaning of paragraph 6
below, are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed 33 1/3% of the value of
the Portfolio's (Fund's) total assets (including the amount borrowed)
taken at market value (i) from banks for temporary or short-term
purposes or for the clearance of transactions, (ii) in connection with
the redemption of portfolio shares or to finance failed settlements of
portfolio trades without immediately liquidating portfolio securities
or other assets, (iii) in order to fulfill commitments or plans to
purchase additional securities pending the anticipated sale of other
portfolio securities or assets and (iv) the Portfolio (Fund) may enter
into reverse repurchase agreements and forward roll transactions. For
purposes of this investment restriction, investments in short sales,
futures contracts, options on futures contracts, securities or indices
and forward commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
5. Purchase or sell real estate except that the Portfolio (Fund) may (i)
acquire or lease office space for its own use, (ii) invest in
securities of issuers that invest in real estate or interests therein,
(iii) invest in securities that are secured by real estate or interests
therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Portfolio (Fund) as a result
of the ownership of securities.
6. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
7. Purchase or sell commodities or commodity contracts, except the
Portfolio (Fund) may purchase and sell options on securities,
securities indices and currency, futures contracts on securities,
securities indices and currency and options on such futures, forward
foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in
accordance with the Portfolio's (Fund's) investment policies.
8. Make loans, except that the Portfolio (Fund) (1) may lend portfolio
securities in accordance with the Portfolio's (Fund's) investment
policies up to 33 1/3% of the Portfolio's (Fund's) total assets taken
at market value, (2) enter into repurchase agreements, and (3) purchase
all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
9. With respect to 75% of its total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities
or authorities or
-15-
<PAGE>
repurchase agreements collateralized by U.S. Government securities and
other investment companies), if: (a) such purchase would cause more
than 5% of the Portfolio's (Fund's) total assets taken at market value
to be invested in the securities of such issuer; or (b) such purchase
would at the time result in more than 10% of the outstanding voting
securities of such issuer being held by the Portfolio (Fund).
For purposes of the fundamental investment restriction (1) regarding
industry concentration, the adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor approval
in accordance with applicable laws, regulations or regulatory policy. The
Portfolio (Fund) may not:
a. 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 Fund's borrowings exceed 5% of
the its net assets.
Notwithstanding any fundamental or non-fundamental policy, the Small
Cap Fund II may invest all of its assets (other than assets which are not
"investment securities" (as defined in the 1940 Act) or are excepted by the SEC)
in an open-end investment company with substantially the same investment
objective as the Fund.
--------------------------------------------
If any percentage restriction described above is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of a Fund's or a Portfolio's assets will not
constitute a violation of the restriction.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time,
advertise certain total return and yield information. The average annual total
return of a Fund for a period is computed by subtracting the net asset value per
share at the beginning of the period from the net asset value per share at the
end of the period (after adjusting for the reinvestment of any income dividends
and capital gain distributions), and dividing the result by the net asset value
per share at the beginning of the period. In particular, the Funds' average
annual total return ("T") is computed by using the redeemable value at the end
of a specified period of time ("ERV") of a hypothetical initial investment of
$1,000 ("P") over a period of time ("n") according to the formula P(1+T)n=ERV.
-16-
<PAGE>
The Funds' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended December 31, 1996 and average
annualized yield for the 30-day period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------------
Fund 1-Year 5-Year 10-Year
- ---- ------ ------ -------
<S> <C> <C> <C>
Equity Fund 26.84% 17.31% 19.84%1
----- ----- -----
Small Capitalization Equity Fund 17.36% 15.61% 22.28%2
----- ----- -----
Small Capitalization Equity Fund II 1.90%3 N/A N/A
----
International Equity Fund 7.44% 4.91% 5.42%4
---- ---- ----
- ---------------------------
1 Equity Fund commenced operations on June 2, 1991.
2 Small Capitalization Equity Fund commenced operations on September 1, 1990.
3 Small Capitalization Equity Fund II commenced operations on December 23, 1996.
4 International Equity Fund commenced operations on December 8, 1988.
</TABLE>
These performance quotations should not be considered as representative
of any Fund's performance for any specified period in the future.
In addition to average annual return quotations, the Funds may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis as follows:
Equity Fund
Quarter/Year Net Gross
- ---------------- ------------ -------------
1Q91 16.30% 16.50%
2Q91 (2.76) (2.53)
3Q91 6.15 6.42
4Q91 11.09 11.34
1991 36.36 34.62
1Q92 (2.77) (2.52)
2Q92 (2.63) (2.38)
3Q92 4.03 4.28
4Q92 11.20 10.74
1992 9.52 9.52
1Q93 7.71 7.91
2Q93 2.76 2.96
3Q93 6.64 6.84
4Q93 2.34 2.54
1993 20.79 21.72
1Q94 (2.30) (2.13)
2Q94 (3.14) (2.96)
3Q94 3.22 3.40
4Q94 (1.50) (1.33)
1994 (3.78) (3.10)
1Q95 8.76 8.93
2Q95 11.10 11.28
3Q95 9.56 9.74
4Q95 3.90 4.09
1995 37.55 38.46
1Q96 6.84 6.99
2Q96 2.69 2.87
3Q96 4.96 5.17
4Q96 10.16 10.33
1996 26.84 27.71
-17-
<PAGE>
Small Capitalization Equity Fund
Quarter/Year Net Gross
- ----------------- ------------- -------------
1Q91 28.41% 28.68%
2Q91 2.87 3.12
3Q91 12.58 12.73
4Q91 10.74 10.94
1991 64.71 65.95
1Q92 3.16 3.38
2Q92 (12.15) (11.92)
3Q92 7.23 7.52
4Q92 12.91 13.20
1992 9.74 10.83
1Q93 0.62 0.84
2Q93 3.45 3.70
3Q93 14.45 14.67
4Q93 7.63 7.83
1993 28.21 29.30
1Q94 (3.48) (3.29)
2Q94 (4.39) (4.19)
3Q94 5.90 6.11
4Q94 (1.42) (1.22)
1994 (3.66) (2.88)
1Q95 6.03 6.22
2Q95 2.55 2.73
3Q95 16.17 16.36
4Q95 2.80 2.98
1995 29.83 30.77
1Q96 6.60 6.80
2Q96 10.27 10.47
3Q96 (2.98) (2.80)
4Q96 (2.91) (3.11)
1996 17.36 18.24
Small Capitalization Equity Fund II
Quarter/Year Net Gross
- ----------------- ------------ -------------
4Q96 1.90% 1.90%
International Equity Fund
Quarter/Year Net Gross
- ----------------- ------------ -------------
1Q89 (0.75)% (0.05)%
2Q89 1.16 1.25
3Q89 11.97 12.37
4Q89 5.67 5.70
1989 18.79 20.20
1Q90 (0.10) 0.29
2Q90 5.81 6.21
3Q90 (18.32) (17.92)
4Q90 4.90 5.31
1990 (9.44) (7.93)
1Q91 6.65 6.96
2Q91 (3.03) (2.70)
3Q91 6.77 7.12
4Q91 1.18 1.64
1991 11.73 13.31
1Q92 (5.09) (4.75)
2Q92 0.62 1.05
3Q92 (5.20) (4.03)
4Q92 (0.55) (0.16)
1992 0.95 0.55
1Q93 7.23 7.57
2Q93 3.11 3.48
3Q93 8.45 8.77
4Q93 15.32 15.64
1993 38.27 40.01
1Q94 (5.87) (5.57)
2Q94 (0.06) 0.22
3Q94 2.84 3.17
4Q94 (3.87) (3.59)
1994 (6.99) (5.83)
1Q95 (5.07) (4.78)
2Q95 2.57 2.86
3Q95 2.41 2.68
4Q95 2.31 2.68
1995 2.01 3.26
1Q96 2.38 2.51
-18-
<PAGE>
2Q96 4.89 5.02
3Q96 (1.15) (1.03)
4Q96 1.22 1.34
1996 7.44 7.97
These performance quotations should not be considered as representative
of a Fund's performance for any specified period in the future. Each Fund's
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the Equity Fund may compare
its performance to the S&P 500 Index, which is generally considered to be
representative of the performance of unmanaged common stocks that are publicly
traded in the United States securities markets. The Small Cap Fund and Small Cap
II Fund may compare their performances to the Russell 2000 Index, which is
generally considered to be representative of unmanaged small capitalization
stocks in the United States markets, the Russell 2000 Growth Index, which is
generally considered to be representative of those Russell 2000 companies with
higher price-to-book ratios and forecasted growth, and the S&P 500 Index. The
International Equity Fund may compare its performance to Morgan Stanley Capital
International Index ("MSCI") and the Europe, Australia, Far East Index ("EAFE").
The EAFE- Index is generally considered to be representative of the performance
of unmanaged common stocks that are publicly traded in European, Australian and
Far Eastern securities markets and is based on month-end market capitalization.
Comparative performance may also be expressed by reference to a ranking prepared
by a mutual fund monitoring service or by one or more newspapers, newsletters or
financial periodicals. Performance comparisons may be useful to investors who
wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis and
Martin, and Ms. Banfield, Chase, Herrmann and Kneeland, who hold the same office
with the Portfolio Trust as with the Trust. All executive officers of the Trust
and the Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc., the
Portfolio and the Fund'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 and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
-19-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer &
One Financial Center Wood, Inc. since 1990;
Boston, MA 02111 formerly President of Standish,
Ayer & Wood, Inc.
Director of
Standish International
Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.O. Box 5600 Director, Holyoke Mutual Insurance Company
Beverly Farms, MA 01915
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management Company,
L.P.
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President and Secretary Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since October 1996; formerly Senior Vice
One Financial Center President, Treasurer and Chief Financial
Boston, MA 02111 Officer of Liberty Financial Bank Group (1993-
95); prior to 1993, Corporate Controller, The
Berkeley Financial Group
-20-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and
Boston, MA 02111 Compliance Officer,
Freedom Capital Management
Corp. (1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Remi Browne, 10/15/53 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. Vice President and Chief Investment Officer of
One Financial Center Standish International Management Company,
Boston, MA 02111 L.P., prior to August 1996, Managing Director
Ark Asset Management Company
Walter M. Cabot, 1/16/33 Vice President Senior Adviser and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
Senior Adviser and Director of
Standish International Management Company,
L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management Company,
L.P.
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Lavinia B. Chase, 6/4/46 Vice President Vice President, Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Susan B. Coan, 5/1/52 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-21-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
W. Charles Cook II, 7/16/63 Vice President Vice President, Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President,
Boston, MA 02111 Standish International Management Company,
L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President, Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director, Standish International
Boston, MA 02111 Management Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President, Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President
Boston, MA 02111 Standish International Management Company,
L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995 formerly
Boston, MA 02111 Vice President Scudder, Stevens and Clark
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly,
One Financial Center Investment Sales,
Boston, MA 02111 Cigna Corporation (1993) and
Travelers Corporation (1984-1993)
-22-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management Company,
L.P.
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director
Boston, MA 02111 Standish International Management Company,
L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since August, 1993;
Boston, MA 02111 formerly, Vice President,
Commerzbank, Frankfurt,
Germany Vice President,
Standish International Management Company,
L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since November 2, 1993;
Boston, MA 02111 formerly, Consultant
Cambridge Associates
David C. Stuehr, 3/1/58 Vice President Vice President and Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-23-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center April, 1990; formerly Vice
Boston, MA 02111 President, Aetna Life & Casualty
President and Director,
Standish International Management Company,
L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher W. Van Alstyne, 3/24/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Formerly Regional Marketing Director,
Boston, MA 02111 Gabelli-O'Connor Fixed Income Management
* Indicates that Trustee is an interested person of the Trust for purposes of the 1940 Act.
</TABLE>
Compensation of Trustees and Officers
Neither the Trust nor the Portfolio Trust pays compensation to the
Trustees of the Trust or the Portfolio Trust that are affiliated with Standish
or to the Trust's and Portfolio Trust's officers. None of the Trustees or
officers have engaged in any financial transactions (other than the purchase or
redemption of the Funds' shares) with the Trust, the Portfolio Trust or the
Adviser during the year ended December 31, 1996.
The following table sets forth all compensation paid to the Trust's and
the Portfolio Trust's Trustees as of the Funds' fiscal years ended December 31,
1996:
<TABLE>
<CAPTION>
Aggregate Compensation from the Funds
Pension or
Retirement
Benefits
Accrued as Total Compensation
Small Small Part of from Funds and
Equity Capitalization Capitalization International Funds' Portfolio and Other
Name of Trustee Fund** Equity Fund** Equity Fund II** Equity Fund Expenses Funds in Complex*
--------------- ---- ----------- -------------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0
Samuel C. Fleming $851 $1,887 $2 $624 $0 $49,250
Benjamin M. Friedman $787 $1,743 $2 $576 $0 $45,500
-24-
<PAGE>
John H. Hewitt $787 $1,743 $2 $576 $0 $45,500
Edward H. Ladd $0 $0 $0 $0 $0 $0
Caleb Loring, III $787 $1,743 $2 $576 $0 $45,500
Richard S. Wood $0 $0 $0 $0 $0 $0
* As of the date of this Statement of Additional Information there were
20 funds in the fund complex. Total compensation is presented for the
calendar year ended December 31, 1996.
** The Fund bears its pro rata allocation of Trustees' fees paid by its
corresponding Portfolio to the Trustees of the Portfolio Trust.
</TABLE>
Certain Shareholders
Except as noted below for the Small Cap II Fund, at February 1, 1997,
Trustees and officers of the Trust and the Portfolio Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of each Fund. The Trustees and Officers of the Trust
as a group beneficially owned approximately 95% of the then outstanding shares
of the Small Cap II Fund at that date. At February 1, 1997, the Equity Fund,
Small Cap Fund and Small Cap II Fund, each beneficially owned approximately 100%
of the then outstanding interests of the Equity Portfolio, Small Cap Portfolio
and Small Cap II Portfolio, respectively, and therefore controlled their
corresponding Portfolios. Also at that date, no person beneficially owned 5% or
more of the then outstanding shares of any Fund except:
Equity Fund
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- ------------------------
Saturn & Co. 14%
FBO The Boston Home
P.O. Box 1537
Boston, MA 02205
Shipley Company, Inc. 8%
455 Forest Street
Marlborough, MA 01752
Teamsters Local Union 918 5%
Pension Fund
2137-47 Utica Avenue
Brooklyn, NY 11234
Small Capitalization Equity Fund
Percentage of
Name and Address Outstanding Shares
- -------------------------------- --------------------------
Bingham, Dana & Gould 8%
Trust Department
150 Federal Street
Boston, MA 02110
Rosemount Aerospace Profit 6%
Sharing Plan
Norwest Bank Minnesota, N.A.
Trustee
733 Marquette Avenue MS 0036
Minneapolis, MN 55479
Citibank, FSB as Trustee for 6%
Lutheran Health Systems
Employee's Pension Plan
c/o Citibank
111 Wall Street, 20th Floor
New York, NY 10043
Small Capitalization Equity Fund II
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- -----------------------
Edward H. Ladd 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christina D. Wood* 20%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-25-
<PAGE>
Richard C. Doll 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Maria D. Furman 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Arthur H. Parker 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
James E. Hollis 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Walter M. Cabot 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes 5%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dorothy G. Battelle+
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
*Christina D. Wood is the wife of Richard S. Wood, President
and Trustee of the Trust
+Dorothy G. Battelle is the wife of Nicholas S. Battelle, a Vice
President of the Trust
International Equity Fund
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- ------------------------
Allendale Mutual Insurance Co. 8%
P. O. Box 7500
Johnston, RI 02919
NationsBank of Texas, NA 7%
TTEE FBO
Keystone Thermometrics Master
Trust
P.O. BOX 831575
Dallas, TX 75283
Lumber Mutual Insurance 7%
One Speen Street
Framingham, MA 01701
First Union National Bank 7%
Cannon Foundation
a/c# 1028851439
401 S. Tryon St. CMG 1151
Charlotte, NC 28288
Fletcher Allen Health Care 7%
Depreciation Fund
One Burlington Square
Burlington, VT 05401
Trustees of Reservations 6%
572 Essex STreet
Beverly, MA 01915
OLSEN & Co. 6%
P.O. Box 92800
Rochester, NY 14692
Bingham Dana & Gould 5%
Trust Department
150 Federal Street
Boston, MA 02110
*Because the shareholder beneficially owned more than 25% of the then
outstanding shares of the indicated Fund, the shareholder was considered to
control such Fund. As a controlling person, the shareholder may be able to
determine whether a proposal submitted to the shareholders of such Fund will be
approved or disapproved.
Investment Adviser
Standish serves as the adviser to the Equity Portfolio, Small Cap
Portfolio and Small Cap II Portfolio pursuant to written investment advisory
agreements. Prior to the close of business on May 3, 1996, Standish managed
directly the assets of the Equity and Small Cap Funds pursuant to investment
advisory agreements. These agreements were terminated by Equity and Small Cap
Funds on such date subsequent to the approval by the Funds' shareholders on
March 29, 1996 to implement certain changes in the Funds' investment
restrictions which enable the Funds to invest all of their investable assets in
the Equity Portfolio and Small Cap Portfolio, respectively. 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
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Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria D.
Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd, Laurence A.
Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin, Austin C. Smith,
David C. Stuehr, James J. Sweeney, Ralph S. Tate, and Richard S. Wood.
SIMCO serves as investment adviser to the International Equity Fund
pursuant to an investment advisory agreement. SIMCO is a Delaware limited
partnership which was organized in 1991 and is a registered investment adviser
under the Investment Advisers Act of 1940. The general partner of SIMCO is
Standish, which holds a 99.98% partnership interest. The limited partners, who
each hold a 0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Director and
Adviser to SIMCO and a Director and Senior Adviser to Standish, and D. Barr
Clayson, Chairman of the Board of SIMCO and a Managing Director of Standish.
Ralph S. Tate, a Managing Director of Standish, is President and a Director of
SIMCO. Richard S. Wood, a Vice President and director of Standish and the
President of the Trust, is the Executive Vice President of SIMCO.
Certain services provided by the Adviser under the advisory agreements
are described in the Prospectus. These services are provided without
reimbursement by the Portfolios or the International Equity Fund for any costs
incurred. In addition to those services, the Adviser provides the Intermittent
Equity Fund (but not the Portfolios) with office space for managing their
affairs, with the services of required executive personnel, and with certain
clerical services and facilities. Under the investment advisory agreements, the
Adviser is paid a fee based upon a percentage of the Intermittent Equity Fund's
or the applicable Portfolio's average daily net asset value computed as set
forth below. The advisory fees are payable monthly.
Fund Contractual Advisory Fee Rate
(as a percentage of average daily net assets)
Equity Portfolio 0.50%
Small Capitalization Equity Portfolio 0.60%
Small Capitalization Equity Portfolio II 0.60%
International Equity Fund 0.80%
During the last three fiscal years ended December 31, the Funds and the
Portfolios paid advisory fees in the following amounts:
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<TABLE>
<CAPTION>
Fund 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Fund 422,731 555,164 163,5301
Equity Portfolio N/A N/A 345,3012
Small Capitalization Equity Fund 557,359 871,879 396,7961
Small Capitalization Equity Portfolio N/A N/A 920,7422
Small Capitalization Equity Fund II N/A N/A 03
Small Capitalization Equity Portfolio II N/A N/A 62
International Equity Fund 841,166 704,283 7,841
- ------------------------
1 Equity Fund and Small Capitalization Fund were converted to the master/feeder
fund structure on May 3, 1996 and do not pay directly advisory fees after that
date. Each such Fund bears its pro rata allocation of its corresponding
Portfolio's expenses, including advisory fees.
2 The Equity Portfolio and Small Capitalization Portfolio commenced operations
on April 26, 1996.
3 The Small Capitalization Equity II commenced operations on December 23, 1996.
The Adviser voluntarily agreed not to impose its advisory fee for the period
through December 31, 1996.
</TABLE>
Pursuant to the investment advisory agreements, each Portfolio and the
International Equity Fund bears expenses of its operations other than those
incurred by the Adviser pursuant to the investment advisory agreement. Among
other expenses, and the International Equity Fund and the Portfolios will pay
share pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and Trustees' fees and expenses.
The Adviser has voluntarily agreed to limit certain "Total Fund
Operating Expenses" (excluding brokerage commissions, taxes, litigation,
indemnification and other extraordinary expenses) to 1.60% per annum of the
International Equity Fund's average daily net assets. This agreement is
voluntary and temporary and may be discontinued or revised by the Adviser at any
time.
Unless terminated as provided below, the investment advisory agreements
continue 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 Trust or
the Portfolio Trust (as applicable) or by the "vote of a majority of the
outstanding voting securities" of the International Equity Fund or the
applicable Portfolio, and, in either event (ii) by vote of a majority of the
Trustees of the Trust or the Portfolio Trust (as applicable) who are not parties
to the investment advisory agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval. Each investment advisory agreement may be terminated
at any time without the payment of any penalty by vote of the Trustees of the
Trust or the Portfolio Trust or by the "vote of a majority of the outstanding
voting securities" of the International Equity Fund or the applicable Portfolio
or by the Adviser, on sixty days' written notice to the other parties. The
investment advisory agreements terminate in the event of their assignment as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the International Equity Fund and the Portfolios, the Adviser,
the Principal Underwriter, the Trust and the Portfolio Trust have each adopted
extensive restrictions on personal securities trading by
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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 International
Equity Fund and its shareholders, and the Portfolios and their investors, come
before those of the Adviser and its employees.
Administrator of the Fund
Standish also serves as the administrator ("Fund Administrator") to the Equity
Fund, Small Cap Fund and Small Cap II Fund pursuant to written administration
agreements with the Trust on behalf of these Funds. Certain services provided by
the Fund Administrator under the administration agreements are described in the
Prospectus. For these services, the Fund Administrator currently does not
receive any additional compensation. The Trustees of the Trust may, however,
determine in the future to compensate the Fund Administrator for its
administrative services. Each of the Equity Fund, Small Cap Fund and Small Cap
II Fund's administration agreements can be terminated by either party on not
more than sixty days' written notice.
Administrator of the Portfolio
IBT Trust Company (Cayman) Ltd., P.O. Box 501, Grand Cayman, Cayman
Islands, BWI, serves as the administrator to each of the Portfolios (the
"Portfolio Administrator") pursuant to written administration agreements with
the Portfolio Trust on behalf of each 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 each Portfolio
in the amount of $7,500 annually. The Portfolios' administration agreements can
be terminated by either party on not more than sixty days' written notice.
Distributor of the Funds
Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of the Adviser, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for each Fund's shares. In
that capacity, the Principal Underwriter has been granted the right, as agent of
the Trust, to solicit and accept orders for the purchase of each Fund's shares
in accordance with the terms of the Underwriting Agreement between the Trust and
the Principal Underwriter. Pursuant to the Underwriting Agreement, the Principal
Underwriter has agreed to use its best efforts to obtain orders for the
continuous offering of each Fund's shares. The Principal Underwriter receives no
commissions or other compensation for its services, and has not received any
such amounts in any prior year. The Underwriting Agreement shall continue in
effect with respect to each Fund until two years after its execution and for
successive periods of one year thereafter only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trustees of the Trust or (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Underwriting Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or, with respect to a Fund, by a vote of the
holders of a majority of the Fund's outstanding shares, in any case without
payment of any penalty on not more than 60 days' written notice to the other
party. The offices of the Principal Underwriter are located at One Financial
Center, 26th Floor, Boston, Massachusetts 02111.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the
Prospectus. The Trust may suspend the right to redeem Fund shares or postpone
the date of payment upon redemption for more than seven days (i) for any period
during which the New York Stock Exchange is closed (other than customary weekend
or holiday closings) or trading on the exchange is restricted; (ii) for any
period during which an emergency exists as a result of which disposal by a Fund
of securities owned by it or determination by a Fund of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the SEC
may permit for the protection of shareholders of a Fund.
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<PAGE>
The Trust intends to pay redemption proceeds in cash for all Fund
shares redeemed but, under certain conditions, the Trust may make payment wholly
or partly in portfolio securities, in conformity with a rule of the SEC.
Portfolio securities paid upon redemption of Fund shares will be valued at their
then current market value. The Trust, on behalf of each of its series, has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
limits each Fund's obligation to make cash redemption payments to any
shareholder during any 90-day period to the lesser of $250,000 or 1% of the
Fund's net asset value at the beginning of such period. An investor may incur
brokerage costs in converting portfolio securities received upon redemption to
cash. Each Portfolio has advised the Trust that the Portfolio will not redeem
in-kind except in circumstances in which the applicable Fund is permitted to
redeem in-kind or except in the event the applicable Fund completely withdraws
its interest from the Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the International Equity Fund's
and each Portfolio's portfolio transactions and will do so in a manner deemed
fair and reasonable to the International Equity Fund and the Portfolios and not
according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also sell shares of the Funds. In addition, if the Adviser
determines in good faith that the amount of commissions charged by a broker is
reasonable in relation to the value of the brokerage and research services
provided by such broker, the International Equity Fund and the Portfolios may
pay commissions to such broker in an amount greater than the amount another firm
may charge. Research services may include (i) furnishing advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (ii) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research
services furnished by firms through which the International Equity Fund and the
Portfolios effect their securities transactions may be used by the Adviser in
servicing other accounts; not all of these services may be used by the Adviser
in connection with the Fund or the Portfolio generating the soft dollar credits.
The investment advisory fee paid by the International Equity Fund and the
Portfolios under the investment advisory agreements will not be reduced as a
result of the Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory
accounts. The Adviser will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities for the
International Equity Fund or a Portfolio and another advisory account. In some
cases, this procedure could have an adverse effect on the price or the amount of
securities available to the International Equity Fund or a 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.
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<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
Aggregate Brokerage
Commissions Paid by the Fund
or portfolio transactions
Fund 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Fund1 $287,545 $416,680 _____
Equity Portfolio2 N/A N/A _____8
Small Capitalization Equity Fund3 $512,334 $859,777 _____
Small Capitalization Equity Portfolio4 N/A N/A _____8
Small Capitalization Equity Fund II5 N/A N/A N/A
Small Capitalization Equity Portfolio II6 N/A N/A _____
International Equity Fund7 $240,006 $439,738 _____
1 At December 31, 1996, the Fund did not hold any securities of its
regular brokers or dealers. The Fund was converted to the master-feeder
structure on May 3, 1996 and does not directly pay brokerage
commissions after that date. The Fund bears its pro rata share of
brokerage commissions paid by its corresponding Portfolio.
2 At December 31, 1996, the Portfolio held the following amounts of securities of its regular brokers or dealers.
3 At December 31, 1996, the Fund did not hold any securities of its regular brokers or dealers. The Fund was converted
to the master-feeder structure on May 3, 1996 and does not directly pay
brokerage commissions after that date. The Fund bears its pro rata
share of brokerage commissions paid by its corresponding Portfolio.
4 At December 31, 1996, the Portfolio held the following amounts of securities of its regular brokers or dealers.
5 At December 31, 1996, the Fund did not hold any securities of its regular brokers or dealers. The Fund is a Feeder
Fund in the master-feeder structure and does not directly pay brokerage
commissions but bears its pro rata share of brokerage commissions paid
by its corresponding Portfolio.
6 At December 31, 1996, the Portfolio held the following amouns of securities of its regular brokers or dealers.
7 At December 31, 1996, the Fund held the following amounts of securities of its regular brokers or dealers.
8 The Portfolio commenced operations on May 3, 1996.
</TABLE>
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated 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.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., New York
City time) and is computed by dividing the value of all securities and other
assets of a Fund (substantially all of which, in the case of the Equity Fund,
Small Cap Fund and Small Cap II Fund will be represented by the Fund's interest
in its corresponding Portfolio) less all liabilities by the applicable number of
Fund shares outstanding, and adjusting to the nearest cent per share. Expenses
and fees of each Fund are accrued daily and taken into account for the purpose
of determining net asset value.
The value of a Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Equity, Small Cap and Small Cap II Funds is determined.
Each investor in a 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 a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in a
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or
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<PAGE>
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 a 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 quotation 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 a Fund or Portfolio are valued on an amortized cost
basis. If a Fund acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the Trustees of the Trust or 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 a Fund'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 Funds' 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 Trust or the Portfolio Trust.
THE FUNDS AND THEIR SHARES
Each Fund is an investment series of the Trust, an unincorporated
business trust organized under the laws of The Commonwealth of Massachusetts
pursuant to an Agreement and Declaration of Trust dated August 13, 1986. Under
the Agreement and Declaration of Trust, the Trustees of the Trust have authority
to issue an unlimited number of shares of beneficial interest, par value $.01
per share, of each Fund. Each share of a Fund represents an equal proportionate
interest in the Fund with each other share and is entitled to such dividends and
distributions as are declared by the Trustees. Shareholders are not entitled to
any preemptive, conversion or subscription rights. All shares, when issued, will
be fully paid and non-assessable by the Trust. Upon any liquidation of a Fund,
shareholders of that Fund are entitled to share pro rata in the net assets
available for distribution.
Pursuant to the Declaration, the Trustees may create additional funds
by establishing additional series of shares in the Trust. The establishment of
additional series would not affect the interests of current shareholders in any
Fund. The Trustees have established other series of the Trust. Pursuant to the
Declaration, the Board may establish and issue multiple classes of shares for
each series of the Trust. As of the date of this Statement of Additional
Information, the Trustees do not have any plan to establish multiple classes of
shares for the Funds. Pursuant to the Declaration of Trust and subject to
shareholder approval (if then required by applicable law), the Trustees may
authorize each Fund to invest all of its investable assets in a single open-end
investment company that has substantially the same investment objectives,
policies and restrictions as the Fund. As of the date of this Statement of
Additional Information, the Equity, Small Cap and Small Cap II Funds invest all
of their investible assets in other open-end investment companies.
All Fund shares have equal rights with regard to voting, and
shareholders of a Fund have the right to vote as a separate class with respect
to matters as to which their interests are not
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<PAGE>
identical to those of shareholders of other classes of the Trust, including the
approval of an investment advisory contract and any change of investment policy
requiring the approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of his or its liability as a shareholder of the Trust
is limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Declaration also provides that no series of the Trust is liable for
the obligations of any other series. The Trustees intend to conduct the
operations of the Trust to avoid, to the extent possible, ultimate liability of
shareholders for liabilities of the Trust.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to a Portfolio, the Trust will hold
a meeting of the associated Fund's shareholders and will cast its vote
proportionately as instructed by the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Subject to applicable statutory and
regulatory requirements, a Fund would not request a vote of its shareholders
with respect to (a) any proposal relating to the Portfolio, which proposal, if
made with respect to the Fund, would not require the vote of the shareholders of
the Fund, or (b) any proposal with respect to the Portfolio that is identical in
all material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in a Portfolio, and
that is not required to be voted on by shareholders of the Fund, would
nonetheless be voted on by the Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a
newly formed trust and, like their corresponding Fund, is an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Portfolio Trust was organized as a master trust fund under the laws of the State
of New York on January 18, 1996.
Interests in a Portfolio have no preemptive or conversion rights, and
are fully paid and non-assessable, except as set forth in the Prospectus. A
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. A 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 a Portfolio continue
to hold office until their successors are elected and have qualified. Holders
holding a specified percentage of interests in a 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 a Portfolio to assist its holders in calling such a meeting. Upon
liquidation of a Portfolio, holders in a Portfolio would be entitled to share
pro rata in the net assets of a 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.
TAXATION
Each series of the Trust, including each Funds, is treated as a
separate entity for accounting and tax purposes. Each Fund has qualified and
elected or intends to elect to be treated as a "regulated investment company"
("RIC") under Subchapter M of the Code, and intends to continue to so qualify in
the future. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions, and the
diversification of its assets, each Fund will not be
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<PAGE>
subject to Federal income tax on its investment company taxable income (i.e.,
all taxable income, after reduction by deductible expenses, other than its "net
capital gain," which is the excess, if any, of its net long-term capital gain
over its net short-term capital loss) and net capital gain which are distributed
to shareholders in accordance with the timing requirements of the Code.
Each Portfolio is treated as a partnership for federal income tax
purposes. As such, a Portfolio is not subject to federal income taxation.
Instead, the corresponding Fund must take into account, in computing its federal
income tax liability (if any), its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items, without regard to whether
it has received any cash distributions from the Portfolio. Because the Equity
Fund, Small Cap Fund and Small Cap II Fund invest their assets in the Equity,
Small Cap and Small Cap II Portfolios, respectively, each Portfolio normally
must satisfy the applicable source of income and diversification requirements in
order for the corresponding Fund to satisfy them. Each Portfolio will allocate
at least annually among its investors, including the corresponding Fund each
investor's distributive share of that Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction or
credit. Each Portfolio will make allocations to the corresponding Fund in a
manner intended to comply with the Code and applicable regulations and will make
moneys available for withdrawal at appropriate times and in sufficient amounts
to enable the corresponding Fund to satisfy the tax distribution requirements
that apply to it and that must be satisfied in order for the Fund to avoid
Federal income and/or excise tax. For purposes of applying the requirements of
the Code regarding qualification as a RIC, the Equity Fund, Small Cap Fund and
Small Cap II Fund each will be deemed (i) to own its proportionate share of each
of the assets of the corresponding Portfolio and (ii) to be entitled to the
gross income of the corresponding Portfolio attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by the
Funds during October, November or December of the year but paid during the
following January. Such distributions will be taxable to taxable shareholders as
if received on December 31 of the year the distributions are declared, rather
than the year in which the distributions are received.
Each Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
Each Fund will not distribute net capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, a Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. .
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict a Fund's or a Portfolio's ability to enter into futures,
options or currency forward transactions.
Certain options, futures or currency forward transactions undertaken by
a Fund or a Portfolio may cause the Fund or Portfolio to recognize gains or
losses from marking to market even though the Fund's or 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 International Equity Fund or realized
by a Portfolio and allocable to the corresponding Fund. Any net mark to market
gains may also have to be distributed by a Fund to satisfy the distribution
requirements referred to above even though no corresponding cash amounts may
concurrently be received, possibly requiring the disposition of portfolio
securities or borrowing to obtain the necessary cash. Also, certain losses on
transactions involving options,
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<PAGE>
futures or forward contracts and/or offsetting or successor positions may be
deferred rather than being taken into account currently in calculating the
Funds' taxable income or gain. Certain of the applicable tax rules may be
modified if a Fund or a Portfolio is eligible and chooses to make one or more of
certain tax elections that may be available. These transactions may affect the
amount, timing and character of a Fund's distributions to shareholders. Each
Fund will take into account the special tax rules applicable to options, futures
or forward contracts in order 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 a Fund
or 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 a Portfolio and the
International Equity Fund 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
Fund distributions to shareholders. In some cases, elections may be available
that would alter this treatment. Any such transactions that are not directly
related to the Portfolios' or the International Equity Fund's investment in
stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain a Fund is deemed to recognize from the sale of certain investments held for
less than three months, which gain (or share of such gain in the case of the
Equity Fund, Small Cap Fund and Small Cap II Fund plus any such gain the Funds
may realize from other sources) is limited under the Code to less than 30% of
each Fund's gross income for its taxable year, and could under future Treasury
regulations produce income not among the types of "qualifying income" from which
each Fund must derive at least 90% of its gross income for its taxable year.
Each Portfolio and the International Equity Fund may be subject to
withholding and other taxes imposed by foreign countries with respect to
investments in foreign securities. Tax conventions between certain countries and
the U.S. may reduce or eliminate such taxes in some cases. Investors in a Fund
would be entitled to claim U.S. foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code, only if
more than 50% of the value of the applicable Fund's total assets (in the case of
a Fund that invests in a Portfolio, taking into account its allocable share of
the Portfolio's assets) at the close of any taxable year were to consist of
stock or securities of foreign corporations and the Fund were to file an
election with the Internal Revenue Service. Because the investments of the
Portfolios are such that each Fund that invests in a Portfolio expects that it
generally will not meet this 50% requirement, shareholders of each such Fund
generally will not directly take into account the foreign taxes, if any, paid by
the corresponding Portfolio and will not be entitled to any related tax
deductions or credits. Such taxes will reduce the amounts these Funds would
otherwise have available to distribute.
The International Equity Fund may meet the 50% threshold referred to in
the previous paragraph and may therefore file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
(i) include in ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by the Fund even
though not actually received by them, and (ii) treat such respective pro rata
portions as foreign income taxes paid by them.
If the International Equity Fund makes this election, shareholders may
then deduct such pro rata portions of foreign income taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. Federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign income taxes paid by the
International Equity Fund, although such shareholders will be required to
include their share of such taxes in gross income. Shareholders who claim a
foreign tax credit for such foreign
-35-
<PAGE>
taxes may be required to treat a portion of dividends received from the
International Equity Fund as a separate category of income for purposes of
computing the limitations on the foreign tax credit. Tax exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that the
International Equity Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
If a Portfolio or the International Equity Fund acquires stock in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the relevant Fund could
be subject to Federal income tax and additional interest charges on "excess
distributions" actually or constructively received from such companies or gain
from the actual or deemed sale of stock in such companies, even if all income or
gain actually realized is timely distributed to its shareholders. They would not
be able to pass through to their shareholders any credit or deduction for such a
tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require them to recognize taxable
income or gain without the concurrent receipt of cash. The Portfolios and the
International Equity Fund may limit and/or manage stock holdings, if any, in
passive foreign investment companies to minimize each Fund's tax liability or
maximize its return from these investments.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
For purposes of the dividends received reduction available to
corporations, dividends received by a Portfolio and allocable to its
corresponding Fund, if any, from U.S. domestic corporations in respect of the
stock of such corporations held by the Portfolio, for U.S. Federal income tax
purposes, for at least a minimum holding period, generally 46 days, and
distributed and designated by the Fund may be treated as qualifying dividends.
The International Equity Fund is unlikely to earn a substantial amount of
qualifying dividends, but the Portfolios' dividend income, if any, probably will
generally qualify for this deduction. Corporate shareholders must meet the
minimum holding period requirements referred to above with respect to their
shares of the applicable Fund in order to qualify for the deduction and, if they
borrow to acquire or otherwise incur debt attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability.
Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to undistributed net investment income and/or
realized or unrealized appreciation in the Fund's portfolio (or share of a
Portfolio's portfolio). Consequently, subsequent distributions by a Fund on such
shares from such income and/or appreciation may be taxable to such investor even
if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions economically represent a return of a portion of the purchase
price.
-36-
<PAGE>
Upon a redemption (including a repurchase) of shares of a Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will generally be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares,
subject to the rules described below. Any loss realized on a redemption may be
disallowed to the extent the shares disposed of are replaced with other shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
adviser for more information.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent, if any, a Fund's distributions are derived from interest on (or, in the
case of intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fixed Income Fund's indirect ownership (through the
Portfolio) of any such obligations, as well as the Federal, and any other state
or local, tax consequences of ownership of shares of, and receipt of
distributions from, a Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax adviser regarding such
treatment and the application of foreign taxes to an investment in the Funds.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
EXPERTS AND FINANCIAL STATEMENTS
Except as noted in the next sentence, each Fund's financial statements
contained in the 1996 Annual Reports of the Funds have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated by reference into
and attached to this Statement of Additional Information. Financial highlights
of Equity Fund, International Equity Fund and Small Cap Fund for periods from
commencement of operations through December 31, 1992 were audited by Deloitte &
Touche, LLP, independent auditors. The Equity Portfolio, Small Cap Portfolio and
Small Cap II Portfolio's financial statements contained in their corresponding
Fund's 1996 Annual Report have been audited by Coopers & Lybrand, an affiliate
of Coopers & Lybrand L.L.P.
-37-
<PAGE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Nineteen ninety six was an excellent year for the U.S. equity market with the
S&P 500 enjoying a total return of 22.96% for the full year. For the same
twelve-month period, the Standish Equity Fund enjoyed a total return of 26.84%.
During 1996, there was a marked pattern of performance being differentiated by
capitalization group. Beginning in the late spring of the year, small and medium
capitalization stocks began to trail in terms of relative performance and by
year end a significant performance gap had developed. For the full year, the S&P
Mid-Cap 400 Index showed a total return of 19.20% while the Frank Russell 2000,
an index covering smaller capitalization stocks, showed a gain of only 16.53%.
By industry sector, the best groups within the S&P 500 in 1996 were Financials
and Technology stocks with both groups registering gains of over 30%.
Performance was relatively evenly dispersed, however, with eight of nine sectors
showing a gain of over 15% for the year.
Only the Utility group lagged (with a total return of just over 1%).
Within the Standish Equity Fund, performance was hurt by the fact that our
average capitalization is smaller than that of the S&P 500. Despite this
performance drag arising from our capitalization profile, returns exceeded the
index return due to strong stock selection results. Particularly notable was
performance in Consumer Cyclicals, Technology, and Financials where our results
for the year were ahead of the comparable S&P groups. In addition, we were
helped by modest underweightings in Utilities and Basic Industries - two sectors
where performance lagged that of the broad market.
Our stock selection process is driven by proprietary modeling techniques that
utilize a combination of valuation and earnings growth measures to determine the
relative attractiveness of equity securities. We are committed to the consistent
application of our selection disciplines. In 1996 those disciplines once again
provided us with a very positive starting point for our portfolio construction
process. For the full year, stocks ranked in the top ten percent of our universe
outperformed the universe by over 9.5%. The best performing of our indicators
for the year was the Estimate Trend factor, indicating stocks where estimates
are rising. Our consistent adherence to risk control disciplines and a well
diversified, fully invested fund positioning was also important.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Equity
Fund have been invested in a "Portfolio" entity, having substantially the same
investment objective, policies and restrictions as the corresponding fund. The
fund in which you are invested is now considered a "Spoke," sharing in the
activities of the Portfolio proportionately according to its relative size.
We are very pleased to be able to report another strong year for the Standish
Equity Fund and are grateful to our shareholders for their continuing support.
We remain focused on the Fund's investment success and are pleased to be working
on your behalf.
Ralph S. Tate
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Equity Fund and the S&P 500 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Equity Fund
compared with the S&P 500 Index for the period January 2, 1991 to December 31,
1996, based upon a $100,000 investment. Also included are the average annual
total returns for one year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Equity Portfolio, (Portfolio) at value (Note 1A) $ 106,277,516
Other assets 2,576
----------------
Total assets 106,280,092
Liabilities
Distribution payable $ 285,108
Payable for Fund shares redeemed 125,000
Accrued trustee fees 484
Accrued expenses and other liabilities 14,718
--------------
Total liabilities 425,310
----------------
Net Assets $ 105,854,782
================
Net Assets consist of:
Paid-in capital $ 81,035,794
Undistributed net investment income (loss) 88,950
Accumulated net realized gain (loss) 7,655,446
Net unrealized appreciation (depreciation) 17,074,592
----------------
Total $ 105,854,782
================
Shares of beneficial interest outstanding 2,728,741
================
Net asset value, offering price and redemption price per share $ 38.79
================
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B):
Interest income $ 77,789
Dividend income (net of withholding tax of $3,380) 612,003
Interest income allocated from Portfolio 117,893
Dividend income allocated from Portfolio (net of withholding tax of $1,452) 1,453,073
Expenses allocated from Portfolio (479,297)
--------------
Total income 1,781,461
Expenses
Investment advisory fee (Note 3) $ 163,530
Accounting, custodian, and transfer agency fees 46,088
Trustee fees 1,627
Legal and audit services 32,621
---------------
Total expenses 243,866
Deduct:
Waiver of investment advisory fee (Note 3) (12,085)
---------------
Net expenses 231,781
--------------
Net investment income (loss) 1,549,680
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities 3,307,925
Financial futures 164,221
Net realized gain (loss) from Portfolio on:
Investment securities 12,874,303
Financial futures 428,300
---------------
Net realized gain (loss) 16,774,749
Change in unrealized appreciation (depreciation):
Investment securities 3,350,428
Financial futures (58,213)
From Portfolio 3,404,697
---------------
Net change in unrealized appreciation (depreciation) 6,696,912
--------------
Net realized and unrealized gain (loss) 23,471,661
--------------
Net increase (decrease) in net assets resulting from operations $ 25,021,341
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 1,549,680 $ 2,196,110
Net realized gain (loss) 16,774,749 21,564,705
Change in net unrealized appreciation (depreciation) 6,696,912 10,229,026
----------------- ----------------------
Net increase (decrease) in net assets from operations 25,021,341 33,989,841
----------------- ----------------------
Distributions to shareholders
From net investment income (1,481,454) (2,203,103)
From net realized gains on investments (11,604,448) (8,605,084)
----------------- ----------------------
Total distributions to shareholders (13,085,902) (10,808,187)
----------------- ----------------------
Fund share (principal) transactions (Note 6)
Net proceeds from sale of shares 21,565,418 32,648,683
Net asset value of shares issued to shareholders
in payment of distributions declared 12,463,945 10,246,215
Cost of shares redeemed (28,642,403) (64,134,926)
----------------- ----------------------
Increase (decrease) in net assets from Fund share transactions 5,386,960 (21,240,028)
----------------- ----------------------
Net increase (decrease) in net assets 17,322,399 1,941,626
Net Assets:
At beginning of period 88,532,383 86,590,757
----------------- ----------------------
At end of period (including undistributed net investment income
of $88,950 and distributions in excess of net investment income of
$20,274 at December 31, 1996 and 1995, respectively) $ 105,854,782 $ 88,532,383
================= ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Highlights
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 34.81 $ 28.66 $ 30.89 $ 26.28 $ 25.66
------------ ------------- ------------- ------------- -----------
Income from investment operations:
Net investment income ** 0.60 0.76 0.45 0.50 0.56
Net realized and unrealized gain
(loss) on investments 8.52 9.94 (1.62) 5.57 1.81
------------ ------------- ------------- ------------- -----------
Total from investment operations 9.12 10.70 (1.17) 6.07 2.37
------------ ------------- ------------- ------------- -----------
Less distributions to shareholders:
From net investment income (0.56) (0.78) (0.44) (0.47) (0.54)
From net realized gains on investments (4.58) (3.77) (0.62) (0.99) (1.19)
From paid-in capital --- --- --- --- (0.02)
------------ ------------- ------------- ------------- -----------
Total distributions declared to shareholders (5.14) (4.55) (1.06) (1.46) (1.75)
------------ ------------- ------------- ------------- -----------
Net asset value - end of period $ 38.79 $ 34.81 $ 28.66 $ 30.89 $ 26.28
============ ============= ============= ============= ===========
Total Return 26.84% 37.55% (3.78%) 20.79% 9.52%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) ** 0.71% 0.69% 0.70% 0.80% 0.00%
Net investment income ** 1.53% 2.05% 1.55% 1.29% 2.52%
Portfolio turnover (2) 41% 159% 182% 192% 92%
Average broker commission rate (2) $ 0.0499 $
Net assets, end of period (000's omitted) $ 105,855 $ 88,532 $ 86,591 $ 72,916 $ 14,679
* Audited by other auditors.
** For the year ended December 31, 1996 and the two year period ended December 31, 1993, the investment adviser did not impose
a portion of its advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income per share $ 0.59 $ 0.47 $ 0.34
Ratios (to average daily net assets):
Expenses (1) 0.72% 0.97% 1.00%
Net Investment income 1.52% 1.12% 1.52%
(1Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio are shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Equity Fund (the "Fund") is a separate diversified
investment series of the Trust. On May 3, 1996, the Fund contributed
substantially all of its investable assets to the Standish Equity
Portfolio (the "Portfolio"), a subtrust of Standish, Ayer & Wood Master
Portfolio (the "Portfolio Trust"), which is organized as a New York
trust, in exchange for an interest in the Portfolio. The Fund invests
all of its investable assets in the interests in the Portfolio, which
has the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio (approximately 100% at December 31,
1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio
are included elsewhere in this report and should be read in conjunction
with the Fund's financial statements. The following is a summary of
significant accounting policies followed by the Fund in the preparation
of the financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
C. Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all the investors in the
Portfolio.
(2) ....Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
<PAGE>
(3) ....Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.50% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.71% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $12,085 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund pays no compensation directly to its trustees
who are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Fund from SA&W. Certain of the
trustees and officers of the Trust are directors or officers of SA&W.
(4) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
Investments $38,138,153 $37,334,991
================== ==================
(5) ....Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$113,559,410 and $25,080,761, respectively.
(6) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------------------------------
<S> <C> <C>
Shares sold 561,325 932,595
Shares issued to shareholders in payment of distributions declared 325,504 294,939
Shares redeemed (701,269) (1,705,536)
------------------- -----------------------
Net increase (decrease) 185,560 (478,002)
=================== =======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Equity Fund: We have audited the accompanying statement of assets
and liabilities of Standish, Ayer & Wood Investment Trust: Standish Equity Fund
(the "Fund"), as of December 31, 1996, and the related statement of operations
for the year then ended, changes in the net assets for each of the two years in
the period then ended and financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 1992, presented
herein, were audited by other auditors, whose report, dated February 12, 1993,
expressed an unqualified opinion on such financial highlights. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Equities - 97.8%
- -------------------------------------------------------------------------
Basic Industry - 5.7%
- -------------------------------------------------------------------------
<S> <C> <C>
Avery-Dennison Corp. 44,400 1,570,650
Bemis Co 14,800 545,750
Cleveland-Cliffs Inc. 7,700 349,388
Dexter Corp. 15,500 494,063
Morton International Inc. 12,200 497,150
Oakwood Homes Corp. 22,100 505,538
Potash Corp. of Saskatchewan 7,000 595,000
PPG Industries Inc. 18,100 1,015,863
Southdown Inc. 15,600 485,550
----------------
6,058,952
----------------
Capital Goods - 10.6%
- -------------------------------------------------------------------------
Case Corp. 12,300 670,350
Caterpiller Tractor Inc. 9,700 729,925
Crane Company 16,200 469,800
Deere & Co. 28,600 1,161,875
Dover Corp. 9,600 482,400
Duriron Inc. 12,100 328,213
Harnischfeger Industries Inc. 9,700 466,813
Ingersoll Rand Co 21,400 952,300
JLG Industries Inc 30,600 489,600
McDonnell Douglas Corp. 32,400 2,073,600
Timken Co. 15,900 729,413
Trinity Industries 13,200 495,000
United Technologies Corp. 34,000 2,244,000
----------------
11,293,289
----------------
Consumer Cyclical - 13.2%
- -------------------------------------------------------------------------
AMR Corp.* 10,000 881,250
Black & Decker Corp. 32,600 982,075
Carnival Corp. 55,400 1,828,200
Chrysler Corp. 65,700 2,168,100
Claire's Stores Inc. 32,900 427,700
Dayton-Hudson Corp. 27,600 1,083,300
Jones Apparel Group Inc.* 50,800 1,898,650
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Consumer Cyclical - (continued)
- -------------------------------------------------------------------------
Leggett & Platt Inc. 21,500 744,425
Price/Costco Inc.* 21,300 535,163
Ross Stores Inc. 23,200 1,160,000
TJX Companies Inc. 13,100 620,613
UAL Corp.* 27,700 1,731,250
----------------
14,060,726
----------------
Consumer Stable - 14.4%
- -------------------------------------------------------------------------
Alberto Culver Company, Class B 10,700 513,600
American Stores Co 23,500 960,563
Conagra Inc. 29,500 1,467,625
Dean Foods Company 17,500 564,375
Eastman Kodak Company 18,400 1,476,600
First Brands Corp. 27,100 768,963
Food Lion Inc. 86,800 849,008
Great Atlantic & Pacific Tea Co 14,600 465,375
Kingworld Productions Inc.* 33,600 1,239,000
Omnicom Group 21,500 983,625
Philip Morris Companies, Inc. 15,500 1,745,688
Safeway Inc.* 25,200 1,077,300
Universal Foods Corp 16,500 581,625
Wallace Computer Services 60,000 2,070,000
Washington Post Co. 1,400 469,175
----------------
15,232,522
----------------
Energy - 9.4%
- -------------------------------------------------------------------------
Atlantic Richfield Co. 5,700 755,250
British Petroleum Plc 23,684 3,348,395
Camco International Inc. 12,600 581,175
Phillips Petroleum Co. 36,100 1,597,425
Reading & Bates Corp.* 17,000 450,500
Texaco Inc. 24,400 2,394,250
Unocal Corp. 20,500 832,813
----------------
9,959,808
----------------
Financial - 13.4%
- -------------------------------------------------------------------------
American Bankers Insurance Group 21,900 1,119,638
BankAmerica Corp. 10,400 1,037,400
Cigna Corp. 14,800 2,022,050
Comerica Inc. 23,700 1,241,288
Conseco Inc. 18,400 1,173,000
First Chicago NBD Corp 9,200 494,500
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Financial - (continued)
- -------------------------------------------------------------------------
First Union Corp (N.E.) 17,000 1,258,000
Mercantile Bankshares 16,600 531,200
Old Republic International Corp. 17,000 454,750
Regions Financial Corp. 19,000 982,063
Reliastar Financial Corp. 22,200 1,282,050
Southtrust Corp. 28,100 979,988
Travelers Group Inc. 34,700 1,574,513
----------------
14,150,440
----------------
Health Care - 9.7%
- -------------------------------------------------------------------------
Abbott Laboratories 24,100 1,223,075
Amgen Inc.* 12,800 696,000
Beckman Instruments Inc. 11,000 422,125
Bristol-Myers Squibb Co 19,300 2,098,875
Coherent Inc.* 24,300 1,026,675
Lincare Holdings Inc.* 25,700 1,053,700
Merck & Co. Inc. 13,400 1,061,950
Schering-Plough Corp. 23,200 1,502,200
Sybron International Corp* 17,400 574,200
Watson Pharmaceutical Inc.* 14,700 660,581
----------------
10,319,381
----------------
Reits - 2.2%
- -------------------------------------------------------------------------
Beacon Properties Corp. 16,700 611,638
General Growth Properties 15,900 512,775
Patriot American Hospitality 11,700 504,563
Starwood Lodging Trust 13,000 716,625
----------------
2,345,601
----------------
Technology - 11.4%
- -------------------------------------------------------------------------
Advanced Technology Labs Inc.* 17,800 551,800
Belden Inc. 9,700 358,900
Cadence Design Systems Inc* 20,600 818,850
Compaq Computer* 9,700 720,225
Computer Associates Intl Inc. 22,400 1,114,400
Dell Computer Corp.* 21,000 1,115,625
Harris Corp.Inc. 25,600 1,756,800
Intel Corp. 15,400 2,016,438
Raychem Corp. 12,900 1,033,613
Sci Sys Inc.* 17,200 767,550
Storage Technology Corp.* 20,800 990,600
Sun Microsystems Corp.* 35,200 904,200
----------------
12,149,001
----------------
Value
Security Rate Maturity Shares (Note 1A)
- ------------------------------------------------------------------------- ------- --------- --------------- ----------------
Utilities - 7.8%
- -------------------------------------------------------------------------
Ameritech Corp. 32,100 1,946,063
Bellsouth Corp 25,800 1,041,675
CMS Energy Corp. 26,900 904,513
DQE Inc. 20,550 595,950
DTE Energy Company 23,900 773,763
FPL Group Inc. 17,000 782,000
Nynex Corp 22,800 1,097,250
Panenergy Corp. 26,300 1,183,500
----------------
8,324,714
----------------
Total Equities (Cost $86,830,426) 103,894,434
----------------
Short-Term Investments - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $2,108,307 (Collateralized by Par
FNMA FNARM with a rate of 6.084% and a maturity date of Value
-------------
12/01/35 with a market value of $2,149,790. 2,107,637 2,107,637
----------------
U.S. Government Agency - 0.1%
- -------------------------------------------------------------------------
FNMA ** 5.40% 1/17/1997 150,000 149,348
----------------
Total Short-Term Investments (Cost $2,256,985) 2,256,985
----------------
Total INVESTMENTS (Cost $89,087,411) - 99.9% 106,151,419
Other Assets less Liabilities - 0.1% 126,215
----------------
NET ASSETS - 100.0% 106,277,634
================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security is pledged as collateral for margin deposits (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C>
Investments, at value (Note 1A) (identified cost, $89,087,411) $ 106,151,419
Interest and dividends receivable 219,299
Deferred organizational costs (Note 1E) 85,593
----------------
Total assets 106,456,311
Liabilities:
Payable for daily variation margin on open
financial futures contracts (Note 5) $ 99,571
Payable to investment adviser (Note 1E) 40,912
Accrued trustee fees 582
Accrued expenses and other liabilities 37,612
--------------
Total liabilities 178,677
----------------
Net Assets (applicable to investors' beneficial interests) $ 106,277,634
================
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 117,893
Dividend income (net of withholding tax of $1,452) 1,453,074
---------------
Total income 1,570,967
Expenses
Investment advisory fee (Note 2) $ 345,301
Custodian and accounting expenses 81,888
Legal and audit services 23,672
Amortization of organization expense (Note 1E) 10,067
Trustee fees (Note 2) 2,459
Miscellaneous 15,910
---------------
Total expenses 479,297
---------------
Net investment income (loss) 1,091,670
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities 12,874,316
Financial futures 428,300
---------------
Net realized gain (loss) 13,302,616
Change in unrealized appreciation (depreciation)
Investment securities 3,338,425
Financial futures 66,274
---------------
Change in net unrealized appreciation (depreciation) 3,404,699
---------------
Net realized and unrealized gain (loss) 16,707,315
---------------
Net increase (decrease) in net assets from operations $ 17,798,985
===============
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 1,091,670
Net realized gain (loss) 13,302,616
Change in net unrealized appreciation (depreciation) 3,404,699
----------------
Net increase (decrease) in net assets from operations 17,798,985
----------------
Capital transactions
Assets contributed by Standish Equity Fund at commencement
(including unrealized gain of $13,669,897) 97,994,616
Contributions 15,564,794
Withdrawals (25,080,761)
----------------
Increase in net assets resulting from capital transactions 88,478,649
----------------
Total increase (decrease) in net assets 106,277,634
Net Assets
At beginning of period ---
----------------
At end of period $ 106,277,634
================
</TABLE>
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Supplementary Data
Statement of Changes in Net Assets
For the Period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.69 % *
Net investment income 1.58 % *
Portfolio Turnover 78 %
Average broker commission per share $ 0.048(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Equity Portfolio Series (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued on an amortized cost basis. If the Portfolio
acquires a short term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth
day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transaction and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.50% of the Portfolio's average daily
net assets. The Portfolio pays no compensation directly to its trustees
who are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Portfolio from SA&W . Certain of
the trustees and officers of the Portfolio Trust are directors or
officers of SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than purchased
option transactions and short-term obligations, were as follows:
Purchases Sales
Investments $75,936,681 $81,731,354
================== ==================
(4) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $89,104,533
Gross unrealized appreciation $17,849,184
Gross unrealized depreciation (802,298)
-------------------
Net unrealized appreciation $17,046,886
===================
(5) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
<PAGE>
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The Portfolio entered into the following
transactions during the period May 3, 1996 through December 31, 1996:
# of Contracts Premiums
-------------- --------
Written Calls
Outstanding, Beginning of Period 0 $0
Options Written 1 27,974
Options Exercised 0 0
Options Expired 0 0
Options Closed (1) (27,974)
------------------- -------------------
Outstanding, End of Period 0 $0
------------------- -------------------
Futures Contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or index,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio had entered into the following financial futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ----------------------------- ------------------------- ------------------------------------ --------------
<S> <C> <C> <C> <C>
S+P 500 (5 Contracts) Long 03/21/97 $1,861,250 $10,588
==================================== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient cash
and/or securities to cover margin requirements on open futures
contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Equity Portfolio: We have audited the accompanying statement of assets
and liabilities of Standish Equity Portfolio, including the portfolio of
investments as of December 31, 1996, and the related statement of operations,
the statement of changes in net assets and the supplementary data for the period
from May 3, 1996 (commencement of operations) to December 31, 1996. These
financial statements and supplementary data are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and supplementary data based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Equity Portfolio as of December 31, 1996, and the results
of its operations, changes in its net assets and supplementary data for the
respective stated period, in conformity with United States generally accepted
accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
Standish, Ayer & Wood Investment Trust
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Management Discussion
The international equity markets did not provide as exciting returns for US
investors in 1996 as did our domestic market. The return of the MSCI EAFE was
6.04%. The Standish International Equity Fund return was 7.44% while its
benchmark, which changed back from EAFE GDP in December to EAFE, was 7.24%. The
fund was ahead of its benchmark for virtually the entire year but gave up much
of its incremental return in the second half due to negative experience in
emerging markets.
For the year, there were fairly attractive gains in many foreign markets, with
twelve of the twenty EAFE markets providing returns in excess of 20% in local
currencies. In fact, the strong US return placed it below median in local market
returns of countries in the MSCI World Index. Unfortunately, Japan--with the
largest weighting in EAFE--was a notable exception, off 4.9% for the year in
local terms. The dollar strengthened against most currencies, increasing 4.7%
against an EAFE-weighted basket of currencies.
The fund had most of the extremes--best and worst markets--correctly positioned
in 1996, as we were overweight Spain--the strongest market in the index--and
underweight Singapore and Switzerland--two of the weakest markets-- for
virtually the entire year. Our largest overweights for the year were in
Scandinavia, especially Finland (up 33.9% in dollar terms) and Norway (up 28.6%
in dollar terms). Our largest underweights besides Switzerland were in Germany
and the United Kingdom which were up mid-teens in local terms.
Our Japanese weighting during the course of the year averaged out to a very
slight overweight. Even this small overweight hurt performance against our
benchmark and in comparison with other managers, who were generally
underweighted. Most price multiples in Japan are at relatively low historical
levels and earnings are growing. Meanwhile, ten-year bond yields are at 2.6%.
Emerging markets performed relatively well in the first half of 1996, and the
fund benefited from its position in emerging markets, which averaged returns of
approximately 15% in the first half. Performance reversed in the second half of
1996, resulting in a return for the year of only 3.9%, even lower than that of
EAFE. We had reduced our position in emerging markets to less than 5% of the
fund by year end, but the decline in return of this area had an adverse impact
on the fund return in the latter half of the year.
In December we began implementing some exciting enhancements to the fund. We
began using active stock selection techniques which we believe will add value
within markets. These techniques are similar to those used by Standish in our
core equity fund and are based on investment models developed during twelve
years of experience managing international equity portfolios. We will be
focusing on stocks that have attractive valuation (i.e. low price multiples
relative to history) and improving growth prospects. The other significant
change, alluded to in the first paragraph, is the reversion to use of
cap-weighted EAFE as our benchmark. Cap-weighted EAFE rather than GDP EAFE is
the industry standard and was the fund's benchmark from 1988 until 1995. The
discontinuities of the GDP weighted benchmark and its lack of connection to
liquidity considerations make it too cumbersome for continued use.
Finally, we would like to thank all of our shareholders for your continued
support. We are working diligently to earn and reward that support in 1997.
Remi Browne
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Comparison of Change in Value of $100,000 Investments in Standish
International Equity Fund, the EAFE GDP Index and the EAFE Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish International
Equity Fund compared with the EAFE GDP Index and the EAFE Index for the period
December 8, 1988 to December 31, 1996, based upon a $100,000 investment. Also
included are the average annual total returns for one year, five year, and since
inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund Series
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Equities - 96.6%
- ---------------------------------
Austria - 3.4%
- ---------------------------------
<S> <C> <C>
BWT STAMM 2,200 $ 227,439
Creditanstalt-Bankverein 7,800 528,215
Creditanstalt-Bkverein:Vorzug 1,500 69,290
Ea-Generali AG 500 147,820
Oemv AG * 3,300 372,256
Radex-Heraklith Indust. AG 9,200 291,537
---
--------------
1,636,557
-----------------
Belgium - 3.0%
- ---------------------------------
Almanij 800 262,212
Banque Bruxelles Lampert SA * 1,200 254,523
Electrabel SA 1,000 236,685
Groupe Bruxelles Lambert SA * 1,800 231,737
Petrofina SA 800 254,649
Tessenderlo Chemie 400 171,762
---
--------------
1,411,568
-----------------
Denmark - 3.6%
- ---------------------------------
Danisco As 3,569 216,879
Den Danske Bank 4,165 335,813
DFDS A/S 350 258,432
FLS Industries As Cl B 1,559 199,794
Novo-Nordisk As 1,803 339,709
Tele Danmark Cl B 6,566 362,221
---
--------------
1,712,848
-----------------
Finland - 2.0%
- ---------------------------------
Nokia Corp. ADR A 7,000 402,500
Pohjola Insurance Company, Class A 7,400 172,101
Upm-Kymmeme 9,440 198,000
Valmet Cl A 10,000 174,752
---
--------------
947,353
-----------------
France - 3.0%
- ---------------------------------
Banque National De Paris 4,900 189,531
Bertrand Faure 4,800 186,859
Casino French Ord 3,500 162,882
CGIP 500 137,821
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
France - (continued)
- ---------------------------------
Elf Gabon SA 900 $ 229,702
ERAMET SLN 1,900 99,547
Europe 1 Communication 700 148,319
SEITA 6,500 271,694
---
--------------
1,426,355
-----------------
Germany - 5.3%
- ---------------------------------
Commerzbank AG 17,700 449,250
Heidelberger Zement AG * 5,700 460,662
Kolbenschmidt AG * 30,700 422,486
Muenchener Rueckversicherungs-Gesellschaft AG 180 449,270
Puma AG 11,400 386,290
Viag AG 900 352,872
---
--------------
2,520,830
-----------------
Hong Kong - 4.8%
- ---------------------------------
Elec & Eltek International 1,320,000 290,110
Great Eagle Holdings Ltd 157,000 647,485
Guoco Group Ltd 74,000 414,247
Harbour Centre Development 150,000 221,073
Hong Kong Telecom 83,000 133,594
New Asia Realty & Trust Co., Class A 81,000 298,972
Swire Pacific Ltd., Class A 30,000 286,037
---
--------------
2,291,518
-----------------
Ireland - 4.1%
- ---------------------------------
Allied Irish Banks PLC 68,300 458,038
Avonmore Foods PLC, Class A 34,000 100,187
CRH PLC 12,100 122,841
CRH PLC 16,600 172,046
DCC PLC 22,300 97,434
Fii Fyffes PLC 1 197,700 368,285
Hibernian Group PLC 47,000 226,844
Smurfit (Jefferson) Group 142,700 433,784
---
--------------
1,979,459
-----------------
Italy - 4.8%
- ---------------------------------
Banca Popolare Di Milano 58,000 294,162
Danieli & Company 36,000 295,418
ENI SPA 101,000 518,830
Parmalat Finanziaria SPA 76,000 116,076
Telecom Italia SPA 228,000 591,389
Unipol-PTC Pfd 222,000 453,061
---
--------------
2,268,936
-----------------
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - 32.6%
- ---------------------------------
Ajinomoto Co Inc 16,000 $ 162,576
Aoyama Trading Company Ltd 15,000 397,830
Asahi Glass Co Ltd 31,000 290,967
Canon Inc. 17,000 374,752
Chugoku Bank Ltd 27,000 395,247
Credit Saison 24,000 535,262
Daikin Industries Ltd 43,000 381,383
Fanuc Company 9,000 287,523
Fuji Bank 25,000 363,816
Fuji Heavy Industry 90,000 362,697
Fuji Photo Film 10,000 328,942
Furukawa Company Ltd 100,000 335,831
Hokkaido Electric Power 8,000 157,065
Honda Motor Company Ltd 10,000 285,025
Industrial Bank of Japan 23,000 398,088
Japan Energy Corp 88,000 238,698
Japan Radio 37,000 395,074
Joyo Bank 56,000 336,588
Kawasaki Kisen Kaisha Ltd * 200,000 454,663
Komori Corp. 20,000 423,663
Kubota Corp. 52,000 250,306
Kurabo Industries 121,000 343,839
Kyushu Electric Power Company 20,000 387,497
Mitsubishi Gas Chemical Company 106,000 380,625
Mitsui Petrochemical 57,000 294,498
Mochida Pharmaceutical 37,000 356,841
NEC Corp. 13,000 156,721
Nippon Denso Corp. 12,000 288,298
Nissan Fire & Marine Insurance 87,000 479,463
Nitto Boseki Company Ltd * 126,000 341,772
Ono Pharmaceutical 17,000 505,037
Rinnai Corp 13,000 260,828
Seventy Seven Bank * 43,000 351,761
Shionogi & Company 49,000 348,945
Sumitomo Heavy Industries * 54,000 163,679
Sumitomo Warehouse 89,000 448,334
Suzuki Motor Company Ltd 40,000 365,108
Takashimaya Company 39,000 466,804
Takeda Chemical Industries Ltd 13,000 272,023
Takuma Company 25,000 273,400
Teijin Limited 53,000 230,931
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - (continued)
- ---------------------------------
Tokyo Broadcasting 34,000 $ 518,212
Toshiba Tungaloy 59,000 261,138
Toyo Suisan Kaisha Ltd 37,000 369,586
Yamaguchi Bank 25,000 365,969
Yodogawa Steel Works 29,000 176,053
---
--------------
15,563,358
-----------------
Malaysia - 4.3%
- ---------------------------------
Arab Malaysian Finance Berhad 48,000 256,532
Faber Group Berhad * 115,000 109,264
IGB Corporation 140,000 155,740
Landmarks Berhad 100,000 133,017
Malayan Cement Berhad 105,000 241,093
Pan-Malaysian Cement Works 115,000 116,093
Renong Berhad 144,000 255,392
Shell Refining Company Berhad 74,000 216,785
Systems Telekom Malaysia 29,000 258,314
Tan Chong Motor Holdings Berhad 117,000 198,242
UMW Holdings Berhad 27,000 126,128
---
--------------
2,066,600
-----------------
Norway - 5.2%
- ---------------------------------
Den Norske Bank 87,200 335,332
Elkem A/S, Series A * 12,600 207,660
Kvaerner Cl B 6,267 272,478
Leif Hoegh & Company 13,000 265,264
Norsk Hydro 14,379 780,903
Orkla As A-Aksjer * 6,137 430,582
Saga Petroleum As Cl A 12,300 206,577
---
--------------
2,498,796
-----------------
Singapore - 2.0%
- ---------------------------------
Creative Technology Ltd * 16,000 166,857
Development Bank of Singapore 20,000 270,000
Hong Kong Land Holdings Ltd * 37,000 102,860
Mandarin Oriental 93,000 131,130
Robinson & Co. 31,000 125,107
Singapore Airlines Ltd. 3,000 27,214
Singapore Telecom Ltd. 58,000 136,714
---
--------------
959,882
-----------------
<PAGE>
Value
Security Rate + Maturity Shares (Note 1A)
- --------------------------------- -------------- ----------- --------------- -----------------
Spain - 2.1%
- ---------------------------------
Banco de Santander 4,181 $ 267,365
Grupo Anaya SA 7,500 139,958
Iberdrola SA 27,274 386,181
Telefonica Nacional de Espana 9,274 215,168
---
--------------
1,008,672
-----------------
United Kingdom - 16.4%
- ---------------------------------
Arjo Wiggins Appleton PLC 108,000 330,964
Bank of Scotland * 74,000 390,199
British Petroleum Company PLC * 67,000 803,502
British Telecommunications PLC 45,000 304,308
Glaxo Wellcome PLC 25,200 408,990
Great Portland Estates PLC 135,000 481,885
Guinness PLC 47,000 369,330
Hazlewood Foods PLC 192,000 350,070
Hepworth PLC 69,000 299,454
HSBC Holdings PLC 23,000 514,644
Royal & Sun Alliance Insurance Group 60,500 461,949
Scottish Hydro-Electric PLC 55,000 308,845
Scottish Power PLC 51,500 311,233
Scottish Newcastle Breweries * 38,500 452,486
South West Water PLC 47,500 490,360
Storehouse PLC 101,000 446,978
Tesco PLC 72,500 440,626
Tomkins PLC 71,000 328,190
Unigate PLC 50,000 355,668
---
--------------
7,849,681
-----------------
TOTAL Equities (Cost $45,007,533) 46,142,413
-----------------
Short-Term Investments - 2.6%
- ---------------------------------
Par
Federal Agency Discount Notes - 2.6% Value
- ------------------------------------------------ -------------
FHLB + 5.300% 3/12/1997 $ 225,000 222,658
FNMA + 5.220% 1/16/1997 1,000,000 997,830
---
--------------
TOTAL Short-Term Investments (Cost $1,220,506) 1,220,488
-----------------
TOTAL INVESTMENTS (Cost $46,228,039) - 99.2% 47,362,901
Other Assets less Liabilities - 0.8% 375,614
-----------------
NET ASSETS - 100.0% $ 47,738,515
=================
Notes to the Schedule of Investments:
* Non-income producing security.
+ Rate noted is yield to maturity.
** Denotes all or part of security pledged as a margin deposit (see Note 6)
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $46,228,039) $47,362,901
Cash 306,510
Receivable for investments sold 10,701
Interest and dividends receivable 47,153
Net unrealized appreciation on forward foreign currency exchange contracts (Note 6) 382,340
Receivable for foreign dividend tax reclaims 97,316
Receivable from Investment Adviser (Note 2) 3,269
-----------------
Total assets 48,210,190
Liabilities
Distribution payable $252,106
Unrealized depreciation on forward foreign currency exchange contracts (Note 6) 186,398
Payable for daily variation margin on financial futures contracts (Note 6) 2,799
Accrued trustee fees (Note 2) 318
Accrued expenses and other liabilities 30,054
-----------------
Total liabilities 471,675
-----------------
Net Assets $47,738,515
=================
Net Assets consist of
Paid-in capital $43,985,314
Undistributed net investment income 8,961
Accumulated undistributed net realized gain (loss) 2,408,548
Net unrealized appreciation (depreciation) 1,335,692
-----------------
Total Net Assets $47,738,515
=================
Shares of beneficial interest outstanding 2,053,669
=================
Net asset value, offering price, and redemption price per share $23.25
=================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Dividend income (net of foreign withholding taxes of $90,911) $771,708
Interest income 403,047
-----------------
Total income 1,174,755
Expenses
Investment advisory fee (Note 2) $410,099
Accounting and transfer agent fees 98,176
Custody fees 85,628
Audit services 35,184
Legal fees 11,762
Registration costs 8,866
Insurance expense 2,683
Trustee fees (Note 2) 1,955
Miscellaneous 2,819
-----------------
Total expenses 657,172
Deduct:
Waiver of investment advisory fee (Note 2) (402,258)
-----------------
Net expenses 254,914
-----------------
Net investment income 919,841
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities 3,795,947
Financial futures contracts 744,905
Foreign currency and forward foreign exchange contracts (20,322)
-----------------
Net realized gain (loss) 4,520,530
Change in net unrealized appreciation (depreciation)
Investment securities (1,582,054)
Financial futures contracts (195,226)
Translation of assets and liabilities in foreign currencies
and forward foreign exchange contracts 264,316
-----------------
Change in net unrealized appreciation (depreciation) (1,512,964)
-----------------
Net realized and unrealized gain (loss) 3,007,566
-----------------
Net increase (decrease) in net assets from operations $3,927,407
=================
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------ -----------------
Increase (decrease) in Net Assets
From operations
Net investment income $919,841 $1,535,925
Net realized gain (loss) 4,520,530 555,805
Change in net unrealized appreciation (depreciation) (1,512,964) (1,331,247)
------------------ -----------------
Net increase (decrease) in net assets from operations 3,927,407 760,483
------------------ -----------------
Distributions to shareholders
From net investment income (993,584) ---
From net realized gains on investments (2,991,390) (293,380)
------------------ -----------------
Total distributions to shareholders (3,984,974) (293,380)
------------------ -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 3,568,994 12,167,766
Net asset value of shares issued to shareholders in
payment of distributions declared 3,425,523 272,750
Cost of shares redeemed (18,671,701) (57,868,870)
------------------ -----------------
Increase (decrease) in net assets from Fund share transactions (11,677,184) (45,428,354)
------------------ -----------------
Net increase (decrease) in net assets (11,734,751) (44,961,251)
Net assets
At beginning of period 59,473,266 104,434,517
------------------ -----------------
At end of period (including undistributed net investment income
of $8,961 and $103,026, at December 31, 1996 and
1995, respectively) $47,738,515 $59,473,266
================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Highlights
Year ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992*
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.54 $23.12 $26.74 $19.78 $22.20
---------- ---------- ---------- --------- ----------
Income from investment operations
Net investment income 0.47 0.04 0.21 0.26 0.26
Net realized and unrealized gain (loss) 1.28 0.45 (2.08) 7.29 (2.47)
---------- ---------- ---------- --------- ----------
Total from investment operations 1.75 0.49 (1.87) 7.55 (2.21)
---------- ---------- ---------- --------- ----------
Less distributions declared to shareholders
From net investment income (0.51) --- (0.12) (0.23) (0.21)
In excess of net investment income --- --- --- (0.36) ---
From net realized gains on investments (1.53) (0.07) (1.63) --- ---
---------- ---------- ---------- --------- ----------
Total distributions declared to shareholders (2.04) (0.07) (1.75) (0.59) (0.21)
---------- ---------- ---------- --------- ----------
Net asset value - end of period $23.25 $23.54 $23.12 $26.74 $19.78
========== ========== ========== ========= ==========
Total return 7.44% 2.14% (6.99%) 38.27% (9.95%)
Net assets at end of period (000 omitted) 47,739 59,473 104,435 92,419 56,539
Ratios (to average daily net assets)/Supplemental Data
Expenses 0.50** 1.22% 1.23% 1.34% 1.53%
Net investment income 1.80** 1.76% 1.52% 1.09% 1.18%
Portfolio turnover 163% 108% 75% 98% 98%
Average Broker Commission per share $0.0092(1)
* Audited by other auditors
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
** The investment adviser voluntarily waived a portion of its investment advisory fee.
Had this action not been undertaken, the net investment income per share and the
ratios would have been:
Net investment income per share $0.27
Ratios (to average daily net assets)
Expenses 1.29%
Net investment income 1.01%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (Trust) is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish International Equity Fund ("The Fund") is a separate,
diversified investment series of the Trust. The following is a summary
of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short - term instruments with
less than sixty-one days remaining to maturity when acquired by the
Fund are valued at amortized cost. If the Fund acquires a short - term
instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity
and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. .Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on debt securities when required
for federal income tax purposes. Dividend income is recorded on the
ex-dividend date. Realized gains and losses from securities sold are
recorded on the identified cost basis. The Fund does not isolate that
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from
investments.
C. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. .Foreign currency transactions--
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
E. .Distributions to shareholders--
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatment
of foreign currency transactions. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
<PAGE>
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company L.P. (SIMCO), for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.80% of the Fund's average daily net assets.
SIMCO has voluntarily agreed to limit total Fund operating expenses to
0.50% of the Fund's average daily net assets for the Fund's fiscal year
ended December 31, 1996. For the year ended December 31, 1996, SIMCO
voluntarily waived a portion of its investment advising fee in the
amount of $402,258. The Fund pays no compensation directly to its
trustees who are affiliated with SIMCO or to its officers, all of whom
receive remuneration for their services to the Fund from SIMCO. Certain
of the trustees and officers of the Trust are directors or officers of
SIMCO.
(3) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
Purchases Sales
Non-U.S. Government securities $50,287,925 $58,275,201
===================== ====================
U.S. Government securities $23,042,519 $26,292,529
===================== ====================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
--------------------- --------------------
<S> <C> <C>
Shares sold 147,664 535,762
Shares issued to shareholders in
payment of distributions declared 144,612 12,155
Shares redeemed (764,772) (2,539,577)
--------------------- --------------------
Net increase (decrease) (472,496) (1,991,660)
===================== ====================
</TABLE>
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate cost $46,247,098
Gross unrealized appreciation $2,608,342
Gross unrealized depreciation (1,492,539)
---------------------
Net unrealized appreciation (depreciation) $1,115,803
=====================
<PAGE>
(6) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Net Assets and Liabilities at market value. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are
added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option
written by the Fund is exercised, the premium reduces the cost basis of
the securities purchased by the Fund. The Fund, as writer of an option,
has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. During 1996, the Fund had no written option transactions, nor
were there any open written option contracts at December 31, 1996.
.........Forward currency exchange contracts--
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar and
other foreign currencies. The forward foreign currency and cross
currency exchange contracts are marked to market using the forward
foreign currency rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date. Forward currency exchange contracts
are used by the fund primarily to protect the value of the Fund's
foreign securities from adverse currency movements.
At December 31, 1996, the Fund held the following forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Receive Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
British Pound Sterling 4,074,592 1/10/97 $6,974,210 $6,635,507 $338,703
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,728,025 37,834
Japanese Yen 26,462,154 1/16/97 228,396 240,128 (11,732)
---------------- ---------------- ------------------
$10,968,465 $10,603,660 $364,805
================ ================ ==================
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Deliver Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
British Pound Sterling 4,070,000 1/10/97 $6,966,348 $6,811,552 ($154,796)
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,745,989 (19,870)
Japanese Yen 26,462,154 1/16/97 228,396 234,199 5,803
---------------- ---------------- ------------------
$10,960,603 $10,791,740 ($168,863)
================ ================ ==================
</TABLE>
<PAGE>
.........Futures contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not
correlate with changes in the value of hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in securities prices and foreign
currencies.
At December 31, 1996, the Fund held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Expiration Underlying Face Appreciation/
Contract Position Date Amount at Value (Depreciation)
- ----------------------------------- --------------- ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Topix Futures (6 contracts) Long 3/19/97 $774,637 ($1,136)
FTSE 100 Futures (2 contracts) Long 3/19/97 342,525 1,189
CAC 40 Index Future (2 contracts) Long 3/19/97 175,054 2,605
DAX Futures (1 contracts) Long 3/19/97 185,546 1,336
---------------- ----------------
$1,477,762 $3,994
================ ================
</TABLE>
At December 31, 1996, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
Interest rate swap contracts--
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. Credit and market risk exist with
respect to these instruments. The Fund expects to enter into these
transactions primarily for hedging purposes including, but not limited
to, preserving a return or spread on a particular investment or portion
of its portfolio, protecting against currency fluctuations, as a
duration management technique or protecting against an increase in the
price of securities the Fund anticipates purchasing at a later date.
During 1996, the Fund had no interest rate swap contract transactions.
At December 31, 1996, the Fund had no open interest rate swap
contracts.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish International Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish International Equity Fund (the
"Fund"), including the portfolio of investments, as of December 31, 1996, and
the related statement of operations for the year then ended, and changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish International Equity Fund as of
December 31, 1996, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of
shareholders and is not authorized for distribution to
prospective investors unless proceeded or accompanied by an
effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of
the Fund. Such offer is made only by the Fund's prospectus,
which includes details as to the offering and other material
information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Small capitalization stocks finished 1996 with a short, recovery rally, and
small cap stocks enjoyed a successful year on an absolute basis. The Standish
Small Capitalization Equity Fund net asset value (NAV) at December 31, 1996 was
$ 52.96. Total return for the Fund was 17.36%, while the Russell 2000 Index of
Smaller Companies increased 16.53%.
The most notable characteristics of the small cap equity market in 1996 were: 1)
small caps underperformed large cap stocks significantly, a third consecutive
year of underperformance; 2) the cap effect was very dramatic within the small
cap sector, with smaller caps underperforming large small caps; 3) the year saw
a surge in issuance of new stock by small companies, offset by strong mutual
fund inflows for much of the year, although overwhelming investors' capacity
toward the end of the year; 4) sector strength was led by energy and financial
stocks, with health care very weak and technology strengthening only late in the
year; and 5) earnings momentum and earnings quality for small cap stocks were
both weak compared to large cap stocks.
The Standish Small Capitalization Equity Fund is aggressively oriented toward
small high growth companies. In selecting companies in which to invest, the
emphasis is on strong financial and business positioning, moderate earnings
valuations, and high, sustainable earnings growth. This approach leads to above
average weightings in the high growth sectors of the economy, which include
healthcare, technology, and business services. In 1996 the healthcare sector
posted very weak returns, while business services and technology returns were
similar to the Russell 2000. Energy and finance, the two strongest performing
sectors in 1996, as well as capital goods, afford few high growth investment
opportunities; these sectors were underweighted in the fund. Finally, the fund
suffered from being in the low end of capitalization within small caps. We are
pleased that despite these impediments, the fund's return was in excess of its
benchmark for the year.
During the year the fund was always fully invested, which occasionally involved
the use of Russell 2000 or S&P Midcap Futures. Investment in foreign securities
(including American Depository Receipts) did not approach 5% of the fund assets
at any point in 1996, and it is not expected that such investments, which are
limited to 15% of assets, will be used more broadly in the future.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Small
Capitalization Equity Fund have been invested in a "Portfolio," having
substantially the same investment objective, policies and restrictions as the
corresponding fund. The fund in which you are invested is now considered a
"Spoke," sharing in the activities of the Portfolio proportionately according to
its relative size.
The Standish Small Capitalization Equity Fund closed to new investors on
December 20, 1996, although it remains open to additional investments from
existing shareholders. Its discipline had reached over $500 million in assets
managed by Standish, Ayer & Wood. The Standish Small Capitalization Fund II
opened on December 20, 1996. This fund will be buying stocks in the $400 million
to $1 billion market capitalization range.
Management continues to be committed to investing in high quality, high growth
companies with superb business positions, proven managements, and moderate price
earnings ratios. While the target market cap range of $250 million to $350
million has not been a lead area for market returns in the past two years, it is
an excellent area to find companies early in the power growth part of their
lifecycle, and we remain enthusiastic about investing in that part of the
market. We will continue to use this approach to guide the investments made by
the fund in the future. We sincerely appreciate your continued support and
interest in the Standish Small Capitalization Equity Fund.
Nicholas S. Battelle
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Small Capitalization Equity Fund, the S&P 500 Index, and the Russell
2000 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Small
Capitalization Equity Fund compared with the S&P 500 Index and the Russell 2000
Index for the period September 1, 1990 to December 31, 1996, based upon a
$100,000 investment. Also included are the average annual total returns for one
year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio (Portfolio), at value (Note 1A) $ 246,652,321
Receivable for Fund shares sold 43,945
Other assets 5,407
---------------
Total assets 246,701,673
Liabilities:
Distribution payable $ 2,546,692
Accrued expenses and other liabilities 24,143
---------------
Total liabilities 2,570,835
---------------
Net Assets $ 244,130,838
===============
Net Assets consist of:
Paid-in capital $ 207,857,565
Accumulated net realized gain (loss) 3,952,719
Net unrealized appreciation (depreciation) 32,320,554
===============
Total $ 244,130,838
===============
Shares of beneficial interest outstanding 4,609,813
===============
Net asset value, offering price and redemption price per share $ 52.96
===============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Operations
For the Year Ending December 31, 1996
Investment Income (Note 1B):
Interest income $ 108,348
Dividend income 89,921
Interest income allocated from Portfolio 305,276
Dividend income allocated from Portfolio 153,520
Expenses allocated from Portfolio (1,112,861)
--------------
Total income (455,796)
Expenses:
Investment advisory fee (Note 3) $ 396,796
Accounting, custody and transfer agent fees 76,102
Trustee fees 4,679
Legal and audit services 29,409
Registration fees 11,758
Miscellaneous 10,142
---------------
Total expenses 528,886
Deduct:
Waiver of investment advisory fee (Note 2) (13,118)
---------------
Net expenses 515,768
--------------
Net investment income (loss) (971,564)
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities transactions 15,760,827
Financial futures 87,425
Net realized gain (loss) from Portfolio on:
Investment securities transactions 20,794,956
Financial futures 717,750
---------------
Net realized gain (loss) 37,360,958
Change in unrealized appreciation (depreciation):
Investments securities 20,543,632
Financial futures 82,425
From Portfolio (23,038,475)
---------------
Net change in unrealized appreciation (depreciation) (2,412,418)
--------------
--------------
Net realized and unrealized gain (loss) 34,948,540
--------------
Net increase (decrease) in net assets resulting from operations $ 33,976,976
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statements of Changes in Net Assets
Year Ending Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment loss $ (971,564) $ (436,289)
Net realized gain (loss) 37,360,958 12,833,607
Change in net unrealized appreciation (depreciation) (2,412,418) 27,572,436
----------------------
----------------------
Net increase (decrease) in net assets from operations 33,976,976 39,969,754
---------------------- ----------------------
Distributions to shareholders
From net realized gains on investments (39,018,707) (4,170,634)
---------------------- ----------------------
Total distributions to shareholders (39,018,707) (4,170,634)
---------------------- ----------------------
Fund share (principal) transactions, (Note 6)
Net proceeds from sale of shares 63,681,602 56,591,350
Net asset value of shares issued to shareholders
in payment of distributions declared 36,043,859 3,924,054
Cost of shares redeemed (31,022,858) (23,435,868)
----------------------
----------------------
Increase (decrease) in net assets from Fund share transactions 68,702,603 37,079,536
----------------------
----------------------
Net increase (decrease) in net assets 63,660,872 72,878,656
Net Assets:
At beginning of period 180,469,966 107,591,310
----------------------
----------------------
At end of period $ 244,130,838 $ 180,469,966
====================== ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Financial Highlights
Year Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $53.46 $42.15 $48.97 $39.83 $39.99
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (loss) ** - - - (0.07) (0.11)
Net realized and unrealized gain
(loss) on investments 9.29 12.57 (1.84) 11.31 4.00
------------- ------------- ------------- ------------- -------------
Total from investment operations 9.29 12.57 (1.84) 11.24 3.89
------------- ------------- ------------- ------------- -------------
Less distributions to shareholders:
From net realized gains on investments (9.79) (1.26) (4.98) (2.10) (4.05)
------------- ------------- ------------- ------------- -------------
Total distributions declared to shareholders ($9.79) ($1.26) ($4.98) ($2.10) ($4.05)
------------- ------------- ------------- ------------- -------------
Net asset value - end of period $52.96 $53.46 $42.15 $48.97 $39.83
============= ============= ============= ============= =============
Total Return 17.36% 29.83% (3.66%) 28.21% 9.74%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment income (loss) (0.44%) (0.30%) (0.27%) (0.18%) (0.38%)
Portfolio turnover (2) 28% 112% 130% 144% 101%
Average broker commission rate (2) $0.0450 - - - -
Net assets, end of year (000 omitted) $244,131 $180,470 $107,591 $85,141 $50,950
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996, the investment adviser did not impose a portion of its
advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income (loss) per share $ (0.01)
Ratios (to average daily net assets):
Expenses (1) 0.76%
Net Investment income (loss) (0.45%)
(1) Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2) Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund (the "Fund") is a
separate diversified investment series of the Trust. On May 3, 1996,
the Fund contributed substantially all of its investable assets to the
Standish Small Capitalization Equity Portfolio (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, in exchange for an
interest in the Portfolio. The Fund invests all of its investable
assets in the interests in the Portfolio, which has the same investment
objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets
of the Portfolio (approximately 100% at December 31, 1996). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies followed by the Fund in the preparation of the
financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
C. Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the investors in
the Portfolio.
(2) Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
<PAGE>
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.60% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.75% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $13,118 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund pays no compensation directly to its trustees
who are affiliated with the SA&W or to its officers, all of whom
receive remuneration for their services to the Fund from SA&W. Certain
of the trustees and officers of the Trust are directors or officers of
SA&W.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
Investments $83,846,246 $54,111,851
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$253,391,982 and $23,335,985, respectively.
(6) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows: Effective December 20, 1996, the Fund was closed to new
investors.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
<S> <C> <C>
Shares sold 1,100,618 1,215,183
Shares issued to shareholders in payment of distributions declared 562,742 73,432
Shares redeemed (531,585) (465,355)
====================== ======================
Net increase (decrease) 1,131,775 823,260
====================== ======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish Small Capitalization Equity Fund (the "Fund"), as of December 31, 1996,
and the related statement of operations for the year then ended, changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights. We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Small Capitalization Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Equities - 98.6%
- -------------------------------------------------------------------------
Basic Industry - 1.8%
- -------------------------------------------------------------------------
<S> <C> <C>
Chirex Inc.* 162,000 $ 1,944,000
OM Group Inc. 90,450 2,442,150
-----------------
4,386,150
-----------------
Capital Goods - 10.1%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 160,900 4,364,407
Innotech Inc.* 174,100 1,349,275
LCC International Inc.* 234,100 4,330,850
Newpark Resources Inc.* 89,600 3,337,600
Nichols Research Corp.* 136,050 3,469,275
SBS Technologies Inc.* 85,800 3,174,600
Superior Services Inc.* 93,500 1,905,063
Triumph Group Inc.* 127,400 3,041,675
-----------------
24,972,745
-----------------
Consumer Cyclical - 3.3%
- -------------------------------------------------------------------------
Atlantic Coast Airlines Inc.* 183,800 2,251,550
Midwest Express Holdings* 58,500 2,106,000
NCI Building Systems Inc.* 110,700 3,819,150
-----------------
8,176,700
-----------------
Consumer Stable - 5.7%
- -------------------------------------------------------------------------
Custom Chrome Inc.* 128,100 2,578,013
Hughes Supply Inc. 91,500 3,945,938
Martek Biosciences* 80,600 1,612,000
Natures Sunshine Products Inc. 96,300 1,733,400
Opta Food Ingredients Inc.* 130,900 752,675
Robert Mondavi Corp. Cl A* 91,100 3,325,150
-----------------
13,947,176
-----------------
Financial - 3.5%
- -------------------------------------------------------------------------
CCC Information Services Group* 100,600 1,609,600
Corvel Corp.* 91,500 2,653,500
Rental Service Corp.* 59,300 1,630,750
Texas Regional Bancshares Cl A 83,900 2,852,600
-----------------
8,746,450
-----------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Growth Cyclical - 6.4%
- -------------------------------------------------------------------------
Anchor Gaming* 22,800 $ 917,700
Apple South Inc 174,600 2,357,100
Cannondale Corp.* 69,900 1,572,750
Cost Plus Inc* 57,700 1,103,513
Golden Bear Golf Inc.* 109,600 1,233,000
Homegate Hospitality Inc.* 183,800 1,539,325
Logan's Roadhouse Inc.* 90,200 2,119,700
Scientific Games Hldgs Corp.* 110,300 2,950,525
Suburban Lodges of America* 130,100 2,081,600
-----------------
15,875,213
-----------------
Health Care - 26.0%
- -------------------------------------------------------------------------
Alternative Living Services* 77,900 1,129,550
Arbor Health Care Company* 109,800 2,854,800
Arris Pharmaceutical Corp.* 163,300 2,204,550
ARV Assisted Living Inc.* 115,900 1,347,338
Atria Communities Inc.* 130,300 1,335,575
Ballard Medical Products 119,600 2,227,550
CN Bioscience Inc* 122,100 2,228,325
Conmed Corp.* 115,600 2,369,800
Emcare Holdings Inc.* 97,800 2,273,850
Fuisz Technologies Ltd.* 133,800 1,053,675
HCIA Inc.* 94,300 3,253,350
Horizon Mental Health Management* 103,800 2,880,450
Impath Inc.* 105,400 1,976,250
Inphynet Medical Management* 145,500 2,619,000
MDL Information Systems Inc.* 68,700 1,279,538
Medarex Inc.* 188,500 1,319,500
Medcath Inc.* 123,700 1,979,200
Medquist Inc.* 140,000 3,465,000
National Surgery Centers Inc.* 83,450 3,171,100
Neurogen Corp* 51,200 985,600
Oacis Healthcare Holdings* 187,100 1,262,925
Pharmaceutical Product Development* 125,000 3,156,250
Possis Medical, Inc.* 101,700 2,122,988
Protocol Systems Inc.* 121,600 1,580,800
Rochester Medical Corp.* 87,000 1,663,875
Sepracor Inc.* 180,400 2,999,150
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Health Care - (continued)
- -------------------------------------------------------------------------
Sunrise Assisted Living Inc.* 141,300 $ 3,938,738
Superior Consultant Holdings* 42,600 1,054,350
Urologix Inc* 9,800 159,250
Vertex Pharmaceuticals Inc.* 103,400 4,161,850
-----------------
64,054,177
-----------------
Services - 23.9%
- -------------------------------------------------------------------------
Analysts International Corp. 103,200 2,915,400
Barrett Business Services Inc.* 150,700 2,298,175
Bet Holdings Inc. Cl A* 106,600 3,064,750
BTG Inc.* 50,600 1,340,900
Central Parking Corp. 95,300 3,192,550
Coach USA Inc.* 169,600 4,918,400
Computer Horizons Corp.* 69,700 2,683,450
Computer Task Group Inc. 63,200 2,725,500
Cotelligent Group Inc.* 68,900 1,662,213
Data Processing Resources Corp.* 123,800 2,290,300
Emmis Broadcasting Corp. Cl A* 80,600 2,639,650
F.Y.I. Inc* 62,200 1,298,425
Harbinger Corp* 52,500 1,378,125
Healthplan Services Corp.* 107,800 2,277,275
May & Speh Inc.* 184,500 2,260,125
On Assignment Inc.* 64,200 1,893,900
Pacific Gateway Exchange Inc.* 62,600 2,284,900
Personnel Group of America Inc.* 88,200 2,127,825
Remedy Temp Inc.* 81,700 1,409,325
Right Management Consultants* 76,775 1,708,244
Rural/Metro Corp.* 80,000 2,880,000
Scandinavian Broadcast Systems* 146,800 2,550,650
Steiner Leisure Ltd* 115,500 2,324,438
Techforce Corp.* 94,200 706,500
United Dental Care Inc.* 81,500 2,475,563
Viisage Technology Inc.* 109,000 1,580,500
-----------------
58,887,083
-----------------
Technology - 17.9%
- -------------------------------------------------------------------------
Advanced Technology Material* 149,000 2,570,250
Aurum Software Inc.* 21,800 504,125
CFM Technologies Inc* 91,000 1,888,250
Computational Systems Inc.* 78,500 1,511,125
Datastream Systems Inc.* 133,900 2,410,200
Gensym Corp.* 148,400 1,771,525
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Technology -(continued)
- -------------------------------------------------------------------------
Hadco Corporation* 64,900 $ 3,180,100
Indus Group Inc.* 156,000 4,017,000
Lecroy Corp.* 78,200 2,932,500
Natural Microsystems Corp.* 65,600 2,066,400
P-Com Inc.* 53,800 1,593,825
Perceptron Inc.* 81,500 2,791,375
Photronics Inc.* 44,200 1,204,450
PRI Automation Inc.* 26,800 1,219,400
Project Software & Development* 66,200 2,805,225
Quickturn Design Systems Inc.* 131,800 2,701,900
Speedfam International Inc.* 36,000 1,026,000
Stanford Telecommunications* 53,600 1,849,200
TCSI Corp.* 86,800 542,500
Triquint Semiconductor Inc* 58,000 1,529,750
Ultrak Inc.* 91,500 2,790,750
Videoserver Inc.* 26,400 1,122,000
-----------------
44,027,850
-----------------
Total Equities (Cost $210,820,515) 243,073,544
-----------------
Short-Term Obligations - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $5,051,027 (Collateralized by
FNMA FNARM with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $5,150,412. 5,049,423 5,049,423
-----------------
U.S. Government - 0.1% Rate Maturity
- ------------------------------------------------------------------------- ------- ----------
Federal Farm Credit Bank ** 5.46% 1/17/1997 10,000 9,968
FNMA ** 5.40 1/17/1997 200,000 199,130
-----------------
209,098
-----------------
Total Short-Term Obligations (Cost $5,258,521) 5,258,521
-----------------
Total INVESTMENTS (Cost $216,079,036) - 100.7% 248,332,065
Other Assets less Liabilities - -0.7% (1,679,645)
-----------------
NET ASSETS - 100.0% $ 246,652,420
=================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security pledged as a margin deposit (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $216,079,036) $ 248,332,065
Cash 6
Receivable for investments sold 7,800
Interest and dividends receivable 9,105
Deferred organization costs (Note 1E) 85,593
--------------------
Total assets 248,434,569
Liabilities:
Payable for investments purchased $ 1,611,865
Payable for daily variation margin on open
financial futures contracts (Note 5) 20,062
Accrued investment advisory fee (Note 2) 35
Accrued trustee fees 646
Payable to investment adviser (Note 1E) 97,618
Accrued expenses and other liabilities 51,923
-----------------
Total liabilities 1,782,149
--------------------
Net Assets (applicable to investors' beneficial interests) $ 246,652,420
====================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 305,276
Dividend income 153,520
-----------------
Total income 458,796
Expenses
Investment advisory fee (Note 2) $ 920,742
Custody and accounting 125,602
Legal and audit services 32,620
Registration costs 10,067
Insurance 4,839
Miscellaneous 18,991
----------------
Total expenses 1,112,861
Net investment income (loss) (654,065)
-----------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss)
Investment securities 20,794,956
Financial futures 717,750
----------------
Net realized gain (loss) 21,512,706
Change in unrealized appreciation (depreciation)
Investment securities (22,995,625)
Financial futures (42,850)
----------------
Change in net unrealized appreciation (depreciation) (23,038,475)
-----------------
Net realized and unrealized gain (loss) (1,525,769)
-----------------
Net increase (decrease) in net assets from operations $ (2,179,834)
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ (654,065)
Net realized gain (loss) 21,512,706
Change in net unrealized appreciation (depreciation) (23,038,475)
--------------------
Net increase (decrease) in net assets from operations (2,179,834)
--------------------
Capital transactions
Assets contributed by Standish Small Capitalization Equity Fund at
commencement (including unrealized appreciaiton of $55,359,029) 233,108,124
Contributions 39,060,115
Withdrawals (23,335,985)
--------------------
--------------------
Increase in net assets resulting from capital transactions 248,832,254
--------------------
Total increase (decrease) in net assets 246,652,420
Net Assets:
At beginning of period -
--------------------
At end of period $ 246,652,420
====================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.73% *
Net investment income (loss) (0.43%) *
Portfolio turnover 76%
Average broker commission per share $0.0434(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale or portfolio securities.
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust. The
following is a summary of significant accounting policies followed by
the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued on an amortized cost basis. If the Portfolio
acquires a short term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth
day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through April 2001. These costs were paid for by the Investment Adviser
and will be reimbursed by the Portfolio.
<PAGE>
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. SA&W voluntarily agreed to limit the Portfolio's total
annual operating expenses (excluding brokerage commissions, taxes, and
extraordinary expenses) to 1.50% of the Portfolio's average daily net
assets, for the year ended December 31, 1996. The Portfolio pays no
compensation directly to its trustees who are affiliated with SA&W or
to its officers, all of whom receive remuneration for their services to
the Portfolio from SA&W. Certain of the trustees and officers of the
Portfolio Trust are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations from May 3, 1996 through
December 31, 1996, were as follows:
Purchases Sales
Investments $193,914,188 $171,786,086
================== ==================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $216,266,037
Gross unrealized appreciation $43,840,116
Gross unrealized depreciation (11,774,088)
===================
Net unrealized appreciation $32,066,028
===================
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The Portfolio entered into no such
transactions during the period May 3, 1996 through December 31, 1996.
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Underlying Unrealized
Contract Position Expiration Face Amount Appreciation
- ------------------------------------------ -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
MIDCAP 400 (28 contracts) Long 03/15/97 $3,592,400 $67,525
=============== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient
securities to cover margin requirements on open future contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer and Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio: We have audited the accompanying
statement of assets and liabilities of Standish Small Capitalization Equity
Portfolio, including the portfolio of investments as of December 31, 1996, and
the related statement of operations, the statement of changes in net assets and
the supplementary data for the period from May 3, 1996 (commencement of
operations) to December 31, 1996. These financial statements and supplementary
data are the responsibility of the Portfolio's management. Our responsibility is
to express an opinion on these financial statements and supplementary data based
on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and supplementary data are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers; where replies were not received from brokers we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the financial
statements and supplementary data present fairly, in all material respects, the
financial position of Standish Small Capitalization Equity Portfolio as of
December 31, 1996, and the results of its operations, changes in its net assets
and supplementary data for the respective stated period, in conformity with
United States generally accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Statements for the Period
from December23, 1996 (Commencement of operations)
to December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Launched in December, 1996, the Standish Small Capitalization Equity Fund II
focuses on stocks of companies with a market capitalization under $1 billion.
The average market capitalization as of 12/31/96 was $525 million.
The Standish Small Capitalization Equity Fund II is oriented toward high
quality, rapidly growing companies. The emphasis is on investing in firms which
are experiencing accelerating revenue growth and expanding profit margins. We
seek companies with very strong business positions, operating in attractive
industries, which have solid balance sheets. We also look for experienced
management teams motivated by meaningful equity incentives. Finally, there is a
sensitivity to the price at which we buy the stock: we prefer to buy a stock
where the price-to-earnings ratio is less than the company's sustainable
earnings growth rate.
The focus on sustainable rapidly growing companies leads to above average
weightings in technology, healthcare and business services--three sectors which
are likely to be growth leaders over the next 5-10 years.
We sincerely appreciate your interest in the Standish Small Capitalization
Equity Fund II.
Nicholas S. Battelle
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio II (Portfolio) at value (Note 1A) $ 484,168
Deferred organization costs (Note 1D) 9,180
Receivable from Investment Adviser (Note 3) 7,588
--------------
Total assets 500,936
Liabilities:
Payable to investment adviser (Note 1D) $ 9,221
Accrued accounting, custody and transfer agent fees 672
Accrued trustees fees 85
Accrued legal and audit fees 6,790
---------------
Total liabilities 16,768
--------------
Net Assets $ 484,168
==============
Net Assets consist of:
Paid-in capital $ 475,000
Undistributed net investment income 198
Net unrealized appreciation 8,970
==============
Total $ 484,168
==============
Shares of beneficial interest outstanding 23,750
==============
Net asset value, offering price and redemption price per share $ 20.39
==============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Operations
For the period December 23, 1996 (commencement of operations) through
December 31, 1996
Investment Income (Note 1B):
Interest income allocated from Portfolio $ 198
Expenses allocated from Portfolio (net of Portfolio level reimbursement of $15,784) 0
---------------
Total income 198
Expenses:
Accounting, custody and transfer agent fees 672
Legal and audit services 6,790
Amortization of deferred organization costs (Note 1D) 41
Trustees fees 85
--------------
Total expenses 7,588
Deduct:
Reimbursement of Fund operating expenses (7,588)
--------------
Net expenses 0
---------------
Net Investment Income (loss) 198
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation from Portfolio 8,970
---------------
Net increase (decrease) in net assets resulting from operations $ 9,168
===============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
For the period December 23, l996 (commencement of operations) through
December 31, l996
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 198
Change in net unrealized appreciation 8,970
---------------
Net increase (decrease) in net assets from operations 9,168
---------------
Fund share transactions, (Note 4)
Net proceeds from sale of shares 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared -
Cost of shares redeemed -
---------------
Increase (decrease) in net assets from Fund share transactions 475,000
---------------
Net increase (decrease) in net assets 484,168
Net Assets:
At beginning of period 0
---------------
At end of period (including undistributed net investment income of $198 at December 31, 1996) $ 484,168
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Fund II
Financial Highlights
For the period December 23, 1996
(commencement of operations)
to December 31, 1996
---------------------------
Net asset value-beginning of period $20.00
-----------------
Income from investment Operations
Net investment income (1) 0.00
Net realized and unrealized gain (loss
on investments 0.39
-----------------
Total from investment operations 0.39
-----------------
Net asset value - end of period $20.39
=================
Net Assets at end of period (000 omitted) $484
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) * N/A (2)
Net Investment income* N/A (2)
* Computed on annualized basis
(1) Includes the Fund's share of Standish Small Capitalization Equity Portfolio II's allocated expenses.
(2) Ratios are not meaningful due to the short period of operations. All expenses were
reimbursed by the investment adviser.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund II (the "Fund") is a
separate diversified investment series of the Trust. The Fund invests
all of its investable assets an interest of the Standish Small
Capitalization Equity Portfolio II ( the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio ( the "Portfolio Trust"), which
is organized as a New York trust, and has the same investment objective
as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the
Portfolio (approximately 100% at December 31, 1996). The performance of
the Fund is directly affected by the performance of the Portfolio. The
financial statements of the Portfolio are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting
policies followed by the Fund in the preparation of the financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
A. .Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. .Securities transactions and income--
Securities transactions are recorded as of the trade date. The Fund's
net investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted
accounting principles.
C. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. .Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight-line basis
through December 2002. These costs were paid for by the investment
adviser and will be reimbursed by the Portfolio.
F. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among the respective investors
in the Portfolio.
<PAGE>
(2).....Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
(3).....Investment Advisory Fee:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer & Wood (SA&W) for such services. See Note 2
of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. For the period ended December 31, 1996, the
investment adviser voluntarily agreed to limit the operating expenses
of the Fund and the Portfolio (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.00% of the Fund's average daily net
assets. The investment adviser has voluntarily agreed to reimburse the
Fund for its operating expenses of $7,588 for the period ended December
31, 1996. The Fund pays no compensation directly to its trustees who
are affiliated with the investment adviser or to its officers, all of
whom receive remuneration for their services to the Fund from SA&W.
Certain of the trustees and officers of the Trust are directors or
officers of SA&W.
(4) ....Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from December 23, 1996 to December 31, 1996 aggregated
$475,000 and $0, respectively.
(5) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows: At December 31, 1996, substantially all of the outstanding
shares of the Fund were owned by individuals affiliated with SA&W.
For the Period
December 23, 1996
(commencement of operations) to
December 31, 1996
-----------------------------------
Shares sold 23,750
Shares issued to shareholders
in payment of distribution declared -
Shares redeemed -
====================
Net increase (decrease) 23,750
====================
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund II: We have audited the
accompanying statement of assets and liabilities of Standish, Ayer & Wood
Investment Trust: Standish Small Capitalization Equity Fund II (the "Fund"), as
of December 31, 1996 and the related statement of operations, the statement of
changes in net assets and financial highlights for the period from December 23,
1996 (commencement of operations) to December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. We conducted our audit
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Small Capitalization Equity Fund II as of
December 31, 1996, the results of its operations, changes in its net assets and
financial highlights for the period from December 23, 1996 (commencement of
operations) to December 31, 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization II Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Equities - 96.1%
- -------------------------------------------------------------------------
Basic Industry - 1.1%
- -------------------------------------------------------------------------
<S> <C> <C>
OM Group Inc. 200 5,400
--------------
Capital Goods - 5.7%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 300 8,138
Littelfuse Inc.* 100 4,850
Newpark Resources Inc.* 200 7,450
Philip Environmental Inc.* 500 7,250
--
------------
27,688
--------------
Consumer Stable - 4.9%
- -------------------------------------------------------------------------
Arbor Drugs Inc. 300 5,213
Hughes Supply Inc. 200 8,625
Martek Biosciences* 300 6,000
Robert Mondavi Corp. Cl A* 100 3,650
--
------------
23,488
--------------
Growth Cyclical - 4.9%
- -------------------------------------------------------------------------
Abercrombie & Fitch Co. * 300 4,950
Apple South Inc. 300 4,050
Eagle Hardware & Garden Inc.* 200 4,150
Scientific Games Holdings Corp.* 400 10,700
--
------------
23,850
--------------
Health Care - 24.3%
- -------------------------------------------------------------------------
Access Health, Inc.* 200 8,950
Agouron Pharmaceuticals Inc.* 100 6,775
American Homepatient Inc.* 200 5,450
American Medical Response Inc.* 200 6,500
Curative Health Services, Inc.* 400 11,075
Genesis Health Ventures Inc.* 200 6,225
HCIA Inc.* 300 10,350
Neurogen Corp* 400 7,700
Orthodontic Centers of America * 600 9,600
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Health Care - (continued)
- -------------------------------------------------------------------------
Physician Sales & Service* 500 $ 7,188
Rotech Medical Corp.* 400 8,400
Sepracor Inc.* 400 6,650
Sofamor/Danek Group, Inc.* 200 6,100
Sunrise Assisted Living Inc.* 300 8,363
Vertex Pharmaceuticals Inc.* 200 8,050
--
------------
117,376
--------------
Services - 33.4%
- -------------------------------------------------------------------------
Affiliated Computer Services Cl A* 200 5,950
American Management Systems Inc.* 400 9,800
American Radio Systems Corp.* 200 5,450
Bet Holdings Inc. Cl A* 200 5,750
Coach USA Inc.* 300 8,700
Central Parking Corp. 300 10,050
Compdent Corporation* 300 10,575
Computer Horizons Corp.* 300 11,550
Computer Task Group Inc. 200 8,625
CRA Managed Care Inc.* 100 4,500
Devry Inc.* 300 7,048
Emmis Broadcasting Corp. Cl A* 200 6,550
Evergreen Media Corporation* 200 5,000
Fair Issac & Company Inc. 200 7,825
Globalstar Telecommunications* 200 12,600
Healthplan Services Corp.* 300 6,338
Norrell Corp. 400 10,900
Quickresponse Services Inc.* 200 5,700
Scandinavian Broadcast Systems* 600 10,425
Technology Solutions Company* 200 8,300
--
------------
161,636
--------------
Technology - 21.8%
- -------------------------------------------------------------------------
Comverse Technology Inc.* 100 3,781
Credence Systems Corp.* 200 4,025
Dallas Semiconductor Corp. 200 4,600
Fusion Systems Corp.* 300 6,375
Gasonics Intl Corp.* 400 4,100
Geoworks* 300 7,350
Hadco Corporation* 200 9,800
Industry Group Inc.* 300 7,725
JDA Software Group Inc.* 300 8,550
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Technology - (continued)
- -------------------------------------------------------------------------
Natural Microsystems Corp.* 300 $ 9,450
Photronics Inc.* 300 8,175
PRI Automation Inc.* 100 4,550
Sanmina Corp.* 100 5,650
Systemsoft Corp.* 600 8,925
Vanstar Corporation* 300 7,350
Zygo Corp.* 100 5,200
--
------------
105,606
--------------
Total Equities (Cost $456,074) 465,044
--------------
Total INVESTMENTS (Cost $456,074) - 96.1% 465,044
Other Assets less Liabilities - 3.9% 19,124
--------------
NET ASSETS - 100.0% $ 484,168
==============
Notes to the Schedule of Investments:
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $456,074) $ 465,044
Cash 18,917
Interest receivable 198
Receivable from Investment Adviser 15,722
Deferred organization costs (Note 1C) 30,602
--------------
Total assets 530,483
Liabilities:
Payable to investment adviser (Note 1E) $ 30,737
Accrued investment advisory fee (Note 2) 62
Accrued expenses and other liabilities 15,516
--------------
Total liabilities 46,315
--------------
Net Assets (applicable to investors' beneficial interest) $ 484,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Operations
For the period December 23, 1996 (commencement of operations)
through December 31, l996
Investment Income
Interest income $ 198
Expenses
Investment advisory fee (Note 2) $ 62
Trustees fees 100
Amortization of organization costs (note 1F) 94
Legal and audit services 14,500
Custody fees 1,002
Miscellaneous 26
---------------
Total expenses 15,784
Waiver of investment advisory fee $ (62)
Reimbursement of operating expenses (15,722)
---------------
Total waiver of investment advisory fee and reimbursement of operating expenses (15,784)
Net expenses 0
--------------
Net investment income (loss) 198
--------------
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation (depreciation) on investments 8,970
--------------
Net increase (decrease) in net assets from operations $ 9,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Changes in Net Assets
For the period December 23, 1996 (commencement of operations) thorugh
December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 198
Change in net unrealized appreciation (depreciation) 8,970
--------------
Increase in net assets from operations 9,168
Capital transactions
Contributions 475,000
Withdrawals -
--------------
Increase (Decrease) in net assets resulting from capital transactions 475,000
Total increase (decrease) in net assets 484,168
Net Assets:
At beginning of period -
--------------
At end of period $ 484,168
==============
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Supplementary Data
For the period December 23, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses N/A *
Net investment income N/A *
Average broker commission per share $0.2000(1)
Portfolio turnover 0.00%
* Ratios are not meaningful due to the short period of operations.
All expenses were reimbursed by the Investment Adviser.
(1) Amount represents the average commission paid per share to
brokers on the purchase and sale of portfolio securities.
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York and is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company. Standish Small
Capitalization Equity Portfolio II (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued on an
amortized cost basis. If the Portfolio acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E...Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through December 2001. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. For the period ended December 31, 1996, the investment
adviser voluntarily agreed to limit the Portfolio's operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.00% of the Portfolio's average daily net assets. Such expenses for
the period ended December 31, 1996 were $15,784 and were reimbursed by
the investment adviser. The Portfolio pays no compensation directly to
its trustees who are affiliated with the investment adviser or to its
officers, all of whom receive remuneration for their services to the
Portfolio from the investment adviser. Certain of the trustees and
officers of the Portfolio Trust are directors or officers of SA&W.
(3).....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, were as follows:
Purchases Sales
Investments $456,074 $0
=================== ===================
(4).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $456,074
Gross unrealized appreciation $16,214
Gross unrealized depreciation (7,244)
==================
Net unrealized appreciation (depreciation) $8,970
==================
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio II: We have audited the
accompanying statement of assets and liabilities of Standish Small
Capitalization Equity Portfolio II, including the portfolio of investments, as
of December 31, 1996, and the related statement of operations, the statement of
changes in net assets and the supplementary data for the period from December
23, 1996 (commencement of operations) to December 31, 1996. These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. In our opinion, the financial statements and supplementary data
data present fairly, in all material respects, the financial position of
Standish Small Capitalization Equity Portfolio II as of December 31, 1996, and
the results of its operations, changes in its net assets and supplementary data
for the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of Standish International Equity Fund:
Financial Highlights
Included in Part B of Standish International Equity Fund:
Schedule of Portfolio of Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
(b) Exhibits:
(1) Agreement and Declaration of Trust dated August 13, 1986*
(1A) Certificate of Designation of Standish Fixed Income Fund**
(1B) Certificate of Designation of Standish International Fund**
(1C) Certificate of Designation of Standish Securitized Fund**
(1D) Certificate of Designation of Standish Short-Term Asset Reserve
Fund**
(1E) Certificate of Designation of Standish Marathon Fund*
(1F) Certificate of Amendment dated November 21, 1989*
(1G) Certificate of Amendment dated November 29, 1989*
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International Fixed Income
Fund**
-1-
<PAGE>
(1K) Certificate of Designation of Standish Intermediate Tax Exempt Bond
Fund*
(1L) Certificate of Designation of Standish Massachusetts Intermediate Tax
Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed Income Fund*
(1N) Certificate of Designation of Standish Controlled Maturity Fund and
Standish Fixed Income Fund II*
(1O) Certificate of Designation of Standish Tax-Sensitive Small Cap Equity
Fund and Standish Tax-Sensitive Equity Fund**
(1P) Form of Certificate of Designation of Standish Equity Asset Fund,
Standish Small Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund**
(1Q) Form of Certificate of Designation of Standish Small Capitalization
Equity Fund II**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
(5) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International Fund*
(5A) Form of Assignment of Investment Advisory Agreement*
(6A) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.**
(6B) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with respect to
Standish Equity Asset Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and Standish Global Fixed Income
Asset Fund**
-2-
<PAGE>
(6C) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with respect to
Standish Small Capitalization Equity Fund II**
(7) Not applicable
(8) Master Custody Agreement between the Registrant and Morgan Stanley
Trust Company*
(9A) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company**
(9B) Revised Exhibit A to Transfer Agency and Service Agreement
between the Registrant and Investors Bank & Trust Company with
respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income Asset
Fund and Standish Global Fixed
Income Asset Fund**
(9C) Revised Exhibit A to Transfer Agency and Service Agreement between
the Registrant and Investors Bank & Trust Company with respect to
Standish Small Capitalization Equity Fund II**
(9D) Master Administration Agreement between the Registrant and Investors
Bank & Trust Company**
(9E) Revised Exhibit A to Master Administration Agreement between
the Registrant and Investors Bank & Trust Company with respect
to Standish Equity Asset Fund, Standish Small Capitalization
Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund**
(9F) Revised Exhibit A to Master Administration Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Small Capitalization Equity Fund II**
(10) Opinion and Consent of Counsel**
(11A) Opinion and Consent of Independent Public Accountants***
(11B) Consent of Independent Public Accountants***
(11C) Consent of Independent Public Accountants***
(12) Not applicable
-3-
<PAGE>
(13) Form of Initial Capital Agreement between the Registrant and Standish,
Ayer & Wood, Inc.**
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17) Financial Data Schedule of Standish International Equity Fund***
(18) Not applicable
(19A) Power of Attorney (Richard S. Wood)**
(19B) Power of Attorney (David W. Murray)**
(19C) Power of Attorney (Samuel C. Fleming)**
(19D) Power of Attorney (Benjamin M. Friedman)**
(19E) Power of Attorney (John H. Hewitt)**
(19F) Power of Attorney (Edward H. Ladd)**
(19G) Power of Attorney (Caleb Loring III)**
(19H) Power of Attorney (D. Barr Clayson)**
(19I) Power of Attorney for Standish, Ayer & Wood Master Portfolio
(Richard S. Wood)**
(19J) Power of Attorney for Standish, Ayer & Wood Master Portfolio
(Samuel C. Fleming, Benjamin M. Friedman, John H. Hewitt, Edward H.
Ladd, Caleb Loring III, Richard S. Wood and D. Barr Clayson)**
- --------------------
* Filed as an exhibit to Registration
Statement No. 33-10615 and incorporated
herein by reference thereto.
** Filed as an exhibit to Registration
Statement No. 33-8214 and incorporated
herein by reference thereto.
*** Filed herewith.
-4-
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of February 1,
1997, of the shares of each series of the Registrant.
Number of Record
Title of Class Holders
- -------------- -------
Shares of beneficial interest, par value $.01, of:
Standish Fixed Income Fund 481
Standish Securitized Fund 12
Standish Short-Term Asset
Reserve Fund 91
Standish International Fixed
Income Fund 200
Standish Global Fixed Income Fund 47
Standish Equity Fund 142
Standish Small Capitalization
Equity Fund 418
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 90
Standish Intermediate Tax Exempt
Bond Fund 113
Standish International Equity Fund 188
Standish Controlled Maturity Fund 17
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 123
Standish Tax-Sensitive Equity Fund 62
Standish Equity Asset Fund 0
Standish Small Capitalization
Equity Asset Fund 0
Standish Fixed Income Asset Fund 0
Standish Global Fixed Income Asset Fund 0
Standish Small Capitalization Equity Fund II 23
-5-
<PAGE>
Item 27. Indemnification
Under the Registrant's Agreement and Declaration of Trust, any past or
present Trustee or officer of the Registrant is indemnified to the fullest
extent permitted by law against liability and all expenses reasonably incurred
by him in connection with any action, suit or proceeding to which he may be a
party or is otherwise involved by reason of his being or having been a Trustee
or officer of the Registrant. The Agreement and Declaration of Trust of the
Registrant does not authorize indemnification where it is determined, in the
manner specified in the Declaration, that such Trustee or officer has not acted
in good faith in the reasonable belief that his actions were in the best
interest of the Registrant. Moreover, the Declaration does not authorize
indemnification where such Trustee or officer is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence or
reckless disregard of his or her duties.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to Trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a Trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by any such Trustee, officer or controlling person
against the Registrant in connection with the securities being registered, and
the Commission is still of the same opinion, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
certain series of the Registrant, are listed on the Form ADV of Standish, Ayer &
Wood as currently on file with the Commission (File No. 801-584), the text of
which is hereby incorporated by reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("SIMCO"), the investment
adviser to certain other series of the Registrant, are listed on the Form ADV of
SIMCO as currently on file with the Commission (File No. 801-639338), the text
of which is hereby incorporated by reference.
-6-
<PAGE>
The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of each Schedule D.
Item 29. Principal Underwriter
(a) Prior to or concurrent with the effectiveness of this
Post-Effective Amendment to the Registrant's Registration Statement on Form N-1A
it is expected that Standish Fund Distributors, L.P. will serve as the principal
underwriter of each of the series of the Registrant as listed in Item 26 above.
(b) Directors and Officers of Standish Fund
Distributors, L.P.:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ------------------- ---------------- ---------------
James E. Hollis, III Chief Executive Officer Vice President
Beverly E. Banfield Chief Operating Officer Vice President
The General Partner of Standish Fund Distributors, L.P. is Standish,
Ayer & Wood, Inc.
(c) Not applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at
its principal office, located at One Financial Center, Boston, Massachusetts
02111. Certain records, including records relating to the Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main offices of the Registrant's transfer and
dividend disbursing agent and custodian.
Item 31. Management Services
Not applicable
-7-
<PAGE>
Item 32. Undertakings
(a) Not applicable.
(b) With respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income Asset
Fund and Standish Global Fixed Income Asset Fund, the
Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of the applicable Post-Effective
Amendment to its Registration Statement registering shares of
such Funds.
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered a copy of Registrant's
latest annual report to shareholders, upon request
and without charge.
-8-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 27th day of February, 1997.
STANDISH, AYER & WOOD
INVESTMENT TRUST
----------------------------
James E. Hollis III, Treasurer
The term "Standish, Ayer & Wood Investment Trust" means and refers to
the Trustees from time to time serving under the Agreement and Declaration of
Trust of the Registrant dated August 13, 1986, a copy of which is on file with
the Secretary of State of The Commonwealth of Massachusetts. The obligations of
the Registrant hereunder are not binding personally upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Registrant, but
bind only the trust property of the Registrant, as provided in the Agreement and
Declaration of Trust of the Registrant. The execution of this Registration
Statement has been authorized by the Trustees of the Registrant and this
Registration Statement has been signed by an authorized officer of the
Registrant, acting as such, and neither such authorization by such Trustees nor
such execution by such officer shall be deemed to have been made by any of them,
but shall bind only the trust property of the Registrant as provided in its
Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
-1-
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
Richard S. Wood* Trustee and President February 27, 1997
- ----------------------
Richard S. Wood (principal executive officer)
James E. Hollis III* Treasurer (principal February 27, 1997
- --------------------------
James E. Hollis III financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee and Vice February 27, 1997
- ----------------------
D. Barr Clayson President
Samuel C. Fleming* Trustee February 27, 1997
Samuel C. Fleming
Benjamin M. Friedman* Trustee February 27, 1997
Benjamin M. Friedman
John H. Hewitt* Trustee February 27, 1997
John H. Hewitt
Edward H. Ladd* Trustee February 27, 1997
Edward H. Ladd
Caleb Loring III* Trustee February 27, 1997
Caleb Loring III
*By:
James E. Hollis III
Attorney-In-Fact
</TABLE>
-2-
<PAGE>
EXHIBIT INDEX
Exhibit
(11A) Opinion and Consent of Independent Public Accountants
(11B) Consent of Independent Public Accountants
(11C) Consent of Independent Public Accountants
(17) Financial Data Schedule of Standish International Equity Fund
-1-
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 80 to the
Registration Statement on Form N-1A (1933 Act File Number 33-8214) and Post
effective Amendment No. 13 to the Registration Statement on Form N-1A (1933 Act
File Number 10615) of Standish, Ayer & Wood Investment Trust: Standish Fixed
Income Fund, Standish Fixed Income Fund II, Standish Short-Term Asset Reserve
Fund, Standish Controlled Maturity Fund and Standish Securitized Fund of our
reports dated February 20, 1997 and Standish Global Fixed Income Fund, Standish
International Fixed Income Fund, Standish Equity Fund, Standish Small
Capitalization Equity Fund and Standish Small Capitalization Fund II (the
"Funds") of our reports dated February 25, 1997, on our audit of the financial
statements and financial highlights of the Funds, which reports are included in
the Annual Reports to Shareholders for the year ended December 31, 1996, which
are also included in the Registration Statements.
We also consent to the references to our Firm under the caption "Financial
Highlights" and "Independent Accountants" in the Prospectuses and under the
caption "Experts and Financial Statements" in the Statements of Additional
Information of the Registration Statements.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
Coopers & Lybrand
145 King Street West
Tornonto, Ontario
Canada M5H 1VS
February 25, 1997
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 80 to the
Registration Statement of Standish, Ayer & Wood Investment Trust (1933 Act File
No. 33-8214) and Post-Effective Amendment No.13 to the Registration Statement of
Standish, Ayer & Wood Investment Trust (1933 Act File No. 33-10615) on behalf of
Standish Small Capitalization Equity Fund, Standish Small Capitalization Equity
Fund II, Standish Equity Fund, Standish Fixed Income Fund, Standish Global Fixed
Income Fund, of our reports relating to Standish Small Capitalization Equity
Portfolio, Standish Small Capitalization Equity Portfolio II, Standish Equity
Portf olio, Standish Fixed Income Portfolio, Standish Global Fixed Income
Portfolio dated February 25, 1997, in the Statements of Additional Information,
which are part of such Registration Statements.
We also consent to the reference to our Firm under the caption "Independent
Accountants" in the Prospectuses and under the caption "Experts and Financial
Statements in the Statements of Additional Information which are part of the
Registration Statements.
/s/ Coopers & Lybrand
Chartered Accountants
Toronto, Ontario
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent in this Post-Effective Amendment No. 13 to Registration Statement No.
33-10615 of Standish, Ayer & Wood Investment Trust (including Standish Equity
Fund, Standish Small Capitalization Equity Fund, Standish Small Capitalization
Equity Fund II and Standish International Equity Fund) to the reference to us
under the heading "Experts and Financial Statements" appearing in the Statement
of Additional Information, which is a part of such Registration Statement.
/S/ Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Standish International Equity Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 46,228,039
<INVESTMENTS-AT-VALUE> 47,362,901
<RECEIVABLES> 158,439
<ASSETS-OTHER> 502,452
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 48,023,792
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 285,277
<TOTAL-LIABILITIES> 285,277
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 43,985,314
<SHARES-COMMON-STOCK> 2,053,669
<SHARES-COMMON-PRIOR> 2,526,165
<ACCUMULATED-NII-CURRENT> 8,961
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,408,548
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,335,692
<NET-ASSETS> 47,738,515
<DIVIDEND-INCOME> 771,708
<INTEREST-INCOME> 403,047
<OTHER-INCOME> 0
<EXPENSES-NET> 254,914
<NET-INVESTMENT-INCOME> 919,841
<REALIZED-GAINS-CURRENT> 4,520,530
<APPREC-INCREASE-CURRENT> (1,512,964)
<NET-CHANGE-FROM-OPS> 3,927,407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 993,584
<DISTRIBUTIONS-OF-GAINS> 2,991,390
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 147,664
<NUMBER-OF-SHARES-REDEEMED> 764,772
<SHARES-REINVESTED> 144,612
<NET-CHANGE-IN-ASSETS> (11,734,751)
<ACCUMULATED-NII-PRIOR> 103,026
<ACCUMULATED-GAINS-PRIOR> 964,750
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 410,099
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 657,172
<AVERAGE-NET-ASSETS> 50,982,304
<PER-SHARE-NAV-BEGIN> 23.54
<PER-SHARE-NII> 0.47
<PER-SHARE-GAIN-APPREC> 1.28
<PER-SHARE-DIVIDEND> (0.51)
<PER-SHARE-DISTRIBUTIONS> (1.53)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.25
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
