As filed with the Securities and Exchange Commission on November 26, 1997.
Registration Nos. 33-8214
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 84 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 88 |X|
(Check appropriate box or boxes.)
-------------
Standish, Ayer & Wood Investment Trust
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(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
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(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:
|X| 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)
|_| On [Date] pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to Rule 485(a)(2)
|_| On January 27, 1998 pursuant to Rule 485(a)(2)
--------------------------
The Post-Effective Amendment has been executed by Standish, Ayer & Wood
Master Portfolio.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST(1)
Cross-Reference Sheet Pursuant to Rule 495(a)
Part A Prospectus
Form Item Cross-Reference
- --------- ---------------
Item 1. Cover Page Cover Page
Item 2. Synopsis "Expense Information"
Item 3. Condensed Financial Not Applicable
Item 4. General Description Cover Page, "The Funds and Their
of Registrant Shares", "Investment Objective 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 Repurchase "Redemption of Shares"
Item 9. Pending Legal Proceedings Not Applicable
- --------
(1) This Post-Effective Amendment to the Registrant's Registration Statement is
being filed with respect to the following series of the Registrant: Standish
Equity Asset Fund, Standish Small Capitalization Equity Asset Fund, Standish
Fixed Income Asset Fund and Standish Global Fixed Income Asset Fund. The
Prospectuses and Statements of Additional Information for the other series of
the Registrant are not effected hereby and, therefore, are not included
herewith.
<PAGE>
Statement of Additional
-----------------------
Part B Information Cross-
- ------ ------------------
Form Item Reference
- --------- ---------
Item 10. Cover Page Cover Page
Item 11. Table of Contents "Contents"
Item 12. General Information
and History Not Applicable
Item 13. Investment Objectives "Investment Objective and
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"
<PAGE>
[STANDISH LOGO] STANDISH FUNDS(SM)
- --------------------------
The Standish
Group of
Asset Funds
Prospectus
Standish Equity
Asset Fund
Standish Small
Capitalization
Equity Asset Fund
Standish Fixed Income
Asset Fund
Standish Global Fixed
Income Asset Fund
- --------------------------
November 26, 1997
<PAGE>
Standish Group of Asset Funds
- --------------------------------------------------------------------------------
The Standish Group of Asset Funds includes the Standish Equity Asset Fund
(the "Equity Fund"), Standish Small Capitalization Equity Asset Fund (the "Small
Cap Fund"), Standish Fixed Income Asset Fund (the "Fixed Income Fund") and the
Standish Global Fixed Income Asset Fund (the "Global Fixed Income Fund"). The
Equity, Small Cap and Fixed Income Funds are each organized as a separate
diversified investment series of Standish, Ayer & Wood Investment Trust (the
"Trust"), an open end investment company. The Global Fixed Income Fund is
organized as a separate non-diversified investment series of the Trust. Each
Fund is a feeder fund in the master-feeder structure and invests exclusively in
a master fund, an open-end investment company of similar name (each, a
"Portfolio"). Standish, Ayer & Wood, Inc. ("Standish") is the investment adviser
to the Equity Portfolio, Small Capitalization Equity Portfolio and the Fixed
Income Portfolio and its affiliate, Standish International Management Company,
L.P. ("SIMCO"), is the investment adviser to the Global Fixed Income Portfolio.
Standish and SIMCO are referred to in the Prospectus as the "Adviser" or the
"Advisers."
Prospective investors can obtain more information about the Funds,
including an application and Investor Guide, by calling Standish Fund
Distributors, L.P. at (800) 729-0066.
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-one employee/directors
and headquartered in Boston, Massachusetts, Standish employs over eighty
investment professionals with a total staff of more than two hundred.
This Prospectus, dated November 26, 1997, 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 November 26, 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 by
calling (800) 729-0066.
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 may be purchased by entities ("Account
Administrators") that provide omnibus accounting services for groups of
individuals who beneficially own Fund shares ("Omnibus Accounts"). Omnibus
Accounts include pension and retirement plans (such as 401(k) plans, 457 plans
and 403(b) plans), and programs through which personal and or account
maintenance services are provided to groups of individuals -- whether or not
such individuals invest on a tax-deferred basis. Individual investors may only
purchase Fund shares through their Omnibus Account Administrators. See "Purchase
of Shares" on page 24 for further information.
No sales commissions or other transaction charges are imposed by the Trust or
the Principal Underwriter, although Account Administrators may impose such
charges and the Funds may compensate Account Administrators for providing
services for the benefit of participants in the Omnibus Accounts. Unless waived
by the Funds, the minimum initial investment by an Omnibus Account is $100,000.
Standish Group of Asset Funds 2 November 26, 1997
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fund Comparison Highlights ................................................ 4
Expense Information ....................................................... 6
Investment Objectives and Policies ........................................ 7
The Equity Asset Fund .................................................. 8
The Small Capitalization Equity Asset Fund ............................. 9
The Fixed Income Asset Fund ............................................ 10
The Global Fixed Income Asset Fund ..................................... 10
Description of Securities and Related Risks ............................... 11
General Risks .......................................................... 11
Specific Risks ......................................................... 13
Global Fixed Income ....................................................... 16
Investment Techniques and Related Risks ................................... 18
Information about the Master-Feeder Structure ............................. 23
Calculation of Performance Data ........................................... 23
Dividends and Distributions ............................................... 24
Purchase of Shares ........................................................ 25
Net Asset Value ........................................................... 26
Exchange of Shares ........................................................ 27
Redemption of Shares ...................................................... 27
Management ................................................................ 29
Federal Income Taxes ...................................................... 32
The Funds and Their Shares ................................................ 33
Principal Underwriter ..................................................... 33
Custodian, Transfer Agent and Dividend Disbursing Agent ................... 33
Independent Accountants ................................................... 33
Legal Counsel ............................................................. 33
Tax-Certification Instructions ............................................ 33
- --------------------------------------------------------------------------------
[STANDISH LOGO]
Standish Group of Asset Funds 3 November 26, 1997
<PAGE>
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.
- --------------------------------------------------------------------------------
Small Capitalization
Equity Asset Fund Equity Asset Fund
- --------------------------------------------------------------------------------
Investment Objective Long-term growth of Long-term growth of
capital through capital through
investment primarily in investment primarily in
equity and equity and
equity-related equity-related
securities of companies securities of small
which appear to be capitalization companies
undervalued
- --------------------------------------------------------------------------------
Key Strategy Emphasize stocks Emphasize rapidly
believed to offer above growing, high quality
average potential for companies with market
capital growth through capitalizations less
the use of statistical than $700 million that
modeling techniques and are involved with value
fundamental analysis added products or
services
- --------------------------------------------------------------------------------
Market Capitalization of No limit; general range $700 million or less
Companies Focused on by is medium to large
the Fund capitalization
- --------------------------------------------------------------------------------
Foreign Securities Yes; no limit for Yes; limited to 15% of
securities listed on a total assets
U.S. exchange or traded
in the U.S.
over-the-counter ("OTC")
market but 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 Growth and S&P 500
Standish Group of Asset Funds 4 November 26, 1997
<PAGE>
Fund Comparison Highlights
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fixed Income Asset Global Fixed Income
Fund Asset Fund
- --------------------------------------------------------------------------------
Investment Achieve a high level of Maximize total return while
Objective current income, realizing a market level of
consistent with income consistent with
conserving principal and preserving principal and
liquidity, and liquidity
secondarily to seek
capital appreciation when
changes in interest rates
or other economic
conditions indicate that
capital appreciation may
be available without
significant risk to
principal
- --------------------------------------------------------------------------------
Primary Types of Fixed income securities Fixed income securities of (i)
Obligations of (i) U.S. and foreign foreign and U.S. governments
governments, and (ii) and (ii) foreign and U.S.
U.S. and foreign corporations
corporations
- --------------------------------------------------------------------------------
Credit Quality Primarily investment grade Primarily investment grade
- --------------------------------------------------------------------------------
Below Investment Yes, up to 15% of total Yes, up to 15% of total assets
Grade assets
- --------------------------------------------------------------------------------
Average Portfolio Aa/AA In range of AA/Aa to A/A
Quality
- --------------------------------------------------------------------------------
Foreign Yes; up to 20% of total Under normal market conditions,
Securities assets (including issuers 65% or more of total assets in
Selected located in emerging fixed income securities of
markets), no more than issuers located in at least
10% of total assets not three countries (one of which
subject to currency may be the U.S.)
hedging
- --------------------------------------------------------------------------------
Intended Country Primarily U.S. No fewer than three different
Diversification countries
- --------------------------------------------------------------------------------
Currency Strategy Will hedge currencies to Will hedge currencies to seek
seek to protect the U.S. to protect the U.S. dollar
dollars value of at least value of the Fund's assets
half the Fund's foreign
investments.
- --------------------------------------------------------------------------------
Benchmark Lehman Brothers Aggregate J.P. Morgan Global Government
Bond Index Bond Index (Hedged)
Standish Group of Asset Funds 5 November 26, 1997
<PAGE>
EXPENSE INFORMATION
- --------------------------------------------------------------------------------
Total operating expenses are estimated and are based on expenses expected
to be incurred by the Equity and Small Cap Funds for the fiscal years ending
September 30, 1998, and the Fixed Income and Global Fixed Income Funds for the
fiscal years ending December 31, 1997, and include estimated expenses of each
Fund and its corresponding Portfolio.
- --------------------------------------------------------------------------------
Global
Small Fixed Fixed
Equity Cap Income Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on Reinvested None None None None
Dividends
Deferred Sales Load None None None None
Redemption Fees None None None None
Exchange Fee None None None None
Annual Operating Expenses
(as a percentage
of average net assets)
Management Fees 0.50% 0.60% 0.32% 0.40%
12b-1 Fees None None None None
Service Fees 0.25% 0.25% 0.25% 0.25%
Other Expenses (After Expense Limitation)*+ 0.21% 0.15% 0.06% 0.26%
----- ----- ----- -----
Total Operating Expenses
(After Expense Limitation)* 0.96% 1.00% 0.63% 0.91%
===== ===== ===== =====
* The Advisers have voluntarily agreed to limit each Fund's Total Operating
Expenses (excluding litigation, indemnification, taxes and other extraordinary
expenses) to the following percentages of average daily net assets for the
Equity and Small Cap Funds' fiscal years ending September 30, 1998: Equity Fund
- -- 0.96%; Small Cap Fund -- 1.00%; and for the Fixed Income and Global Fixed
Income Funds' fiscal years ending December 31, 1997: Fixed Income Fund 0.63%;
Global Fixed Income Fund -- 0.91%. These agreements are voluntary and temporary
and may be discontinued or revised by the -- Advisers at any time after
September 30, 1998 for the Equity and Small Cap Funds and December 31, 1997 for
the Fixed Income and Global Fixed Income Funds. In the absence of such
agreements, Other Expenses and Total Operating Expenses of the Funds are
estimated to be: Equity Fund -- 1.02% and 1.52%; Small Cap Fund -- 0.57% and
1.42%; Fixed Income Fund -- 0.39% and 0.96%; and Global Fixed Income Fund--
0.68% and 1.33%.
+ 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:
+
- --------------------------------------------------------------------------------
Global
Small Fixed Fixed
Equity Cap Income Income
Fund Fund Fund Fund
- --------------------------------------------------------------------------------
After 1 Year $10 $10 $6 $9
After 3 Years $31 $32 $20 $29
The purpose of the above table is to assist investors in understanding the
various costs and expenses that an investor in each Fund will bear directly or
indirectly. The Funds are newly organized and have no operating history. The
example is included solely for illustrative purpose and should not be considered
a representation of future performance of expenses. Actual expenses may be more
or less than those shown. See "Management" for additional information about each
Fund's expenses.
Standish Group of Asset Funds 6 November 26, 1997
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
- --------------------------------------------------------------------------------
Each Fund seeks to achieve its investment objective by investing all of
its investable assets in its corresponding Portfolio which has the same
investment objective as the Fund. This structure, where one fund invests all of
its investable assets in another investment company, is described under the
caption "Information About the Master-Feeder Structure" below. Since the
investment characteristics of each Fund relate directly to those of its
corresponding Portfolio, the following is a discussion of the various
investments and investment policies of the Portfolios.
Investment Strategy for the Equity Portfolios
The Equity and Small Cap Portfolios are actively managed diversified
portfolios consisting primarily of equity and equity-related securities. Each
Portfolio is managed to achieve long-term growth of capital. The Equity
Portfolio seeks to achieve its objective by investing primarily in equity and
equity-related securities of companies which appear to be undervalued. The Small
Cap Portfolio seeks to achieve its objective by focusing on equity and
equity-related securities of small capitalization companies. The Small Cap
Portfolio invests primarily in securities of companies with market
capitalizations less than $700 million.
Standish seeks to add value to portfolios of equity securities by finding
companies with improving business momentum whose securities have reasonable
valuations. For the Equity Portfolio, Standish utilizes 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 Portfolio, Standish emphasizes small capitalization companies
that have developed strong sector or industry positions and have produced solid
balance sheets.
Equity Securities. The equity and equity-related securities in which the
Equity and Small Cap Portfolios invest 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 and real estate investment
trusts ("REITs"), limited partnership interests and equity participations. These
equity securities may be issued by U.S. or foreign companies, although these
Portfolios may not invest to the same extent in securities of foreign issuers.
Investment Strategy for the Fixed Income Portfolios
The Fixed Income Portfolio is an actively managed diversified portfolio
consisting primarily of fixed income securities of U.S. issuers. The Fixed
Income Portfolio is managed to achieve a high level of current income,
consistent with conserving principal and liquidity, and secondarily to seek
capital appreciation when changes in interest rates or other economic conditions
indicate that capital appreciation may be available without significant risk to
principal The Global Fixed Income Portfolio is an actively managed
non-diversified portfolio consisting primarily of fixed income securities
denominated in foreign currencies and the U.S. dollar. The Global Fixed Income
Portfolio is managed to maximize total return while realizing a market level of
income consistent with preserving principal and liquidity.
The Adviser's primary investment management and research focus is at the
security and industry/sector level. The Adviser seeks to add value to each
Portfolio's portfolio by selecting undervalued investments, rather than by
varying the average maturity of a Portfolio's portfolio to reflect interest rate
forecasts. The Adviser utilizes fundamental credit and sector valuation
techniques to evaluate what it considers to be less efficient markets and
sectors of the fixed income marketplace in an attempt to select securities with
the potential for the highest return. With respect to the Global Fixed Income
Portfolio, SIMCO emphasizes intermediate-term economic fundamentals relating to
foreign countries and emerging markets, rather than focusing on day-to-day
fluctuations in a particular currency or in the fixed income markets.
Fixed Income Securities. The Fixed Income and Global Fixed Income
Portfolios may invest in all types of fixed income securities including bonds,
notes (including structured or hybrid notes), mortgage-backed securities,
asset-backed securities, convertible securities, Eurodollar and Yankee Dollar
instruments, preferred stocks (including convertible preferred stock), listed
and unlisted warrants and money market instruments. These fixed income
securities may be issued by U.S. and foreign corporations or entities, foreign
governments and their political subdivisions, the U.S. Government, its agencies,
authorities, instrumentalities or sponsored enterprises and supranational
entities. Supranational entities include international organizations designated
or supported by governmental entities to promote economic reconstruction or
development, and international banking institutions and related government
agencies.
Credit Quality. The Fixed Income and Global Fixed Income Portfolios each
invest primarily in investment grade fixed income securities, i.e., securities
rated at the time of purchase at least Baa by Moody's Investors Service, Inc.
("Moody's") or BBB by Standard & Poor's Ratings Group ("Standard & Poor's"),
Duff & Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch") or IBCA,
Ltd., or, if unrated, determined by the Adviser to be of comparable credit
quality. If a security is rated differently by two or more rating agencies, the
Adviser uses the highest rating to compute a Portfolio's credit quality and also
to determine the security's rating category. In determining whether unrated
securities are of equivalent credit quality, the Adviser may take into account,
but will not rely entirely on, ratings assigned by foreign rating agencies. If
the rating of a security held by a Portfolio is downgraded below the minimum
rating required for the particular Portfolio, the Adviser will determine whether
to retain that security in a Portfolio's portfolio.
Standish Group of Asset Funds 7 November 26, 1997
<PAGE>
Securities rated within the top three investment grade ratings (i.e., Aaa,
Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff,
Fitch or IBCA) are generally regarded as high grade obligations. Securities
rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard & Poor's, Duff,
Fitch or IBCA are generally considered medium grade obligations and have some
speculative characteristics. Adverse changes in economic conditions or other
circumstances are more likely to weaken the medium grade issuer's capability to
pay interest and repay principal than is the case for high grade securities. The
Fixed Income and Global Fixed Income Portfolios may also invest up to 15% of
their total assets in below investment grade fixed income securities. Below
investment grade securities, commonly referred to as "junk bonds," carry a
higher degree of risk than investment grade securities and are considered
speculative by the rating agencies. The Adviser attempts to select for the
Portfolios those medium grade and non-investment grade fixed income securities
that have the potential for upgrade.
* * *
Each Fund's specific investment objective and policies are set forth below
and will 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 Asset Fund
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 are 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, 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. 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. over-the-counter ("OTC")
market. The Portfolio may not invest more than 10% of its total assets in such
securities which are not so listed or traded.
The 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, or AAA, AA, or A by Standard & Poor's,
Duff or Fitch, 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 Asset Fund
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 are 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. 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
Standish Group of Asset Funds 8 November 26, 1997
<PAGE>
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 Fixed Income Asset Fund
Investment Objective. The Portfolio's investment objective is primarily to
achieve a high level of current income, consistent with conserving principal and
liquidity, and secondarily to seek capital appreciation when changes in interest
rates or other economic conditions indicate that capital appreciation may be
available without significant risk to principal.
Securities. Under normal market conditions, substantially all, and at
least 65%, of the Portfolio's total assets are invested in investment grade
fixed income securities. The Portfolio may invest up to 20% of its total assets
in fixed income securities of foreign corporations and foreign governments and
their political subdivisions, including securities of issuers located in
emerging markets. No more than 10% of the Portfolio's total assets will be
invested in foreign securities not subject to currency hedging transactions back
into U.S. dollars.
The Fixed Income Portfolio purchases securities that pay interest on a
fixed, variable, floating, inverse floating, contingent, in-kind or deferred
basis. The Portfolio may enter into repurchase agreements and forward dollar
roll transactions, purchase zero coupon and deferred-payment securities, buy
securities on a when-issued or delayed delivery basis, engage in short sales and
purchase shares of other investment companies and REITs. The Portfolio may also
enter into various forward foreign currency exchange transactions and foreign
currency futures transactions and utilize OTC options to seek to manage the
Portfolio's foreign currency exposure. See "Description of Securities and
Related Risks" and "Investment Techniques and Related Risks" below for
additional information.
Credit Quality. The Portfolio invests primarily in investment grade fixed
income securities. The Portfolio may, however, invest up to 15% of its total
assets in securities rated below investment grade, or, if unrated, determined by
Standish to be of comparable credit quality. The average dollar-weighted credit
quality of the Portfolio's portfolio is expected to be Aa according to Moody's
or AA according to Standard & Poor's, Duff or Fitch.
Maturity. Under normal market conditions, the Portfolio's average
dollar-weighted effective portfolio maturity will vary from five to thirteen
years.
The Global Fixed Income Asset Fund
Investment Objective. The Portfolio's investment objective is to maximize
total return while realizing a market level of income consistent with preserving
principal and liquidity.
Securities. Under normal market conditions, the Portfolio invests at least
65% of its total assets in fixed income securities of foreign governments or
their political subdivisions and companies located in countries around the
world, including the United States.
The Global Fixed Income Portfolio purchases securities that pay interest
on a fixed, variable, floating, inverse floating, contingent, in-kind or
deferred basis. The Portfolio may enter into repurchase agreements and forward
dollar roll transactions, purchase zero coupon and deferred-payment securities,
buy securities on a when-issued or delayed delivery basis, lend portfolio
securities, engage in short sales and purchase shares of other investment
companies and REITs. The Portfolio may also enter into various forward foreign
currency exchange transactions and foreign currency futures transactions and
utilize OTC options to seek to manage the Portfolio's foreign currency exposure.
See "Description of Securities and Related Risks" and "Investment Techniques and
Related Risks" below for additional information.
Country Selection. Under normal market conditions, the Portfolio's assets
are invested in securities of issuers located in at least three different
countries, one of which may be the United States. The Portfolio intends,
however, to invest in no fewer than eight foreign countries. The Portfolio may
invest a substantial portion of its assets in one or more of those eight
countries. The Portfolio may also invest up to 10% of its total assets in
emerging markets generally and may invest up to 3% of its total assets in any
one emerging market.
Credit Quality. The Portfolio invests primarily in investment grade fixed
income securities. The Portfolio may, however, invest up to 15% of its total
assets in below investment grade securities or, if not rated, judged by SIMCO to
be of equivalent credit quality. The average dollar-weighted credit quality of
the Portfolio's portfolio is expected to be in a range of Aa to A according to
Moody's or AA to A according to Standard & Poor's, Duff, Fitch or IBCA.
Description of Securities and Related Risks
General Risks
Investments in the Funds involve certain risks. The Fixed Income Portfolio
and the Global Fixed Income Portfolio invest primarily in fixed income
securities and are subject to risks associated with investments in such
securities. These risks include interest rate risk, default risk, and call and
extension risk. These Portfolios are also subject to risks associated with
investments in below investment grade fixed income securities. The Equity
Portfolio and the Small Cap Portfolio invest primarily in equity and
equity-related securities and are subject to the risks associated with
investments in such securities. Each of the Portfolios is also subject to the
risks associated with direct investments in foreign securities.
Interest Rate Risk. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. The volatility of
a security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations causing a Portfolio to sustain losses on such investments. A default
could impact both interest and principal payments.
Standish Group of Asset Funds 9 November 26, 1997
<PAGE>
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
a right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a Portfolio will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer may
exercise a right to pay principal on an obligation later than scheduled which
would cause cash flows to be returned later than expected. This typically
results when interest rates have increased and a Portfolio will suffer from the
inability to invest in higher yield securities.
Investing in Foreign Securities. The Global Fixed Income Portfolio invests
primarily, and the other Portfolios invest to a lesser extent, in securities of
foreign issuers. 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 divided 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 investment 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 currency in which a
Portfolio's investments are denominated relative to the U.S. dollar will affect
the Portfolio's net asset value. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some emerging market
countries 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
Portfolio's securities are quoted would reduce the Portfolio's net asset value
per share.
Each Portfolio may enter into forward foreign currency exchange contracts
and cross currency forward contracts with banks or other foreign currency
brokers or dealers to purchase or sell foreign currencies at a future date and
may purchase and sell foreign currency futures contracts and cross-currency
futures contracts to seek to hedge against changes in foreign currency exchange
rates, although the Equity and the Small Cap 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. Although each Portfolio invests primarily in securities
of established issuers based in developed foreign countries, each Portfolio may
also invest in securities of issuers in emerging markets, including issuers in
Asia (including Russia), Eastern Europe, Latin and South America, the
Mediterranean and Africa. The Fixed Income Portfolio may invest up to 20% of its
total assets and the Global, Equity and Small Cap Portfolios may each 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. The Portfolios may also invest in currencies of such countries
and may engage in strategic transactions in the markets of such countries.
Investment in securities of issuers in emerging markets may involve a high
degree of risk and may be considered speculative. These investments carry all of
the risks of investing in securities of foreign issuers to a heightened degree.
These heightened risks include: (i) greater risks of expropriation, confiscatory
taxation, nationalization and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging market
issuers and the currently low or nonexistent volume of trading combined with
frequent artificial limits on daily price movements, resulting in lack of
liquidity and in price uncertainty; (iii) certain national policies which may
restrict a Portfolio's investment opportunities, including limitations on
aggregate holdings by foreign investors and restrictions on investing in issuers
or industries deemed sensitive to relevant national interests; and (iv) the
absence of developed legal structures governing private or foreign investment in
private property.
Standish Group of Asset Funds 10 November 26, 1997
<PAGE>
Specific Risks
The following sections include descriptions of specific risks that are
associated with a Portfolio's purchase of a particular type of security or the
utilization of a specific investment technique.
Common Stocks. The Equity and Small Cap Portfolios purchase 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 Portfolio invests primarily,
and the Equity Portfolio may invest to a lesser extent, in securities of small
capitalization companies. Although investments in small capitalization companies
may present greater opportunities for growth, they also involve greater risks
than are customarily associated with investments in larger, more established
companies. The securities of small companies may be subject to more volatile
market movements than securities of larger, more established companies. Smaller
companies may have limited product lines, markets or financial resources, and
they may depend upon a limited or less experienced management group. The
securities of small capitalization companies may be traded only on the OTC
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. Each Portfolio may invest in convertible debt and
preferred stock. 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. Each Portfolio may purchase warrants. Warrants acquired by a
Portfolio entitle it to buy common stock from the issuer at a specified price
and time. Warrants are subject to the same market risks as stocks, but may be
more volatile in price. A Portfolio's investment in warrants will not entitle it
to receive dividends or exercise voting rights and will become worthless if the
warrants cannot be profitably exercised before the expiration dates.
Corporate Debt Obligations. The Fixed Income and Global Fixed Income
Portfolios may invest in corporate debt obligations and zero coupon securities
issued by financial institutions and corporations. Corporate debt obligations
are subject to the risk of an issuer's inability to meet principal and interest
payments on the obligations and may also be subject to price volatility due to
such factors as market interest rates, market perception of the creditworthiness
of the issuer and general market liquidity.
U.S. Government Securities. Each Portfolio may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies, instrumentalities
or sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as the Government National Mortgage Association
("GNMA"), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association ("SLMA"), (c) the
discretionary authority of the U.S. Government to purchase certain obligations
of the issuer (such as the Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC"), or (d) only the credit of the
agency. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies, instrumentalities or sponsored
enterprises in the future. U.S. Government securities also include Treasury
receipts, zero coupon bonds, U.S. Treasury inflationary index 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").
Sovereign Debt Obligations. The Global Fixed Income and Fixed Income
Portfolios may invest in sovereign debt obligations. Investment in sovereign
debt obligations involves special risks not present in corporate debt
obligations. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or unwilling to repay
principal or pay interest when due, and a Portfolio may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and a Portfolio's net asset value, may be more
volatile than prices of U.S. debt obligations. In the past, certain emerging
markets have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Brady Bonds. The Global Fixed Income and Fixed Income Portfolios may
purchase Brady Bonds. Brady Bonds are securities created through the exchange of
existing commercial bank loans to public and private entities in certain
emerging markets for new bonds in connection with debt restructurings. In light
of the history of defaults of countries issuing Brady Bonds on
Standish Group of Asset Funds 11 November 26, 1997
<PAGE>
their commercial bank loans, investments in Brady Bonds may be viewed as
speculative. Brady Bonds may be fully or partially collateralized or
uncollateralized, are issued in various currencies (but primarily in U.S.
dollars) and are actively traded in OTC secondary markets. Incomplete
collateralization of interest or principal payment obligations results in
increased credit risk. U.S. dollar-denominated collateralized Brady Bonds, which
may be fixed-rate bonds or floating-rate bonds, are generally collateralized by
U.S. Treasury zero coupon bonds having the same maturity as the Brady Bonds.
Obligations of Supranational Entities. The Global Fixed Income and Fixed
Income Portfolios may invest in obligations of supranational entities designated
or supported by governmental entities to promote economic reconstruction or
development and of international banking institutions and related government
agencies. Examples include the International Bank for Reconstruction and
Development (the "World Bank"), the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.
Depositary Receipts and Depositary Shares. The Equity and Small Cap
Portfolios may purchase depository receipts and depository 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 Depositary Receipts and Shares ("EDRs" and EDSs").
Eurodollar and Yankee Dollar Investments. The Fixed Income and Global
Fixed Income Portfolios may invest in Eurodollar and Yankee Dollar instruments.
Eurodollar instruments are bonds of foreign corporate and government issuers
that pay interest and principal in U.S. dollars generally held in banks outside
the United States, primarily in Europe. Yankee Dollar instruments are U.S.
dollar denominated bonds typically issued in the U.S. by foreign governments and
their agencies and foreign banks and corporations. The Fixed Income and Global
Fixed Income Portfolios may invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued
by foreign branches of domestic banks; ETDs are U.S. dollar-denominated deposits
in a foreign branch of a U.S. bank or in a foreign bank; and Yankee CDs are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the U.S. These investments involve risks that are different
from investments in securities issued by U.S. issuers, including potential
unfavorable political and economic developments, foreign withholding or other
taxes, seizure of foreign deposits, currency controls, interest limitations or
other governmental restrictions which might affect payment of principal or
interest.
Below Investment Grade Securities. Both the Fixed Income and the Global
Fixed Income Portfolios may invest up to 15% of their total assets in securities
rated below investment grade. Fixed income securities rated below investment
grade generally offer a higher yield, but may be subject to a higher risk of
default in interest or principal payments than higher rated securities. The
market prices of below investment grade securities are generally less sensitive
to interest rate changes than higher rated securities, but are generally more
sensitive to adverse economic or political changes or, in the case of corporate
issuers, to individual company developments. Below investment grade securities
also may have less liquid markets than higher rated securities, and their
liquidity, as well as their value, may be more severely affected by adverse
economic conditions. Adverse publicity and investor perceptions of the market,
as well as newly enacted or proposed legislation, may also have a negative
impact on the market for below investment grade securities. See the Statement of
Additional Information for a detailed description of the ratings assigned to
fixed income securities by Moody's, Standard & Poor's, Duff, Fitch and IBCA.
For the fiscal year ended December 31, 1996, the Fixed Income Portfolio's
and Global Fixed Incomes Portfolio's investments, on an average dollar weighted
basis, calculated at the end of each month, had the following credit quality
characteristics:
Fixed Income Portfolio's
Investments Percentage
U.S. Government Securities 27.3%
U.S. Government Agency
Securities 21.4%
Corporate Bonds:
Aaa or AAA 5.8%
Aa or AA 3.5%
A 10.1%
Baa or BBB 18.5%
Ba or BB 13.4%
------
100.0%
Global Fixed Income
Portfolio's Investment Percentage
U.S. Government Securities 6.5%
U.S. Government Agency 5.1%
Corporate Bonds:
Aaa or AAA 31.5%
Aa or AA 16.8%
A 11.8%
Baa or BBB 16.6%
Ba or BB 11.7%
------
100.0%
Standish Group of Asset Funds 12 November 26, 1997
<PAGE>
Mortgage-Backed Securities. The Fixed Income and Global Fixed Income
Portfolios may invest in privately issued mortgage-backed securities and
mortgage-backed securities issued or guaranteed by foreign entities or the U.S.
Government or any of its agencies, instrumentalaties or sponsored enterprises.
Mortgage-backed securities represent direct or indirect participations in, or
are collateralized by and payable from, mortgage loans secured by real property.
Mortgagors can generally prepay interest or principal on their mortgages
whenever they choose. Therefore, mortgage-backed securities are often subject to
more rapid repayment than their stated maturity date would indicate as a result
of principal prepayments on the underlying loans. This can result in
significantly greater price and yield volatility than is the case with
traditional fixed income securities. During periods of declining interest rates,
prepayments can be expected to accelerate, and thus impair a Portfolio's ability
to reinvest the returns of principal at comparable yields. Conversely, in a
rising interest rate environment, a declining prepayment rate will extend the
average life of many mortgage-backed securities, increase a Portfolio's exposure
to rising interest rates and prevent a Portfolio from taking advantage of such
higher yields.
GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury.
Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended ("Code"), and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. The Portfolios do not intend to purchase residual interests in
REMICs.
Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, a Portfolio may fail to recoup fully its
initial investment in these securities. Although the market for SMBS is
increasingly liquid, certain SMBS may not be readily marketable and will be
considered illiquid for purposes of each Portfolio's limitation on investments
in illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage loans are generally higher than prevailing market yields
on other mortgage-backed securities because their cash flow patterns are more
volatile and there is a greater risk that the initial investment will not be
fully recouped.
Asset-Backed Securities. The Fixed Income and Global Fixed Income
Portfolios may invest in asset-backed securities issued by foreign or U.S.
entities. The principal and interest payments on asset-backed securities are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Such asset pools are
securitized through the use of special purpose trusts or corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance. Like mortgage-backed securities, asset-backed securities are subject
to more rapid prepayment of principal than indicated by their stated maturity
which may greatly increase price and yield volatility. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets and there is the possibility that recoveries on
repossessed collateral may not be available to support payments on these
securities.
Zero Coupon and Deferred Payment Securities. The Fixed Income and Global
Fixed Income Portfolios may invest in zero coupon and deferred payment
securities. Zero coupon securities are securities sold at a discount to par
value and on which interest payments are not made during the life of the
security. Upon maturity, the holder is entitled to receive the par value of the
security. A Portfolio is required to accrue income with respect to these
securities prior to the receipt of cash payments. Because a Fund will distribute
its allocable share of this accrued income to shareholders, to the extent that
shareholders elect to receive dividends in cash rather than reinvesting such
dividends in additional shares, the Fund may need to withdraw cash from the
Portfolio, which then will have fewer assets with which to purchase income
producing securities. Deferred payment securities are securities that remain
zero coupon securities until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
Structured or Hybrid Notes. The Fixed Income and Global Fixed Income
Portfolios may invest in structured or hybrid notes. The distinguishing feature
of a structured or hybrid note is that the amount of interest and/or principal
payable on the note is based on the performance of a benchmark asset or market
other than fixed income securities or interest rates. Examples of these
benchmarks include stock prices, currency
Standish Group of Asset Funds 13 November 26, 1997
<PAGE>
exchange rates and physical commodity prices. Investing in a structured note
allows a Portfolio to gain exposure to the benchmark security while fixing the
maximum loss that it may experience in the event that the security does not
perform as expected. Depending on the terms of the note, a Portfolio may forego
all or part of the interest and principal that would be payable on a comparable
conventional note; the Portfolio's loss cannot exceed this foregone interest
and/or principal. An investment in structured or hybrid notes involves risks
similar to those associated with a direct investment in the benchmark security.
Inverse Floating Rate Securities. The Fixed Income and Global Fixed Income
Portfolios may invest in inverse floating rate securities. The interest rate on
an inverse floater resets in the opposite direction from the market rate of
interest to which the inverse floater is indexed. An inverse floater may be
considered to be leveraged to the extent that its interest rate varies by a
magnitude that exceeds the magnitude of the change in the index rate of
interest. The higher the degree of leverage of an inverse floater, the greater
the volatility of its market value.
Tax-Exempt Securities. Each Portfolio is managed without regard to
potential tax consequences. If the Adviser believes that tax-exempt securities
will provide competitive returns, the Fixed Income Portfolio may invest up to
10% of its total assets in tax-exempt securities. The Fixed Income Fund's
distributions of its share of interest earned from these investments will be
taxable.
Money Market Instruments and Short-Term Securities. Although the Equity
and Small Cap Portfolios intend to stay invested in equity and equity-related
securities to the extent practical in light of their objectives, each Portfolio
may, under normal market conditions, establish and maintain cash balances and
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 may hold up to 20% of its total assets in
money market instruments and Short-Term Obligations without regard to the
liquidity needs of its portfolio.
Money market instruments in which the Equity and Small Cap Portfolios
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 commercial paper, bank
obligations, repurchase agreements and other debt obligations of U.S. and
foreign issuers. At least 95% of the Equity and Small Cap Portfolios' 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 their 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. See "Credit Quality" under
"Investment Strategy for the Fixed Income Portfolios" for a general discussion
of these rating categories.
Investment Techniques and Related Risks
Strategic Transactions. Each Portfolio may, but is not required to,
utilize various investment strategies to seek to hedge market risks (such as
interest rates, currency exchange rates and broad or specific equity or fixed
income market movements), to manage the effective maturity or duration of fixed
income securities (Fixed Income and Global Fixed Income Portfolios only) 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 Portfolio may
change over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing their investment objectives, each Portfolio may
purchase and sell (write) exchange-listed and OTC put and call options on
securities, equity indices (Equity and Small Cap Portfolios only), fixed income
indices (Fixed Income and Global Fixed Income Portfolios only), and other
financial instruments; purchase and sell financial futures contracts and options
thereon; enter into various interest rate transactions such as caps, swaps,
floors and collars (Fixed Income and Global Fixed Income Portfolios only); and,
to the extent a Portfolio invests in foreign securities or without limit with
respect to the Global Fixed Income Portfolio, enter into currency transactions
such as forward foreign currency exchange contracts, cross-currency forward
contracts, currency futures contracts, currency swaps and options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to seek to protect against
possible changes in the market value of securities held in or to be purchased
for a Portfolio's portfolio resulting from securities markets or currency
exchange rate fluctuations, to seek to protect a Portfolio's unrealized gains in
the value of portfolio securities, to facilitate the sale of such securities for
investment purposes, to seek to manage the effective maturity or duration of the
Fixed Income or Global Fixed Income Porfolios' portfolio or to establish a
position in the derivatives markets as a temporary substitute for purchasing or
selling particular securities. In addition to the hedging transaction 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 Portfolio to utilize Strategic Transactions successfully
will depend on the Adviser's ability to predict pertinent market and currency
and interest rate movements, which cannot be assured. Each Portfolio will comply
with applicable regulatory requirements when implementing these strategies,
techniques and instruments. The Portfolios' activities involving Strategic
Transactions may be limited in order to enable the Funds to satisfy 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,
Standish Group of Asset Funds 14 November 26, 1997
<PAGE>
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 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 Portfolio, force the
purchase or sale, respectively, of portfolio securities at inopportune times or
for prices higher than (in the case of purchases due to the exercise of put
options) or lower than (in the case of sales due to the exercise of call
options) current market values, limit the amount of appreciation a Portfolio can
realize on its investments or cause a Portfolio to hold a security it might
otherwise sell or sell a security it might otherwise hold.
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 Portfolio's net asset value. In particular, the variable degree
of correlation between price movements of futures contracts and price movements
in the related portfolio position of a Portfolio creates the possibility that
losses on the hedging instrument may be greater than gains in the value of the
Portfolio's position. The writing of options could significantly increase a
Portfolio's portfolio turnover rate and 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 Portfolio might not be able to close out a
transaction without incurring substantial losses. Losses resulting from the use
of Strategic Transactions could reduce a Portfolio's net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized. Although the use of futures and options transactions for hedging
should tend to minimize the risk of loss due to a decline in the value of the
position, at the same time, such transactions can limit any potential gain which
might result from an increase in value of such position. The loss incurred by a
Portfolio in writing options on futures and entering into futures transactions
is potentially unlimited.
The use of currency transactions can result in a Portfolio incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. Each Portfolio 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 Portfolio's net loss exposure from such
Strategic Transaction, an unrealized gain from a particular Strategic
Transaction position 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.
When-Issued and Delayed Delivery Securities. The Fixed Income Porfolio may
invest up to 15% of its net assets and the Global Fixed Income Portfolio may
invest up to 25% of its total assets in when-issued and delayed delivery
securities. Although a Portfolio will generally purchase securities on a
when-issued or delayed delivery basis with the intention of actually acquiring
the securities, the Portfolios may dispose of these securities prior to
settlement, if the Adviser deems it appropriate to do so. The payment obligation
and interest rate on these securities is fixed at the time a Portfolio enters
into the commitment, but no income will accrue to the Portfolio until they are
delivered and paid for. Unless a Portfolio has entered into an offsetting
agreement to sell the securities, cash or liquid assets equal to the amount of
the Portfolio's commitment must be segregated and maintained with the
Portfolio's custodian to secure the Portfolio's obligation and to partially
offset the leverage inherent in these securities. The market value of the
securities when they are delivered may be less than the amount paid by the
Portfolio.
Portfolio Diversification and Concentration. The Global Fixed Income
Portfolio is non-diversified which means that it may invest more than 5% of its
total assets in the securities of a single issuer. The other Portfolios are
diversified. Investing a significant amount of the Global Fixed Income
Portfolio's assets in the securities of a small number of foreign issuers will
cause the Portfolio's net asset value to be more sensitive to events affecting
those issuers. No Portfolio will concentrate (invest 25% or more of its total
assets) in the securities of issuers in any one industry. For purposes of this
limitation, the staff of the Securities and Exchange Commission (the "SEC")
considers (a) all supranational organizations as a group to be a single industry
and (b) each foreign government and its political subdivisions to be a single
industry.
Repurchase Agreements. The Equity, Small Cap, Fixed Income and Global
Fixed Income Portfolios may invest up to 10%, 10%, 5% and 25%, respectively, of
their net assets in repurchase agreements. In a repurchase agreement, a
Portfolio buys a security at one price and simultaneously agrees to sell it back
at a higher price. Delays or losses could result if the other party to the
agreement defaults or becomes insolvent. Repurchase agreements acquired by a
Portfolio will always be fully collateralized as to principal and interest by
money market instruments and will be entered into only with commercial banks,
brokers and dealers consider creditworthy by the Adviser.
Forward Roll Transactions. To seek to enhance current income, the Fixed
Income Portfolio may invest up to 10% of its net assets and the Global Fixed
Income Portfolio may invest up to 5% of its total assets in forward roll
transactions involving mortgage-backed securities. In a forward roll
trans-action, a Portfolio sells a mortgage-backed security to a financial
institution, such as a bank or broker-dealer, and simultaneously agrees to
repurchase a similar security from the institution at a later date at an
agreed-upon price. The mortgage-backed securities that are repurchased will bear
the same interest rate as those sold, but generally will be collateralized by
different pools of mortgages with different prepayment histories than those
sold. During the period between the sale and repurchase, the Portfolio will not
be entitled to receive interest and principal payments on the securities sold.
Proceeds of the sale will be invested in short-term instruments, such as
repurchase agreements or other short-term securities, and the income from these
investments, together with any additional fee income received on the sale and
the amount gained by repurchasing the securities in the future at a lower price,
will generate income and gain for the Portfolio which is intended to exceed the
yield on the
Standish Group of Asset Funds 15 November 26, 1997
<PAGE>
securities sold. Forward roll transactions involve the risk that the market
value of the securities sold by the Portfolio may decline below the repurchase
price of those securities. At the time that a Portfolio enters into a forward
roll transaction, it will place cash or liquid assets in a segregated account
that is marked to market daily having a value equal to the repurchase price
(including accrued interest).
Leverage. The use of forward roll transactions and reverse repurchase
agreements involves leverage. Leverage allows any investment gains made with the
additional monies received (in excess of the costs of the forward roll
transaction or reverse repurchase agreement) to increase the net asset value of
a Portfolio faster than would otherwise be the case. On the other hand, if the
additional monies received are invested in ways that do not fully recover the
costs of such transactions to a Portfolio, the net asset value of the Portfolio
would fall faster than would otherwise be the case.
Short Sales. Each Portfolio may engage in short sales and short sales
against the box. In a short sale, a Portfolio sells a security it does not own
in anticipation of a decline in the market value of the security. In a short
sale against the box, a Portfolio either owns or has the right to obtain at no
extra cost the security sold short. The broker holds the proceeds of the short
sale until the settlement date, at which time the Portfolio delivers the
security (or an identical security) to cover the short position. The Portfolio
receives the net proceeds from the short sale. When a Portfolio enters into a
short sale other than against the box, the Portfolio must first borrow the
security to make delivery to the buyer and must place cash or liquid assets in a
segregated account with the Portfolio's custodian that is marked to market
daily. Short sales other than against the box involve unlimited exposure to
loss. No securities will be sold short if, after giving effect to any such short
sale, the total market value of all securities sold short would exceed 5% of the
value of a Portfolio's net assets.
Securities Loans. To seek to realize additional income, the Global Fixed
Income Portfolio may lend a portion of the securities in its portfolio to
broker-dealers and financial institutions, who are seeking securities to
consummate transactions they are obligated to perform under contract. The market
value of securities loaned by the Portfolio may not exceed 20% of the value of
the Portfolio's total assets, with a 10% limit for any single borrower. In order
to secure their obligations to return securities borrowed from the Portfolio,
borrowers will deposit collateral equal to at least 100% of the market value of
the borrowed securities, which will be marked to market daily. As is the case
with any extension of credit, lending portfolio securities involves certain
risks in the event a borrower should fail financially, including delays or
inability to recover the loaned securities or foreclose against the collateral.
The Adviser, under the supervision of the Boards of Trustees, monitors the
creditworthiness of the parties to whom the Portfolio makes securities loans.
Restricted and Illiquid Securities. Each Portfolio may invest up to 15% of
its net assets in illiquid securities; however, the Equity Portfolio and the
Small Cap 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, certain SMBS, swap transactions, certain
OTC 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 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 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 Portfolio 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, a Portfolio may invest
in issuers in those markets primarily through specifically authorized investment
funds. In addition, the Portfolios 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.
Investments in REITs. Each Porfolio may invest in shares of real estate
investment trusts, which are pooled investment vehicles that invest in real
estate or real estate loans or interests. Investing in REITs involves risks
similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for the
exemption from taxation under the Code.
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
Standish Group of Asset Funds 16 November 26, 1997
<PAGE>
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.
Short-Term Trading. Each Portfolio will sell a portfolio security without
regard to the length of time such security has been held if, in the Adviser's
view, the security meets the criteria for disposal.
Temporary Defensive Investments. Each Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in U.S. and non-U.S. dollar (Global Fixed Income Portfolio only) denominated
high quality money market instruments and Short-Term Obligations. The Fixed
Income Portfolio may purchase commercial paper of foreign issuers rated P-1 or
its equivalent.
Investment Restrictions. The investment objectives of the Funds and
Portfolios are not fundamental and may be changed by the Boards of Trustees
without the approval of 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. Each Fund and
Portfolio has adopted fundamental policies which may not be changed without the
approval of the applicable Fund's 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 respective Fund's or
Portfolio's assets will not constitute a violation of the restriction.
Information about the Master-Feeder Structure
Each 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 Fund is a feeder fund and its corresponding Portfolio
is the master fund in a so-called master-feeder structure.
In addition to the Funds, other feeder funds 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, which may be required by the Trust's Board of
Trustees without shareholder approval, 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 the Portfolio in
which it invests, the Fund will call a meeting of its shareholders to vote on
the matter. The Fund will then vote on the 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 those shares held by its shareholders who did
not vote in the same proportion as those Fund shareholders who did vote on the
matter.
A majority of the Trustees who are not "interested persons" (as defined in
the Investment Company Act of 1940, as amended (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 average annual total return
and the Fixed Income Fund and the Global Fixed Income Fund may also advertise
their yields. Average 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.
The "yield" of a Fund is computed by dividing the net investment income
per share earned during the period stated in the advertisement by the maximum
offering price per share on the last day of the period (using the average number
of shares entitled to receive dividends). For the purpose of determining net
investment income, the calculation includes among expenses of the Funds all
recurring fees that are charged to all shareholder accounts and any nonrecurring
charges for the period stated.
From time to time, a Fund may compare its performance in publications with
that of other mutual funds with similar investment objectives, to stock, bond
and other relevant indices, and to performance rankings prepared by recognized
mutual fund statistical services. In addition, a Fund's performance may be
compared to alternative investment or savings vehicles or to indices or
indicators of economic activity.
The Equity and Small Cap Funds
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 OTC market.
Standish Group of Asset Funds 17 November 26, 1997
<PAGE>
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.
Fixed Income Fund
Lehman Government/Corporate Index. This index is considered to be
representative of the performance of all domestic, U.S. dollar denominated,
fixed rate investment grade bonds.
Lehman Brothers Aggregate Index. This index is composed of securities from
the Lehman Brothers Government/Corporate Bond Index, the Mortgage-Backed
Securities Index and the Yankee Bond Index, and is generally considered to be
representative of all unmanaged, domestic, U.S. dollar denominated, fixed rate
investment grade bonds.
Global Fixed Income Fund
J.P. Morgan Non-U.S. Government Bond Index (Hedged). This index is
generally considered to be representative of unmanaged government bonds in
foreign markets.
J.P. Morgan Global Index. This index is generally considered to be
representative of the performance of fixed rate, domestic government bonds from
eleven countries.
DIVIDENDS AND DISTRIBUTIONS
The Equity, Fixed Income and Global Fixed Income Funds' dividends from net
investment income will be declared and distributed quarterly. The Small Cap
Fund's dividends from net investment income, if any, will be declared and
distributed at least annually. Each Fund's dividends from realized capital
gains, if any, after reduction by capital losses, will be declared and
distributed at least annually. In determining the amounts of its dividends, each
Fund will take into account its share of the income, gain or loss, expense, and
any other tax items of its corresponding Portfolio. Dividends from net
investment income and from capital gains, if any, are automatically reinvested
in additional shares of the applicable Fund unless the shareholder elects to
receive them in cash.
The Funds are designed primarily for investors in Omnibus Accounts who
seek to maximize total return and who may be in a position to benefit from the
reinvestment of the income dividends (if any), paid by the Fixed Income and
Global Fixed Income Funds, and any capital gains distributions paid by the Funds
on a tax deferred basis. The Funds may also be suitable for other investors,
depending upon their investment goals and financial and tax positions. The
companies in which the Equity and Small Cap Portfolios invest generally reinvest
their earnings, and dividend distributions by the Equity and Small Cap Funds
should not be expected.
Purchase of Shares
Who may purchase Fund shares?
Shares of the Funds may be purchased only for the account of Omnibus
Accounts. Because individuals may not purchase Fund shares directly, all orders
to purchase Fund shares must be made through the Account Administrator of your
Omnibus Account. If the monies you wish to invest in the Funds are maintained in
a retirement plan sponsored by your employer, please consult with your employer
for information about how to purchase Fund shares. If the monies you wish to
invest in the Funds are maintained in a self-administered retirement plan,
please consult with your Account Administrator for information about how to
purchase Fund shares.
How may Account Administrators invest in the Funds for the account of their
Omnibus Accounts?
In order to make an initial investment in a Fund, Account Administrators
must establish an account with the Funds by furnishing to Standish Fund
Distributors the information in the Account Application Form included with this
Prospectus. Account Administrators may purchase Fund shares for Omnibus Accounts
from the Standish Fund Distributors on any day during which the Funds and the
New York Stock Exchange (the "NYSE") are open for business (a "Business Day").
What is the minimum investment in Fund Shares?
Unless waived by the Trust, the minimum initial investment by an Omnibus
Account in each Fund is $100,000.
The Funds' investment minimums do not apply to accounts for which the
Adviser or any of its affiliates serves as investment adviser. The Funds'
investment minimums apply to the aggregate value invested in Omnibus Accounts
rather than to the investment of the underlying participants in the Omnibus
Accounts.
At what price are Fund shares offered?
Fund shares are sold at the net asset value per share next computed after
the purchase order is received in good order by Standish Fund Distributors or
its agent (including certain Account Administrators); provided that payment for
such shares is received by the Custodian by 1:00 p.m., New York City Time on the
next Business Day.
Orders for the purchase of Fund shares received by broker-dealers by the
close of regular trading on the NYSE on any Business Day and transmitted to
Standish Fund Distributors or its agent (including certain Accounts
Administrators) 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, provided that payment for such shares is received by the Custodian by
1:00 p.m., New York City time on the next Business Day. It is the responsibility
of broker-dealers to transmit orders so they will be received by Standish Fund
Distributors before the close of its Business Day.
Standish Group of Asset Funds 18 November 26, 1997
<PAGE>
May Fund shares be acquired in exchange for securities?
In the sole discretion of the Trust, each Fund may accept securities
instead of cash for the purchase of Fund shares. The Trust will ask the Adviser
to determine that any securities acquired by a Fund in this manner are
consistent with the investment objective, policies and restrictions of the
Fund's corresponding Portfolio. The securities will be valued in the manner
stated below with respect to how the Portfolios value their portfolio
securities. The purchase of Fund shares for securities instead of cash may cause
an investor who contributed them to recognize a taxable gain or loss with
respect to the securities transferred to the Fund. Consequently, prospective
investors should consult with their own tax advisers before acquiring Fund
shares in exchange for appreciated or depreciated securities in order to
evaluate fully the effect on their particular tax situations.
Other Purchase Information.
The Trust reserves the right in its sole discretion (i) to suspend the
offering of each Fund's shares, (ii) to reject purchase orders when in the best
interest of a Fund, (iii) to modify or eliminate the minimum initial investment
in Fund shares and (iv) to eliminate duplicative mailings of Fund materials to
shareholders who reside at the same address. Fund shares purchased by Account
Administrators for Omnibus Accounts or through broker-dealers may be subject to
transaction fees, no part of which will be received by the Funds, Standish Fund
Distributors or the Adviser.
Net Asset Value
Each Fund's net asset value per share is computed each Business Day as of
the close of regular trading on the NYSE (normally 4:00 p.m., New York City
time). Each Fund's net asset value per share is calculated by determining the
value of its assets (i.e., the value of its investment in its corresponding
Portfolio and other assets), subtracting all of its liabilities and dividing the
result by the total number of shares outstanding. Equity securities are valued
at the last sales prices, on the valuation date, on the NYSE or national
securities market on which they are primarily traded. Fixed income securities
(other than money market instruments) for which accurate market prices are
readily available are valued at their current market value on the basis of
quotations, which may be furnished by pricing services or provided by dealers in
such securities. Securities not listed on an NYSE or national securities market,
certain mortgaged-backed and asset-backed securities and securities for which
there were no reported transactions, are valued at the last quoted bid prices.
Equity and fixed income securities for which accurate market prices are not
readily available and other assets are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the Trustees
of the Portfolio Trust, which may include the use of yield equivalents or matrix
pricing for fixed income securities. Money market instruments with less than
sixty days remaining to maturity when acquired by a Portfolio are valued on an
amortized cost basis unless the Trustees determine that amortized cost does not
represent fair value. If a Portfolio acquires a money market instrument with
more than sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued at
amortized cost based upon the value on such date unless the Trustees determine
during such sixty-day period that amortized cost does not represent fair value.
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 is converted into
U.S. dollar values at currency exchange rates determined by Investors Bank &
Trust Company, the Funds' transfer agent, to be representative of fair rates of
exchange 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
Asian 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
May Fund shares be exchanged for shares of other mutual funds?
Subject to the terms of your Omnibus Account, shares of any Fund may be
exchanged for shares of any other Fund described in this Prospectus on any
Business Day. Please consider the differences in investment objectives and
expenses of a Fund as described in this Prospectus before making an exchange.
Do sales charges apply to exchanges?
As is the case with initial purchases of Fund shares, exchanges of Fund
shares are made without the imposition of a sales charge.
How may I make an exchange?
Because Fund shares are held for the account of Omnibus Accounts only, all
orders to exchange Fund shares must be made through your Account Administrator.
If the Fund shares you wish to exchange are held for the account of a retirement
plan sponsored by your employer, please consult with your employer for
information about how to exchange Fund shares. If the Fund shares you wish to
exchange are maintained in a self-administered retirement plan, please consult
with your Account Administrator for information about how to exchange Fund
shares.
Standish Group of Asset Funds 19 November 26, 1997
<PAGE>
General Exchange Information
Exchange requests received by Standish Fund Distributors or its agent
prior to the close of regular trading of the NYSE (normally 4:00 p.m., New York
City time) will be effective on that Business Day. All exchanges are subject to
the following exchange restrictions: (i) the Fund into which shares are being
exchanged must be registered for sale in your state; (ii) exchanges may be made
only between Fund accounts that are registered in the same name, address and, if
applicable, taxpayer identification number; and (iii) unless waived by the
Trust, the amount to be exchanged must satisfy the minimum account size of the
Fund to be exchanged into. Exchange requests will not be processed until payment
for the shares of the current Fund has been received by the Custodian. The
exchange privilege may be changed or discontinued and may be subject to
additional limitations upon sixty (60) days' notice to shareholders, including
certain restrictions on purchases by market-timer accounts.
Telephone Exchanges
Omnibus Accounts are automatically authorized to have telephonic exchange
privileges unless the Account Administrator indicates otherwise on the Account
Application or by writing to Standish Fund Distributors. Account Administrators
may exchange shares by calling Standish Fund Distributors at (800) 221-4795.
Proper identification will be required for each telephonic exchange. Please see
"Telephone Transactions" below for more information regarding telephonic
transactions.
Written Exchanges
Account Administrators may exchange Fund shares by written order to
Standish Fund Distributors, Attn: Mutual Funds Department, P.O. Box 1407,
Boston, Massachusetts 02205-1407. A written exchange request must (a) state the
name of the current Fund, (b) state the name of the Fund into which the current
Fund shares will be exchanged, (c) state the number of shares or the dollar
amount to be exchanged, (d) identify the shareholder's account numbers in both
Funds and (e) be signed by each registered owner exactly as the shares are
registered. Signature(s) must be guaranteed as listed under "Written Redemption"
below.
Redemption of Shares
How may Fund shares be redeemed?
Subject to the restrictions (if any) imposed by your Omnibus Account, you
can arrange to sell or "redeem" some or all of your shares on any Business Day.
All orders to redeem Fund shares must be made through your Account
Administrator. If the Fund shares you wish to redeem are held for the account of
a retirement plan sponsored by your employer, please consult with your employer
for information about how to redeem Fund shares. If the Fund shares you wish to
redeem are maintained in an IRA or other self-administered retirement plan,
please consult with your Account Administrator for information about how to
redeem Fund shares.
Account Administrators may redeem Fund shares by any of the methods
described below at the net asset value per share next determined after receipt
by Standish Fund Distributors or its agent of a redemption request in proper
form. Redemptions will not be processed until a completed Share Purchase
Application and payment for the shares to be redeemed have been received.
Telephonic Redemption
Omnibus Accounts are automatically authorized to have telephonic
redemption privileges unless the Account Administrator indicates otherwise on
the Account Application or by writing to Standish Fund Distributors. Account
Administrators may redeem shares by calling Standish Fund Distributors at (800)
221-4795. Redemption proceeds will be mailed or wired in accordance with the
Account Administrator's instruction on the account application to a
predesignated account. Redemption proceeds will normally be paid promptly after
receipt of telephonic instructions, but no later than three Business Days
thereafter. Redemption proceeds will be sent only by check payable to the
Omnibus Account of record at the address of record, unless the Account
Administrator has indicated, in the initial application for the purchase of
shares, a commercial bank to which redemption proceeds may be sent by wire.
These instructions may be changed subsequently only in writing, accompanied by a
signature guarantee and additional documentation. Wire charges, if any, will be
deducted from redemption proceeds. Proper identification will be required for
each telephonic redemption.
Written Redemption
Account Administrators may redeem Fund shares by written order to Standish
Fund Distributors, Attn: Mutual Funds Department, P.O. Box 1407, Boston,
Massachusetts 02205-1407. A written redemption request must (a) state the name
of the Fund and the number of shares or the dollar amount to be redeemed, (b)
identify the Omnibus Account's account number with the Fund and (c) be signed by
each registered owner exactly as the shares are registered. Signature(s) must be
guaranteed by a member of either the Securities Transfer Association's STAMP
program or the NYSE's Medallion Signature Program or by any one of the following
institutions, provided that such institution meets credit standards established
by Investors Bank and Trust Company, the Funds' transfer agent: (i) a bank; (ii)
a securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guaranties; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. Additional supporting documents may be required. Redemption
proceeds will normally be paid by check, mailed within three Business Days of
receipt by Standish Fund Distributors of a written redemption request in proper
form.
Standish Group of Asset Funds 20 November 26, 1997
<PAGE>
Telephone Transactions
By maintaining an account that is eligible for telephonic exchange and
redemption privileges, the Account Administrator authorizes the Adviser,
Standish Fund Distributors, the Trust and the Custodian to act upon instructions
of any person to redeem and/or exchange shares from the shareholder's account.
Further, the Account Administrator acknowledges on behalf of the Omnibus Account
that, as long as the Funds employ reasonable procedures to confirm that
telephonic instructions are genuine, and follow telephonic instructions that
they reasonably believe to be genuine, neither the Adviser, nor Standish Fund
Distributors, nor the Trust, nor the Funds, nor the Custodian, nor their
respective directors, officers or employees, will be liable for any loss,
expense or cost arising out of any request for a telephonic redemption or
exchange, even if such transaction results from any fraudulent unauthorized
instructions. Depending upon the circumstances, the Funds intend to employ
personal identification or written confirmation of transactions procedures, and
if they do not, the Funds may be liable for any losses due to unauthorized or
fraudulent instructions. All telephone transaction requests will be recorded.
Account Administrators may experience delays in exercising telephone transaction
privileges during periods of abnormal market activity. Accordingly, during
periods of volatile economic and market conditions, Account Administrators may
wish to consider transmitting redemption and exchange requests in writing.
****
The proceeds paid upon redemption or repurchase may be more or less than
the cost of the shares, depending upon the market value of the applicable
Portfolio's portfolio investments at the time of redemption or repurchase. Each
Fund intends to pay cash for all shares redeemed, but under certain conditions,
the Funds may make payments wholly or partially in portfolio securities
withdrawn from the applicable Portfolio for this purpose. Please see the
Statement of Additional Information for further information regarding the Funds'
ability to satisfy redemption requests in-kind.
Because of the cost of maintaining shareholder accounts, the Funds may
redeem, at net asset value, the shares in any account if the value of such
shares has decreased to less than $50,000 as a result of redemptions or
transfers. Before doing so, the applicable Fund will notify the Account
Administrator that the value of the shares in the account is less than the
specified minimum and will allow the shareholder 30 days to make an additional
investment in an amount which will increase the value of the account to at least
$50,000. Each Fund may eliminate duplicate mailings of Fund materials to
shareholders that have the same address of record.
Management
Trustees. Each Fund is a separate investment series of Standish, Ayer &
Wood Investment Trust, a Massachusetts business trust. Under the terms of the
Agreement and Declaration of Trust establishing the Trust, the Trustees of the
Trust are ultimately responsible for the management of its business and affairs.
Each Portfolio is a separate investment series of Standish, Ayer & Wood Master
Portfolio ("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, One Financial Center, Boston, Massachusetts
02111, serves as investment adviser to the Equity, Small Cap and Fixed Income
Portfolios pursuant to separate investment advisory agreements. Standish is a
Massachusetts corporation incorporated in 1933 and is a registered investment
adviser under the Investment Advisers Act of 1940.
SIMCO, One Financial Center, Boston, Massachusetts 02111, serves as
investment adviser to the Global Fixed Income Portfolio pursuant to an
investment advisory agreement and manages the Global Fixed Income 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. Barr Clayson,
Chairman of the Board and Vice President of SIMCO and a Managing Director and
Vice President 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 and Vice President of Standish and the President of the Trust,
is the Executive Vice President of SIMCO.
Standish and SIMCO provide fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad. Corporate pension funds are the largest asset under
active management by Standish and SIMCO. Standish's and SIMCO's clients also
include charitable and educational endowment funds, financial institutions,
trusts and individual investors. As of September 30, 1997, Standish or SIMCO
managed approximately $34 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 Portfolio's portfolio since January 1991 (which,
prior to May 3, 1996, included the direct management of Standish Equity Fund's
portfolio). During the past five years, Mr. Tate has served as a Managing
Director of Standish (since 1995) and President of SIMCO (since 1996) and both
Messrs. Tate and Cameron have served as a Director and Vice President of
Standish and a Director of SIMCO (since 1995 for Mr. Cameron).
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 Portfolio's
Standish Group of Asset Funds 21 November 26, 1997
<PAGE>
portfolio since August, 1990 (which, prior to May 3, 1996, included the direct
management of Standish Small Capitalization Equity Fund's portfolio). During the
past five years, Mr. Battelle has served as a Vice President as well as a
Director of Standish.
The Fixed Income Portfolio's portfolio manager is Caleb F. Aldrich. Mr.
Aldrich has been primarily responsible for the day-to-day management of the
Fixed Income Portfolio's portfolio since January 1, 1993 (which, prior to May 3,
1996, included the direct management of Standish Fixed Income Fund's portfolio).
During the past five years, Mr. Aldrich has served as a Director and Vice
President of Standish.
The Global Fixed Income Portfolio's portfolio managers are Richard S. Wood
and W. Charles Cook II (since June 1997). Mr. Wood has been primarily
responsible for the day-to-day management of the Global Fixed Income Portfolio's
portfolio since January 3, 1994 (which, prior to May 3, 1996, included the
direct management of Standish Global Fixed Income Fund's portfolio). During the
past five years, Mr. Wood has served as Vice President and a Managing Director
(since 1995) of Standish, President of the Trust and Executive Vice President of
SIMCO (since 1996) and the Portfolio Trust. During the past five years, Mr. Cook
has served as a Vice President and Associate Director of Standish and a Vice
President of SIMCO. Prior to serving as co-portfolio manager of the Global Fixed
Income Portfolio, Mr. Cook served as an analyst.
Subject to the supervision and direction of the Trustees of the Portfolio
Trust, the applicable Adviser manages each Portfolio in accordance with its
stated investment objective and policies, recommends investment decisions for
the Portfolios, places orders to purchase and sell securities on behalf of the
Portfolios and allows the Portfolios to use the name "Standish." For its
advisory services to the Portfolios, the applicable Adviser receives a monthly
fee at a stated annual percentage rate of each Portfolio's average daily net
asset value:
Contractual Advisory Fee Annual Rate
Actual Annual
Contractual Rate aid for
Advisory Fee the Year Ended
Annual Rate Dec. 31, 1996
----------- -------------
Equity
Portfolio 0.50% 0.49%
Small Cap
Portfolio 0.60% 0.59%
Fixed Income 0.40% of the
Portfolio first $250 million; 0.32%
0.35% of the
next $250
million; and
0.30% of
average
daily net
assets in
excess of
$500 million
Global Fixed
Income Portfolio 0.40% 0.40%
Administrator of the Funds
Standish serves as administrator to each Fund pursuant to an
administration agreement. 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.
Service Plans
The Trust, on behalf of each Fund, has adopted a service plan pursuant to
which each Fund pays service fees at an aggregate annual rate of up to 0.25% of
a Fund's average daily net assets. The service fee is payable for the benefit of
the participants in the Omnibus Accounts that are shareholders in the Funds and
is intended to be compensation to Account Administrators for providing personal
services and/or account maintenance services to participants in Omnibus Accounts
who are the beneficial owners of Fund shares. The Trust, on behalf of the
applicable Fund, will make quarterly payments to Account Administrators, for the
benefit of their Omnibus Accounts, based on the average net asset value of the
Fund shares that are attributable to the Omnibus Accounts. Account
Administrators that are fiduciaries or parties in interest to Omnibus Accounts
subject to the Employee Retirement Income Security Act of 1974 should consult
with their legal advisers regarding the receipt of service fees. See the
Statement of Additional Information for further information.
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 (if any). Each Fund pays
shareholder servicing fees and expenses, expenses of prospectuses, statements of
additional information and shareholder reports which are furnished to existing
shareholders. Each Fund and its corresponding Portfolio pays legal and auditing
fees; registration and reporting fees and expenses. 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.
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. The
Advisers will generally seek to obtain the best available price and most
favorable execution with respect to all transactions for the Portfolios 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.
Standish Group of Asset Funds 22 November 26, 1997
<PAGE>
FEDERAL INCOME TAXES
Each Fund is a separate entity for federal tax purposes and intends to
qualify for each taxable year for taxation as a "regulated investment company"
under the Code. If it qualifies 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. A portion of such dividends paid
by the Equity and Small Cap Funds will generally qualify for the corporate
dividends received deduction under the Code, subject to certain requirements and
limitations under the Code. Only a small portion, if any, of such dividends paid
by the Fixed Income or Global Fixed Income Funds is expected to qualify for the
corporate dividends received deduction 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 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 may be taxable at different maximum rates,
lower than the maximum rate applicable to ordinary income, and the applicable
rates may depend on the holding periods for the assets with respect to which the
gains were recognized. 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 for taxable
shareholders.
Each Portfolio 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 Global Fixed Income Fund may, but the other Funds are
not likely to, qualify to elect to pass its share of 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, subject to various
conditions and limitations under the Code. 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.
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.
At October 29, 1997, 22 & Co., c/o Eastern Bank and Trust Co., 225
Essex Street, Salem, MA 01970 had sole voting and investment power with respect
to more than 25% of the then outstanding shares of the Equity Fund. Accordingly,
this shareholder was deemed to control the Equity Fund.
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.
Principal Underwriter
Standish Funds Distributor, L.P., One Financial Center, 26th Floor,
Boston, Massachusetts 02111, serves as the Trust's principal underwriter.
Custodian, Transfer Agent and Dividend Disubursing Agent
Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116, serves as the Funds' transfer agent, dividend disbursing
agent and custodian for all cash and securities of the Portfolios and the Funds.
Investors Bank & Trust, Boston and Toronto, Canada, also provides accounting
services to the Funds.
Standish Group of Asset Funds 23 November 26, 1997
<PAGE>
Indeptendent Accountants
Coopers & Lybrand L.L.P, One Post Office Square, Boston, Massachusetts
02109 and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Grand Cayman Islands,
BWI, serve as independent accountants for the Trust and the Portfolio Trust,
respectively, and will audit the Funds' and the 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 the Adviser and the Adviser's
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.
Standish Group of Asset Funds 24 November 26, 1997
<PAGE>
STANDISH EQUITY ASSET FUND
STANDISH SMALL CAPITALIZATION
EQUITY ASSET FUND
STANDISH FIXED INCOME ASSET FUND
STANDISH GLOBAL FIXED INCOME ASSET FUND
- --------------------------------------------------------------------------------
Investment Adviser
(Equity, Small Cap and Fixed Income Portfolios)
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
Investment Adviser
(Global Fixed Income Portfolio)
Standish International Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Custodian
Investors Bank & Trust Company
200 Clarendon Street
Boston, Massachusetts 02116
Independent Accountants
Coopers & Lybrand, L.L.P.
One Post Office Square
Boston, Massachusetts 02109
(The Funds)
Coopers & Lybrand
P.O. Box 219
Grand Cayman Island, BWI
(The Portfolios)
Principal Underwriter
Standish Fund Distributors, L.P.
One Financial Center
Boston, Massachusetts 02111
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.
Standish Group of Asset Funds 25 November 26, 1997
<PAGE>
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Standish Group of Asset Funds 26 November 26, 1997
<PAGE>
(This page intentionally left blank.)
Standish Group of Asset Funds 27 November 26, 1997
<PAGE>
[STANDISH LOGO] STANDISH FUNDS(SM)
One Financial Center
Boston, Massachusetts 02111-2662
(800) 729-0066
<PAGE>
Dated November 26, 1997
[STANDISH LOGO]
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
(800) 421-4795
STATEMENT OF ADDITIONAL INFORMATION
Standish Equity Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Asset Fund
This combined Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the combined
Prospectus dated November 26, 1997, as amended and/or supplemented from time to
time (the "Prospectus"), of Standish Equity Asset Fund ("Equity Fund"), Standish
Small Capitalization Equity Asset Fund ("Small Cap Fund"), Standish Fixed Income
Asset Fund ("Fixed Income Fund") and Standish Global Fixed Income Asset Fund
("Global Fixed Income Fund"), each a separate investment series of Standish,
Ayer & Wood Investment Trust (the "Trust"). The Equity Fund, Small Cap Fund,
Fixed Income Fund and Global Fixed Income Fund are sometimes referred to herein
individually as the "Fund" and collectively as the "Funds." This Statement of
Additional Information should be read in conjunction with the Funds' Prospectus,
a copy of which may be obtained without charge by writing or calling your
Account Administrator (as defined in the Prospectus) or the Trust's principal
underwriter, Standish Fund Distributors, L.P. (the "Principal Underwriter"), at
the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
-------------------------------------
CONTENTS
INVESTMENT OBJECTIVE AND POLICIES .......................................... 1
INVESTMENT RESTRICTIONS .................................................... 13
CALCULATION OF PERFORMANCE DATA ............................................ 14
MANAGEMENT ................................................................. 17
SERVICE PLAN ............................................................... 21
REDEMPTION OF SHARES ....................................................... 22
PORTFOLIO TRANSACTIONS ..................................................... 23
DETERMINATION OF NET ASSET VALUE ........................................... 23
THE FUNDS AND THEIR SHARES ................................................. 24
THE PORTFOLIO AND ITS INVESTORS ............................................ 25
TAXATION ................................................................... 25
ADDITIONAL INFORMATION ..................................................... 30
EXPERTS AND FINANCIAL STATEMENTS ........................................... 30
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
As described in the Prospectus, each Fund seeks to achieve its investment
objective by investing all of its investable assets in its corresponding
portfolio ("Portfolio"), each a series of Standish, Ayer & Wood Master Portfolio
(the "Portfolio Trust"), an open-end management investment company. Each
Portfolio has the same investment objective and restrictions as its
corresponding Fund.
The Funds and their corresponding Portfolios are as follows:
Fund Portfolio
Equity Fund Standish Equity Portfolio ("Equity Portfolio")
Small Cap Fund Standish Small Capitalization Equity Portfolio
("Small Cap Portfolio")
Fixed Income Fund Standish Fixed Income Portfolio ("Fixed Income
Portfolio")
Global Fixed Income Fund Standish Global Fixed Income Portfolio ("Global Fixed
Income Portfolio")
The Prospectus describes the investment objective of each Fund and its
corresponding Portfolio and summarizes the investment policies they will follow.
Since the investment characteristics of each Fund relate directly to those of
its corresponding Portfolio, the following, which supplements the Prospectus, is
a discussion of the various investment techniques employed by the Portfolios.
See the Prospectus for a more complete description of the Funds' and the
Portfolios' investment objectives, policies and restrictions. Standish, Ayer &
Wood, Inc. ("Standish") is the investment adviser for the Equity, Small Cap and
Fixed Income Portfolios. Standish International Management Company, L.P.
("SIMCO") is the investment adviser for the Global Fixed Income Portfolio.
Standish and SIMCO are sometimes referred to herein as the "Adviser."
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 Portfolio invests generally
reinvest their earnings, and dividend income should not be expected. Also,
notwithstanding the Portfolios' 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. 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. The Small Cap Portfolio's 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, the Small Cap Portfolio's portfolio may include
securities of larger, more mature companies, provided that the value of the
securities of such larger, more mature companies shall not exceed 20% of the
Portfolio's total assets. The Small Cap Portfolio will attempt to reduce risk by
diversifying its 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 invest
in equity securities which are restricted as to disposition under federal
securities laws or are otherwise illiquid or not readily marketable only on an
occasional basis.
Foreign Securities.
Foreign securities may be purchased and sold on foreign stock exchanges or in
over-the-counter markets (but persons affiliated with a Portfolio will not act
as principal in such purchases and sales). Foreign stock markets are generally
not as developed or efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New York Stock
Exchange, 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 Portfolio will endeavor to
achieve the most favorable net results on its portfolio transactions. There is
generally less government supervision and regulation of stock exchanges, brokers
and listed companies abroad than in the United States.
The dividends and interest payable on certain foreign securities may be
subject to foreign withholding taxes and in some cases capital gains from such
securities may also be subject to foreign tax, thus reducing the net amount of
income or gain allocable to an investor in a Portfolio.
Investors should understand that the expense ratio of each Portfolio may be
higher than that of investment companies investing exclusively in domestic
securities because of the cost of maintaining the custody of foreign securities.
The Equity and Small Cap Portfolios 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 Portfolio acquires unsponsored Depository Receipts or Shares
(i.e., Depository Receipts or Shares acquired from banks which do not have a
contractual relationship with the foreign issuer of
2
<PAGE>
the security underlying the Depository Receipts or Shares to issue and service
such Depository Receipts or Shares), there may be an increased possibility that
the Portfolio would not become aware of and be able to respond to corporate
actions, such as stock splits or rights offerings involving the foreign issuer,
in a timely manner. In addition, certain benefits which may be associated with
the security underlying the 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 Portfolio will avoid currency risks
during the settlement period for purchases and sales.
Money Market Instruments and Repurchase Agreements.
When the Adviser considers investments in equity securities to present
excessive risks and to maintain liquidity for redemptions, the Equity and Small
Cap Portfolios may invest all or a portion of their assets in money market
instruments or short-term interest-bearing securities. They may also invest
uncommitted cash in such instruments and securities. The Fixed Income and Global
Fixed Income Portfolios may also invest in money market instruments or
short-term interest bearing securities.
Money market instruments include short-term U.S. government securities,
short-term foreign government securities (Global Fixed Income Portfolio only),
U.S. and foreign commercial paper (promissory notes issued by corporations to
finance their short term credit needs), negotiable certificates of deposit,
nonnegotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
U.S. government securities include securities which are direct obligations of
the U.S. government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the Treasury or may be backed by the credit of the federal agency
or instrumentality itself. Agencies and instrumentalities of the U.S. government
include, but are not limited to, Federal Land Banks, the Federal Farm Credit
Bank, the Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Federal Home Loan Banks and the Federal National Mortgage Association.
Investments by the Fixed Income and Global Fixed Income Portfolios in
commercial paper will be rated "P-1" by Moody's Investors Service, Inc.
("Moody's") or "A-1" by Standard & Poor's Rating Group ("S&P"), or Duff-1 by
Duff & Phelps ("Duff"), which are the highest ratings assigned by these rating
services (even if rated lower by one or more of the other agencies), or which,
if not rated or rated lower by one or more of the agencies and not rated by the
other agency or agencies, are judged by the Adviser to be of equivalent quality
to the securities so rated. In determining whether securities are of equivalent
quality, the Adviser may take into account, but will not rely entirely on,
ratings assigned by foreign rating agencies.
A repurchase agreement is an agreement under which a Portfolio acquires money
market instruments (generally U.S. government securities, 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 Portfolio and
is unrelated to the interest rate on the instruments. The instruments acquired
by the Portfolios (including accrued interest) must have an aggregate market
value in excess of the resale price and will be held by the Portfolios'
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 Portfolios.
The use of repurchase agreements involves certain risks. For example, if the
seller defaults on its obligation to repurchase the instruments acquired by a
Portfolio at a time when their market value has declined, the Portfolio may
incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Portfolio are collateral for a loan by the Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Portfolio may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Maturity and Duration.
The effective maturity of an individual portfolio security in which the Fixed
Income or Global Fixed Income Portfolios invest is defined as the period
remaining until the earliest date when the Portfolio can recover the principal
amount of such security through mandatory redemption or prepayment by the
issuer, the exercise by the Portfolio of a put option, demand feature or tender
option granted by the issuer or a third party or the payment of the principal on
the stated maturity date. The effective maturity of variable rate securities is
calculated by reference to their coupon reset dates. Thus, the effective
maturity of a security may be substantially shorter than its final stated
maturity. Unscheduled prepayments of principal have the effect of shortening the
effective maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to a Portfolio than was
anticipated at the time
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the securities were purchased. A Portfolio's reinvestment of unscheduled
prepayments may be made at rates higher or lower than the rate payable on such
security, thus affecting the return realized by the Portfolio.
Duration of an individual portfolio security is a measure of the security's
price sensitivity taking into account expected cash flow and prepayments under a
wide range of interest rate scenarios. In computing the duration of its
portfolio, a Portfolio will have to estimate the duration of obligations that
are subject to prepayment or redemption by the issuer taking into account the
influence of interest rates on prepayments and coupon flows. The Fixed Income
and Global Fixed Income Portfolios may each use various techniques to shorten or
lengthen the option-adjusted duration of its portfolio, including the
acquisition of debt obligations at a premium or discount, and the use of
mortgage swaps and interest rate swaps, caps, floors and collars.
Mortgage-Related Obligations.
The Fixed Income and Global Fixed Income Portfolios may invest in
mortgage-related obligations. Some of the characteristics of mortgage-related
obligations and the issuers or guarantors of such securities are described
below.
Life of Mortgage-Related Obligations.
The average life of mortgage-related obligations is likely to be
substantially less than the stated maturities of the mortgages in the mortgage
pools underlying such securities. Prepayments or refinancing of principal by
mortgagors and mortgage foreclosures will usually result in the return of the
greater part of principal invested long before the maturity of the mortgages in
the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.
GNMA Certificates.
The Government National Mortgage Association ("GNMA") was established in 1968
when the Federal National Mortgage Association ("FNMA") was separated into two
organizations, GNMA and FNMA. GNMA is a wholly-owned government corporation
within the Department of Housing and Urban Development. GNMA developed the first
mortgage-backed pass-through instruments in 1970 for Farmers Home
Administration-FHMA-insured, Federal Housing Administration-FHA-insured and for
Veterans Administration-or VA-guaranteed mortgages ("government mortgages").
GNMA purchases government mortgages and occasionally conventional mortgages
to support the housing market. GNMA is known primarily, however, for its role as
guarantor of pass-through securities collateralized by government mortgages.
Under the GNMA securities guarantee program, government mortgages that are
pooled must be less than one year old by the date GNMA issues its commitment.
Loans in a single pool must be of the same type in terms of interest rate and
maturity. The minimum size of a pool is $1 million for single-family mortgages
and $500,000 for manufactured housing and project loans.
Under the GNMA II program, loans with different interest rates can be
included in a single pool and mortgages originated by more than one lender can
be assembled in a pool. In addition, loans made by a single lender can be
packaged in a custom pool (a pool containing loans with specific characteristics
or requirements).
GNMA Guarantee.
The National Housing Act authorizes GNMA to guarantee the timely payment of
principal of and interest on securities backed by a pool of mortgages insured by
FHA or FHMA, or guaranteed by VA. The GNMA guarantee is backed by the full faith
and credit of the United States. GNMA is also empowered to borrow without
limitation from the U.S. Treasury if necessary to make any payments required
under its guarantee.
Yield Characteristics of GNMA Certificates.
The coupon rate of interest on GNMA Certificates is lower than the interest
rate paid on the VA-guaranteed, FHMA-insured or FHA-insured mortgages underlying
the Certificates, but only by the amount of the fees paid to GNMA and the
issuer. For the most common type of mortgage pool, containing single-family
dwelling mortgages, GNMA receives an annual fee of 0.06% of the outstanding
principal for providing its guarantee, and the issuer is paid an annual fee of
0.44% for assembling the mortgage pool and for passing through monthly payments
of interest and principal to GNMA Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will be
earned on the GNMA Certificates for several reasons. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after issuance,
GNMA Certificates may trade in the secondary market at a premium or discount.
Second, interest is paid monthly, rather than semi-annually as with traditional
bonds. Monthly compounding has the effect of raising the effective yield earned
on GNMA Certificates. Finally, the actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying the GNMA
Certificate. If mortgagors prepay their mortgages, the principal returned to
GNMA Certificate holders may be reinvested at higher or lower rates.
Market for GNMA Certificates.
Since the inception of the GNMA mortgage-backed securities program in 1970,
the amount of GNMA Certificates outstanding has grown rapidly. The size of the
market and the active participation in the secondary market by securities
dealers and many types of investors make the GNMA Certificates a highly liquid
instrument. Prices of GNMA Certificates are readily available from securities
dealers and depend on, among other things, the level of market rates, the GNMA
Certificate's coupon rate and the prepayment experience of the pools of
mortgages backing each GNMA Certificate.
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FHLMC Participation Certificates.
The Federal Home Loan Mortgage Corporation ("FHLMC") was created by the
Emergency Home Finance Act of 1970. It is a private corporation, initially
capitalized by the Federal Home Loan Bank System, charged with supporting the
mortgage lending activities of savings and loan associations by providing an
active secondary market for conventional mortgages. To finance its mortgage
purchases, FHLMC issues FHLMC Participation Certificates and Collateralized
Mortgage Obligations ("CMOs").
Participation Certificates represent an undivided interest in a pool of
mortgage loans. FHLMC purchases whole loans or participations on 30-year and
15-year fixed-rate mortgages, adjustable-rate mortgages ("ARMs") and home
improvement loans. Under certain programs, it will also purchase FHA and VA
mortgages.
Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread for
the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.
FHLMC's CMOs are general obligations, and FHLMC will be required to use its
general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.
A CMO is a cash-flow bond in which mortgage payments from underlying mortgage
pools pay principal and interest to CMO bondholders. The CMO is structured to
address two major shortcomings associated with traditional pass-through
securities: payment frequency and prepayment risk. Traditional pass-through
securities pay interest and amortized principal on a monthly basis whereas CMOs
normally pay principal and interest semi-annually. In addition, mortgage-backed
securities carry the risk that individual mortgagors in the mortgage pool may
exercise their prepayment privileges, leading to irregular cash flow and
uncertain average lives, durations and yields.
A typical CMO structure contains four tranches, which are generally referred
to as classes A, B, C and Z. Each tranche is identified by its coupon and
maturity. The first three classes are usually current interest-bearing bonds
paying interest on a quarterly or semi-annual basis, while the fourth, Class Z,
is an accrual bond. Amortized principal payments and prepayments from the
underlying mortgage collateral redeem principal of the CMO sequentially;
payments from the mortgages first redeem principal on the Class A bonds. When
principal of the Class A bonds has been redeemed, the payments then redeem
principal on the Class B bonds. This pattern of using principal payments to
redeem each bond sequentially continues until the Class C bonds have been
retired. At this point, Class Z bonds begin paying interest and amortized
principal on their accrued value.
The final tranche of a CMO is usually a deferred interest bond, commonly
referred to as the Z bond. This bond accrues interest at its coupon rate but
does not pay this interest until all previous tranches have been fully retired.
While earlier classes remain outstanding, interest accrued on the Z bond is
compounded and added to the outstanding principal. The deferred interest period
ends when all previous tranches are retired, at which point the Z bond pays
periodic interest and principal until it matures. The Adviser would purchase a Z
bond for the Fund if it expected interest rates to decline.
FNMA Securities.
FNMA was created by the National Housing Act of 1938. In 1968, the agency was
separated into two organizations, GNMA to support a secondary market for
government mortgages and FNMA to act as a private corporation supporting the
housing market.
FNMA pools may contain fixed-rate conventional loans on one-to-four-family
properties. Seasoned FHA and VA loans, as well as conventional growing equity
mortgages, are eligible for separate pools. FNMA will consider other types of
loans for securities pooling on a negotiated basis. A single pool may include
mortgages with different loan-to-value ratios and interest rates, though rates
may not vary beyond two percentage points.
Privately-Issued Mortgage Loan Pools.
Savings associations, commercial banks and investment bankers issue
pass-through securities secured by a pool of mortgages.
Generally, only conventional mortgages on single-family properties are
included in private issues, though seasoned loans and variable rate mortgages
are sometimes included. Private placements allow purchasers to negotiate terms
of transactions. Maximum amounts for individual loans may exceed the loan limit
set for government agency purchases. Pool size may vary, but the minimum is
usually $20 million for public offerings and $10 million for private placements.
Privately-issued mortgage-related obligations do not carry government or
quasi-government guarantees. Rather, mortgage pool insurance generally is used
to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in force.
Each mortgage, regardless of original loan-to-value ratio, is insured to 100% of
principal, interest and other expenses, to a total aggregate loss limit stated
on the policy. The aggregate loss limit of the policy generally is 5% to 7% of
the original aggregate principal of the mortgages included in the pool.
In addition to the insurance coverage to protect against defaults on the
underlying mortgages, mortgage-backed securities can be protected against the
nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.
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The rating received by a mortgage security will be a major factor in its
marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.
Before rating an issue, a rating agency such as Standard & Poor's or Moody's
will consider several factors, including: the creditworthiness of the issuer;
the issuer's track record as an originator and servicer; the type, term and
characteristics of the mortgages, as well as loan-to-value ratio and loan
amounts; the insurer and the level of mortgage insurance and hazard insurance
provided. Where an equity reserve account or letter of credit is offered, the
rating agency will also examine the adequacy of the reserve and the strength of
the issuer of the letter of credit.
Strategic Transactions.
Each Portfolio may, but is not required to, utilize various other investment
strategies as described below to seek to hedge various market risks (such as
interest rates, currency exchange rates, and broad or specific equity or fixed
income market movements), to manage the effective maturity or duration of fixed
income securities (Fixed Income and Global Fixed Income Portfolios only) or to
enhance potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by the Portfolios may
change over time as new instruments and strategies are developed or regulatory
changes occur.
In the course of pursuing its investment objective, a Portfolio may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity indices (Equity and Small Cap Portfolios only), fixed income
indices (Fixed Income and Global Fixed Income Portfolios only) and other
financial instruments; purchase and sell financial futures contracts and options
thereon; enter into various interest rate transactions such as swaps, caps,
floors or collars (Fixed Income and Global Fixed Income Portfolios only); and
enter into various currency transactions such as currency forward contracts,
cross-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 to seek to
protect against possible changes in the market value of securities held in or to
be purchased for a Portfolio's portfolio resulting from securities market or
currency exchange rate fluctuations, to protect a Portfolio's unrealized gains
in the value of its portfolio securities, to facilitate the sale of such
securities for investment purposes, to seek to manage the effective maturity or
duration of the Fixed Income or Global Fixed Income Portfolios' portfolio or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved although each Portfolio will attempt to limit its net loss exposure
resulting from Strategic Transactions entered into for such purposes to not more
than 3% of its net assets at any one time and, to the extent necessary, each
Portfolio will close out transactions in order to comply with this limitation.
(Transactions such as writing covered call options are considered to involve
hedging for the purposes of this limitation.) In calculating each Portfolio's
net loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that a Portfolio is underweighted in cyclical stocks and overweighted
in consumer stocks, the Portfolio may buy a cyclical index call option and sell
a cyclical index put option and sell a consumer index call option and buy a
consumer index put option. Under such circumstances, any unrealized loss in the
cyclical position would be netted against any unrealized gain in the consumer
position (and vice versa) for purposes of calculating the Portfolio's net loss
exposure. The ability of a Portfolio to utilize these Strategic Transactions
successfully will depend on the Adviser's ability to predict pertinent market
movements, which cannot be assured. Each Portfolio will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. A Portfolio's activities involving Strategic Transactions may be
limited in order to allow the applicable Fund to satisfy 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 Portfolio, force the purchase or sale, respectively, of portfolio
securities at inopportune times or for prices higher than (in the case of
purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation a Portfolio can realize on its investments or cause a
Portfolio to hold a security it might otherwise sell. The use of currency
transactions can result in a Portfolio incurring losses as a result of a number
of factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Portfolio creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Portfolio's position. The writing of
options could significantly increase the Portfolio's portfolio turnover rate
and, therefore, associated brokerage commissions or spreads. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Portfolio might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit
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any potential gain which might result from an increase in value of such
position. The loss incurred by a Portfolio in writing options on futures and
entering into futures transactions is potentially unlimited; however, as
described above, each Portfolio will attempt to limit its net loss exposure
resulting from Strategic Transactions entered into for non-hedging purposes to
not more than 3% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of a Portfolio's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
General Characteristics of Options.
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving options
require segregation of a Portfolio's assets in special accounts, as described
below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy
(if the option is exercised) the underlying security, commodity, index, currency
or other instrument at the exercise price. For instance, a Portfolio's purchase
of a put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Portfolio the right to
sell such instrument at the option exercise price. A call option, in
consideration for the payment of a premium, gives the purchaser of the option
the right to buy, and the seller the obligation to sell (if the option is
exercised), the underlying instrument at the exercise price. A Portfolio may
purchase a call option on a security, futures contract, index, currency or other
instrument to seek to protect the Portfolio against an increase in the price of
the underlying instrument that it intends to purchase in the future by fixing
the price at which it may purchase such instrument. An American style put or
call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. Each Portfolio is authorized to purchase
and sell exchange listed options and over-the counter options ("OTC options").
Exchange listed options are issued by a regulated intermediary such as the
Options Clearing Corporation ("OCC"), which guarantees the performance of the
obligations of the parties to such options. The discussion below uses the OCC as
an example, but is also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security or currency, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
A Portfolio's ability to close out its position as a purchaser or seller of
an exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A Portfolio will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the Portfolio to require the Counterparty to sell the option back to
the Portfolio at a formula price within seven days. OTC options purchased by a
Portfolio, and portfolio securities covering the amount of a Portfolio's
obligation pursuant to an OTC option sold by it (the cost of the sell-back plus
the in-the-money amount, if any), are subject to each Portfolio's restriction on
illiquid securities, unless determined to be liquid in accordance with
procedures adopted by the Boards of Trustees. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. Each Portfolio expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with a Portfolio or fails to make a cash settlement payment
due in accordance with the terms of that option, the Portfolio will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Portfolio will engage in OTC option transactions only with U.S.
Government securities dealers
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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 Portfolio sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Portfolio's income. The sale (writing) of put
options can also provide income.
Each Portfolio may purchase and sell (write) call options on securities,
including U.S. Treasury and agency securities (Fixed Income and Global Fixed
Income Portfolios), equity securities (Equity and Small Cap Portfolios) 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. The Fixed Income and Global Fixed Income Portfolios may also
purchase and sell call options on mortgage-backed securities, asset-backed
securities and corporate debt securities. All calls sold by a Portfolio must be
"covered" (i.e., the Portfolio must own the securities or futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. In addition, each Portfolio may cover
a written call option or put option by entering into an offsetting forward
contract and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the Portfolio's net exposure
on its written option position. Even though the Portfolio will receive the
option premium to help offset any loss, the Portfolio may incur a loss if the
exercise price is below the market price for the security subject to the call at
the time of exercise. A call sold by a Portfolio also exposes the Portfolio
during the term of the option to possible loss of opportunity to realize
appreciation in the market price of the underlying security or instrument and
may require the Portfolio to hold a security or instrument which it might
otherwise have sold.
Each Portfolio may purchase and sell (write) put options on securities,
including equity securities (including convertible securities) and U.S. Treasury
and agency securities (Fixed Income and Global Fixed Income Portfolios), and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts. The
Fixed Income and Global Fixed Income Portfolios may also purchase and sell put
options on mortgage-backed securities, asset-backed securities, foreign
sovereign debt and corporate debt securities. A Portfolio will not sell put
options if, as a result, more than 50% of the Portfolio's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that a Portfolio may be required to buy the
underlying security at a price above the market price.
Options on Securities Indices and Other Financial Indices.
Each Portfolio may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount upon exercise
of the option. In addition to the methods described above, each Portfolio may
cover call options on a securities index by owning securities whose price
changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio.
General Characteristics of Futures.
Each Portfolio may enter into financial futures contracts or purchase or sell
put and call options on such futures. Futures are generally bought and sold on
the commodities exchanges where they are listed and involve payment of initial
and variation margin as described below. All futures contracts entered into by a
Portfolio are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") or on certain
foreign exchanges. The sale of futures contracts creates a firm obligation by a
Portfolio, as seller, to deliver to the buyer the specific type of financial
instrument called for in the contract at a specific future time for a specified
price (or, with respect to index futures and Eurodollar instruments, the net
cash amount). The purchase of futures contracts creates a corresponding
obligation by a Portfolio, as purchaser to purchase a financial instrument at a
specific time and price. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position upon exercise of the option.
Each Portfolio's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that a Portfolio
may use commodity futures and option positions (i) for bona fide hedging
purposes without regard to the percentage of assets committed to margin and
option premiums, or (ii) for other purposes permitted by the CFTC to the extent
that the aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount the
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positions were "in the money" at the time of purchase) do not exceed 5% of the
net asset value of the Portfolio, after taking into account unrealized profits
and losses on such positions. Typically, maintaining a futures contract or
selling an option thereon requires a Portfolio to deposit with its custodian for
the benefit of a futures commission merchant, or directly with the futures
commission merchant, as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
directly with the futures commission merchant thereafter on a daily basis as the
value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of the Portfolio. If a Portfolio exercises an option on a futures
contract it will be obligated to post initial margin (and potential subsequent
variation margin) for the resulting futures position just as it would for any
position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
Currency Transactions.
Each Portfolio may engage in currency transactions with Counterparties to
seek to hedge the value of portfolio holdings denominated in particular
currencies against fluctuations in relative value or to enhance potential gain.
Currency transactions include currency contracts, exchange listed currency
futures, exchange listed and OTC options on currencies, and currency swaps. A
forward currency contract involves a privately negotiated obligation to purchase
or sell (with delivery generally required) a specific currency at a future date,
which may be any fixed number of days from the date of the contract agreed upon
by the parties, at a price set at the time of the contract. A currency swap is
an agreement to exchange cash flows based on the notional (agreed-upon)
difference among two or more currencies and operates similarly to an interest
rate swap, which is described below. A Portfolio may enter into over-the-counter
currency transactions with Counterparties which have received, combined with any
credit enhancements, a long term debt rating of A by S&P or Moody's,
respectively, or that have an equivalent rating from a NRSRO or (except for OTC
currency options) whose obligations are determined to be of equivalent credit
quality by the Adviser.
Each Portfolio's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Portfolio, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Portfolio will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Each Portfolio may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Portfolio has or in which the
Portfolio expects to have portfolio exposure. For example, a Portfolio may hold
a French security and the Adviser may believe that French francs will
deteriorate against German marks. The Portfolio would sell French francs to
reduce its exposure to that currency and buy German marks. This strategy would
be a hedge against a decline in the value of French francs, although it would
expose the Portfolio to declines in the value of the German mark relative to the
U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, a Portfolio may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a Portfolio's portfolio is exposed is difficult to hedge or to hedge against the
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 Portfolio's portfolio securities
are or are expected to be denominated, and to buy U.S. dollars. The amount of
the contract would not exceed the value of the portfolio securities denominated
in linked currencies. For example, if the Adviser considers that the Austrian
schilling is linked to the German Deutsche mark (the "D-mark"), and a portfolio
contains securities denominated in schillings and the Adviser believes that the
value of schillings will decline against the U.S. dollar, the Adviser may enter
into a contract to sell D-marks and buy dollars. Proxy hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to a Portfolio if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Portfolio is engaging in proxy hedging. If a Portfolio
enters into a currency hedging transaction, the Portfolio will comply with the
asset segregation requirements described below.
Risks of Currency Transactions.
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to a Portfolio
if it is unable to deliver or receive currency or funds in settlement of
obligations and could also cause hedges it has entered into to be rendered
useless, resulting
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in full currency exposure as well as incurring transaction costs. Buyers and
sellers of currency futures are subject to the same risks that apply to the use
of futures generally. Further, settlement of a currency futures contract for the
purchase of most currencies must occur at a bank based in the issuing nation.
Trading options on currency futures is relatively new, and the ability to
establish and close out positions on such options is subject to the maintenance
of a liquid market which may not always be available. Currency exchange rates
may fluctuate based on factors extrinsic to that country's economy.
Combined Transactions.
Each Portfolio may enter into multiple transactions, including multiple
options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component transactions"), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of each Portfolio to do so.
A combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars.
Among the Strategic Transactions into which each Portfolio may enter are
interest rate, currency and index swaps and the purchase or sale of related
caps, floors and collars. Each Portfolio expects to enter into these
transactions primarily for hedging purposes, including, but not limited to,
preserving a return or spread on a particular investment or portion of its
portfolio, protecting against currency fluctuations, or protecting against an
increase in the price of securities a Portfolio anticipates purchasing at a
later date. Swaps, caps, floors and collars may also be used to enhance
potential gain in circumstances where hedging is not involved although, as
described above, each Portfolio will attempt to limit its net loss exposure
resulting from swaps, caps, floors and collars and other Strategic Transactions
entered into for such purposes to not more than 3% of its net assets at any one
time. A Portfolio will not sell interest rate caps or floors where it does not
own securities or other instruments providing the income stream the Portfolio
may be obligated to pay. Interest rate swaps involve the exchange by the
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. A currency swap is an agreement
to exchange cash flows on a notional amount of two or more currencies based on
the relative value differential among them and an index swap is an agreement to
swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a notional
principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain rate of return
within a predetermined range of interest rates or values.
A Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two payments. A Portfolio will not enter into
any swap, cap, floor or collar transaction unless, at the time of entering into
such transaction, the unsecured long-term debt of the Counterparty, combined
with any credit enhancements, is rated at least A by S&P or Moody's or has an
equivalent rating from an NRSRO or which issue debt that is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Portfolio may have contractual remedies pursuant to the
agreements related to the transaction. The swap market has grown substantially
in recent years with a large number of banks and investment banking firms acting
both as principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed. Swaps, caps, floors and collars are considered illiquid
for purposes of each Portfolio's policy regarding illiquid securities, unless it
is determined, based upon continuing review of the trading markets for the
specific security, that such security is liquid. The 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 Portfolio's limitation on investing in illiquid
securities.
Eurodollar Contracts.
Each Portfolio may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LIBOR"), although foreign
currency-denominated instruments are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. A Portfolio might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Risks of Strategic Transactions Outside the United States.
When conducted outside the United States, Strategic Transactions may not be
regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be
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adversely affected by: (i) lesser availability than in the United States of data
on which to make trading decisions, (ii) delays in a Portfolio's ability to act
upon economic events occurring in foreign markets during non-business hours in
the United States, (iii) the imposition of different exercise and settlement
terms and procedures and margin requirements than in the United States, (iv)
lower trading volume and liquidity, and (v) other complex foreign political,
legal and economic factors. At the same time, Strategic Transactions may offer
advantages such as trading in instruments that are not currently traded in the
United States or arbitrage possibilities not available in the United States.
Use of Segregated Accounts.
Each Portfolio will hold securities or other instruments whose values are
expected to offset its obligations under the Strategic Transactions. A Portfolio
will cover Strategic Transactions as required by interpretive positions of the
SEC. A Portfolio will not enter into Strategic Transactions that expose the
Portfolio to an obligation to another party unless it owns either (i) an
offsetting position in securities or other options, futures contracts or other
instruments or (ii) cash, receivables or liquid securities with a value
sufficient to cover its potential obligations. A Portfolio may have to comply
with any applicable regulatory requirements for Strategic Transactions, and if
required, will set aside cash and other assets in a segregated account with its
custodian bank in the amount prescribed. In that case, the Portfolios' custodian
would maintain the value of such segregated account equal to the prescribed
amount by adding or removing additional cash or other assets to account for
fluctuations in the value of the account and the Portfolio's obligations on the
underlying Strategic Transactions. Assets held in a segregated account would not
be sold while the Strategic Transaction is outstanding, unless they are replaced
with similar assets. As a result, there is a possibility that segregation of a
large percentage of a Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
Structured or Hybrid Notes.
As more fully described in the Prospectus, the Fixed Income and Global Fixed
Income Portfolios may invest in structured or hybrid notes. It is expected that
not more than 5% of each Portfolio's net assets will be at risk as a result of
such investments. In addition to the risks associated with a direct investment
in the benchmark asset, investments in structured and hybrid notes involve the
risk that the issuer or counterparty to the obligation will fail to perform its
contractual obligations. Certain structured or hybrid notes may also be
leveraged to the extent that the magnitude of any change in the interest rate or
principal payable on the benchmark asset is a multiple of the change in the
reference price. Leverage enhances the price volatility of the security and,
therefore, a Portfolio's net asset value. Further, certain structured or hybrid
notes may be illiquid for purposes of the Portfolios' limitations on investments
in illiquid securities.
"When Issued," "Delayed Delivery Securities" and "Forward Commitment"
Securities.
The Fixed Income Portfolio may invest up to 15% of its net assets and the
Global Fixed Income Portfolio may invest up to 25% of its total assets in
securities purchased on a when-issued or delayed delivery basis. Delivery and
payment for securities purchased on a when-issued or delayed delivery basis will
normally take place 15 to 45 days after the date of the transaction. The payment
obligation and interest rate on the securities are fixed at the time that a
Portfolio enters into the commitment, but interest will not accrue to the
Portfolio until delivery of and payment for the securities. Although a Portfolio
will only make commitments to purchase "when-issued" and "delayed delivery"
securities with the intention of actually acquiring the securities, each
Portfolio may sell the securities before the settlement date if deemed advisable
by the Adviser.
Unless a Portfolio has entered into an offsetting agreement to sell the
securities purchased on a when-issued or forward commitment basis, cash or
liquid obligations with a market value at least equal to the amount of the
Portfolio's commitment will be segregated with the Portfolio's custodian bank.
If the market value of these securities declines, additional cash or securities
will be segregated daily so that the aggregate market value of the segregated
securities equals the amount of the Portfolio's commitment.
Securities purchased on a "when-issued," "delayed delivery" or "forward
commitment" basis may have a market value on delivery which is less than the
amount paid by a Portfolio. Changes in market value may be based upon the
public's perception of the creditworthiness of the issuer or changes in the
level of interest rates. Generally, the value of "when-issued," "delayed
delivery" and "forward commitment" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will depreciate in value when interest rates rise.
Portfolio Turnover.
Each Portfolio places no restrictions on portfolio turnover and it may sell
any portfolio security without regard to the period of time it has been held. A
Portfolio may therefore generally change its investments at any time in
accordance with the Adviser's appraisal of factors affecting any particular
issuer or market, or the economy in general.
Short-Term Debt Securities.
For defensive or temporary purposes, each Portfolio may invest in investment
grade (high quality in the case of the Fixed Income and Global Fixed Income
Portfolios) 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.
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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 represented by proxy, or
(ii) more than 50% of the outstanding voting securities of the Fund or the
Portfolio.
As a matter of fundamental policy, each Portfolio (Fund) may not:
1. Invest more than 25% of the current value of their total assets in any single
industry, provided that this restriction shall not apply to (a) U.S.
Government securities with respect to the Equity Portfolio (Fund) and Small
Cap Portfolio (Fund) only, (b) U.S. Government securities, including mortgage
pass-through securities (GNMAs) with respect to the Fixed Income Portfolio
(Fund) only and (c) debt securities issued or guaranteed by the United States
Government or its agencies or instrumentalities with respect to Global Fixed
Income Portfolio (Fund) only.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, a Portfolio (Fund)
may be deemed be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans although the Fixed Income
and Global Fixed Income Portfolios (Funds) may purchase marketable securities
of companies which deal in real estate, real estate mortgage loans or
interests therein.
4. Purchase securities on margin (except that each Portfolio (Fund) may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities).
5. Purchase or sell commodities or commodity contracts except that each
Portfolio (Fund) may purchase and sell financial futures contracts and engage
in options on financial futures contracts and foreign currency exchange
transactions.
6. With respect to at least 75% (50% in the case of Global Fixed Income
Portfolio and Fund only) of its total assets, invest more than 5% in the
securities of any one issuer (other than the U.S. Government, its agencies or
instrumentalities) or acquire more than 10% of the outstanding voting
securities of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that each Portfolio
(Fund) may (a) borrow from banks in an amount up to 15% of the current value
of its total assets as a temporary measure for extraordinary or emergency
purposes (but not investment purposes), (b) pledge its assets to an extent
not greater than 15% of the current value of its total assets to secure such
borrowings and (c) with respect to Fixed Income Portfolio (Fund) and Global
Fixed Income Portfolio (Fund) only, enter into forward roll transactions.
8. Make loans of portfolio securities, except that (a) each Portfolio (Fund) may
enter into repurchase agreements, (b) the Fixed Income Portfolio (Fund) (i)
may lend portfolio securities in accordance with the Fund's investment
policies up to 33 1/3% of the Portfolio's total assets taken at market value
and (ii) purchase all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, banker's acceptances,
debentures or other securities, whether or not the purchase is made upon the
original issuance of securities and (c) the Global Fixed Income Portfolio
(Fund) may lend its portfolio securities with a value up to 20% of its total
assets (with a 10% limit for any borrower).
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. Each
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 Portfolio's borrowings (bank
borrowings with respect to the Fixed Income Portfolio and Fund) exceed 5%
of its net assets.
e. With respect to the Fixed Income and Global Fixed Income Portfolios
(Funds) only, invest more than 5% (Fixed Income Portfolio) or 25% (Global
Fixed Income Portfolio) of its net assets in repurchase agreements.
Notwithstanding any fundamental or non-fundamental policy, each Fund may
invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an
open-end management investment company with substantially the same investment
objective as the 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.
- ------------------------
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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.
The yield of the Fixed Income and Global Fixed Income Funds is computed by
dividing the net investment income per share earned during a base period of 30
days, or one month, by the maximum offering price per share on the last day of
the period. For the purpose of determining net investment income, the
calculation includes, among expenses of the Funds, all recurring fees that are
charged to all shareholder accounts and any non-recurring charges for the period
stated. In particular, yield is determined according to the following formula:
Yield = 2[(A - B + 1)^6 - 1]
-----
CD
Where:
A=interest earned during the period; B=net expenses accrued for the period;
C=the average daily number of shares outstanding during the period that were
entitled to receive dividends; D=the maximum offering price per share (net
asset value) on the last day of the period.
The Fixed Income and Global Fixed Income Funds may also quote
non-standardized yield, such as yield-to-maturity ("YTM"). YTM represents the
rate of return an investor will receive if a long-term, interest bearing
investment, such as a bond, is held to its maturity date. YTM does not take into
account purchase price, redemption value, time to maturity, coupon yield and the
time between interest payments.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the Fixed Income and Global
Fixed Income Funds account for gain or loss attributable to actual monthly pay
downs as an increase or decrease to interest income during the period. In
addition, each Fixed Income and Global Fixed Income Fund may elect (i) to
amortize the discount or premium remaining on a security, based on the cost of
the security, to the weighted average maturity date, if such information is
available, or to the remaining term of the security, if the weighted average
maturity date is not available, or (ii) not to amortize the discount or premium
remaining on a security.
These performance quotations should not be considered as representative of
any 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 may compare its performance to the Russell 2000 Index, which is generally
considered to be representative of unmanaged small capitalization stocks in the
United States markets, 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 Fixed
Income Fund may compare its performance to the Lehman Government/Corporate
Index, which is generally considered to be representative of the performance of
all domestic, dollar denominated, fixed rate, investment grade bonds, and the
Lehman Brothers Aggregate Index which is composed of securities from the Lehman
Brothers Government/Corporate Bond Index, Mortgage Backed Securities Index and
Yankee Bond Index, and is generally considered to be representative of all
unmanaged, domestic, dollar denominated, fixed rate investment grade bonds. The
Global Fixed Income Fund may compare its performance to the J.P. Morgan Global
Index, which is generally considered to be representative of the performance of
fixed rate, domestic government bonds from eleven countries. 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.
Each Fund is newly organized and has no operating or performance history.
However, other funds in the Standish, Ayer & Wood Group of Funds currently
invest all of their investable assets in the Portfolios. These funds, which have
substantially the same investment objectives, policies and restrictions as their
corresponding Portfolios and Funds, are: Standish Equity Fund with respect to
the Equity Portfolio; Standish Fixed Income Fund with respect to the Fixed
Income Portfolio; Standish Global Fixed Income Fund with respect to the Global
Fixed Income Portfolio; and Standish Small Capitalization Equity Fund with
respect to the Small Cap Portfolio. Each of these funds is referred to in this
Statement of Additional Information as a "corresponding fund." In accordance
with positions expressed by the staff of the SEC, each Fund has adopted the
performance record of its corresponding fund for periods prior to each Fund's
commencement of operations. Any quotation of performance data of a Fund relating
to these periods will include the performance record for its corresponding fund
for these periods. However, because each Fund incurs a service fee payable at
the annual rate equal to up to 0.25% of such Fund's average daily net assets,
which service fee is not incurred by its corresponding fund, such quotation of
performance will be adjusted downward to reflect
13
<PAGE>
the imposition of such service fee. In addition, to the extent that the net
assets of a Fund are lower than the net assets of its corresponding fund, fixed
expenses incurred by a Fund would be higher as a percentage of average net
assets than for the corresponding fund. See "Management" and "Service Plan"
below in this Statement of Additional Information for a description of the
Funds' expenses. The corresponding funds' performance records adopted by the
Funds have not been adjusted to reflect any higher relative expenses, other than
the service fees, expected to be incurred by the Funds. The Funds' performance
would be lower if adjusted to reflect any higher relative additional expenses.
In addition to average annual return quotations, each Fund may quote as its
own the quarterly and annual performance record of the corresponding fund on a
net (with management fees deducted) and gross basis.
The Funds' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended June 30, 1997 and average annualized
yield for the 30-day period ended June 30, 1997 were as follows:
Average Annual Total Return
---------------------------------------
Fund 1-Year 5-Year 10-Year Yield
- ---- ------ ------ ------- -----
Equity Fund(1) 37.25% 22.49% 21.09%(2) N/A
Small Capitalization Equity 5.54% 18.99% 18.10%(3) N/A
Fund(1)
Fixed Income Fund(1) 9.83% 7.48% 9.05%(4) 6.64%
Global Fixed Income Fund(1) 15.36% 7.59%(5) N/A 6.25%
- ----------
1 The Fund's average annual total return quotations and average annualized
yield quotation includes the performance record of its corresponding fund
adjusted to reflect the imposition of service fees at the rate of 0.25% of
average daily net assets. The adjustment is made by reducing the
corresponding fund's performance record for rolling one month periods by
.020833% (the fraction of the .25% service fee paid monthly) and then
aggregating those performance results for the appropriate one, five, ten or
life of fund period.
2 Equity Fund commenced operations on June 2, 1991.
3 Small Capitalization Equity Fund commenced operations on September 1, 1990.
4 Fixed Income Fund commenced operations on March 27, 1987.
5 Global Fixed Income Fund commenced operations on January 3, 1994.
14
<PAGE>
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis, Martin,
Hanlon and Stuehr and Ms. Banfield, Herrmann, Kneeland, Broccoli and
Walcott-Abramson 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 Portfolios' investment adviser
and the Fund's administrator.
<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
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.; Director of
Boston, MA 02111 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
Beverly Farms, MA 01915 Company
*Richard S. Wood, 5/21/54 President and Trustee Vice President and
c/o Standish, Ayer & Wood, Inc. Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
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 Vice President of Finance, Standish,
c/o Standish, Ayer & Wood, Inc. Treasurer Ayer & Wood, Inc. since October 1996;
One Financial Center formerly Senior Vice President,
Boston, MA 02111 Treasurer and Chief Financial Officer of
Liberty Financial Bank Group (1993-95);
prior to 1993, Corporate Controller, The
Berkeley Financial Group
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- ------------------------------------ ----------------------------- ------------------------------------------
<S> <C> <C>
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
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
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
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
Sarah Walcott Abramson, 12/9/65 Vice President Compliance Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since October 1993
Boston, MA 02111
Kathleen M. Broccoli, 4/13/65 Vice President Manager, Portfolio Accounting,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Thomas J. Hanlon, 9/25/60 Vice President Manager, Trade Settlement
c/o Standish, Ayer & Wood, Inc. and Pricing,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
Rosalind J. Lillo, 2/6/38 Vice President 'Broker/Dealer Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since October 1995;
Boston, MA 02111 Compliance Administrator,
New England Securities Corp.
Gigi K. Szekely,5/8/67 Vice President Manager, Client
c/o Standish, Ayer & Wood, Inc. Communications,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
</TABLE>
* Indicates that Trustee is an interested person of the Trust for purposes of
the 1940 Act.
16
<PAGE>
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, except that certain Trustees and officers who are
directors and shareholders of Standish may, from time to time, purchase
additional shares of common stock of Standish.
The following table estimates the compensation to be paid to the Trust's
Trustees by the Equity and Small Cap Funds for their initial fiscal years ending
September 30, 1998 and by the Fixed Income and Global Fixed Income Funds during
their initial fiscal years ending December 31, 1997:
Estimated Aggregate Compensation from the Funds
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Compensation
Accrued From Funds and
Small Fixed Global Fixed as Part Portfolio and
Equity Capitalization Income Income of Funds Other Funds
Name of Trustee Fund** Equity Fund** Fund** Fund** Expenses in Complex*
- --------------- ------ -------------- ------ ------------ ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0
Samuel C. Fleming $230 $4 $6 $4 $0 $50,500
Benjamin M. Friedman $230 $4 $6 $4 $0 $50,500
John H. Hewitt $253 $4 $6 $4 $0 $55,500
Edward H. Ladd $0 $0 $0 $0 $0 $0
Caleb Loring, III $230 $4 $6 $4 $0 $50,500
Richard S. Wood $0 $0 $0 $0 $0 $0
</TABLE>
* As of the date of this Statement of Additional Information there were 22
funds in the fund complex.
** Estimated for the fiscal years ending September 30, 1998 for the Equity and
Small Cap Funds and December 31, 1997 for the Fixed Income and Global Fixed
Income Funds. The Funds are newly organized and as of the date of this
Statement of Additional Information the Funds have not paid any compensation
to the Trustees.
Certain Shareholders
As of the date of this Statement of Information, the 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. 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
- ---------------------------------------------------
Maltrust & Co. 100%*
c/o Eastern Bank and Trust Co.
225 Essex Street
Salem, MA 01970
* Because the shareholder beneficially owned more than 25% of the then
outstanding shares of the Equity 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 Capitalization
Equity Portfolio and Fixed Income Portfolio pursuant to written investment
advisory agreements. Standish is a Massachusetts corporation organized in 1933
and is registered under the Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the shareholders
of Standish, are the Standish controlling persons: Caleb F. Aldrich, Nicholas S.
Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K. Chandor, D. Barr
Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria D.
Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd, Laurence A.
Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin, Austin C. Smith,
David C. Stuehr, Ralph S. Tate, and Richard S. Wood.
SIMCO serves as investment adviser to the Global Fixed Income Portfolio
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
Senior Adviser to Standish, and D. Barr Clayson, Chairman of the Board and a
Vice President of SIMCO and a Managing Director and a Vice President of
Standish. Ralph S. Tate, a Managing Director of Standish, is President and a
Director of SIMCO. Richard S. Wood, a Vice President and Managing Director of
Standish and the President of the Trust, is the Executive Vice President of
SIMCO.
17
<PAGE>
Certain services provided by the Adviser under the advisory agreements are
described in the Prospectus. These services are provided without reimbursement
by the Portfolios for any costs incurred. Under the investment advisory
agreements, the Adviser is paid a fee based upon a percentage of the applicable
Portfolio's average daily net asset value computed as set forth below. The
advisory fees are payable monthly.
Contractual Advisory Fee Rate
Portfolio (as a percentage of average daily net assets)
- --------- ---------------------------------------------
Equity Portfolio 0.50%
Small Capitalization
Equity Portfolio 0.60%
Fixed Income Portfolio 0.40% of the first $250 million
0.35% of the next $250 million
0.30% of over $500 million
Global Fixed Income Portfolio 0.40%
Pursuant to the investment advisory agreements, each Portfolio bears expenses
of its operations other than those incurred by the Adviser pursuant to the
investment advisory agreement. Among other expenses, 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.
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 the Trustees of the Portfolio Trust
or by the "vote of a majority of the outstanding voting securities" of the
applicable Portfolio, and, in either event (ii) by vote of a majority of the
Trustees of the Portfolio Trust who are not parties to the investment advisory
agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. Each investment advisory agreement may be terminated at any time
without the payment of any penalty by vote of the Trustees of the Portfolio
Trust or by the "vote of a majority of the outstanding voting securities" of the
applicable Portfolio or by the Adviser, on sixty days' written notice to the
other 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 Portfolios, the Adviser, the Principal Underwriter, the Trust and the
Portfolio Trust have each adopted extensive restrictions on personal securities
trading by personnel of the Adviser and its affiliates. These restrictions
include: pre-clearance of all personal securities transactions and a prohibition
of purchasing initial public offerings of securities. These restrictions are a
continuation of the basic principle that the interests of the 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 Funds
pursuant to written administration agreements with the Trust on behalf of each
Fund. 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 administration
agreement can be terminated by either party on not more than sixty days' written
notice.
Administrator of the Portfolio
IBT Trust Company (Cayman) Ltd., P.O. Box 501, Grand Cayman, Cayman Islands,
BWI, serves as the administrator to 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.
SERVICE PLAN
The Trust, with respect to each Fund, has adopted a service plan (the
"Service Plan"). Each Service Plan provides that a Fund may compensate entities
("Account Administrators") that provide omnibus accounting services for groups
of individuals
18
<PAGE>
who beneficially own Fund shares ("Omnibus Accounts") for providing certain
personal, account administration and/or shareholder liaison services to
participants in the Omnibus Accounts. Pursuant to the Service Plan, the Funds
may enter into agreements with Account Administrators which purchase shares of
the Funds ("Service Agreements"). Under such Service Agreements or otherwise,
Account Administrators may perform some or all of the following services: (a)
establishing and maintaining Omnibus Accounts with the Funds; (b) establishing
and maintaining subaccounts and subaccount balances for Omnibus Accounts and
their participants ("Participants"); (c) processing orders by Omnibus Accounts
and Participants to purchase, redeem and exchange Fund shares promptly and in
accordance with the effective prospectus relating to such shares; (d)
transmitting to each Fund (or its agent) on each Business Day (as defined below)
a net subscription or net redemption order reflecting subscription, redemption
and exchange orders received by it with respect to the Omnibus Accounts; (e)
receiving and transmitting funds representing the purchase price or redemption
proceeds relating to such orders; (f) mailing Fund prospectuses, statements of
additional information, periodic reports, transaction confirmations and
subaccount information to Omnibus Accounts and Participants; (g) answering
Omnibus Account and Participant inquiries about the Funds, subaccount balances,
distribution options and such other administrative services for the Omnibus
Account and the Participants as provided for in the service agreements between
the Account Administrator and the Omnibus Account; and (h) providing such
statistical and other information as may be reasonably requested by the Funds or
necessary for the Funds to comply with applicable federal or state laws.
As compensation for such services, the Funds may pay each Account
Administrator a service fee in an amount of up to 0.25% (on an annualized basis)
of the Fund's average daily net assets attributable to Fund shares that are
attributable to or held in the name of such Account Administrator. Account
Administrators may from time to time be required to meet certain other criteria
in order to receive service fees.
In accordance with the terms of the Service Plan, Standish provides to the
Trust for review by the Trustees a quarterly written report of the amounts
expended under the Service Plan and the purpose for which such expenditures were
made. In the Trustees' quarterly review of the Service Plan, they will consider
the continued appropriateness and the level of compensation that the Service
Plan provides.
Conflict of interest restrictions (including the Employee Retirement Income
Security Act of 1974 ("ERISA")) may apply to an Account Administrator's receipt
of compensation paid by the Funds in connection with the investment of fiduciary
assets in Fund shares. Account Administrators that are subject to the
jurisdiction of the SEC, the Department of Labor or state securities
commissions, are urged to consult legal advisers before investing fiduciary
assets in Fund shares and receiving service fees.
The Trust believes that fiduciaries of ERISA plans may properly receive fees
under the Service Plan if the plan fiduciary otherwise properly discharges its
fiduciary duties, including (if applicable) those under ERISA. Under ERISA, a
plan fiduciary, such as a trustee or investment manager, must meet the fiduciary
responsibility standards set forth in part 4 of Title I of ERISA. These
standards are designed to help ensure that the fiduciary's decisions are made in
the best interests of the plan and are not colored by self-interest.
Section 403(c)(1) of ERISA provides, in part, that the assets of a plan shall
be held for the exclusive purpose of providing benefits to the plan's
participants and their beneficiaries and defraying reasonable expenses of
administering the plan. Section 404(a)(1) sets forth a similar requirement on
how a plan fiduciary must discharge his or her duties with respect to the plan,
and provides further that such fiduciary must act prudently and solely in the
interest of the participants and beneficiaries. These basic provisions are
supplemented by the per se prohibitions of certain classes of transactions set
forth in Section 406 of ERISA.
Section 406(a)(1)(D) of ERISA prohibits a fiduciary of an ERISA plan from
causing that plan to engage in a transaction if he knows or should know that the
transaction would constitute a direct or indirect transfer to, or use by or for
the benefit of, a party in interest, of any assets of that plan. Section 3(14)
includes, within the definition of "party in interest" with respect to a plan,
any fiduciary with respect to that plan. Thus, Section 406(a)(1)(D) would not
only prohibit a fiduciary from causing the plan to engage in a transaction which
would benefit a third person who is a party in interest, but it also would
prohibit the fiduciary from similarly benefiting himself. In addition, Section
406(b)(1) specifically prohibits a fiduciary with respect to a plan from dealing
with the assets of that plan in his own interest or for his own account. Section
406(b)(3) supplements these provisions by prohibiting a plan fiduciary from
receiving any consideration for his own personal account from any party dealing
with the plan in connection with a transaction involving the assets of the plan.
In accordance with the foregoing, however, a fiduciary of an ERISA plan may
properly receive service fees under the Service Plan if the fees are used for
the exclusive purpose of providing benefits to the plan's participants and their
beneficiaries or for defraying reasonable expenses of administering the plan for
which the plan would otherwise be liable. See, e.g., Department of Labor ERISA
Technical Release No. 86-1 (stating a violation of ERISA would not occur where a
broker-dealer rebates commission dollars to a plan fiduciary who, in turn,
reduces its fees for which the plan is otherwise responsible for paying). Thus,
the fiduciary duty issues involved in a plan fiduciary's receipt of the service
fee must be assessed on a case-by-case basis by the relevant plan fiduciary.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem 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.
19
<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 each Portfolio's portfolio
transactions and will do so in a manner deemed fair and reasonable to the
Portfolios and not according to any formula. The primary consideration in all
portfolio transactions will be prompt execution of orders in an efficient manner
at the most favorable price. In selecting 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 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 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 Portfolio generating the soft dollar credits. The
investment advisory fee paid by the Portfolios under the investment advisory
agreements will not be reduced as a result of the Adviser's receipt of research
services.
The Adviser also places portfolio transactions for other advisory accounts.
The Adviser will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the Portfolio
and another advisory account. In some cases, this procedure could have an
adverse effect on the price or the amount of securities available to the
Portfolio. In making such allocations, the main factors considered by the
Adviser will be the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment.
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, Martin Luther King 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 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 corresponding Fund 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
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.
Portfolio securities that are fixed income securities (other than money
market instruments) for which accurate market prices are readily available are
valued at their current market value on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities. Fixed
income securities for which accurate market prices are not
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readily available and other assets are valued at fair value as determined in
good faith by the Adviser in accordance with procedures approved by the
Trustees, which may include the use of yield equivalents or matrix pricing.
Money market instruments with less than sixty days remaining to maturity when
acquired by a Portfolio are valued on an amortized cost basis. If a Portfolio
acquires a money market instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day prior to
maturity and will then be valued at amortized cost based upon the value on such
date unless the Trustees of the Portfolio Trust determine during such sixty-day
period that amortized cost does not represent fair value.
Generally, trading in securities on foreign exchanges is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. If a security's primary exchange is outside the U.S.,
the value of such security used in computing the net asset value of 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 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, Fixed Income, and Global Fixed
Income 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 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 which, like the Trust, is an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Portfolio
Trust was organized as a master trust fund under the laws of the State of New
York on January 18, 1996.
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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 Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund intends to elect to be treated
as a "regulated investment company" ("RIC") under Subchapter M of the Code, and
to qualify as such for each taxable year. 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 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 and other
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 each Fund invests
its assets in its corresponding Portfolio, 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, each Fund will be deemed (i) to own its
proportionate share of each of the assets of the corresponding Portfolio and
(ii) to be entitled to the gross income of the corresponding Portfolio
attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. 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 applicable provisions of federal law incorporated in Massachusetts law, 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.
If a Portfolio invests in zero coupon securities, certain increasing rate or
deferred interest securities or, in general, other securities with original
issue discount (or with market discount if an election is made to include market
discount in income currently), the Portfolio must accrue income on such
investments prior to the receipt of the corresponding cash payments. However, a
Fund must distribute, at least annually, all or substantially all of its net
income, including its distributive share of such income accrued by the
corresponding Portfolio, to shareholders to qualify as a regulated investment
company under the Code and avoid federal income and excise taxes. Therefore, a
Portfolio may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to enable the corresponding Fund to satisfy the distribution requirements.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Portfolio's ability to enter into futures, options or
currency forward transactions.
Certain options, futures or currency forward transactions undertaken by a
Portfolio may cause the Fund to recognize gains or losses from marking to market
even though the Portfolio's positions have not been sold or terminated and
affect the character as long-term or short-term (or, in the case of certain
options, futures or forward contracts relating to foreign currency, as ordinary
income or loss) and timing of some capital gains and losses realized by a
Portfolio and allocable to the corresponding Fund. Additionally, a Portfolio
(and its corresponding Fund) may be required to recognize gain if an option,
future, forward contract, short sale, swap or other Strategic Transaction that
is not subject to the mark to market rules is treated as a "constructive sale"
of an "appreciated financial position" held by the Portfolio under Section 1259
of the Code. Any net mark to
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market gains and/or gains from constructive sales 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, 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
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, forward contracts
and constructive sales in order to minimize any potential adverse tax
consequences.
The Federal income tax rules applicable to dollar rolls, certain structural
securities, currency swaps, interest rate swaps, caps, floors and collars and
possibly other investments or transactions are unclear in certain respects, and
a Portfolio will account for these instruments in a manner that is intended to
allow the Funds and other similar investors to qualify as RICs. Due to possible
unfavorable consequences under present tax law, the Portfolios do not currently
intend to acquire "residual" interests in real estate mortgage investment
conduits ("REMICs"), although the Fixed Income and Global Fixed Income
Portfolio's may acquire "regular" interests in REMICs.
Foreign exchange gains and losses realized by a Portfolio in connection with
certain transactions, if any, involving foreign currency-denominated debt
securities, certain foreign currency futures and options, foreign currency
forward contracts, foreign currencies, or payables or receivables denominated in
a foreign currency are subject to Section 988 of the Code, which generally
causes such gains and losses to be treated as ordinary income and losses and may
affect the amount, timing and character of 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' investment in
stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may have to be limited in
order to satisfy applicable tax requirements.
Each Portfolio 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 holding period
requirements and other provisions and limitations contained in the Code, only if
more than 50% of the value of the applicable Fund's total assets (taking into
account the Fund's 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 Equity, Small Cap and Fixed Income Portfolios are such
that each Fund that invests in one of those Portfolios 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 Global Fixed Income Portfolio may meet the 50% threshold referred to in
the previous paragraph and the Global Fixed Income Fund 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 qualified foreign
taxes treated as paid by the Fund even though not actually received by them, and
(ii) treat such respective pro rata portions as foreign taxes paid by them.
If the Global Fixed Income Fund makes this election, shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. Federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of qualified foreign taxes paid by the
Global Fixed Income Fund, although such shareholders will be required to include
their share of such taxes in gross income if the election is made. Shareholders
who claim a foreign tax credit for such foreign taxes may be required to treat a
portion of dividends received from the Global Fixed Income Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax exempt shareholders will ordinarily not benefit from this election.
Each year (if any) that the Global Fixed Income Fund files the election
described above, its shareholders will be notified of the amount of (i) each
shareholder's pro rata share of qualified foreign taxes treated as paid by the
Fund and (ii) the portion of Fund dividends which represents income from each
foreign country.
If a Portfolio acquires stock (including, under proposed regulations, an
option to acquire stock such as inherent in a convertible bond) and in certain
foreign corporations that receive at least 75% of their annual gross income from
passive sources (such as interest, dividends, certain rents and royalties or
capital gains) 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 could require them to recognize taxable
income or gain without the concurrent receipt of cash. Each Portfolio 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.
Investment in debt obligations by the Fixed Income or Global Fixed Income
Portfolios that are at risk of or in default presents special tax issues for the
Fixed Income or Global Fixed
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Income Fund. Tax rules are not entirely clear about issues such as when such
Portfolios may cease to accrue interest, original issue discount, or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the Fixed Income or Global Fixed Income Portfolios, in the event
that either holds such obligations, in order to reduce the risk of the Fixed
Income or Global Fixed Income Fund, or any other RIC investing in those
Portfolios, distributing insufficient income to preserve its status as a RIC or
becoming subject to Federal income or excise tax.
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. As a result
of the enactment of the Taxpayer Relief Act of 1997 (the "1997 TRA") on August
5, 1997, gain recognized after May 6, 1997 from the sale of a capital asset is
taxable to individual (noncorporate) investors at different maximum federal
income tax rates, depending generally upon the tax holding period for the asset,
the federal income tax bracket of the taxpayer, and the dates the asset was
acquired and/or sold. The Treasury Department has issued preliminary guidance to
apply this legislation (which could be modified by any "technical corrections"
that may be enacted) to capital gains and losses and to distributions by
regulated investment companies ("RICs"), including the Funds, from their
realized net capital gain. This guidance enables RICs to pass through to their
shareholders the benefits of the capital gains tax rates contained in the 1997
TRA by designating certain capital gains dividends or portions thereof as
eligible for a 20% maximum tax rate with other capital gain dividends or
portions thereof subject to a maximum 28% tax rate (or, in rare cases, a 25% tax
rate), in each case for individuals and other noncorporate taxpayers entitled to
such preferential capital gains tax rates. This guidance also provides or will
provide for the appropriate tax treatment of other long-term capital gains and
losses, such as those recognized by a Fund under the mark to market rules
described above, and distributions attributable to such gains. Shareholders
should consult their own tax advisers on the correct application of these new
rules in their particular circumstances.
For purposes of the dividends received reduction available to corporations,
dividends received by the Equity or Small Cap 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, extending
before and after each dividend, and distributed and designated by the Fund may
be treated as qualifying dividends. 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, and, to the extent such basis would be reduced below
zero, require the current recognition of income.
A Fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends received deduction, only to
the extent a Fund was allocated dividend income of the Portfolio from stock
investments in U.S. domestic corporations. It is anticipated that, due to the
nature of the Portfolios' investments, no portion of the Fixed Income and Global
Fixed Income Funds' distributions will generally qualify for the dividends
received deduction.
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 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.
Upon a redemption or other disposition of shares of a Fund in a transaction
that is treated as a sale for tax purposes, 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. 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. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion. Also, future Treasury Department regulations,
announcements or other guidance issued to implement the 1997 TRA may contain
rules for determining different tax rates applicable to sales of Fund shares
held for more than one year, more than 18 months, and (for certain sales
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after the year 2000 or the year 2005) more than five years. These regulations
may also modify some of the provisions described above.
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 each 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.
The Equity Fund has received permission from the IRS to change its fiscal
year end from December
31, 1997 to September 30, 1997. The Small Cap Fund is currently seeking similar
permission from the IRS. If the Small Cap Fund receives such permission, both
the Equity and Small Cap Funds and the Equity and Small Cap Portfolios will
furnish financial statements for the fiscal year ended September 30, 1997.
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
Coopers & Lybrand L.L.P., independent auditors, will audit the Equity and
Small Cap Fund's financial statements for the fiscal year ending September 30,
1998, and the Fixed Income and Global Fixed Income Fund's financial statements
for the fiscal year ending December 31, 1998. Coopers & Lybrand, P.O. Box 219,
Grand Cayman, Grand Cayman Islands, BWI, an affiliate of Coopers & Lybrand
L.L.P., will audit the Equity and Small Cap Portfolio's financial statements for
the fiscal year ended September 30, 1997 and the Fixed Income and Global Fixed
Income Portfolio's financial statements for the fiscal year ending December 31,
1997. Financial statements for the period ended June 30, 1997 are unaudited.
The financial statements for the years ended December 31, 1996 and for the
semi-annual periods ended June 30, 1997 for the Equity Portfolio, Small Cap
Portfolio, Fixed Income Portfolio and Global Fixed Income Portfolio are
incorporated by reference from the annual and semi-annual reports which were
previously sent to shareholders and were filed with the Securities and Exchange
Commission on March 7, 1997 and September 8, 1997, respectively, 1940 Act File
No. 811-4813.
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APPENDIX A
KEY TO MOODY'S RATINGS FOR
CORPORATION BONDS AND FOR
SOVEREIGN, SUBNATIONAL
AND SOVEREIGN RELATED ISSUERS
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.
A -- Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving security
to principal and interest are considered adequate but elements may be present
which suggest a susceptibility to impairment sometime in the future.
Baa -- Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba -- Bonds which are rated Ba are judged to have speculative elements. Their
future cannot be considered as well assured. Often the protection of interest
and principal payments may be very moderate and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
STANDARD & POOR'S RATINGS
DEFINITIONS FOR
CORPORATION BONDS
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in categories.
BB -- Debt rated BB is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.
STANDARD & POOR'S
CHARACTERISTICS OF
SOVEREIGN DEBT OF FOREIGN
COUNTRIES
AAA -- Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political circumstances --Key
players in the global trade and financial system -- Prosperous and resilient
economies, high per capita incomes -- Low fiscal deficits and government debt,
low inflation -- Low external debt
AA -- Stable, predictable governments with demonstrated track record of
responding to changing economic and political circumstances -- Tightly
integrated into global trade and financial system -- Differ from AAAs only to a
small degree because: -- Economies are smaller, less prosperous and generally
more vulnerable to adverse external influences (e.g., protection and terms of
trade shocks) -- More variable fiscal deficits, government debt and inflation --
Moderate to high external debt.
A -- Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change -- Established trend of
integration into global trade and financial system --Economies are smaller, less
prosperous and generally more vulnerable to adverse external influences (e.g.,
protection and terms of trade shocks), but -- Usually rapid growth in output and
per capita income Management through variable fiscal deficits, government debt
and inflation -- Usually low but variable debt.
B -- Political factors a source of major uncertainty, either because system
is in transition or due to external threats, or other, often in environment of
rapid economic and social change -- Integration into global trade and financial
system owing but untested -- Low to moderate income developing economies but
variable performance and quite vulnerable to diverse external influences --
Variable to high fiscal deficits, Government debt and inflation -- Very high and
variable debt, often graduates of Brady plan but track record not well
established.
26
<PAGE>
DESCRIPTION OF DUFF & PHELPS
RATINGS FOR
CORPORATION BONDS AND FOR
SOVEREIGN,
SUBNATIONAL AND SOVEREIGN
RELATED ISSUERS
AAA -- Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.
AA -- High credit quality. Protection factors are strong. Risk is modest but
may vary slightly from time to time because of economic conditions.
A -- Protection factors are average but adequate. However, the factors are
more variable and greater in periods of economic stress.
BBB -- Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.
BB-- Below investment grade but deemed likely to meet obligations when due.
Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.
IBAC LONG TERM RATINGS FOR
CORPORATION
BONDS AND FOR SOVEREIGN,
SUBNATIONAL AND
SOVEREIGN RELATED ISSUES
AAA -- Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.
AA -- Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.
A -- Obligations for which there is a low expectation of investment risk.
Capacity for timely repayment of principal and interest is strong, although
adverse changes in business, economic or financial conditions may lead to
increased investment risk.
BBB -- Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.
BB -- Obligations for which there is a possibility of investment risk
developing. Capacity for timely repayment of principal and interest exists, but
is susceptible over time to adverse changes in business, economic or financial
conditions.
***
In the case of sovereign, subnational and sovereign related issuers, the
Portfolios use the foreign currency or domestic (local) currency rating
depending upon how the portfolio security is denominated. In the case where the
Portfolio holds a security denominated in a domestic (local) currency and one of
the rating services does not provide a domestic (local) currency rating for the
issuer, the Portfolio will use the foreign currency rating for the issuer; in
the case where a Portfolio holds a security denominated in a foreign currency
and one of the rating services does not provide a foreign currency rating for
the issuer, the Portfolio will treat the security as being unrated.
27
<PAGE>
[STANDISH LOGO]
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, MA 02111
(800) 221-4795
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(A) Financial Statements:
The following financial statements of Standish Equity Portfolio, Standish
Small Capitalization Equity Portfolio, Standish Fixed Income Portfolio and
Standish Global Fixed Income Portfolio, each a series of Standish, Ayer & Wood
Master Portfolio (the "Portfolio Trust"), are incorporated by reference into the
combined Prospectus and Statement of Additional Information of Standish Equity
Asset Fund, Standish Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income Asset Fund, each a series of
Standish, Ayer & Wood Investment Trust (the "Registrant").+
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
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**
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(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**
(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**
C-2
<PAGE>
(1Q) Form of Certificate of Designation of Standish Small
Capitalization Equity Fund II**
(1R) Certificate of Designation of Standish Small Capitalization
Equity Asset Fund II, Standish Diversified Income Fund, Standish
Diversified Income Asset Fund**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
(5A) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Securitized
Fund**
(5B) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund**
(5C) Assignment of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to Standish
International Fixed Income Fund**
(5D) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Intermediate Tax
Exempt Bond Fund**
(5E) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Massachusetts
Intermediate Tax Exempt Bond Fund**
(5F) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Controlled
Maturity Fund**
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<PAGE>
(5G) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Fixed Income
Fund II**
(5H) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund**
(5I) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Tax-Sensitive
Equity Fund**
(6A) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.**
(6B) Most recently dated/filed revised Appendix A to Underwriting
Agreement between the Registrant and Standish Fund Distributors,
L.P.**
(7) Not applicable
(8A) Master Custody Agreement between the Registrant and Investors
Bank & Trust Company**
(8B) Most recently dated/filed revised Appendix A to Master Custody
Agreement between the Registrant and Investors Bank & Trust
Company**
(9A) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company**
(9B) Most recently dated/filed revised Exhibit A to Transfer Agency and
Service Agreement between the Registrant and Investors Bank & Trust
Company**
(9C) Master Administration Agreement between the Registrant and
Investors Bank & Trust Company**
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<PAGE>
(9D) Most recently dated/filed revised Exhibit A to Master
Administration Agreement between the Registrant and Investors
Bank & Trust Company**
(9E) Form of Administrative Services Agreement between Standish, Ayer
& Wood, Inc. and the Registrant**
(9F) Most recently dated/filed revised Exhibit A to Administrative
Services Agreement between Standish, Ayer & Wood, Inc. and the
Registrant**
(10A) Opinion and Consent of Counsel for the Registrant**
(11) Consent of Independent Public Accountants***
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17) Not Applicable
(18) Not applicable
(19A) Power of Attorney for Registrant (Richard S. Wood)**
(19B) Power of Attorney for Registrant (James E. Hollis, III)**
(19C) Power of Attorney for Registrant (Samuel C. Fleming)**
(19D) Power of Attorney for Registrant (Benjamin M. Friedman)**
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(19E) Power of Attorney for Registrant (John H. Hewitt)**
(19F) Power of Attorney for Registrant (Edward H. Ladd)**
(19G) Power of Attorney for Registrant (Caleb Loring III)**
(19H) Power of Attorney for Registrant (D. Barr Clayson)**
(19I) Power of Attorney for Registrant (Paul G. Martins)**
(19J) Power of Attorney for Portfolio Trust (Richard S. Wood)**
(19K) Power of Attorney for Portfolio Trust (Samuel C. Fleming,
Benjamin M. Friedman, John H. Hewitt, Edward H. Ladd, Caleb
Loring III, Richard S. Wood and D. Barr Clayson)**
(19L) Power of Attorney for Portfolio Trust (Paul G. Martins)**
--------------------
+ The December 31, 1996 financial statements were filed as an exhibit
to Registration Statement No. 33-8214. The June 30, 1997 financial
statements were filed on Form N-30D, File No. 811-4813, on September
8, 1997.
* 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.
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<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 September 30, 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 484
Standish Securitized Fund 9
Standish Short-Term Asset
Reserve Fund 88
Standish International Fixed
Income Fund 211
Standish Global Fixed Income Fund 53
Standish Equity Fund 155
Standish Small Capitalization
Equity Fund 324
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 94
Standish Intermediate Tax Exempt
Bond Fund 136
Standish International Equity Fund 184
Standish Controlled Maturity Fund 16
Standish Fixed Income Fund II 10
Standish Small Cap Tax-Sensitive
Equity Fund 198
Standish Tax-Sensitive Equity Fund 103
Standish Equity Asset Fund 1
Standish Small Capitalization
Equity Asset Fund 0
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<PAGE>
Standish Fixed Income Asset Fund 0
Standish Global Fixed Income Asset Fund 0
Standish Small Capitalization Equity Fund II 44
Standish Diversified Income Fund 14
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
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<PAGE>
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.
The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of each Schedule D.
Item 29. Principal Underwriter
(A) Standish Fund Distributors, L.P. serves as the principal
underwriter of each of the series of the Registrant as listed in Item 26
above.
C-9
<PAGE>
(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
Item 32. Undertakings
(A) Not applicable.
C-10
<PAGE>
(B) With respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income Asset
Fund, Standish Global Fixed Income Asset Fund and Standish
Diversified Income 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.
C-11
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this Registration Statement pursuant to
Rule 485(b) under the Securities Act of 1933 and 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 11th day of November, 1997.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ Paul G. Martins
---------------------------
Paul G. Martins, 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
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<PAGE>
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.
C-13
<PAGE>
Signature Title Date
Richard S. Wood* Trustee and President November 11, 1997
- ------------------------ (Principal Executive Officer)
Richard S. Wood
Paul G. Martins* Treasurer (Principal November 11, 1997
- ------------------------ Financial and Accounting
Paul G. Martins Officer)
D. Barr Clayson* Trustee November 11, 1997
- -----------------------
D. Barr Clayson
Samuel C. Fleming* Trustee November 11, 1997
- -----------------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee November 11, 1997
- -----------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 11, 1997
- -----------------------
John H. Hewitt
Edward H. Ladd* Trustee November 11, 1997
- ----------------------
Edward H. Ladd
Caleb Loring III* Trustee November 11, 1997
- ----------------------
Caleb Loring III
C-14
<PAGE>
*By: /s/ James E. Hollis III
-----------------------
James E. Hollis, III
Attorney-In-Fact
C-15
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio has duly
caused this Post-Effective Amendment to the Registration Statement of Standish,
Ayer & Wood Investment Trust to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 11th day of November, 1997.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Richard S. Wood
--------------------------
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of Standish, Ayer & Wood
Investment Trust has been signed by the following persons in their capacities
with Standish, Ayer & Wood Master Portfolio and on the date indicated pursuant
to powers of attorney that were executed outside the United States.
Signature Title Date
Richard S. Wood* Trustee and President November 11, 1997
- --------------- (Principal Executive
Richard S. Wood Officer)
Paul G. Martins* Treasurer (Principal November 11, 1997
- --------------- Financial and Accounting
Paul G. Martins Officer)
D. Barr Clayson* Trustee November 11, 1997
- ----------------
D. Barr Clayson
C-16
<PAGE>
Samuel C. Fleming* Trustee November 11, 1997
- -----------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee November 11, 1997
- --------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 11, 1997
- --------------
John H. Hewitt
Edward H. Ladd* Trustee November 11, 1997
- --------------
Edward H. Ladd
Caleb Loring III* Trustee November 11, 1997
- ----------------
Caleb Loring III
*By: /s/ James E. Hollis III
-----------------------
James E. Hollis, III
Attorney-In-Fact
C-17
<PAGE>
EXHIBIT INDEX
Exhibit
(11) Consent of Independent Public Accountants
<PAGE>
[HALE AND DORR LLP LETTERHEAD]
November 13, 1997
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, Massachusetts 02111
Re: Post-Effective Amendment No. 84 to Registration Statement on Form N-1A
(File Nos. 33-8214 and 811-4813)
Ladies and Gentlemen:
As counsel to Standish, Ayer & Wood Investment Trust (the "Trust"), we
have reviewed the above-referenced Post-Effective Amendment to the Trust's
Registration Statement for filing with the Securities and Exchange Commission.
We hereby represent, pursuant to Rule 485(e) under the Securities Act of 1933,
as amended, that said Post-Effective Amendment does not in our view contain
disclosure that would make it ineligible to become effective pursuant to
paragraph (b) of said Rule 485.
We understand that the Trust is currently in the process of registering
or qualifying its shares in various states. We hereby consent to your filing
this letter with the securities administrators for such states and with the
Securities and Exchange Commission as part of or together with the Trust's
Registration Statement on Form N-1A. Except as provided in this paragraph, this
letter may not be relied upon by, or filed with, any other parties or for any
other purpose.
Very truly yours,
/s/ Hale and Dorr LLP
Hale and Dorr LLP
[Coopers and Lybrand Letterhead]
November 11, 1997
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 84 to the
Registration Statement of Standish, Ayer & Wood Investment Trust (1933 Act File
No. 33-8214) on behalf of Standish Small Capitalization Equity Fund, Standish
Small Capitalization Equity Fund II, Standish Equity Fund, of our reports
relating to Standish Small Capitalization Equity Portfolio, Standish Small
Capitalization Equity Portfolio II, Standish Equity Portfolio, 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.
Chartered Accountants
Toronto, Ontario
