Registration Nos. 33-8214
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF1933 /X/
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 80 /X/
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 83 /X/
(Check appropriate box or boxes.)
---------------
Standish, Ayer & Wood Investment Trust
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
/ / Immediately upon filing pursuant to Rule 485(b)
/ / On (date) pursuant to Rule 485(b)
/ / 60 days after filing pursuant to Rule 485(a)(1)
/X/ On May 1, 1997 pursuant to Rule 485(a)(1)
/ / 75 days after filing pursuant to Rule 485(a)(2)
/ / On (date) pursuant to Rule 485(a)(2)
The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, as amended, pursuant to Rule 24f-2 under the Investment
Company Act of 1940, as amended. The Rule 24f-2 Notice for the fiscal year ended
December 31, 1996 was filed on or about February 24, 1997.
----------------------
This Post-Effective Amendment has been executed outside of the United
States by Standish, Ayer & Wood Master Portfolio.
<PAGE>
<TABLE>
<CAPTION>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Cross-Reference Sheet Pursuant to Rule 495(a)
Part A Prospectus
Form Item Cross-Reference
- --------- ---------------
<S> <C> <C>
Item 1. Cover Page Cover Page
Item 2. Synopsis "Fund Comparison Highlights" and
"Expense Information"
Item 3. Condensed Financial "Financial Highlights"
Item 4. General Description Cover Page, "The Funds
of Registrant and Their 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
- --------
*This Post-Effective Amendment to the Registrant's Registration
Statement is being filed with respect to the following series of the Registrant:
Standish Fixed Income Fund, Standish Fixed Income Fund II, Standish Short-Term
Asset Reserve Fund, Standish Controlled Maturity Fund, Standish Securitized
Fund, Standish International Fixed Income Fund, Standish Global Fixed Income
Fund, Standish Equity Fund, Standish Small Capitalization Equity Fund and
Standish Small Capitalization Equity Fund II. 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 Objectives 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"
</TABLE>
<PAGE>
Prospecuts dated [ ], 1997
[PINE CONE LOGO]
STANDISH GROUP OF FIXED INCOME FUNDS
PROSPECTUS
APRIL 30, 1997
The Standish Group of Fixed Income Funds includes the Standish Fixed Income
Fund, Standish Fixed Income Fund II, Standish Short-Term Asset Reserve Fund,
Standish Controlled Maturity Fund and Standish Securitized Fund. Each Fund is
organized as a separate diversified investment series of Standish, Ayer & Wood
Investment Trust, an open end investment company. The Fixed Income Fund invests
solely in the Standish Fixed Income Portfolio, an open end investment company.
Standish, Ayer & Wood, Inc. is the investment adviser to the Portfolio and the
Fixed Income Fund II, Short-Term Asset Reserve Fund, Controlled Maturity Fund
and Securitized Fund.
Investors may purchase shares in the Funds without charge from Standish Fund
Distributors, L.P. An application may be obtained by calling (800) 221-4795.
Standish's primary investment management and research focus is at the security
and industry/sector level. Standish seeks to add value to each Fund's portfolio
by selecting undervalued investments, rather than by varying the average
maturity of a Fund's portfolio to reflect interest rate forecasts. Standish
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. 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. Privately held by twenty-two
employee/directors and headquartered in Boston, Massachusetts, the firm employs
over eighty investment professionals with a total staff of more than two
hundred.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated April 30,
1997, as amended or supplemented from time to time. The Statement of Additional
Information is incorporated by reference into this Prospectus and is available
without charge upon request from (800) 221-4795.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. An investment in shares of the Funds involves
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of the Funds are not available for sale in every state. This Prospectus
is not intended to be an offer to sell shares, nor may an offer to purchase
shares be accepted from investors, in those states where shares of the Funds may
not legally be sold. Contact Standish Fund Distributors to determine whether the
Funds are available for sale in your state.
<PAGE>
[On inside front cover]
Table of Contents
Page
Fund Comparison Highlights.................................................3
Expense Information........................................................4
Financial Highlights.......................................................5
Investment Objectives and Policies........................................10
The Fixed Income Fund............................................11
The Fixed Income Fund Ii.........................................11
The Short-term Asset Reserve Fund................................11
The Controlled Maturity Fund.....................................12
The Securitized Fund.............................................12
Description of Securities and Related Risks...............................12
General Risks....................................................13
Specific Risks...................................................13
Investment Techniques and Related Risks...................................17
Information about the Master-feeder Structure.............................20
Calculation of Performance Data...........................................20
Dividends and Distributions...............................................23
Purchase of Shares........................................................23
Net Asset Value...........................................................23
Exchange of Shares........................................................24
Redemption of Shares......................................................24
Management................................................................25
Federal Income Taxes......................................................27
The Funds and Their Shares................................................28
Custodian, Transfer Agent and Dividend Disbursing Agent...................28
Independent Accountants...................................................29
Legal Counsel.............................................................29
Tax Certification Instructions............................................29
1
<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.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Fixed Income Fund Fixed Income Fund Short-Term Asset Controlled
II Reserve Fund Maturity Fund
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Primary Types of Obligations Fixed income Fixed income Money market Fixed income
securities of securities of U.S. instruments and securities of U.S.
(i) U.S. and foreign corporations and short-term fixed corporations and
governments, and other entities, and income securities other entities,
(ii) U.S. and U.S. government of (i) U.S. and and U.S.
foreign corporations foreign government
governments, and
(ii) U.S. and
foreign banks and
corporations
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Credit Quality Primarily Exclusively Exclusively Exclusively
investment grade; investment grade; investment grade; investment grade;
up to 15% of total emphasis on up to 15% of total emphasis on
assets in obligations likely assets in medium obligations likely
obligations rated to be upgraded grade to be upgraded
Ba, BB or equivalent
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Investment Grade Only No Yes Yes Yes
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Average Portfolio Quality Aa/AA Aa/AA Aa/AA Aa/AA
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Average Effective Portfolio 5 - 13 years 5 - 13 years 6 - 15 months Not more than 5
Maturity (Dollar-Weighted) maximum of 18 years
months
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Foreign Securities Yes; up to 20% of No No; limited No
total assets exception for
(including issuers money market
located in emerging obligations of
markets); no more foreign banks and
than 10% of total prime commercial
assets not subject paper of foreign
to currency hedging companies
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
Benchmark Lehman Brothers Lehman Brothers IBC/Donoghue Merrill Lynch
Aggregate Bond Aggregate Bond All Taxable Money 1-3 year Treasury
Index Index Market Index Index
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
- -------------------------------- ---------------------- --------------------- --------------------- --------------------
</TABLE>
<PAGE>
(Table continued)
- -----------------------------------------------------------------
Securitized Fund
- -------------------------------- --------------------------------
Primary Types of Obligations Mortgage-related and
asset-backed securities of
U.S. and foreign governments
and corporations
- -------------------------------- --------------------------------
Credit Quality Primarily high grade; up to
15% of total assets in medium
grade
- -------------------------------- --------------------------------
Investment Grade Only Yes
- -------------------------------- --------------------------------
Average Portfolio Quality Aa/AA
- -------------------------------- --------------------------------
Average Effective Portfolio 3 - 15 years;
Maturity (Dollar-Weighted) varies due to prepayment
speed
- -------------------------------- --------------------------------
Foreign Securities Yes; up to 10% of total assets
primarily in Canadian and
European issuers
- -------------------------------- --------------------------------
Benchmark Lehman Brothers Aggregate
Index, Lehman Brothers
Mortgage Index
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
- -------------------------------- --------------------------------
<PAGE>
EXPENSE INFORMATION
Total operating expenses are based on expenses for each Fund's fiscal year ended
December 31, 1996. Total operating expenses for the Fixed Income Fund include
expenses of the Fund and the Standish Fixed Income Portfolio ("Portfolio"). The
Fund's Trustees believe that the Fixed Income Fund's total operating expenses
are approximately equal to or less than what would be the case if the Fund did
not invest all of its investable assets in the Portfolio.
<TABLE>
<CAPTION>
Fixed Fixed Short-Term Controlled
Income Income Asset Reserve Maturity Securitized
Fund Fund II Fund Fund Fund
Shareholder Transaction Expenses
<S> <C> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None None None
Deferred Sales Load None None None None None
Redemption Fees None None None None None
Annual Operating Expenses (as a percentage of average net assets)
Management Fees (after applicable limitation) 0.32% 0.00%* 0.25% 0.00%* 0.20%*
12b-1 Fees None None None None None
Other Expenses (after applicable expense limitation)+ 0.06% 0.40%* 0.10% 0.40%* 0.25%*
----- ----- ----- ----- -----
Total Operating Expenses (after applicable expense limitation) 0.38% 0.40%* 0.35% 0.40%* 0.45%*
===== ===== ===== ===== =====
</TABLE>
- -------------------
* Standish has voluntarily and temporarily agreed to limit certain expenses of
Fixed Income Fund II, Controlled Maturity Fund and Securitized Fund. In the
absence of such agreements, the Management Fees, Other Expenses and Total
Operating Expenses (as a percentage of average net assets for the fiscal year
ended December 31, 1996) would have been: Fixed Income Fund II--0.40%, 0.66% and
1.06%;, Controlled Maturity Fund-0.35%, 0.90% and 1.25%; and Securitized
Fund--0.25%, 0.26% and 0.51%, respectively.
+ Other Expenses include custodian and transfer agent fees, registration costs,
payments for insurance, and audit and legal services.
Example
Hypothetically assume that each Fund's annual return is 5% and that its total
operating expenses are exactly as described. For every $1,000 invested, an
investor would have paid the following expenses if an account were closed after
the number of years indicated:
<TABLE>
<CAPTION>
Fixed Fixed Short-Term Controlled
Income Income Asset Reserve Maturity Securitized
Fund Fund II Fund Fund Fund
<S> <C> <C> <C> <C> <C> <C>
After 1 Year $4 $4 $4 $4 $5
After 3 Years 12 13 11 13 14
After 5 Years 21 22 20 23 25
After 10 Years 48 50 44 51 57
</TABLE>
The purpose of the table is to assist investors in understanding the various
costs and expenses that an investor in each Fund will bear directly or
indirectly. The example is included solely for illustrative purposes and should
not be considered a representation of future performance or expenses. Actual
expenses may be more or less than those shown. See "Management" for additional
information about each Fund's expenses.
3
<PAGE>
The financial highlights for periods after 1992 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose reports, together with
the Financial Statements of the Funds, are incorporated into the Statement of
Additional Information. Financial highlights for prior periods were audited by
other independent accountants. The Funds' annual reports, which contain
additional information about Fund performance, may be obtained from Standish
Fund Distributors without charge.
<TABLE>
<CAPTION>
FIXED INCOME FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 4 1995 1994 1993 1992*
---- ---- ---- ---- -----
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of $20.92 $18.91 $21.25 $20.55 $20.96
period
Income from investment operations
Net investment income $1.46 $1.35 $1.25 $1.50 $1.59
Net realized and unrealized gain (0.37) 2.08 (2.29) 1.45 (0.18)
(loss)
Total from investment operations $1.09 $3.43 ($1.04) $2.95 $1.41
Less distributions declared to shareholders
From net investment income ($1.48) ($1.42) ($1.10) ($1.51) ($1.52)
In excess of net investment income - - - (0.04) -
From net realized gain on investments - - (0.04) (0.70) (0.30)
Tax return of capital - - (0.16) - -
Total distributions declared to ($1.48) ($1.42) ($1.30) ($2.25) ($1.82)
shareholders
Net asset value - end of period $20.53 $20.92 $18.91 $21.25 $20.55
Total return3 5.48% 18.54% (4.86)% 14.64% 6.88%
Ratios (to average daily net assets)/Supplemental
Data
Net assets at end of period (000 $2,603,628 $2,267,107 $1,642,933 $1,307,099 $919,909
omitted)
Expenses1 0.38% 0.38% 0.38% 0.40% 0.41%
Net investment income 7.13% 7.80% 7.25% 7.07% 7.61%
Portfolio turnover2 49.00% 132.00% 122.00% 150.00% 217.00%
-----------------------
+ Computed on an annualized basis
* Audited by other auditors
@ For the period from March 27, 1987 (start of business) to December 31,
1987
1. Includesthe Fund's share of Standish Fixed Income Portfolio's allocated
expenses for the period from May 3, 1996 to December 31, 1996.
2. Portfolio turnover represents the rate of portfolio activity for the
period while the Fund is making investments directly in securities. The
portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is 69%.
3. The Fund's performance benchmark is the Lehman Brothers Aggregate
Index. See "Calculation of Performance Data" for a description of the
index. The average annual total return of this index for each year
since the Fund's inception was as follows (this total return
information is not audited):
4. Calculated based on average shares outstanding
<PAGE>
FIXED INCOME FUND
Year Ended December 31,
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1991* 1990* 1989* 1988* 1987*@
Net asset value - beginning of $19.56 $19.54 $18.84 $18.99 $20.00
period
Income from investment operations
Net investment income $1.68 $1.76 $1.81 $1.72 $1.17
Net realized and unrealized gain 1.66 (0.05) 0.69 (0.13) (1.07)
(loss)
Total from investment operations $3.34 $1.71 $2.50 $1.59 $0.10
Less distributions declared to shareholders
From net investment income ($1.49) ($1.69) ($1.80) ($1.74) ($1.11)
In excess of net investment income - - - - -
From net realized gain on investments (0.45) - - - -
Tax return of capital - - - - -
Total distributions declared to ($1.94) ($1.69) ($1.80) ($1.74) ($1.11)
shareholders
Net asset value - end of period $20.96 $19.56 $19.54 $18.84 $18.99
Total return3 17.65% 9.23% 13.75% 8.53% 0.83%+
Ratios (to average daily net assets)/Supplemental
Data
Net assets at end of period (000 $631,457 $397,267 $264,874 $198,836 $156,834
omitted)
Expenses1 0.46% 0.49% 0.53% 0.54% 0.59%+
Net investment income 8.28% 9.07% 9.26% 8.94% 8.16%+
Portfolio turnover2 176.00% 107.00% 106.00% 119.00% 73.00%
-----------------------
+ Computed on an annualized basis
* Audited by other auditors
@ For the period from March 27, 1987 (start of business) to December 31,
1987
1. Includesthe Fund's share of Standish Fixed Income Portfolio's allocated
expenses for the period from May 3, 1996 to December 31, 1996.
2. Portfolio turnover represents the rate of portfolio activity for the
period while the Fund is making investments directly in securities. The
portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is 69%.
3. The Fund's performance benchmark is the Lehman Brothers Aggregate
Index. See "Calculation of Performance Data" for a description of the
index. The average annual total return of this index for each year
since the Fund's inception was as follows (this total return
information is not audited):
1996 1995 1994 1993 1992 1991 1990 1989 1988 1987
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
Total Return:
Lehman Brothers
Aggregate Index 3.61% 18.47% (2.92)% 9.75% 7.40% 16.00% 8.95% 14.53% 7.89% 1.08%
4. Calculated based on average shares outstanding
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FIXED INCOME FUND II
For the Period July 3, 1995 (start of
Year Ended December 31, 1996 business) to December 31, 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value - beginning of period $20.52 $20.00
Income from investment operations
Net investment income $1.16 $0.53
Net realized and unrealized gain (loss) (0.52) 0.64
Total from investment operations $0.64 $1.17
Less distributions declared to shareholders
From net investment income (1.15) (0.53)
In excess of net investment income -- (0.12)
From net realized gains on investments (1.28) --
Total distributions declared to shareholders $(2.43) $0.65
Net asset value - end of period $18.73 $20.52
Total return1 3.77% 5.79%
Ratios (to average daily net assets)/ Supplemental Data
Net assets at end of period (000 omitted) $35,485 $8,046
Expenses* 0.40% 0.40%+
Net investment income* 6.57% 6.64%+
Portfolio turnover 124% 389*%
- ----------------
* The investment advisor voluntarily waived its investment advisory fee and
reimbursed the fund for a portion of its operating expenses. Had these
actions not been taken, the ratios would have been:
Net investment income per share $1.04 $0.29
Ratios (to average daily net assets):
Expenses 1.06% 1.29%+
Net investment income 5.91% 5.75%+
+ Computed on an annualized basis
1 The Fund's performance benchmark is the Lehman Brothers Aggregate
Index. See
"Calculation of Performance Data" for a description of the index. The average
annual total return of the index for each year since the Fund's inception was as
follows (this total return information is not audited):
Total Return: 1996 1995
- ------------ ---- ----
Lehman Brothers
Aggregate Index 3.61% 6.31%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SHORT-TERM ASSET RESERVE FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value - beginning of period $19.55 $19.22 $19.79 $19.96
Income from investment operations
Net investment income $1.11 $1.13 $1.01 $1.31
Net realized and unrealized gain (loss) on investments (0.04) 0.33 (0.57) (0.17)
Total from investment operations 1.07 $1.46 $0.44 $1.14
Less distributions declared to shareholders
From net investment income (1.12) ($1.12) ($1.01) ($1.31)
In excess of net investment income -- (0.01) -- --
From net realized gains on investments -- -- -- --
Total distributions declared to shareholders (1.12) ($1.13) ($1.01) ($1.31)
Net asset value - end of period $19.50 $19.55 $19.22 $19.79
Total return1 5.62% 7.85% 2.27% 5.08%
Ratios (to average daily net assets) /Supplemental Data
Net assets at end of period (000 omitted) $194,024 $243,500 $277,017 $275,080
Expenses 0.35% 0.33% 0.33% 0.33%
Net investment income 5.75% 5.95% 5.24% 5.82%
Portfolio turnover 156.00% 208.00% 154.00% 182.00%
+ Computed on an annualized basis.
* Audited by other auditors.
@ For the period from January 3, 1989 (start of business) to December 31,
1989.
1 The Fund's performance benchmark is the IBC/Donoghue Money Market
Average/All Taxable Index. See "Calculation of Performance Data" for a
description of the benchmark. The average annual total return of this
benchmark for each year since the Fund's inception was as follows (this
total return information is not audited):
<PAGE>
SHORT-TERM ASSET RESERVE FUND
Year Ended December 31,
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1992* 1991* 1990* 1989*@
Net asset value - beginning of period $20.46 $20.20 $20.14 $20.00
Income from investment operations
Net investment income $1.35 $1.47 $1.66 $1.69
Net realized and unrealized gain (loss) on investments (0.48) 0.37 0.07 0.14
Total from investment operations $0.87 $1.84 $1.73 $1.83
Less distributions declared to shareholders
From net investment income ($1.35) ($1.47) ($1.66) ($1.69)
In excess of net investment income -- -- -- --
From net realized gain on investments (0.02) (0.11) (0.11) --
Total distributions declared to shareholders ($1.37) ($1.58) ($1.67) ($1.69)
Net asset value - end of period $19.96 $20.46 $20.20 $20.14
Total return1 4.33% 9.41% 8.96% 9.54%+
Ratios (to average daily net assets) /Supplemental Data
Net assets at end of period (000 omitted) $289,969 $266,256 $105,303 $66,167
Expenses 0.37% 0.38% 0.45% 0.50%+
Net investment income 6.60% 7.17% 8.17% 8.52%+
Portfolio turnover 167.00% 134.00% 128.00% 132.00%
+ Computed on an annualized basis.
* Audited by other auditors.
@ For the period from January 3, 1989 (start of business) to December 31,
1989.
1 The Fund's performance benchmark is the IBC/Donoghue Money Market
Average/All Taxable Index. See "Calculation of Performance Data" for a
description of the benchmark. The average annual total return of this
benchmark for each year since the Fund's inception was as follows (this
total return information is not audited):
Total Return: 1996 1995 1994 1993 1992 1991 1990 1989
IBC/Donoghue
Money Market
Average/All Taxable Index 4.90% 5.50% 3.74% 2.71% 3.39% 5.79% 7.82% 8.90%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Highlights
For the Period
Year Ended July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
----------------------- -----------------------
<S> <C> <C>
Net asset value - beginning of period $20.24 $20.00
----------------------- -----------------------
Income from investment operations
Net investment income * 1.27 0.57
Net realized and unrealized gain (loss) (0.27) 0.24
----------------------- -----------------------
Total from investment operations 1.00 0.81
----------------------- -----------------------
Less distributions declared to shareholders
From net investment income (1.24) (0.57)
From net realized gains on investments (0.01)
----------------------- -----------------------
Total distributions declared to shareholders (1.25) (0.57)
----------------------- -----------------------
Net asset value - end of period $19.99 $20.24
======================= =======================
Total return^1 5.13% 4.20%
Net assets at end of period (000 omitted) $12,525 $8,868
Ratios (to average daily net assets)/Supplemental Data
Expenses * 0.40% 0.40% y
Net investment income * 6.60% 6.29% y
Portfolio turnover 107% 127%
* The investment advisor voluntarily waived its investment advisory fee and
reimbursed the fund for a portion of its operating expenses. Had these
actions not been taken, the ratios would have been:
Net investment income per share $1.11 $0.38
Ratios (to average daily net assets):
Expenses 1.25% 2.51% y
Net investment income 5.75% 4.18% y
y Computed on an annualized basis.
1 The Fund's performance benchmark is the Merrill Lynch 1-3 Year U.S.
Treasury Index. See "Calculation of Performance Data" for a description
of the Index. The average annual total return of the Index for each
year since the Fund's inception was as follows (this total return
information is not audited):
Total Return: 1996 1995
- ------------ ---- ----
Merrill Lynch 1-3
Year U.S. Treasury 4.98% 4.06%
Index
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECURITIZED FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993
<S> <C> <C> <C> <C>
Net asset value - beginning of period $20.25 $18.61 $20.24 $20.14
Income from investment operations
Net investment income# $1.43 $1.32 $1.42 $1.45
Net realized and unrealized gain (loss) on investments (0.57) 1.66 (1.86) 0.54
Total from investment operations $0.86 $2.98 ($0.44) $1.99
Less distributions declared to shareholders
From net investment income ($1.41) ($1.34) ($1.19) ($1.48)
In excess of net investment income - - - (0.05)
From net realized gain on investments - - - (0.36)
In excess of net realized gain on investments - - -
Total distributions declared to shareholders ($1.41) ($1.34) ($1.19) ($1.89)
Net asset value - end of period $19.70 $20.25 $18.61 $20.24
Total return1 4.41% 16.32% (2.16)% 10.02%
Ratios (to average net assets)/Supplemental Data
Net assets at end of period (000 omitted) $50,617 $55,201 $53,779 $78,054
Expenses# 0.45% 0.45% 0.45% 0.45%
Net investment income# 6.99% 6.78% 6.79% 6.75%
Portfolio turnover 212.00% 225.00% 138.00% 130.00%
Net investment income per share $1.40 $1.22 $1.41 $1.44
Ratios (to average net assets):
Expenses 0.51% 0.51% 0.49% 0.48%
Net investment income 6.93% 6.72% 6.76% 6.72%
1 The Fund's performance benchmarks are Salomon-Shearson's Mortgage Index
and the Lehman Brothers Aggregate Index. See "Calculation of
Performance Data" for a description of these Indices. The average
annual total return of these Indices for each year since the Fund's
inception was as follows (this total return information is not
audited):
- ---------------------
+ Computed on an annualized basis.
* Audited by other auditors.
@ For the period from August 31, 1989 (start of business) to December 31,
1989.
# Standish did not impose a portion of its advisory fee. If this
voluntary reduction had not been undertaken, the net investment income
per share and the ratios would have been:
<PAGE>
SECURITIZED FUND
Year Ended December 31,
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1992* 1991* 1990* 1989*@
Net asset value - beginning of period $20.97 $20.48 $20.15 $20.00
Income from investment operations
Net investment income# $1.43 $1.71 $1.80 $0.60
Net realized and unrealized gain (loss) on investments (0.61) 1.37 0.40 0.20
Total from investment operations $0.82 $3.08 $2.20 $0.80
Less distributions declared to shareholders
From net investment income ($1.57) ($1.55) ($1.70) $0.60
In excess of net investment income - - - -
From net realized gain (0.07) (1.04) (0.17) -
In excess of net realized gain (0.01) - - (0.05)
Total distributions declared to shareholders ($1.65) ($2.59) ($1.87) $0.55
Net asset value - end of period $20.14 $20.97 $20.48 $21.35
Total return1 4.07% 15.57% 11.47% 11.90%+
Ratios (to average net assets)/Supplemental Data
Net assets at end of period (000 omitted) $90,460 $78,570 $67,278 $31,427
Expenses# 0.45% 0.45% 0.45% 0.45%+
Net investment income# 6.94% 8.03% 8.88% 8.46%+
Portfolio turnover 301.00% 324.00% 146.00% 1.00%
Net investment income per share $1.42 $1.70 $1.79 $0.59
Ratios (to average net assets):
Expenses 0.51% 0.49% 0.51% 0.59%
Net investment income 6.88% 7.99% 8.82% 8.32%
1 The Fund's performance benchmarks are Salomon-Shearson's Mortgage Index
and the Lehman Brothers Aggregate Index. See "Calculation of
Performance Data" for a description of these Indices. The average
annual total return of these Indices for each year since the Fund's
inception was as follows (this total return information is not
audited):
- ---------------------
+ Computed on an annualized basis.
* Audited by other auditors.
@ For the period from August 31, 1989 (start of business) to December 31,
1989.
# Standish did not impose a portion of its advisory fee. If this
voluntary reduction had not been undertaken, the net investment income
per share and the ratios would have been:
Total Return: 1996 1995 1994 1993 1992 1991 1990 1989
Lehman Brothers Mortgage Index 5.36% 16.79% (1.61)% 6.84% 6.95% 15.71% 10.73% 4.73%
Lehman Brothers Aggregate Index 3.61% 18.47% (2.92)% 9.75% 7.40% 16.00% 8.95% 4.24%
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT STRATEGY FOR THE STANDISH
GROUP OF FIXED INCOME FUNDS
Each Fund is an actively managed diversified portfolio consisting primarily of
fixed income securities. Each Fund is managed to maximize total return
consistent with preserving principal and liquidity, except for the Fixed Income
Fund and the Short-Term Asset Reserve Fund, which are managed primarily to
achieve a high level of current income consistent with preservation of principal
and liquidity.
Standish's primary investment management and research focus is at the security
and industry/sector level. Standish seeks to add value to each Fund's portfolio
by selecting undervalued investments, rather than by varying the average
maturity of a Fund's portfolio to reflect interest rate forecasts. Standish
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.
Securities. Fixed income securities in which each Fund invests include bonds,
notes (including structured or hybrid notes), mortgage-backed securities,
asset-backed securities, convertible securities, Eurodollar and Yankee Dollar
instruments, preferred stocks and money market instruments. These fixed income
securities may be issued by U.S. and foreign corporations or entities, U.S. and
foreign banks, the U.S. Government, its agencies, authorities, instrumentalities
or sponsored enterprises, and foreign governments and their political
subdivisions, although not all Funds invest in securities of foreign issuers.
Each Fund purchases securities that pay interest on a fixed, variable, floating,
inverse floating, contingent, in-kind or deferred basis. Each Fund may enter
into repurchase agreements and forward dollar roll transactions, may purchase
zero coupon and deferred payment securities and may buy securities on a when-
issued or delayed delivery basis. Please refer to each Fund's specific
investment objective and policies and the "Description of Securities" section
for a more comprehensive list of permissible securities and investments.
Credit Quality. The Short-Term Asset Reserve Fund invests primarily in fixed
income securities that are considered high grade at the time of purchase and
each other Fund invests primarily in fixed income securities that are considered
investment grade at the time of purchase. Investment grade securities are those
that are rated at least Baa by Moody's Investors Service, Inc. or BBB by
Standard & Poor's Ratings Group, Duff & Phelps, Inc. or Fitch Investors Service,
Inc. or, if unrated, determined by Standish to be of comparable credit quality.
High grade securities are those that are rated within the top three investment
grade ratings (i.e., Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1
by Standard & Poor's, Duff or Fitch). Foreign securities in which the Portfolio
and the Securitized Fund invest are rated by IBCA, Ltd., in addition to the
above listed ratings organizations. IBCA uses the same ratings system as does
Standard & Poor's, Duff and Fitch. If a security is rated differently by two or
more rating agencies, Standish uses the highest rating to compute a Fund's
credit quality and also to determine its rating category. In the case of unrated
sovereign and subnational debt of foreign countries, Standish may take into
account, but will not rely entirely on, the ratings assigned to the issuers of
such securities. If the rating of a security held by a Fund is downgraded below
the minimum rating required for the particular Fund, Standish will determine
whether to retain that security in a Fund's portfolio.
Securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard &
Poor's, Duff or Fitch are generally considered medium grade obligations and have
some speculative characteristics. Adverse changes in economic conditions or
other circumstances are more likely to weaken the medium grade issuer's
capability to pay interest and repay principal than is the case for high grade
securities. The Fixed Income Fund may invest up to 15% of its total assets in
below investment grade fixed income securities rated Ba by Moody's or BB by
Standard & Poor's, Duff or Fitch, or, if unrated, determined by Standish to be
of comparable credit quality. Below investment grade securities, commonly
referred to as "junk bonds," carry a higher degree of risk than medium grade
securities and are considered speculative by the rating agencies. Standish
attempts to select for the Funds those medium grade and investment grade fixed
income securities that have the potential for upgrade.
Maturity. Each Fund generally invests in securities with final maturities,
average lives or interest rate reset frequencies of 15 years (10 years for the
Controlled Maturity Fund) or less. Up to 90% of Short-Term Asset Reserve Fund's
portfolio securities will have an average life of 3.25 years or less.
* * *
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
9
<PAGE>
and Related Risks" and "Investment Techniques and Related Risks" below for
additional information.
THE FIXED INCOME FUND
The investment objective and characteristics of the Fixed Income Fund
corresponded directly to those of the Standish Fixed Income Portfolio
("Portfolio") in which the Fund invests all of its investable assets. 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. The following is a discussion of the investment
objectives and policies of the Portfolio.
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 Fund may also engage in short selling. 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 invest up to 15% of its total assets in securities
rated Ba by Moody's or BB by Standard and Poor's, Duff or Fitch, 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 FIXED INCOME FUND II
Investment Objective. The Fixed Income Fund II's investment objective is to
maximize total return, consistent with preserving principal and liquidity. As a
component of this objective, the Fund seeks a relatively high level of current
income.
Securities. Under normal market conditions, substantially all and at least 65%
of the Fund's total assets are invested in investment grade fixed income
securities. See "Description of the Securities and Related Risks" and
"Investment Techniques and Related Risks" for additional information.
Credit Quality. The Fund invests exclusively in investment grade fixed income
securities. The average dollar-weighted credit quality of the Fund'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 Fund's average dollar-weighted
effective portfolio maturity will vary from five to thirteen years.
THE SHORT-TERM ASSET RESERVE FUND
Investment Objective. The Short-Term Asset Reserve Fund's investment objective
is to achieve a high level of current income consistent with preserving
principal and liquidity.
Securities. The Fund invests in a broad range of investment grade money market
instruments and short-term fixed income securities. The Fund may also invest in
tax-exempt securities and prime commercial paper of U.S. and foreign companies,
and may enter into reverse repurchase agreements. The Fund limits its
investments in preferred stock to 10% of its total assets.
Credit Quality. The Fund invests primarily in high grade securities, cash and
cash equivalents. The Fund may also invest up to 15% of its total assets in
securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard and
Poor's, Duff or Fitch, or, if unrated, determined by Standish to be of
comparable credit quality. The average dollar-weighted credit quality of the
Fund is expected to be at least Aa according to Moody's or AA according to
Standard & Poor's, Duff or Fitch.
Maturity. All securities held by the Fund will have an effective or remaining
maturity of 3.25 years or less from the date of settlement, except that up to
10% of the Fund's total assets may be represented by securities with effective
maturities or redemption dates, put dates or coupon dates of between 3.25 and
10
<PAGE>
five years. The maturity limitation does not apply to U.S. Treasury notes or
bonds with maturities of longer than 3.25 years, which may be purchased by the
Fund in conjunction with the sale of note or bond futures contracts or with
certain equivalent options positions which are designed to hedge the notes or
bonds in such a way as to create a synthetic short-term instrument. The Fund's
average dollar-weighted effective portfolio maturity will not exceed 18 months.
THE CONTROLLED MATURITY FUND
Investment Objective. The Controlled Maturity Fund's investment objective is to
maximize total return, consistent with preserving principal and liquidity. As a
component of this objective, the Fund seeks a relatively high level of current
income.
Securities. Under normal market conditions, substantially all and at least 65%
of the Fund's total assets are invested in investment grade fixed income
securities.
Credit Quality. The Fund invests exclusively in investment grade fixed income
securities. The average dollar-weighted credit quality of the Fund'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 Fund's average dollar-weighted
effective portfolio maturity will not exceeding five years. The Fund generally
invests in securities with final maturities, average lives or interest rate
frequencies of 10 years or less.
THE SECURITIZED FUND
Investment Objective. The Securitized Fund's investment objective is to maximize
total return, consistent with preserving principal and liquidity, through both
capital appreciation and the generation of current income. The Fund seeks
capital appreciation when market factors such as declining interest rates
indicate that capital appreciation may be available without significant risk to
principal.
Securities. Under normal market conditions, at least 65% of the Fund's total
assets are invested in mortgage-related and asset-backed securities.
Mortgage-related securities include directly placed mortgages, mortgage-backed
securities, collateralized mortgage obligations and other pass-through
securities, and mortgage derivatives. Asset-backed securities represent
participations in, or are secured by and payable from, assets such as motor
vehicle installment sale contracts, installment loan contracts, leases of
various types of real and personal property, receivables from revolving credit
(credit card) agreements and other categories of receivables. In order to
preserve principal and liquidity, up to 35% of the Fund's total assets may
normally be invested in U.S. Treasury and government agency notes and bonds,
certificates of deposit, money market instruments and repurchase agreements.
Under normal market conditions, up to 10% of the Fund's total assets may be
invested in mortgage-related and other securities of foreign governments or
companies denominated in currencies other than the U.S. dollar. The Fund expects
to limit its investments in foreign securities to issuers in Canada and Europe
but is not required to do so. The Fund may enter into forward foreign currency
exchange contracts and cross currency forward contracts to seek to hedge against
changes in foreign currency exchange rates. See "Strategic Transactions" below.
Credit Quality. The Fund invests primarily in high grade mortgage-related and
asset-backed securities. The Fund may, however, invest up to 15% of its total
assets in securities rated Baa by Moody's or BBB by Standard and Poor's, Duff or
Fitch, or, if unrated, determined by Standish to be of comparable credit
quality. The average dollar-weighted credit quality of the Fund's portfolio is
expected to be Aa according to Moody's or AA according to Standard & Poor's,
Duff or Fitch.
Maturity. The Fund's average dollar-weighted effective portfolio maturity will
vary depending upon the maturity of its investments. Mortgage-related
securities, when they are issued, have stated maturities of up to 40 years,
depending on the length of the mortgages underlying the securities. In practice,
scheduled and unscheduled early prepayments of principal and interest on the
underlying mortgages will make the effective maturity of the securities shorter.
A security based on a pool of 40 year mortgages may have an average life as
short as two years. The relationship between mortgage repayments and interest
rates may give some high-yielding mortgage-related securities less potential for
return and value than conventional bonds with comparable maturities. The Fund
expects that the average life of securities held by it will be from three to
fifteen years.
DESCRIPTION OF SECURITIES
AND RELATED RISKS
For purposes of the discussion in this section and in the "Investment Techniques
and Related Risks" section of this Prospectus, the use of the term "Funds"
includes the Portfolio, unless otherwise noted.
11
<PAGE>
GENERAL RISKS
Investments in the Funds involve certain risks. Each Fund invests primarily in
the fixed income securities described above and is subject to risks associated
with investments in such securities. These risks include interest rate risk,
default risk and call and extension risk. The Portfolio and the Securitized Fund
are also subject to 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 Fund to sustain losses on such investments. A default could impact
both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to both
call risk and extension risk. Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than scheduled which would cause
cash flows to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk exists when the issuer may exercise
its right to pay principal on an obligation later than scheduled which would
cause cash flows to be returned later than expected. This typically results when
interest rates have increased and a Fund will suffer from the inability to
invest in higher yield securities.
SPECIFIC RISKS
The following sections include descriptions of specific risks that are
associated with a Fund's purchase of a particular type of security or the
utilization of a specific investment technique.
Corporate Debt Obligations. Each Fund may invest in corporate debt obligations
and zero coupon securities issued by financial institutions and corporations,
including obligations of industrial, utility, banking and other financial
issuers. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity.
U.S. Government Securities. Each Fund may invest in U.S. Government securities.
Generally, these securities include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association ("GNMA")), (b)
the right of the issuer to borrow from the U.S. Treasury (such as securities of
the Student Loan Marketing Association), (c) the discretionary authority of the
U.S. Government to purchase certain obligations of the issuer (such as the
Federal National Mortgage Association ("FNMA") and Federal Home Loan Mortgage
Corporation ("FHLMC"), or (d) only the credit of the agency. No assurance can be
given that the U.S. Government will provide financial support to U.S. Government
agencies, instrumentalities or sponsored enterprises in the future. U.S.
Government securities also include Treasury receipts, zero coupon bonds,
deferred interest securities and other stripped U.S. Government securities,
where the interest and principal components of stripped U.S. Government
securities are traded independently ("STRIPS").
Mortgage-Backed Securities. Each Fund may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by the U.S. Government or any of its agencies, instrumentalities or sponsored
enterprises, including, but not limited to, GNMA, FNMA or FHLMC. Mortgage-backed
securities represent direct or indirect participation in, or are collateralized
by and payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgage 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 Fund'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 Fund's exposure to rising interest rates
and prevent a Fund 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
12
<PAGE>
and FHLMC securities are not backed by the full faith and credit of the U.S.
Government; however, these enterprises have the ability to obtain financing from
the U.S. Treasury. See the Statement of Additional Information for additional
descriptions of GNMA, FNMA and FHLMC certificates.
Multiple class securities include collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended ("Code"), and invests in certain
mortgages principally secured by interests in real property and other permitted
investments. The Funds 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 Fund may fail to fully recoup its initial
investment in these securities. Although the market for SMBS is increasingly
liquid, certain SMBS may not be readily marketable and will be considered
illiquid for purposes of each Fund'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. The Short-Term Asset Reserve Fund does not invest in SMBS.
Direct Investment in Mortgage Loans. The Securitized Fund may invest directly in
mortgage loans securing commercial and residential real estate. When the Fund
invests directly in mortgage loans, the Fund, rather than a financial
intermediary, becomes the mortgagee with respect to such mortgage loans. Direct
investments in mortgage loans are available from lending institutions which
group together a number of mortgages for resale (usually from 10 to 50
mortgages) and which act as servicing agents for the purchaser with respect to,
among other things, the receipt of principal and interest payments. The seller
generally does not provide any insurance covering the payment of interest on or
repayment of principal of the mortgages, but such insurance may be purchased by
the mortgagor. Investing directly in mortgage loans may involve certain risks
and characteristics not applicable to investments in other securities. Such
risks include delays and difficulties in recovering and reselling the collateral
securing the mortgage loan during foreclosure proceedings, limitations pursuant
to Federal bankruptcy and state insolvency laws and other state laws enforcing a
personal judgment against a borrower following foreclosure to make up any
deficiency not realized on sale of the collateral, and the application of
Federal and state laws limiting interest rates that may be charged by the lender
and the lender's ability to accelerate the maturity of the mortgage loan.
Unlike mortgage-backed securities which generally represent an interest in a
pool of mortgages, direct investment in a mortgage loan involves pre-payment and
credit risk of an individual issuer and real property, and, consequentially,
requires different investment and credit analysis by Standish. Direct
investments in mortgage loans are illiquid and subject to the Fund's policy of
not investing more than 15% of its net assets in illiquid investments.
Asset-Backed Securities. Each Fund may invest in asset- backed securities. The
principal and interest payments on asset-backed securities are collateralized by
pools of assets such as auto loans, credit card receivables, leases, installment
contracts and personal property. Such asset pools are securitized through the
use of special purpose trusts or corporations. Payments or distributions of
principal and interest on asset-backed securities may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial 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
13
<PAGE>
may not be available to support payments on these securities.
Convertible Securities. Each Fund, other than Securitized Fund, may invest in
convertible securities consisting of bonds, notes, debentures and preferred
stocks. The Short-Term Asset Reserve Fund's investments in preferred stock are
limited to no more than 10% of its total assets. Convertible debt securities and
preferred stock acquired by a Fund entitle the Fund to exchange such instruments
for common stock of the issuer at a predetermined rate. Convertible securities
are subject both to the credit and interest rate risks associated with debt
obligations and to the stock market risk associated with equity securities.
Sovereign Debt Obligations. The Portfolio and Securitized Fund may invest in
sovereign debt obligations, which involve special risks that are not present in
corporate debt obligations. The foreign issuer of the sovereign debt or the
foreign governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due, and a Fund may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the net asset value of the
Fund investing in such securities, may be more volatile than prices of debt
obligations of U.S. issuers. In the past, certain foreign countries have
encountered difficulties in servicing their debt obligations, withheld payments
of principal and interest and declared moratoria on the payment of principal and
interest on their sovereign debt.
Below Investment Grade Securities. The Portfolio may invest up to 15% of its
total assets in securities rated below investment grade. Fixed income securities
rated below investment grade generally offer a higher yield, but may be subject
to a higher risk of default in interest or principal payments than higher rated
securities. The market prices of below investment grade securities are generally
less sensitive to interest rate changes than higher rated securities, but are
generally more sensitive to adverse economic or political changes or, in the
case of corporate issuers, to individual company developments. Below investment
grade securities also may have less liquid markets than higher rated securities,
and their liquidity, as well as their value, may be more severally affected by
adverse economic conditions. Adverse publicity and investor perceptions of the
market, as well as newly enacted or proposed legislation, may also have a
negative impact on the market for below investment grade securities. See the
Statement of Additional Information for a detailed description of the ratings
assigned to fixed income securities by Moody's, Standard & Poor's, Duff and
Fitch. For the fiscal year ended December 31, 1996, the Portfolio's investments,
on an average dollar-weighted basis, calculated at the end of each month, had
the following credit quality characteristics:
Investments Percentage
U.S. Governmental 27.3%
Securities
U.S. Government 21.4%
Agency Securities
Corporate Bonds:
Aaa or AAA 5.8%
Aa or AA 3.5%
A 10.1%
Baa or BBB 18.5%
Ba or BB 13.4%
-----
100.0%
Inverse Floating Rate Securities. Each Fund may invest in inverse floating rate
securities. Short-Term Asset Reserve Fund will only invest in inverse floaters
that present specific investment opportunities. The interest rate on an inverse
floater resets in the opposite direction from the market rate of interest to
which the inverse floater is indexed. An inverse floater may be considered to be
leveraged to the extent that its interest rate varies by a magnitude that
exceeds the magnitude of the change in the index rate of interest. The higher
the degree of leverage of an inverse floater, the greater the volatility of its
market value.
Zero Coupon and Deferred Payment Securities. Each Fund 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 Fund is required to accrue income with respect to these
securities prior to the receipt of cash payments. Because a Fund will distribute
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 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
14
<PAGE>
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. Each Fund may invest in structured or hybrid notes.
The distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows the Fund to
gain exposure to the benchmark market while fixing the maximum loss that it may
experience in the event that the market does not perform as expected. Depending
on the terms of the note, the Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; the Fund's
loss cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Foreign Securities. The Portfolio and the Securitized Fund may invest to a
limited degree in securities of foreign governments and companies. Investing in
securities of foreign issuers and securities denominated in foreign currencies
and utilizing foreign currency transactions involve certain risks of political,
economic and legal conditions and developments not typically associated with
investing in United States companies. Such conditions or developments might
include unfavorable changes in currency exchange rates, exchange control
regulations (including currency blockage), expropriation of assets of companies
in which the Portfolio or the Securitized Fund invests, nationalization of such
companies, imposition of withholding or other taxes on dividend or interest
payments (or, in some cases, capital gains), and possible difficulty in
obtaining and enforcing judgments against a foreign issuer. Also, foreign
securities may not be as liquid as and may be more volatile than comparable
domestic securities. Furthermore, issuers of foreign securities are subject to
different, often less comprehensive, accounting, reporting and disclosure
requirements than domestic issuers. Although the Portfolio invests primarily in
securities of established issuers based in developed foreign countries, it will
also invest in securities of issuers in emerging markets countries. Investments
in securities of issuers in emerging markets countries may involve a high degree
of risk and many may be considered speculative. These investments carry all of
the risks of investing in securities of foreign issuers to a heightened degree.
The Portfolio and the Securitized Fund, in connection with the purchases and
sales of foreign securities, other than those denominated in U.S. dollars, will
incur transaction costs in converting currencies. Also, brokerage costs in
purchasing and selling corporate securities in foreign securities markets are
sometimes higher than such costs in comparable transactions in domestic
securities markets, and foreign custodial costs are higher than domestic
custodial costs.
The Portfolio and the Securitized Fund may enter into forward foreign currency
exchange contracts and cross currency forward contracts with banks or other
foreign currency brokers or dealers to purchase or sell foreign currencies at a
future date. The Portfolio and Securitized Fund may purchase and sell foreign
currency futures contracts and cross-currency futures contracts to hedge against
changes in foreign currency exchange rates. A forward foreign currency exchange
contract is a negotiated agreement between the contracting parties to exchange a
specified amount of currency at a specified future time at a specified rate. A
cross-currency forward contract is a forward contract that uses one currency
which historically moves in relation to a second currency to hedge against
changes in that second currency. See "Strategic Transactions" within the
"Investment Techniques and Related Risks" section for a further discussion of
the risks associated with currency transactions.
Eurodollar and Yankee Dollar Investments. Each Fund may invest in Eurodollar and
Yankee Dollar instruments. Eurodollar instruments are bonds of foreign corporate
and government issuers that pay interest and principal in U.S. dollars held in
banks outside the United States, primarily in Europe. Yankee dollar instruments
are U.S. dollar denominated bonds typically issued in the U.S. by foreign
governments and their agencies and foreign banks and corporations. The
Short-Term Asset Reserve Fund 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.
15
<PAGE>
Tax-Exempt Securities. Each Fund is managed without regard to potential tax
consequences. If Standish believes that tax-exempt securities will provide
competitive returns, the Portfolio may invest up to 10% of its total assets in
tax-exempt securities. The Fixed Income II and Controlled Maturity Funds may
invest up to 5% of their net assets and the Short-Term Asset Reserve Fund may
invest up to 10% of its total assets in tax-exempt securities. A Fund's
distributions of interest earned from these investments will be taxable. The
Securitized Fund does not generally invest in tax-exempt securities.
INVESTMENT TECHNIQUES
AND RELATED RISKS
Strategic Transactions. Each Fund may, but is not required to, utilize various
investment strategies to seek to hedge market risks (such as interest rates,
currency exchange rates and broad or specific fixed income market movements), to
manage the effective maturity or duration of fixed income securities, or to
enhance potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by each Fund may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing their investment objectives, each Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, indices and other financial instruments; purchase and sell financial
futures contracts and options thereon; enter into various interest rate
transactions such as swaps, caps, floors or collars; and, to the extent a Fund
invests in foreign securities, enter into currency transactions such as forward
foreign currency exchange contracts, cross currency forward contracts, currency
futures contracts, cross currency futures contracts, currency swaps and options
on currencies or currency futures, (collectively, all the above are called
"Strategic Transactions"). Strategic Transactions may be used in an attempt to
protect against possible changes in the market value of securities held in or to
be purchased for a Fund's portfolio resulting from securities markets, currency
exchange rate or interest rate fluctuations, to seek to protect a Fund'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 a Fund's portfolio, or to establish a position in the
derivatives markets as a temporary substitute for purchasing or selling
particular securities. In addition to the hedging transactions referred to in
the preceding sentence, Strategic Transactions may also be used to enhance
potential gain in circumstances where hedging is not involved.
The ability of a Fund to utilize Strategic Transactions successfully will depend
on Standish's ability to predict pertinent market and interest rate movements,
which cannot be assured. Each Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. The
Funds' activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
Standish's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to a Fund, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation a Fund can realize on its investments
or cause a Fund to hold a security it might otherwise sell.
The use of options and futures transactions entails certain other risks. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses. Losses resulting from the use of Strategic Transactions could reduce net
asset value and the net result may be less favorable than if the Strategic
Transactions had not been utilized. Although the use of futures and options
transactions for hedging and managing effective maturity and duration should
tend to minimize the risk of loss due to a decline in the value of the position,
at the same time, they can limit any potential gain which might result from an
increase in value of such position. The loss incurred
16
<PAGE>
by a Fund in writing options on futures and entering into futures transactions
is potentially unlimited.
The use of currency transactions can result in a Fund incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency.
Each Fund will attempt to limit its net loss exposure resulting from Strategic
Transactions entered into for non-hedging purposes. The Portfolio, the Fixed
Income Fund II, the Short-Term Asset Reserve Fund, the Controlled Maturity Fund
and the Securitized Fund will attempt to limit net loss exposure from Strategic
Transactions entered into for non-hedging purposes to 3%, 1%, 1%, 1% and 3%,
respectively, of net assets. See the Statement of Additional Information for
further information regarding the use of Strategic Transactions.
When-Issued and Delayed Delivery Securities. The Portfolio, the Fixed Income
Fund II, the Short-Term Asset Reserve Fund and the Controlled Maturity Fund may
invest 15%, 15%, 10% and 15%, respectively, of net assets in when-issued and
delayed delivery securities. The Securitized Fund may invest up to 25% of its
net assets, collectively, in when-issued and delayed delivery securities and
forward roll transactions. Although a Fund will generally purchase securities on
a when-issued or delayed delivery basis with the intention of actually acquiring
the securities, a Fund may dispose of these securities prior to settlement, if
Standish deems it appropriate to do so. The payment obligation and interest rate
on these securities is fixed at the time a Fund enters into the commitment, but
no income will accrue to the Fund until they are delivered and paid for. Unless
a Fund has entered into an offsetting agreement to sell the securities, cash or
liquid assets equal to the amount of the Fund's commitment must be segregated
and maintained with the Fund's custodian to secure the Fund'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
Fund.
Repurchase Agreements. The Portfolio, the Fixed Income Fund II, the Short-Term
Asset Reserve Fund, the Controlled Maturity Fund and the Securitized Fund may
invest 5%, 15%, 25%, 25% and 15%, respectively, of net assets in repurchase
agreements. In a repurchase agreement, a Fund buys a security at one price and
simultaneously agrees to sell it back at a higher price. Delays or losses could
result if the other party to the agreement defaults or becomes insolvent.
Repurchase agreements acquired by a Fund will always be fully collateralized as
to principal and interest by money market instruments and will be entered into
only with commercial banks, brokers and dealers considered creditworthy by
Standish.
Reverse Repurchase Agreements. The Short-Term Asset Reserve Fund may enter into
reverse repurchase agreements. In a reverse repurchase agreement the Fund sells
securities and agrees to repurchase them at a mutually agreed upon date and
price. At the time the Fund enters into a reverse repurchase agreement, it will
establish a segregated account with its custodian containing cash or liquid
assets having a value not less than the repurchase price (including accrued
interest) that is marked to market daily. Reverse repurchase agreements involve
the risks that the market value of the securities which the Fund is obligated to
repurchase may decline below the repurchase price or that the counterparty may
default on its obligation to repurchase the securities. The staff of the
Securities and Exchange Commission ("SEC") considers reverse repurchase
agreements to be borrowings by the Fund under the Investment Company Act of 1940
("1940 Act"). The Fund intends to enter into reverse repurchase agreements to
provide cash to satisfy redemption requests and avoid liquidating securities
during unfavorable market conditions.
Forward Roll Transactions. To seek to enhance current income, each Fund, except
the Securitized Fund, may invest up to 10% of its net assets in forward roll
transactions involving mortgage-backed securities. The Securitized Fund may
invest up to 25% of its net assets, collectively, in forward roll transaction,
when- issued securities and forward commitments. In a forward roll transaction,
a Fund 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 Fund 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 Fund which is intended to exceed the yield on the securities
sold. Forward roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the repurchase price of those
securities. At the time that a Fund enters into a forward roll transaction, it
will place cash or liquid
17
<PAGE>
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 Fund's shares
faster than would otherwise be the case. On the other hand, if the additional
monies received are invested in ways that do not fully recover the costs of such
transactions to a Fund, the net asset value of the Fund would fall faster than
would otherwise be the case.
Short Sales. The Portfolio and the Securitized Fund may engage in short sales
and short sales against the box. In a short sale, a Fund sells a security it
does not own in anticipation of a decline in the market value of that security.
In a short sale against the box, a Fund either owns or has the right to obtain
at no extra cost the security sold short. The broker holds the proceeds of the
short sale until the settlement date, at which time the Fund delivers the
security (or an identical security) to cover the short position. The Fund
receives the net proceeds from the short sale. When a Fund enters into a short
sale other than against the box, the Fund must first borrow the security to make
delivery to the buyer and must place cash or liquid assets in a segregated
account with the Fund's custodian that is marked to market daily. Short sales
other than against the box involve unlimited exposure to loss. No securities
will be sold short if, after giving effect to any such short sale, the total
market value of all securities sold short would exceed 5% of the value of a
Fund's net assets.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid investments, except the Short-Term Asset Reserve Fund, which
is limited to 10% of its net assets. Illiquid securities are those that are not
readily marketable, repurchase agreements maturing in more than seven days, time
deposits with a notice or demand period of more than seven days, certain SMBS,
swap transactions, certain over-the-counter options and certain restricted
securities. Based upon continuing review of the trading markets for a specific
restricted security, the security may be determined to be eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act of
1933 and, therefore, be liquid. Also, certain illiquid securities may be
determined to be liquid if they are found to satisfy certain relevant liquidity
requirements.
The Boards of Trustees have adopted guidelines and delegated to Standish 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.
Portfolio Turnover. A high rate of portfolio turnover (100% or more) involves
correspondingly higher transaction costs which must be borne directly by a Fund
and thus indirectly by its shareholders. It may also result in a Fund's
realization of larger amounts of short-term capital gains, distributions from
which are taxable to shareholders as ordinary income and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code. See "Financial Highlights" for each Fund's
portfolio turnover rates.
Short-Term Trading. Each Fund will sell a portfolio security without regard to
the length of time such security has been held if, in Standish's view, the
security meets the criteria for disposal.
Temporary Defensive Investments. Each Fund may adopt a temporary defensive
position during adverse market conditions by investing without limit in high
quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements. The Short-Term Asset Reserve Fund may also invest in
commercial paper rated A-2 by Moody's or P-2 or Duff-2 by Standard & Poor's,
Duff or Fitch. The Portfolio and the Securitized Fund may purchase commercial
paper of foreign issuers rated P -1 or its equivalent.
Investment Restrictions. The investment objective of the Portfolio and each Fund
(except Fixed Income Fund) is not fundamental and may be changed by the Board of
Trustees without the approval of shareholders. The investment objective of the
Fixed Income Fund is a fundamental policy which may not be changed without a
vote of the Fund's shareholders. If there is a change in a Fund's investment
objective, shareholders should consider whether the Fund remains an appropriate
investment in light of their current financial situation. Each Fund's and the
Portfolio's investment policies set forth in this Prospectus are non-fundamental
and may be changed without shareholder approval except that the Short- Term
Asset Reserve Fund's 15% limit on reverse repurchase agreements and the
Securitized Fund's
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<PAGE>
15% limit on repurchase agreements are fundamental. Each Fund and the Portfolio
have adopted fundamental policies which may not be changed without the approval
of the Funds' shareholders. See "Investment Restrictions" in the Statement of
Additional Information. If any percentage restriction is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of a Fund's assets will not constitute a violation of
the restriction.
INFORMATION ABOUT THE MASTER-FEEDER
STRUCTURE
The Fixed Income Fund seeks to achieve its investment objective by investing all
of its investable assets in the Portfolio, which has an identical investment
objective. The Fixed Income Fund is a feeder fund and the Portfolio is the
master fund in a so-called master-feeder structure. The other Funds described in
this Prospectus purchase securities directly and maintain their own individual
portfolios.
In addition to the Fixed Income Fund, other feeder funds may invest in the
Portfolio, and information about these other feeder funds is available from
Standish Fund Distributors. The other feeder funds invest in the Portfolio on
the same terms as the Fund and bear a proportionate share of the Portfolio's
expenses. The other feeder funds may sell shares on different terms and under a
different pricing structure than the Fund, 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 the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of the Portfolio
that is not approved by the Trust's Board of Trustees, the 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 the Fund's
interest in the Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If the Fund is requested to vote on a matter affecting the Portfolio, the Fund
will call a meeting of the Fund's shareholders to vote on the matter. The Fund
will vote on any matter at the meeting of the Portfolio's investors in the same
proportion that the Fund's shareholders voted on the matter. The Fund will vote
the shares held by Fund shareholders who do not vote in the same proportion as
the shares of Fund shareholders who do vote. A majority of the Trustees who are
not "interested persons" (as defined in the 1940 Act) of the Trust or the
Portfolio Trust, as the case may be, have adopted procedures reasonably
appropriate to deal with potential conflicts of interest arising from the fact
that the same individuals are trustees of the Trust and of the Portfolio Trust.
CALCULATION OF PERFORMANCE DATA
From time to time each Fund may advertise its yield and average annual total
return information. 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 Fund 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, the Fund's performance may be
compared to alternative investment or savings vehicles or to indices or
indicators of economic activity.
Lehman Government/Corporate Index. This index is considered to be representative
of the performance of all domestic, dollar denominated, fixed rate investment
grade bonds.
Lehman Brothers Aggregate Index. This index is comprised of securities from the
Lehman Brothers Government/Corporate Bond Index, Mortgage Backed Securities
Index and the Yankee Bond Index, and is generally considered to be
representative of all unmanaged, domestic, dollar denominated, fixed rate
investment grade bonds.
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IBC/Donoghue Money Market Average/All Taxable Index. This index is generally
considered to be representative of the performance of domestic, taxable money
market funds and the One Year Treasury Bills.
Merrill Lynch 1-3 Year and 1-5 Year U.S. Treasury Indices and the 1 Year
Treasury Bill Index.
Salomon-Shearson's Mortgage Index. This index is considered to be representative
of the performance of fixed rate securitized mortgage pools of GNMA, FNMA and
FHLNC securities.
The following table sets forth the historical total return performance of all
fee paying, domestic investment grade bond portfolios under discretionary
management by Standish that have substantially similar investment objectives,
policies and strategies as the Fixed Income Fund II (the "Investment Grade Bond
Accounts") as measured by the Standish, Ayer & Wood Active Domestic Bond
Investment Grade Composite (the "Active Domestic Bond Composite"). As of
December 31, 1996, the Active Domestic Bond Composite was composed of three
Investment Grade Bond Accounts with approximately $221 million in assets. The
performance data of the Investment Grade Bond Accounts, as represented by the
Active Domestic Bond Composite, has been computed in accordance with the SEC's
standardized formula. Because the gross performance data does not reflect the
deduction of investment advisory fees paid by the Investment Grade Bond
Accounts, the net performance data may be more relevant to potential investors
in the Fund in their analysis of the historical experience of Standish in
managing fixed-income portfolios with investment objectives, policies and
strategies substantially similar to those of the Fixed Income Fund II.
<TABLE>
<CAPTION>
Standish, Ayer & Wood Active Domestic Bond Investment
Grade Composite Performance
Average Annual Total
Return For the Periods
Ended December 31, 1996 Cumulative Total Return
3 Years 5 years since January 1, 1990
--------------------------- ---------------------
The Composite
<S> <C> <C> <C>
Size Weighted Gross 6.05% 7.63% 87.3%
Size Weighted Net 5.89% 7.43% 85.3%
1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ----
The Composite
Equal weighted gross total return 9.95% 18.09% 6.68% 14.02% (4.16)% 18.68% 4.48%
Equal weighted net total return 9.90% 17.94% 648% 13.79% (4.36)% 18.50% 4.38%
Size weighted gross total return 9.83% 18.12% 6.69% 13.45% (4.07)% 18.67% 4.78%
Size weighted net total return 9.78% 17.97% 6.49% 13.20% (4.26)% 18.55% 4.60%
</TABLE>
The performance of the Investment Grade Bond Accounts, as represented by
the Active Domestic Bond Composite, is not that of any of the Funds, including
the Fixed Income Fund II, and is not necessarily indicative of any Fund's future
results. Each Fund's actual total return may vary significantly from the past
and future performance of these Accounts. While the Investment Grade Bond
Accounts incur inflows and outflows of cash from clients, there can be no
assurance that the continuous offering of the Fixed Income Fund II's shares and
the Fixed Income Fund II's obligation to redeem its shares will not impact the
Fund's performance. In the opinion of Standish, so long as the Fixed Income Fund
II has at lest $20 million in net assets, the relative difference in the size
between the Fixed Income Fund and the Investment Grade Bond Accounts should not
affect the relevance of the performance of the Investment Grade Bonds Accounts
to a potential investor in the Fixed Income Fund II. Investment returns and the
net asset value of shares of each Fund will fluctuate in response to market and
economic conditions as well as other factors and an investment in a Fund
involves the risk of loss.
The following table sets forth the historical total return performance of
all fee paying, controlled maturity bond portfolios under discretionary
management by Standish that have substantially similar investment objectives,
policies and strategies as the Controlled Maturity Fund (the "Controlled
Maturity Accounts") as measured by the Standish,
20
<PAGE>
Ayer & Wood Controlled Maturity Bond Composite (the "Controlled Maturity Bond
Composite"). As of December 31, 1996, the Controlled Maturity Bond Composite was
composed of 12 Controlled Maturity Accounts with approximately $439 million in
assets. The performance data of the Controlled Maturity Accounts, as represented
by the Controlled Maturity Bond Composite, has been computed in accordance with
the SEC's standardized formula. Because the gross performance data does not
reflect the deduction of investment advisory fees paid by the Controlled
Maturity Accounts, the net performance data may be more relevant to the
potential investors in the Controlled Maturity Fund in their analysis of the
historical experience of Standish in managing fixed-income portfolios with
investment objectives, policies and strategies substantially similar to those of
the Controlled Maturity Fund. The Controlled Maturity Bond Composite contains
the fixed income-only portion of a few multiple asset accounts. The performance
of the Controlled Maturity Bond Composite would be dimished if cash positions of
these accounts were allocated to the Controlled Maturity Accounts.
<TABLE>
<CAPTION>
Standish, Ayer & Wood Controlled Maturity Bond Composite Performance
Average Annual Total
Return For the Periods
Ended December 31, 1996 Cumulative Total Return
3 Years 5 Years 10 Years since January 1, 1986
------------------------------------- ---------------------
The Composite
<S> <C> <C> <C> <C>
Size Weighted Gross 5.2% 7.8% 9.0% 139.9%
Size Weighted Net 5.0% 7.5% 8.5% 227.0%
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
The Composite
Equal weighted gross total return 16.40% 10.60% 4.90% 7.60% 11.80 9.08% 14.45% 6.80% 9.80% (0.61)% 12.21% 5.39%
Equal weighted net total return 16.13% 10.29% 4.05% 6.85% 11.10 8.74% 14.10% 6.53% 9.52% (0.87)% 12.06% 5.17%
Size weighted gross total return 9.03% 14.18% 6.65% 9.23% (0.21)% 11.75% 5.51%
Size weighted net total return 8.89% 14.06% 6.54% 9.09% (0.46)% 11.55% 5.28%
</TABLE>
The performance of the Controlled Maturity Accounts, as represented by the
Controlled Maturity Bond Composite, is not that of any of the Funds, including
the Controlled Maturity Fund, and is not necessarily indicative of any Fund's
future results. Each Fund's actual total return may vary significantly from the
past and future performance of these Accounts. While the Controlled Maturity
Accounts incur inflows and outflows of cash form clients, there can be no
assurance that the continuous offering of the Controlled Maturity Fund's shares
and the Controlled Maturity Fund's obligation to redeem its shares will not
impact the Fund's performance. In the opinion of Standish, so long as the
Controlled Maturity Fund has at lest $5 million in net assets, the relative
difference in the size between the Controlled Maturity Fund and the Controlled
Maturity Accounts should not affect the relevance of the performance of the
Controlled Maturity Accounts to a potential investor in the Controlled Maturity
Fund. Investment returns and the net asset value of shares of each Fund will
fluctuate in response to market and economic conditions as well as other factors
and an investment in a Fund involves the risk of Loss.
Average Annual Total Return
Year Ended July 3, 1995
December 31, 1996 through December
31, 1996
Fixed Income 3.77%1 6.41%1
Fund II
Controlled 5.13%1 6.26%1
Maturity Fund
- --------
1 The Adviser voluntarily agreed not to impose its
advisory fee and reimbursed the Funds for their operating
expenses during the periods indicated. Had these
arrangements not been in effect, each Fund's total return
would be lower. Performance data is based on historical
results and is not intended to indicate future
performance.
21
<PAGE>
DIVIDENDS AND DISTRIBUTIONS
Dividends from net investment income for the Fixed Income, Fixed Income II,
Controlled Maturity and Securitized Funds will be declared and distributed
quarterly. Dividends on shares of the Short-Term Asset Reserve Fund will be
declared daily from net investment income and distributed monthly. The Funds'
dividends from short-term and long-term capital gains, if any, after reduction
by capital losses, will be declared and distributed at least annually. In
determining the amounts of its dividends, the Fixed Income Fund will take into
account its share of the income, gain or loss, expense, and any other tax items
of the Portfolio. Dividends from net investment income and capital gains
distributions, if any, are automatically reinvested in additional shares of the
applicable Fund unless the shareholder elects to receive them in cash.
PURCHASE OF SHARES
Shares of the Funds may be purchased from Standish Fund Distributors, which
offers the Funds' shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good order by Standish Fund Distributors and payment for the shares is
received by Investors Bank & Trust Company, the Funds' Custodian. Please see
each Fund's account application or call (800) 221-4795 for instructions on how
to make payment for shares to the Custodian. The Fixed Income, Fixed Income II
and Controlled Maturity Funds require minimum initial investments of $100,000.
Additional investments must be in amounts of at least $5,000. The Short-Term
Asset Reserve and Securitized Funds require minimum initial investments of
$1,000,000. The Short-Term Asset Reserve Fund requires additional investments of
at least $100,000. The Securitized Fund requires additional investments of at
least $50,000. Certificates for Fund shares are generally not issued.
Shares of the Funds may also be purchased through securities dealers. Orders for
the purchase of Fund shares received by dealers by the close of regular trading
on the New York Stock Exchange ("NYSE") on any business day and transmitted to
Standish Funds Distributor or its agent by the close of its business day
(normally 4:00 p.m., New York City time) will be effected as of the close of
regular trading on the NYSE on that day, if payment for the shares is also
received by the Custodian that day. Otherwise, orders will be effected at the
net asset value per share determined on the next business day. It is the
responsibility of dealers to transmit orders so they will be received by
Standish Fund Distributors before the close of its business day. Shares of a
Fund purchased through dealers may be subject to transaction fees on purchase or
redemption, no part of which will be received by the Funds, Standish Fund
Distributors or Standish.
In the sole discretion of the Trust, each Fund may accept securities instead of
cash for the purchase of shares. The Trust will ask Standish to determine that
any securities acquired by the Funds in this manner are consistent with the
investment objective, policies and restrictions of the applicable Fund. The
securities will be valued in the manner stated below. The purchase of shares of
a Fund for securities instead of cash may cause an investor who contributed them
to realize a taxable gain or loss with respect to the securities transferred to
the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the offering
of a Fund's shares, (ii) to reject purchase orders when in the best interest of
a Fund, (iii) to modify or eliminate the minimum initial or subsequent
investment in Fund shares and (iv) to eliminate duplicate mailings of Fund
material to shareholders who reside at the same address. A Fund's investment
minimums do not apply to accounts for which Standish or any of its affiliates
serves as investment adviser or to employees of Standish or any of its
affiliates or to members of such persons' immediate families. A Fund's
investment minimums apply to the aggregate value invested in omnibus accounts
rather than to the investment of the underlying participants in the omnibus
accounts.
NET ASSET VALUE
Each Fund's net asset value per share is computed each day on which the NYSE is
open as of the close of regular trading on the NYSE (normally 4:00 p.m., New
York City time). The net asset value per share is calculated by determining the
value of all a Fund's assets (the value of its investment in the Portfolio and
other assets, in the case of the Fixed Income Fund), subtracting all liabilities
and dividing the result by the total number of shares outstanding. Fixed income
securities (other than money market instruments) for which accurate market
prices are readily available are valued at their current market value on the
basis of quotations, which may be furnished by a pricing service or provided by
dealers in such securities. Securities not listed on an exchange or national
securities market, CMOs and asset-backed securities and securities for which
there were no reported transactions are valued at the last quoted bid prices.
Fixed income securities for which accurate market prices are not readily
available and all other assets are valued at fair value as determined in good
faith by Standish in accordance with procedures approved by the Trustees, which
may include the use of yield equivalents or matrix pricing. Money market
22
<PAGE>
instruments with less than sixty days remaining to maturity when acquired by a
Fund are valued on an amortized cost basis unless the Trustees determine that
amortized cost does not represent fair value. If a Fund acquires a money market
instrument with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will then be
valued at amortized cost based upon the value on such date unless the Trustees
determine during such sixty-day period that amortized cost does not represent
fair value.
EXCHANGE OF SHARES
Shares of the Funds may be exchanged for shares of one or more other funds in
the Standish fund family subject to the terms and restrictions imposed on the
purchase of shares of such funds. Shares of a fund redeemed in an exchange
transaction are valued at the net asset value next determined after the exchange
request is received by Standish Fund Distributors or its agent. Shares of a fund
purchased in an exchange transaction are valued at the net asset value next
determined after the exchange request is received by Standish Fund Distributors
or its agent and payment for the shares is received by the fund into which
shares are to be exchanged. Until receipt of the purchase price by the fund into
which shares are to be exchanged (which may take up to three business days),
your money will not be invested. To obtain a current prospectus for any of the
other funds in the Standish fund family, please call (800) 221-4795. Please
consider the differences in investment objectives and expenses of a fund as
described in its prospectus before making an exchange.
Written Exchanges. Shares of the Funds may be exchanged by written order to
Standish Fund Distributors, One Financial Center, Boston, Massachusetts 02111. A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as described under "Written Redemption" below.
Telephone Exchanges. Shareholders who elect telephone privileges may exchange
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Proper
identification will be required for each telephone exchange. Please see
"Telephone Transactions" below for more information regarding telephone
transactions. General Exchange Information. All exchanges are subject to the
following exchange restrictions: (i) the fund into which shares are being
exchanged must be lawfully available for sale in your state; (ii) exchanges may
be made only between funds that are registered in the same name, address and, if
applicable, taxpayer identification number; and (iii) unless waived by the
Trust, the amount to be exchanged must satisfy the minimum account size of the
fund to be exchanged into. Exchange requests will not be processed until payment
for the shares of the current Fund has been received by Standish Fund
Distributors. The exchange privilege may be changed or discontinued and may be
subject to additional limitations upon sixty (60) days' notice to shareholders,
including certain restrictions on purchases by market-timer accounts.
REDEMPTION OF SHARES
Shares of the Funds may be redeemed or repurchased by the methods described
below at the net asset value per share next determined after receipt by Standish
Fund Distributors or its agent of a redemption or repurchase request in proper
form. Redemptions will not be processed until a completed account application
and payment for the shares to be redeemed have been received.
Written Redemption. Shares of each Fund may be redeemed by written order to
Standish Fund Distributors, One Financial Center, 26th Floor, Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered. Signature(s) must be guaranteed by a
member of either the Securities Transfer Association's STAMP program or the
Exchange's Medallion Signature Program or by any one of the following
institutions, provided that the institution meets credit standards established
by Investors Bank & Trust Company, the Funds' transfer agent: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. Standish reserves the right to waive the requirement that
signatures be guaranteed. Additional supporting documents may be required in the
case of estates, trusts, corporations, partnerships and other shareholders that
are not individuals. Redemption proceeds will normally be paid by check mailed
within
23
<PAGE>
three business days of receipt by Standish Fund Distributors of a written
redemption request in proper form. If shares to be redeemed were recently
purchased by check, the Funds may delay transmittal of redemption proceeds until
such time as they are assured that good funds have been collected for the
purchase of the shares. This may take up to fifteen (15) days in the case of
payments made by check.
Telephone Redemption. Shareholders who elect telephone privileges may redeem
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Redemption proceeds
will be mailed or wired in accordance with the shareholder's instruction on the
account application to a pre-designated account. Redemption proceeds will
normally be paid promptly after receipt of telephone instructions, but no later
than three business days thereafter, except as described above for shares
purchased by check. Redemption proceeds will be sent only by check payable to
the shareholder of record at the address of record, unless the shareholder has
indicated, in the initial application for the purchase of shares, a commercial
bank to which redemption proceeds may be sent by wire. These instructions may be
changed subsequently only in writing, accompanied by a signature guarantee, and
additional documentation in the case of shares held by a corporation or other
entity or by a fiduciary such as a trustee or executor. Wire charges, if any,
will be deducted from redemption proceeds. Proper identification will be
required for each telephone redemption.
Repurchase Order. In addition to written redemption of Fund shares, Standish
Fund Distributors may accept telephone orders from brokers or dealers for the
repurchase of Fund shares. Brokers and dealers are obligated to transmit
repurchase orders to Standish Fund Distributors promptly prior to the close of
Standish Fund Distributors' business day (normally 4:00 p.m.). Brokers or
dealers may charge for their services in connection with a repurchase of Fund
shares, but neither the Trust nor Standish Fund Distributors imposes a charge
for share repurchases.
Telephone Transactions. By maintaining an account that is eligible for telephone
exchange and redemption privileges, the shareholder authorizes Standish,
Standish Fund Distributors, the Trust and the Funds' custodian to act upon
instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, the shareholder acknowledges that, as long as
the Funds employ reasonable procedures to confirm that telephone instructions
are genuine, and follow telephone instructions that they reasonably believe to
be genuine, neither Standish, Standish Fund Distributors, the Trust, the
applicable Fund, the Funds' custodian, nor their respective officers or
employees, will be liable for any loss, expense or cost arising out of any
request for a telephone redemption or exchange, even if such transaction results
from any fraudulent or unauthorized instructions.
Depending upon the circumstances, the Funds intend to employ personal
identification or written confirmation of transaction procedures, and if they do
not, a Fund may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone transaction requests will be recorded. Shareholders
may experience delays in exercising telephone transaction privileges during
periods of abnormal market activity. During these periods, shareholders should
transmit redemption and exchange requests in writing.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than the
cost of the shares, depending upon the market value of the applicable Fund's or
Portfolio's portfolio investments at the time of redemption or repurchase. The
Funds intend to pay cash for all shares redeemed, but under certain conditions,
the Funds may make payments wholly or partially in securities for this purpose.
Please see the Statement of Additional Information for further information.
Each Fund may redeem, at net asset value, the shares in any account which has a
value of less than $50,000 ($250,000 in the case of the Short-Term Asset Reserve
Fund) as a result of redemptions or transfers. Before doing so, the Fund will
notify the shareholder that the value of the shares in the account is less than
the specified minimum and will allow the shareholder 30 days to make an
additional investment to increase the value of the account to an amount equal to
or above the stated minimums.
MANAGEMENT
Trustees. Each Fund is a separate investment series of the Trust, a
Massachusetts business trust. Under the terms of the Agreement and Declaration
of Trust establishing the Trust, the Trustees of the Trust are ultimately
responsible for the management of its business and affairs. The Portfolio is a
separate investment series of the Standish, Ayer & Wood Master Portfolio
("Portfolio Trust"), a master trust fund organized under the laws of the State
of New York. Under the terms of the Declaration of Trust, the Portfolio's
affairs are managed under the supervision of the Portfolio Trust's Trustees. See
"Management" in the Statement of Additional Information for more
24
<PAGE>
information about the Trustees and officers of the
Trust and the Portfolio Trust.
Investment Adviser. Standish, Ayer & Wood, Inc. ("Standish"), One Financial
Center, Boston, Massachusetts 02111, serves as investment adviser to the
Portfolio and the Funds (except Fixed Income Fund) pursuant to separate
investment advisory agreements. Standish is a Massachusetts corporation
incorporated in 1933 and is a registered investment adviser under the Investment
Advisers Act of 1940. Standish provides fully discretionary management services
and counseling and advisory services to a broad range of clients throughout the
United States and abroad. As of February 28, 1997, Standish managed
approximately [ ] billion of assets.
The Portfolio's portfolio manager is Caleb F. Aldrich. Mr. Aldrich has been
primarily responsible for the day-to-day management of the Fixed Income Fund's
portfolio since January 1, 1993 and of the Portfolio's portfolio since the Fixed
Income Fund's conversion to the master-feeder structure on May 3, 1996. During
the past five years, Mr. Aldrich has served as a Director and Vice President of
Standish.
The Fixed Income Fund II's portfolio managers are Caleb F. Aldrich and David C.
Stuehr. During the past five years, Mr. Aldrich has served as a Director and
Vice President of Standish. Mr. Stuehr has served as a Director of the Adviser
since January, 1995 and, prior thereto, served as a Vice President (since 1992)
and an Assistant Vice President of Standish.
The Short-Term Asset Reserve Fund's portfolio manager is Jennifer A. Pline, who
is primarily responsible for the day-to-day management of the Fund's portfolio
and has served as a portfolio manager to the Fund since January 1, 1991. During
the past five years, Ms. Pline has served as a Vice President of Standish.
The Controlled Maturity Fund's portfolio manager is Howard B. Rubin. During the
past five years, Mr. Rubin has served as Director and Vice President of
Standish.
The Securitized Fund's portfolio managers are Dolores S. Driscoll and James J.
Sweeney, who have been primarily responsible for the day-to-day management of
the Fund's portfolio since its inception in August, 1989. During the past five
years, Ms. Driscoll has served as a Managing Director of Standish. Mr. Sweeney
has served as a Director (since 1992) and Vice President of Standish during this
period.
Subject to the supervision and direction of the Trustees of the Trust and the
Portfolio Trust, Standish manages the Portfolio, Fixed Income Fund II,
Short-Term Asset Reserve Fund, Controlled Maturity Fund and Securitized Fund in
accordance with their respective investment objectives and policies, recommends
investment decisions, places orders to purchase and sell securities and permits
the Portfolio and the Funds (except Fixed Income Fund) to use the name
"Standish." For these services, each Portfolio and Fund (except Fixed Income
Fund) pays a monthly fee at a stated annual percentage rate of such Fund's
("Portfolio's") average daily net asset value:
25
<PAGE>
<TABLE>
<CAPTION>
Actual Rate
Contractual Paid for the
Advisory Fee Year Ended
Net Asset Value Annual Rate December 31, 1996
--------------- ----------- -----------------
<S> <C> <C> <C>
Fixed Income Portfolio First $250 million 0.40% 0.32%
Next $250 million 0.35%
Amount over $500 million 0.30%
Fixed Income Fund II All assets 0.40% 0.00%*
Short-Term Asset Reserve Fund All assets 0.25% 0.25%
Controlled Maturity Fund All assets 0.35% 0.00%*
Securitized Fund First $500,000,000 0.25% 0.20%*
Amount over $500,000,000 0.20%
</TABLE>
- ----------
* Standish has voluntarily and temporarily agreed to limit total expenses
(excluding brokerage commissions, taxes and extraordinary expenses) of the Fixed
Income Fund II, Controlled Maturity Fund and Securitized Fund to 0.40%, 0.40%
and 0.45% of the applicable Fund's average daily net assets. Standish may
terminate or revise these agreements at any time although it has no current
intention to do so. If an expense limit is exceeded, the compensation due to
Standish shall be proportionately reduced by the amount of such excess by a
reduction or refund thereof, subject to readjustment during the period during
which such limit is in place.
Administrator. Standish serves as administrator to the Fixed Income Fund. As
administrator, Standish manages the affairs of the Fund, provides all necessary
office space and services of executive personnel for administering the affairs
of the Fund, and allows the Fund to use the name "Standish." For these services,
Standish currently does not receive any additional compensation. The Trustees of
the Trust may determine in the future to compensate Standish for its
administrative services.
Expenses. The Portfolio and each Fund bears the expenses of its respective
operations other than those incurred by Standish under the investment advisory
agreements or the administration agreement. Each Fund (except Fixed Income Fund)
pays investment advisory fees; bookkeeping, share pricing and shareholder
servicing fees and expenses; custodian fees and expenses; legal and auditing
fees; expenses of prospectuses, statements of additional information and
shareholder reports which are furnished to shareholders; registration and
reporting fees and expenses; and Trustees' fees and expenses. The Fixed Income
Fund pays shareholder servicing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports which are furnished
to shareholders. The 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. The Fixed
Income Fund and the Portfolio will pay legal and auditing fees; registration and
reporting fees and expenses; and Trustees' 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.
Each Fund's total annual operating expenses for the fiscal year ended December
31, 1996 are described above under the caption "Financial Highlights."
Portfolio Transactions. Subject to the supervision of the Trustees of the Trust
and the Portfolio Trust, Standish selects the brokers and dealers that execute
orders to purchase and sell portfolio securities for the Funds and the Fixed
Income Portfolio. Standish will generally seek to obtain the best available
price and most favorable execution with respect to all transactions for the
Portfolio and Funds. Standish may also consider the extent to which a broker or
dealer provides research to Standish and the number of Fund shares sold by the
broker or dealer in making its selection.
FEDERAL INCOME TAXES
Each Fund is a separate entity for federal tax purposes and presently qualifies
and intends to continue to qualify for taxation as a "regulated investment
company" under the Code. If it qualifies for treatment as a regulated investment
company, each Fund will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
Shareholders which are taxable entities or persons will be subject to federal
income tax on dividends and
26
<PAGE>
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. Only a small portion, if any, of such dividends may 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 long-term capital gains, whether received in cash or
reinvested in Fund shares and without regard to how long the shareholder has
held shares of the Fund. Capital gain distributions do not qualify for the
corporate dividends received deduction. Dividends and capital gain distributions
may also be subject to state and local or foreign taxes. Redemptions (including
exchanges) and repurchases of shares are taxable events on which a shareholder
may recognize a gain or loss.
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 Portfolio, 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 February 1, 1997, Essex Country Gas Company, 7 North Hunt Road, P.O. Box 500,
Amesbury, MA 01913, and San Francisco Opera Association, 300 Van Ness Avenue,
San Francisco, CA 94102, each had sole voting and investment power with respect
to more than 25% of the then outstanding shares of the Controlled Maturity Fund,
Exeter Health Resources, Inc., 10 Buzell Avenue, Exeter, NH 03833, had sole
voting and investment power with respect to more than 25% of the then
outstanding shares of the Fixed Income Fund II, and Allendale Mutual Insurance
Company, Allendale Park, Johnston, Rhode Island 02919, had sole voting and
investment power with respect to more than 25% of the then outstanding shares of
the Securitized Fund. Accordingly, each such shareholder was deemed to
beneficially own such shares and to control the applicable Fund.
Inquiries concerning the Funds should be made by contacting Standish Fund
Distributors at the address and telephone number listed on the cover of this
Prospectus.
Although each Fund is offering only its own shares, since the Funds use this
combined Prospectus, it is possible that one Fund might become liable for a
misstatement or omission in this Prospectus regarding another Fund. The Trustees
have considered this factor in approving the use of this combined Prospectus.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as the Funds' transfer agent, dividend disbursing agent and as custodian
for all cash and securities of the Funds and the Portfolio. Investors Bank &
Trust also provides
accounting services to the Funds.
27
<PAGE>
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109
and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI, serves
as independent accountants for the Trust and the Portfolio Trust, respectively,
and will audit each Fund's and the Fixed Income Portfolio's financial statements
annually.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust and Standish and its affiliates.
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions and
exchanges be reported to the IRS and that 31% be withheld if you fail to provide
your correct Taxpayer Identification Number ("TIN") and the TIN-related
certifications contained in the Account Purchase Application ("Application") or
you are otherwise subject to backup withholding. A Fund will not impose backup
withholding as a result of your failure to make any certification, except the
certifications in the Application that directly relate to your TIN and backup
withholding status. Amounts withheld and forwarded to the IRS can be credited as
a payment of tax when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minors Act, the TIN of the minor should be furnished. If you
do not have a TIN, you may apply for one using forms available at local offices
of the Social Security Administration or the IRS, and you should write "Applied
For" in the space for a TIN on the Application.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and underline "exempt" in section 2(a)
of the TIN section of the Application to avoid possible erroneous withholding.
Non-resident aliens and foreign entities may be subject to withholding of up to
30% on certain distributions received from the Funds and must provide certain
certifications on IRS Form W-8 to avoid backup withholding with respect to other
payments. For further information, see Code Sections 1441, 1442 and 3406 and/or
consult your tax adviser.
28
<PAGE>
STANDISH FUNDS GROUP OF FIXED INCOME FUNDS
Investment Adviser
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
Principal Underwriter Independent Accountants
Standish Fund Distributors, L.P. Coopers & Lybrand L.L.P.
One Financial Center One Post Office Square
Boston, MA 02111 Boston, Massachusetts 02109
Custodian Legal Counsel
Investors Bank & Trust Company Hale and Dorr LLP
89 South Street 60 State Street
Boston, Massachusetts 02111 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.
29
<PAGE>
[PINE CONE LOGO]
STANDISH INTERNATIONAL FIXED INCOME FUND
STANDISH GLOBAL FIXED INCOME FUND
PROSPECTUS
APRIL 30, 1997
The Standish International Fixed Income Fund and the Standish Global Fixed
Income Fund are each organized as a separate non-diversified investment series
of Standish, Ayer & Wood Investment Trust, an open end investment company. The
Global Fixed Income Fund invests solely in the Standish Global Fixed Income
Portfolio, an open end investment company. Standish International Management
Company, L.P. ("SIMCO"), Boston, Massachusetts is the investment adviser to the
Portfolio and the International Fixed Income Fund.
Investors may purchase shares in the Funds without charge from Standish Fund
Distributors, L.P. An application may be obtained by calling (800) 221-4795.
The primary investment management and research focus of SIMCO is at the security
and industry/sector level. SIMCO seeks to add value to each Fund's portfolio by
selecting undervalued investments, rather than by varying the average maturity
of a Fund's portfolio to reflect interest rate forecasts. SIMCO 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. 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. SIMCO serves as the
international research and investment arm of Standish, Ayer & Wood, Inc.
("Standish") for both debt and equity securities in all countries outside of the
United States. 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 securities
and equities for mutual funds and separate accounts. Privately held by
twenty-two employee/directors and headquartered in Boston, Massachusetts, the
firm employs over eighty investment professionals with a total staff of more
than two hundred.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated April 30,
1997, as amended or supplemented from time to time. The Statement of Additional
Information is incorporated by reference into this Prospectus and is available
without charge upon request from (800) 221-4795.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. An investment in shares of the Funds involves
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of the Funds are not available for sale in every state. This Prospectus
is not intended to be an offer to sell shares, nor may an offer to purchase
shares be accepted from investors, in those states where shares of the Funds may
not legally be sold. Contact Standish Fund Distributors to determine whether the
Funds are available for sale in your state.
<PAGE>
[On inside front cover]
Table of Contents
Page
Fund Comparison Highlights...............................................2
Expense Information......................................................3
Financial Highlights.....................................................4
Investment Objectives and Policies.......................................6
The International Fixed Income Fund.................................7
The Global Fixed Income Fund........................................7
Description of Securities and Related Risks..............................7
General Risks............................................................7
Specific Risks...........................................................9
Investment Techniques and Related Risks.................................12
Information about the Master-Feeder Structure...........................14
Calculation of Performance Data.........................................15
Dividends and Distributions.............................................15
Purchase of Shares......................................................16
Net Asset Value.........................................................16
Exchange of Shares......................................................17
Redemption of Shares....................................................17
Management..............................................................19
Federal Income Taxes....................................................20
The Funds and Their Shares..............................................20
Custodian, Transfer Agent and Dividend Disbursing Agent.................21
Independent Accountants.................................................21
Legal Counsel...........................................................21
Tax Certification Instructions..........................................21
1
<PAGE>
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.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------------
International Fixed Income Fund Global Fixed Income Fund
---------------------- ------------------------------------------------------ -----------------------------------------------------
<S> <C> <C>
Investment Objective Maximize total return while realizing a market level Maximize total return while realizing a market level
of income consistent with preserving principal and of income consistent with preserving principal and
liquidity liquidity
---------------------- ------------------------------------------------------ -----------------------------------------------------
Foreign Securities Under normal market conditions, 65% or more of Under normal market conditions, 65% or more of total
Selected total assets in securities denominated in foreign assets in securities denominated in foreign
currencies currencies
---------------------- ------------------------------------------------------ -----------------------------------------------------
U.S. Securities Generally will not consider fixed income securities Generally will consider fixed income securities of
Selected of U.S. corporations in its investment strategy U.S. corporations in its investment strategy
---------------------- ------------------------------------------------------ -----------------------------------------------------
Intended No fewer than five different countries No fewer than eight different countries
Diversification
---------------------- ------------------------------------------------------ -----------------------------------------------------
Currency Strategy Will hedge currencies to seek to protect the U.S. Will hedge currencies to seek to protect the U.S.
dollar value of the Fund's assets. dollar value of the Fund's assets.
---------------------- ------------------------------------------------------ -----------------------------------------------------
Below Investment Yes, up to 5% of total assets in securities rated Ba Yes, up to 15% of total assets in securities rated Ba
Grade by Moody's or BB by Standard and Poor's, Duff, Fitch by Moody's or BB by Standard and Poor's, Duff, Fitch
or IBCA or IBCA
---------------------- ------------------------------------------------------ -----------------------------------------------------
Average Portfolio Aa/AA In range of AA/Aa to A/A
Quality
---------------------- ------------------------------------------------------ -----------------------------------------------------
Benchmark J. P. Morgan Non-U.S. Government Bond Index J. P. Morgan Global Government Bond Index (Hedged)
(Hedged) and Lehman Brothers Aggregate Bond
Index
---------------------- ------------------------------------------------------ -----------------------------------------------------
</TABLE>
<PAGE>
EXPENSE INFORMATION
Total operating expenses are based on expenses for each Fund's fiscal year ended
December 31, 1996. Total operating expenses for the Global Fixed Income Fund
include expenses of the Fund and the Standish Global Fixed Income Portfolio
("Portfolio"). The Fund's Trustees believe that the Global Fixed Income Fund's
total operating expenses are approximately equal to or less than what would be
the case if the Fund did not invest all of its investable assets in the
Portfolio.
<TABLE>
<CAPTION>
International Fixed Global Fixed
Income Fund Income Fund
Shareholder Transaction Expenses
<S> <C> <C>
Maximum Sales Load Imposed on Purchases None None
Maximum Sales Load Imposed on Reinvested Dividends None None
Deferred Sales Load None None
Redemption Fees None None
Annual Operating Expenses (as a percentage of average net assets)
Management Fees 0.40% 0.40%
12b-1 Fees None None
Other Expenses+ 0.13% 0.25%
Total Operating Expenses 0.53% 0.65%
</TABLE>
- -----------------
+ 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:
International Fixed Global Fixed
Income Fund Income Fund
----------- -----------
After 1 Year $6 $ 6
After 3 Years 17 20
After 5 Years 30 37
After 10 Years 68 83
The purpose of the table is to assist investors in understanding the various
costs and expenses that an investor in each Fund will bear directly or
indirectly. The example is included solely for illustrative purposes and should
not be considered a representation of future performance or expenses. Actual
expenses may be more or less than those shown. See "Management" for additional
information about each Fund's expenses.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for periods after 1992 have been audited by
Coopers & Lybrand L.L.P., independent accountants, whose reports, together with
the Financial Statements of the Funds, are incorporated into the Statement of
Additional Information. Financial highlights for prior periods were audited by
other independent accountants. The Funds' annual reports, which contain
additional information about Fund performance, may be obtained from Standish
Fund Distributors without charge.
<TABLE>
<CAPTION>
INTERNATIONAL FIXED INCOME FUND
Year Ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.21 $21.30 $24.22 $21.20 $22.05
----------- ----------- ------------ ------------ ------------
Income from investment operations
Net investment income 1.72 $1.96 $1.71 $2.03 $2.01
Net realized and unrealized gain (loss) on 1.73 1.84 (3.93) 2.90 (0.25)
Investments ----------- ------------ ------------ ------------ ------------
Total from investment operations $3.45 $3.80 ($2.22) $4.93 $1.76
----------- ------------ ------------ ------------ ------------
Less distributions declared to shareholders
From net investment income (2.64) ($1.89) ($0.20) ($1.53) ($2.03)
From realized gain (0.77) -- -- (0.26) (0.54)
In excess of net realized gain -- -- -- (0.04)
In excess of net investment income -- -- (0.12) --
Tax return of capital -- (0.50) -- --
------------ --------------- ------------ ------------ ------------
Total distributions declared to shareholders (3.41) ($1.89) ($0.70) ($1.91) ($2.61)
----------- --------------- ------------ ------------ ------------
Net asset value - end of period $23.25 $23.21 $21.30 $24.22 $21.20
----------- --------------- ------------ ------------ ------------
Total return 15.28% 18.13% (9.22%) 23.77% 8.07%
Net assets at end of period (000 omitted) 840,133 $803,537 $1,069,416 $1,131,201 $384,660
Ratios (to average net assets)/Supplemental
Data
Expenses 0.53% 0.51% 0.51% 0.51% 0.59%
Net investment income 7.17% 8.09% 7.69% 7.53% 8.37%
Portfolio turnover 226% 165% 158% 98% 175%
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 2, 1991 (start of business) to December 31,
1991.
1 The Fund's performance benchmarks are the J.P. Morgan Non-U.S. Government
Bond Index (Hedged) and the Lehman Brothers Aggregate Bond Index. See
"Calculation of Performance Data" for a description of these indices. The
average annual total return of these indices for each year since the Fund's
inception was as follows (this total return information is not audited):
<PAGE>
INTERNATIONAL FIXED INCOME FUND
Year Ended December 31
(continued)
- --------------------------------------------------------------------------------
1991*+
------------
Net asset value - beginning of period $20.00
------------
Income from investment operations
Net investment income $1.55
Net realized and unrealized gain (loss) on 1.44
Investments ------------
Total from investment operations $2.99
------------
Less distributions declared to shareholders
From net investment income ($0.04)
From realized gain (0.90)
In excess of net realized gain --
In excess of net investment income --
Tax return of capital --
------------
Total distributions declared to shareholders ($0.94)
------------
Net asset value - end of period $22.05
------------
Total return 15.11% t
Net assets at end of period (000 omitted) $72,697
Ratios (to average net assets)/Supplemental
Data
Expenses 0.80% t
Net investment income 8.00% t
Portfolio turnover 319%
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 2, 1991 (start of business) to December 31,
1991.
1 The Fund's performance benchmarks are the J.P. Morgan Non-U.S. Government
Bond Index (Hedged) and the Lehman Brothers Aggregate Bond Index. See
"Calculation of Performance Data" for a description of these indices. The
average annual total return of these indices for each year since the Fund's
inception was as follows (this total return information is not audited):
Total Return 1996 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ----
J.P. Morgan Non-U.S. Government
Bond Index (Hedged) 12.16 % 18.23% (5.07)% 13.90% 5.97% 10.90%
Lehman Brothers Aggregate Bond 3.61% 18.47% (2.92)% 9.75% 7.40% 16.00%
Index
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
Global Fixed Income Fund
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994+
<S> <C> <C> <C>
Net asset value - beginning of period $19.53 $17.99 $20.00
Income from investment operations
Net investment income $1.42 $ 1.59 $ 1.29
Net realized and unrealized gain (loss) $1.05 1.60 (2.70)
Total from investment operations $2.47 $ 3.19 ($1.41)
Less distributions declared to shareholders
Tax return of capital -- -- ($0.60)
From net investment income ($1.91) ($1.65) --
Total distributions declared to shareholders ($1.91) ($1.65) ($0.60)
Net asset value - end of period $20.09 $19.53 $17.99
Total return3 13.03% 18.13% (7.06%)*
Ratios (to daily average net assets)/Supplemental Data
Net assets at end of period (000 omitted) $155,731 $137,899 $135,232.
Expenses1 0.65% 0.62% 0.65% t, **
Net investment income 7.11% 7.69% 7.73%
Portfolio turnover2 73% 163% 140% x
- -------------------
** The Adviser voluntarily agreed not to impose a portion of its investment
advisory fee for the year ended December 31, 1994. Had these actions not
been taken, the net investment income per share and the ratios would have
been:
Net investment income per share $1.27
Ratios (to average net assets):
Expenses 0.73%t
Net investment income 7.65%t
t Computed on an annualized basis
* Total return for the period is not annualized.
+ For the period from January 3, 1994 (start of business) to December 31,
1994 x Portfolio turnover not computed on an annualized basis.
1 Includes the Fund's share of Standish Global Fixed Income Portfolio's
allocated expenses for the period from May 3, 1996 to December 31, 1996
2 Portfolio turnover represents the rate of portfolio activity for the period
while the Fund was making investments directly in securities. The portfolio
turnover rate for the period since the Fund transferred substantially all
of its investable assets to the Portfolio is 111%.
3 The Fund's performance benchmark is the J.P. Morgan Global Index (Hedged).
See "Calculation of Performance Data" for a description of this index. The
average annual total return of this index for each year since the Fund's
inception was as follows (the total return information was not audited):
Total Return 1996 1995 1994
---- ---- ----
J.P. Morgan Global Government Bond Index (Hedged 8.60% 17.89% (4.05)%
</TABLE>
5
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT STRATEGY
Each Fund is an actively managed non-diversified portfolio consisting primarily
of fixed income securities denominated in foreign currencies and the U.S.
dollar. Each Fund is managed to maximize total return while realizing a market
level of income consistent with preserving principal and liquidity. In pursuing
each Fund's investment strategy, SIMCO seeks to add value to each Fund's
portfolio by selecting undervalued investments, rather than by varying the
average maturity of a Fund's portfolio to reflect interest rate forecasts. SIMCO
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. 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.
Securities. The Funds 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 foreign and U.S. corporations or entities,
foreign governments and their political subdivisions, the U.S. government, its
agencies, authorities, instrumentalities or sponsored enterprises and
supranational entities. Supranational entities include international
organizations designated or supported by governmental entities to promote
economic reconstruction or development, and international banking institutions
and related government agencies.
Each Fund purchases securities that pay interest on a fixed, variable, floating,
inverse floating, contingent, in-kind or deferred basis. Each Fund may enter
into repurchase agreements and forward dollar roll transactions, may purchase
zero coupon and deferred payment securities, may buy securities on a when-
issued or delayed delivery basis, may engage in short sales and may lend
portfolio securities. Each Fund may enter into various forward foreign currency
exchange transactions and foreign currency futures transactions and utilize
over-the-counter ("OTC") options to seek to manage the Fund's foreign currency
exposure.
Please refer to each Fund's specific investment objective and policies and the
"Description of Securities" section for a more comprehensive list of permissible
securities and investments.
Credit Quality. Each Fund invests primarily in investment grade fixed income
securities, i.e., securities rated at the time of purchase at least Baa by
Moody's Investors Service, Inc. or BBB by Standard & Poor's Ratings Group, Duff
& Phelps, Inc., Fitch Investors Service, Inc. or IBCA, Ltd., or, if unrated,
determined by SIMCO to be of comparable credit quality. If a security is rated
differently by two or more rating agencies, SIMCO uses the highest rating to
compute a Fund's credit quality and also to determine its rating category. In
determining whether securities are of equivalent credit quality, SIMCO may take
into account, but will not rely entirely on, ratings assigned by foreign rating
agencies. In the case of unrated sovereign and subnational debt of foreign
countries, SIMCO may take into account, but will not rely entirely on, the
ratings assigned to the issuers of such securities. If the rating of a security
held by a Fund is downgraded below the minimum rating required for the
particular Fund, SIMCO will determine whether to retain that security in a
Fund's portfolio.
Securities rated within the top three investment grade ratings (i.e., Aaa, Aa, A
or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff, Fitch
or IBCA) are generally regarded as high grade obligations. Securities rated Baa
or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard & Poor's, Duff, Fitch or
IBCA are 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 Funds may
also invest, to a limited degree, in below investment grade fixed income
securities rated Ba by Moody's or BB by Standard & Poor's, Duff, Fitch or IBCA,
or, if unrated, determined by SIMCO to be of comparable credit quality. Below
investment grade securities, commonly referred to as "junk bonds," carry a
higher degree of risk than investment grade securities and are considered
speculative by the rating agencies. SIMCO attempts to select for the Funds 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
6
<PAGE>
and Related Risks" and "Investment Techniques and Related Risks" below for
additional information.
THE INTERNATIONAL FIXED INCOME FUND
Investment Objective. The Fund'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 Fund invests at least 65% of its
total assets in fixed income securities of foreign governments or their
political subdivisions and companies located in foreign countries.
Country Selection. Under normal market conditions, the Fund's assets are
invested in securities of issuers located in at least five countries, not
including the United States. The Fund intends to invest in no fewer than five
foreign countries. The Fund may invest a substantial portion of its assets in
one or more of those five countries. The Fund 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 Fund invests primarily in investment grade fixed income
securities. If a non-investment grade fixed income security presents special
opportunities to the Fund, the Fund may invest up to 5% of its total assets in
securities rated Ba by Moody's or BB by Standard and Poor's, Duff, Fitch or
IBCA, or, if not rated, judged by SIMCO to be of equivalent credit quality. The
average dollar weighted credit quality of the Fund is expected to be Aa
according to Moody's or AA according to Standard & Poor's, Duff, Fitch or IBCA.
THE GLOBAL FIXED INCOME FUND
The investment objective and characteristics of the Global Fixed Income Fund
correspond directly to those of the Standish Global Fixed Income Portfolio
("Portfolio") in which the Fund invests all of its investable assets. 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. The following discusses the investment
objectives and policies of the Portfolio.
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.
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 generally invests in investment grade fixed income
securities. If a non-investment grade fixed income security presents special
opportunities for the Portfolio, the Portfolio may invest up to 15% of its total
assets in securities rated Ba by Moody's or BB by Standard and Poor's, Duff,
Fitch or IBCA or, if not rated, judged by SIMCO to be of equivalent credit
quality. The average dollar weighted credit quality of the 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
For purposes of the discussion in this section and the "Investment Techniques
and Related Risks" section of this Prospectus, the use of the term "Funds"
includes the Portfolio, unless otherwise noted.
GENERAL RISKS
Investments in the Funds involve certain risks. Each Fund invests primarily in
the fixed income securities described above and is subject to risks associated
with investments in such securities. These risks include interest rate risk,
default risk and call and extension risk. The Funds are also subject to the
risks associated with direct investments in foreign securities and below
investment grade fixed income 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.
7
<PAGE>
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 Fund to sustain losses on such investments. A default could impact
both interest and principal payments.
Call Risk and Extension Risk. Fixed income securities may be subject to both
call risk and extension risk. Call risk exists when the issuer may exercise its
right to pay principal on an obligation earlier than scheduled which would cause
cash flows to be returned earlier than expected. This typically results when
interest rates have declined and a Fund will suffer from having to reinvest in
lower yielding securities. Extension risk exists when the issuer may exercise
its right to pay principal on an obligation later than scheduled which would
cause cash flows to be returned later than expected. This typically results when
interest rates have increased and a Fund will suffer from the inability to
invest in higher yield securities.
Investing in Foreign Securities. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. Investments in foreign
issuers may be affected by changes in currency rates, changes in foreign or U.S.
laws or restrictions applicable to such investments and in exchange control
regulations (i.e., currency blockage). A decline in the exchange rate of the
currency (i.e., weakening of the currency against the U.S. dollar) in which a
portfolio security is quoted or denominated relative to the U.S. dollar would
reduce the value of the portfolio security. Commissions may be higher and
spreads may be greater on transactions in foreign securities than those for
similar transactions in domestic markets. In addition, clearance and settlement
procedures may be different in foreign countries and, in certain markets, such
procedures have on occasion been unable to keep pace with the volume of
securities transactions, thus making it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the U.S. Most
foreign securities markets may have substantially less trading volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.
Investing in Emerging Markets. Although each Fund invests primarily in
securities of established issuers based in developed foreign countries, it may
also invest in securities of issuers in emerging markets, including issuers in
Asia, Eastern Europe, Latin and South America, the Mediterranean, Russia and
Africa. The Funds may also invest in currencies of such countries and may engage
in strategic transactions in the markets of such countries. Investments in
securities of issuers in emerging markets may involve a high degree of risk and
many may be considered speculative. These investments carry all of the risks of
investing in securities of foreign issuers to a heightened degree. These
heightened risks include (i) greater risks of expropriation, confiscatory
taxation, nationalization, and less social, political and economic stability;
(ii) the small current size of the markets for securities of emerging market
issuers and the currently low or nonexistent volume of trading combined with
frequent artificial limits on daily price movements, resulting in lack of
liquidity and in price uncertainty; (iii) certain national policies which may
restrict a Fund's investment opportunities including limitations on aggregate
holdings by foreign investors and restrictions on investing in issuers or
industries deemed sensitive to relevant national interests; and (iv) the absence
of developed legal structures governing private or foreign investment and
private property.
Currency Risks. The U.S. dollar value of foreign securities denominated in a
foreign currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of a Fund's
assets quoted in those currencies. Exchange rates are generally affected by the
forces of supply and demand in the international currency markets, the relative
merits of investing in different countries and the intervention or failure to
intervene of U.S. or foreign governments and central banks. Some countries in
emerging markets also may have managed currencies, which do not float freely
against the U.S. dollar and may restrict the free conversion of their currencies
into other currencies. Any devaluations in the currencies in which a Fund's
securities are denominated may have a detrimental impact on the Fund's net asset
value. Each Fund utilizes various investment strategies to seek to minimize the
currency risks described above. These strategies include the use of currency
transactions such as currency forward and
8
<PAGE>
futures contracts, cross currency forward and futures contracts, currency swaps
and options and cross currency options on currencies or currency futures.
SPECIFIC RISKS
The following sections include descriptions of specific risks that are
associated with a Fund's purchase of a particular type of security or the
utilization of a specific investment technique.
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 interest when due, and a
Fund may have limited recourse in the event of a default. During periods of
economic uncertainty, the market prices of sovereign debt, and a Fund'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.
Corporate Debt Obligations. Each Fund 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.
Brady Bonds. Brady Bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady Bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady Bonds on their commercial bank
loans, investments in Brady Bonds may be viewed as speculative. Brady Bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily in U.S. dollars) and are actively traded in
over-the-counter secondary markets. Incomplete collateralization of interest or
principal payment obligations results in increased credit risk. U.S.
dollar-denominated collateralized Brady Bonds, which may be fixed-rate bonds or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.
Obligations of Supranational Entities. Each Fund may invest in obligations of
supranational entities designated or supported by governmental entities to
promote economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the Asian
Development Bank and the Inter-American Development Bank. Each supranational
entity's lending activities are limited to a percentage of its total capital
(including "callable capital" contributed by its governmental members at the
entity's call), reserves and net income. There is no assurance that
participating governments will be able or willing to honor their commitments to
make capital contributions to a supranational entity.
U.S. Government Securities. Each Fund 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, (b) the right of
the issuer to borrow from the U.S. Treasury (such as securities of the Student
Loan Marketing Association), (c) the discretionary authority of the U.S.
Government to purchase certain obligations of the issuer (such as the Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation, or (d)
only the credit of the agency. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies,
instrumentalities or sponsored enterprises in the future. U.S. Government
securities also include Treasury receipts, zero coupon bonds, deferred interest
securities and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government
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securities are traded independently ("STRIPS").
Below Investment Grade Securities. The Portfolio and the International Fixed
Income Fund may invest up to 15% and 5%, respectively, 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 Portfolio's and the
International Equity Fund's investments, on a dollar weighted basis, calculated
at the end of each month, had the following credit
quality characteristics:
Portfolio's
Investments Percentage
- ----------- ----------
U.S. Government Securities 6.5%
U.S. Government Agency
Securities 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%
International
Fixed Fund's
Investments Percentage
- ----------- ----------
U.S. Government Securities 0.0%
U.S. Government Agency
Securities 9.3%
Corporate Bonds:
Aaa or AAA 47.7%
Aa or AA 22.5%
A 7.4%
Baa or BBB 9.3%
Ba or BB 3.8%
100.0%
Mortgage-Backed Securities. Each Fund may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by foreign entities or the U.S. Government or any of its agencies,
instrumentalities or sponsored enterprises. Mortgage-backed securities represent
direct or indirect participations in, or are collateralized by and payable from,
mortgage loans secured by real property. Mortgagors can generally prepay
interest or principal on their mortgages whenever they choose. Therefore,
mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than is the case with traditional fixed income securities. During
periods of declining interest rates, prepayments can be expected to accelerate,
and thus impair a Fund'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 Fund's exposure to rising interest rates and prevent a
Fund from taking advantage of such higher yields.
Asset-Backed Securities. Each Fund 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.
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Convertible Securities. Each Fund may invest in convertible securities
consisting of bonds, notes, debentures and preferred stocks. Convertible debt
securities and preferred stock acquired by a Fund entitle the Fund to exchange
such instruments for common stock of the issuer at a predetermined rate.
Convertible securities are subject both to the credit and interest rate risks
associated with debt obligations and to the stock market risk associated with
equity securities.
Zero Coupon and Deferred Payment Securities. Each Fund 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 Fund is required to accrue income with respect to these
securities prior to the receipt of cash payments. Because a Fund will distribute
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 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.
Eurodollar and Yankee Dollar Investments. Each Fund may invest in Eurodollar and
Yankee Dollar instruments. Eurodollar instruments are bonds of foreign corporate
and government issuers that pay interest and principal in U.S. dollars held in
banks outside the United States, primarily in Europe. Yankee Dollar instruments
are U.S. dollar denominated bonds typically issued in the U.S. by foreign
governments and their agencies and foreign banks and corporations. The Funds 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 involved 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.
Structured or Hybrid Notes. Each Fund may invest in structured or hybrid notes.
The distinguishing feature of a structured or hybrid note is that the amount of
interest and/or principal payable on the note is based on the performance of a
benchmark asset or market other than fixed income securities or interest rates.
Examples of these benchmarks include stock prices, currency exchange rates and
physical commodity prices. Investing in a structured note allows a Fund to gain
exposure to the benchmark market while fixing the maximum loss that it may
experience in the event that the market does not perform as expected. Depending
on the terms of the note, a Fund may forego all or part of the interest and
principal that would be payable on a comparable conventional note; the Fund's
loss cannot exceed this foregone interest and/or principal. An investment in
structured or hybrid notes involves risks similar to those associated with a
direct investment in the benchmark asset.
Warrants. Warrants acquired by a Fund entitle it to buy common stock from the
issuer at a specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. A Fund's investment in
warrants will not entitle it to receive dividends or exercise voting rights and
will become worthless if the warrants cannot be profitably exercised before
their expiration dates.
Inverse Floating Rate Securities. Each Fund 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.
INVESTMENT TECHNIQUES
AND RELATED RISKS
Strategic Transactions. Each Fund may, but is not required to, utilize various
investment strategies to seek to hedge market risks (such as interest rates,
currency exchange rates and broad or specific fixed income market movements), to
manage the effective maturity or duration of fixed income securities, or to
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<PAGE>
enhance potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by each Fund may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing its investment objective, each Fund may purchase and
sell (write) exchange-listed and over-the-counter put and call options on
securities, indices and other financial instruments; purchase and sell financial
futures contracts and options thereon; enter into various interest rate
transactions such as swaps, caps, floors or collars; and, enter into currency
transactions such as forward foreign currency exchange contracts, cross currency
forward contracts, currency futures contracts, cross currency futures contracts,
currency swaps and options and cross currency options on currencies or currency
futures, (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used in an attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities markets, currency exchange rate or
interest rate fluctuations, to seek to protect a Fund'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 a
Fund's portfolio, or to establish a position in the derivatives markets as a
temporary substitute for purchasing or selling particular securities. In
addition to the hedging transactions referred to in the preceding sentence,
Strategic Transactions may also be used to enhance potential gain in
circumstances where hedging is not involved.
The ability of a Fund to utilize Strategic Transactions successfully will depend
on SIMCO"s ability to predict pertinent market and interest rate movements,
which cannot be assured. Each Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. The
Funds' activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
SIMCO's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to a Fund, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation a Fund can realize on its investments
or cause a Fund to hold a security it might otherwise sell.
The use of options and futures transactions entails certain other risks. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses. Losses resulting from the use of Strategic Transactions could reduce net
asset value and the net result may be less favorable than if the Strategic
Transactions had not been utilized. Although the use of futures and options
transactions for hedging and managing effective maturity and duration should
tend to minimize the risk of loss due to a decline in the value of the position,
at the same time, such transactions can limit any potential gain which might
result from an increase in value of such position. The loss incurred by a Fund
in writing options on futures and entering into futures transactions is
potentially unlimited.
The use of currency transactions can result in a Fund incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency.
Each Fund will attempt to limit its net loss exposure resulting from Strategic
Transactions entered into for non-hedging purposes to no more than 3% of net
assets. In calculating each Fund's net loss exposure from such strategic
transactions, an unrealized gain from a particular Strategic Transaction
position would be netted against an unrealized loss from a related position. See
the Statement of Additional Information for further information regarding each
Fund's use of Strategic Transactions.
When-Issued and Delayed Delivery Securities. Each Fund may invest up to 25% of
its total assets in when-issued and delayed delivery securities. Although a Fund
will
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<PAGE>
generally purchase securities on a when-issued or delayed delivery basis with
the intention of actually acquiring the securities, the Funds may dispose of
these securities prior to settlement, if SIMCO deems it appropriate to do so.
The payment obligation and interest rate on these securities is fixed at the
time a Fund enters into the commitment, but no income will accrue to the Fund
until they are delivered and paid for. Unless a Fund has entered into an
offsetting agreement to sell the securities, cash or liquid assets equal to the
amount of the Fund's commitment must be segregated and maintained with the
Fund's custodian to secure the Fund'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 Fund.
Portfolio Diversification and Concentration. Each Fund is non-diversified which
means that it may invest more than 5% of its total assets in the securities of a
single issuer. Investing a significant amount of a Fund's assets in the
securities of a small number of foreign issuers will cause the Fund's net asset
value to be more sensitive to events affecting those issuers. The Funds will not
concentrate (invest 25% or more of their 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. Each Fund may invest up to 25% of net assets in
repurchase agreements. In a repurchase agreement, a Fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent. Repurchase agreements acquired by a Fund will always be fully
collateralized as to principal and interest by money market instruments and will
be entered into only with commercial banks, brokers and dealers considered
creditworthy by SIMCO.
Forward Roll Transactions. To seek to enhance current income, the Portfolio may
invest up to 5% of its total assets and the International Fixed Income Fund may
invest up to 10% of its total assets in forward roll transactions involving
mortgage-backed securities. In a forward roll transaction, a Fund 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 Fund 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
Fund which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the Fund may decline below the repurchase price of those securities. At the time
that a Fund enters into a forward roll transaction, it will place cash or liquid
assets in a segregated account that is marked to market daily having a value
equal to the repurchase price (including accrued interest).
Leverage. The use of forward roll transactions involves leverage. Leverage
allows any investment gains made with the additional monies received (in excess
of the costs of the forward roll transaction), to increase the net asset value
of a Fund's shares faster than would otherwise be the case. On the other hand,
if the additional monies received are invested in ways that do not fully recover
the costs of such transactions to a Fund, the net asset value of the Fund would
fall faster than would otherwise be the case.
Short Sales. Each Fund may engage in short sales and short sales against the
box. In a short sale, a Fund sells a security it does not own in anticipation of
a decline in the market value of that security. In a short sale against the box,
a Fund either owns or has the right to obtain at no extra cost the security sold
short. The broker holds the proceeds of the short sale until the settlement
date, at which time the Fund delivers the security (or an identical security) to
cover the short position. The Fund receives the net proceeds from the short
sale. When a Fund enters into a short sale other than against the box, the Fund
must first borrow the security to make delivery to the buyer and must place cash
or liquid assets in a segregated account with the Fund's custodian that is
marked to market daily. Short sales other than against the box involve unlimited
exposure to loss. No securities will be sold short if, after giving effect to
any such short sale, the total market value of all securities sold short would
exceed 5% of the value of a Fund's net assets.
Securities Loans. To seek to realize additional income, each Fund 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
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market value of securities loaned by each Fund may not exceed 20% of the value
of the Fund's total assets, with a 10% limit for any single borrower. In order
to secure their obligations to return securities borrowed from a Fund, borrowers
will deposit collateral equal to at least 100% of the market value of the
borrowed securities, which will be marked to market daily. As is the case with
any extension of credit, lending portfolio securities involves certain risks in
the event a borrower should fail financially, including delays or inability to
recover the loaned securities or foreclose against the collateral. SIMCO, under
the supervision of the Boards of Trustees, monitors the creditworthiness of the
parties to whom the Funds makes securities loans.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid investments. 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
over-the-counter options and certain restricted securities. Based upon
continuing review of the trading markets for a specific restricted security, the
security may be determined to be eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 and, therefore, be
liquid. Also, certain illiquid securities may be determined to be liquid if they
are found to satisfy certain relevant liquidity requirements.
The Board of Trustees has adopted guidelines and delegated to SIMCO the daily
function of determining and monitoring the liquidity of portfolio securities,
including restricted and illiquid securities. The Board of Trustees, however,
retains oversight and is ultimately responsible for such determinations. The
purchase price and subsequent valuation of illiquid securities normally reflect
a discount, which may be significant, from the market price of comparable
securities for which a liquid market exists.
Portfolio Turnover. A high rate of portfolio turnover (100% or more) involves
correspondingly higher transaction costs which must be borne directly by a Fund
and thus indirectly by its shareholders. It may also result in a Fund's
realization of larger amounts of short-term capital gains, distributions from
which are taxable to shareholders as ordinary income and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code. See "Financial Highlights" for each Fund's
portfolio turnover rates.
Short-Term Trading. Each Fund will sell a portfolio security without regard to
the length of time such security has been held if, in SIMCO's view, the security
meets the criteria for disposal.
Temporary Defensive Investments. Each Fund may maintain cash balances and
purchase money market instruments for cash management and liquidity purposes.
Each Fund may adopt a temporary defensive position during adverse market
conditions by investing without limit in U. S. and non-U.S dollar denominated
high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements.
Investment Restrictions. The investment objective of the Portfolio is not
fundamental and may be changed by the Board of Trustees of the Portfolio Trust
without the approval of shareholders. The investment objective of the Global
Fixed Income Fund and the International Fixed Income Fund is a fundamental
policy which may not be changed without a vote of the respective Funds'
shareholders. The Portfolio's and the Fund's investment policies set forth in
this Prospectus are non-fundamental and may be changed without shareholder
approval except that the Portfolio's and the Funds' 20% limit on securities
loans (10% limit for any single borrower) and the International Fund Income
Fund's 25% limit on repurchase agreements are fundamental. The Global Fixed
Income Fund and the Portfolio have adopted other fundamental policies which may
not be changed without the approval of the Funds' shareholders. See "Investment
Restrictions" in the Statement of Additional Information. If any percentage
restriction is adhered to at the time of investment, a subsequent increase or
decrease in the percentage resulting from a change in the value of the
respective Fund or Portfolio's assets will not constitute a violation of the
restriction. If there is a change in a Fund's investment objective, shareholders
should consider whether the Fund remains an appropriate investment in light of
their current financial situation.
INFORMATION ABOUT THE
MASTER-FEEDER STRUCTURE
The Global Fixed Income Fund seeks to achieve its investment objective by
investing all of its investable assets in the Portfolio, which has an identical
investment objective. The Global Fixed Income Fund is a feeder fund and the
Portfolio is the master fund in a so-called master-feeder structure. The
International Fixed Income Fund purchases securities directly and maintains its
own individual portfolio.
In addition to the Global Fixed Income Fund, other feeder funds may invest in
the Portfolio, and
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information about these other feeder funds is available from Standish Fund
Distributors. The other feeder funds invest in the Portfolio on the same terms
as the Fund and bear a proportionate share of the Portfolio's expenses. The
other feeder funds may sell shares on different terms and under a different
pricing structure than the Fund, 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 the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Board of Trustees
of the Portfolio Trust approves a change to the investment objective of the
Portfolio that is not approved by the Trust's Board of Trustees, the 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 the
Fund's interest in the Portfolio might cause the Fund to incur expenses it would
not otherwise be required to pay.
If the Fund is requested to vote on a matter affecting the Portfolio, the Fund
will call a meeting of the Fund's shareholders to vote on the matter. The Fund
will vote on any matter at the meeting of the Portfolio's investors in the same
proportion that the Fund's shareholders voted on the matter. The Fund will vote
the shares held by Fund shareholders who do not vote in the same proportion as
the shares of Fund shareholders who do vote.
A majority of the Trustees who are not "interested persons" (as defined in the
Investment Company Act of 1940) 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 yield and average annual total
return information. 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 Fund 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 bond and other
relevant indices, and to performance rankings prepared by recognized mutual fund
statistical services. In addition, each Fund's performance may be compared to
alternative investment or savings vehicles or to indices or indicators of
economic activity.
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.
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, dollar denominated, fixed rate
investment grade bonds.
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
Dividends from net investment income for the Funds will be declared and
distributed quarterly. The Funds' dividends from short-term and long-term
capital gains, if any, after reduction by capital losses, will be declared and
distributed at least annually. In determining the amounts of its dividends, the
Global Fixed Income Fund will take into account its share of the income, gain or
loss, expense, and any other tax items of the Portfolio. Dividends from net
investment income and capital gains distributions, if any, are automatically
reinvested in additional shares of the applicable Fund unless the shareholder
elects to receive them in cash.
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PURCHASE OF SHARES
Shares of the Funds may be purchased from Standish Fund Distributors, which
offers the Funds' shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good order by Standish Fund Distributors and payment for the shares is
received by Investors Bank & Trust Company, the Funds' Custodian. Please see
each Fund's account application or call (800) 221-4795 for instructions on how
to make payment for shares to the Custodian. The Funds require minimum initial
investments of $100,000. Additional investments must be in amounts of at least
$5,000.
Shares of the Funds may also be purchased through securities dealers. Orders for
the purchase of Fund shares received by dealers by the close of regular trading
on the New York Stock Exchange ("NYSE") on any business day and transmitted to
Standish Funds Distributor or its agent by the close of its business day
(normally 4:00 p.m., New York City time) will be effected as of the close of
regular trading on the NYSE on that day, if payment for the shares is also
received by the Custodian that day. Otherwise, orders will be effected at the
net asset value per share determined on the next business day. It is the
responsibility of dealers to transmit orders so they will be received by
Standish Fund Distributors before the close of its business day. Shares of a
Fund purchased through dealers may be subject to transaction fees on purchase or
redemption, no part of which will be received by the Funds, Standish Fund
Distributors or Standish.
In the sole discretion of the Trust, each Fund may accept securities instead of
cash for the purchase of shares. The Trust will ask the Adviser to determine
that any securities acquired by the Funds in this manner are consistent with the
investment objective, policies and restrictions of the applicable Fund. The
securities will be valued in the manner stated below. The purchase of shares of
a Fund for securities instead of cash may cause an investor who contributed them
to realize a taxable gain or loss with respect to the securities transferred to
the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the offering
of a Fund's shares, (ii) to reject purchase orders when in the best interest of
a Fund, (iii) to modify or eliminate the minimum initial or subsequent
investment in Fund shares and (iv) to eliminate duplicate mailings of Fund
material to shareholders who reside at the same address. A Fund's investment
minimums do not apply to accounts for which the Adviser or any of its affiliates
serves as investment adviser or to employees of the Adviser or any of its
affiliates or to members of such persons' immediate families. A Fund's
investment minimums apply to the aggregate value invested in omnibus accounts
rather than to the investment of the underlying participants in the omnibus
accounts.
NET ASSET VALUE
Each Fund's net asset value per share is computed each day on which the NYSE is
open as of the close of regular trading on the NYSE (normally 4:00 p.m., New
York City time). The net asset value per share is calculated by determining the
value of all a Fund's assets (the value of its investment in the Portfolio and
other assets, in the case of the Global Fixed Income Fund), subtracting all
liabilities and dividing the result by the total number of shares outstanding.
Fixed income securities (other than money market instruments) for which accurate
market prices are readily available are valued at their current market value on
the basis of quotations, which may be furnished by a pricing service or provided
by dealers in such securities. Securities not listed on an exchange or national
securities market, certain mortgage-backed and asset-backed securities and
securities for which there were no reported transactions are valued at the last
quoted bid prices. Fixed income securities for which accurate market prices are
not readily available and all other assets are valued at fair value as
determined in good faith by 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 Fund are valued on an amortized cost basis unless
the Trustees determine that amortized cost does not represent fair value. If a
Fund acquires a money market instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth day prior
to maturity and will then be valued at amortized cost based upon the value on
such date unless the Trustees determine during such sixty-day period that
amortized cost does not represent fair value.
Portfolio securities traded on more than one U.S. national securities exchange
or on a U.S. exchange and a foreign securities exchange are valued at the last
sale price from the exchange representing the principal market for such
securities on the business day when such value is determined. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at currency exchange rates determined by Investors Bank &
Trust Company, the Funds' transfer agent, to be representative of fair levels at
times prior to the close of trading on the NYSE. If such rates are not
available, the rate of exchange will be determined in good faith under
16
<PAGE>
procedures established by the Trustees. Trading in securities on European and
Far Eastern securities exchanges and over-the-counter markets is normally
completed well before the close of business on the NYSE and may not take place
on all business days that the NYSE is open and may take place on days when the
NYSE is closed. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the NYSE will not be reflected in the Funds' calculation of net asset values
unless the Adviser determines that the particular event would materially affect
net asset value, in which case an adjustment will be made.
EXCHANGE OF SHARES
Shares of the Funds may be exchanged for shares of one or more other funds in
the Standish fund family subject to the terms and restrictions imposed on the
purchase of shares of such funds. Shares of a fund redeemed in an exchange
transaction are valued at the net asset value next determined after the exchange
request is received by Standish Fund Distributors or its agent. Shares of a fund
purchased in an exchange transaction are valued at the net asset value next
determined after the exchange request is received by Standish Fund Distributors
or its agent and payment for the shares is received by the fund into which
shares are to be exchanged. Until receipt of the purchase price by the fund into
which shares are to be exchanged (which may take up to three business days),
your money will not be invested. To obtain a current prospectus for any of the
other funds in the Standish fund family, please call (800) 221-4795. Please
consider the differences in investment objectives and expenses of a fund as
described in its prospectus before making an exchange.
Written Exchanges. Shares of the Funds may be exchanged by written order to
Standish Fund Distributors, One Financial Center, Boston, Massachusetts 02111. A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as described under "Written Redemption" below.
Telephone Exchanges. Shareholders who elect telephone privileges may exchange
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Proper
identification will be required for each telephone exchange. Please see
"Telephone Transactions" below for more information regarding telephone
transactions.
General Exchange Information. All exchanges are subject to the following
exchange restrictions: (i) the fund into which shares are being exchanged must
be lawfully available for sale in your state; (ii) exchanges may be made only
between funds that are registered in the same name, address and, if applicable,
taxpayer identification number; and (iii) unless waived by the Trust, the amount
to be exchanged must satisfy the minimum account size of the fund to be
exchanged into. Exchange requests will not be processed until payment for the
shares of the current Fund has been received by Standish Fund Distributors. The
exchange privilege may be changed or discontinued and may be subject to
additional limitations upon sixty (60) days' notice to shareholders, including
certain restrictions on purchases by market-timer accounts.
REDEMPTION OF SHARES
Shares of the Funds may be redeemed or repurchased by the methods described
below at the net asset value per share next determined after receipt by Standish
Fund Distributors or its agent of a redemption or repurchase request in proper
form. Redemptions will not be processed until a completed account application
and payment for the shares to be redeemed have been received.
Written Redemption. Shares of each Fund may be redeemed by written order to
Standish Fund Distributors, One Financial Center, 26th Floor, Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered. Signature(s) must be guaranteed by a
member of either the Securities Transfer Association's STAMP program or the
NYSE's Medallion Signature Program or by any one of the following institutions,
provided that the institution meets credit standards established by Investors
Bank & Trust Company, the Funds' transfer agent: (i) a bank; (ii) a securities
broker or dealer, including a government or municipal securities broker or
dealer, that is a member of a clearing corporation or has net capital of at
least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. The Adviser reserves the right to waive the requirement that
signatures be guaranteed. Additional
17
<PAGE>
supporting documents may be required in the case of estates, trusts,
corporations, partnerships and other shareholders that are not individuals.
Redemption proceeds will normally be paid by check mailed within three business
days of receipt by Standish Fund Distributors of a written redemption request in
proper form. If shares to be redeemed were recently purchased by check, the
Funds may delay transmittal of redemption proceeds until such time as they are
assured that good funds have been collected for the purchase of the shares. This
may take up to fifteen (15) days in the case of payments made by check.
Telephone Redemption. Shareholders who elect telephone privileges may redeem
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Redemption proceeds
will be mailed or wired in accordance with the shareholder's instruction on the
account application to a pre-designated account. Redemption proceeds will
normally be paid promptly after receipt of telephone instructions, but no later
than three business days thereafter, except as described above for shares
purchased by check. Redemption proceeds will be sent only by check payable to
the shareholder of record at the address of record, unless the shareholder has
indicated, in the initial application for the purchase of shares, a commercial
bank to which redemption proceeds may be sent by wire. These instructions may be
changed subsequently only in writing, accompanied by a signature guarantee, and
additional documentation in the case of shares held by a corporation or other
entity or by a fiduciary such as a trustee or executor. Wire charges, if any,
will be deducted from redemption proceeds. Proper identification will be
required for each telephone redemption.
Repurchase Order. In addition to written redemption of Fund shares, Standish
Fund Distributors may accept telephone orders from brokers or dealers for the
repurchase of Fund shares. Brokers and dealers are obligated to transmit
repurchase orders to Standish Fund Distributors promptly prior to the close of
Standish Fund Distributors' business day (normally 4:00 p.m.). Brokers or
dealers may charge for their services in connection with a repurchase of Fund
shares, but neither the Trust nor Standish Fund Distributors imposes a charge
for share repurchases.
Telephone Transactions. By maintaining an account that is eligible for telephone
exchange and redemption privileges, the shareholder authorizes Standish,
Standish Fund Distributors, the Trust and the Funds' custodian to act upon
instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, the shareholder acknowledges that, as long as
the Funds employ reasonable procedures to confirm that telephone instructions
are genuine, and follow telephone instructions that they reasonably believe to
be genuine, neither the Adviser, Standish Fund Distributors, the Trust, the
applicable Fund, the Funds' custodian, nor their respective officers or
employees, will be liable for any loss, expense or cost arising out of any
request for a telephone redemption or exchange, even if such transaction results
from any fraudulent or unauthorized instructions.
Depending upon the circumstances, the Funds intend to employ personal
identification or written confirmation of transaction procedures, and if they do
not, a Fund may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone transaction requests will be recorded. Shareholders
may experience delays in exercising telephone transaction privileges during
periods of abnormal market activity. During these periods, shareholders should
transmit redemption and exchange requests in writing.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than the
cost of the shares, depending upon the market value of the applicable Fund's or
Portfolio's portfolio investments at the time of redemption or repurchase. The
Funds intend to pay cash for all shares redeemed, but under certain conditions,
the Funds may make payments wholly or partially in securities for this purpose.
Please see the Statement of Additional Information for further information.
Each Fund may redeem, at net asset value, the shares in any account which has a
value of less than $50,000 as a result of redemptions or transfers. Before doing
so, the Fund will notify the shareholder that the value of the shares in the
account is less than the specified minimum and will allow the shareholder 30
days to make an additional investment to increase the value of the account to an
amount equal to or above the stated minimums.
18
<PAGE>
MANAGEMENT
Trustees. Each Fund is a separate investment series of Standish, Ayer & Wood
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. The
Portfolio is a separate investment series of the Standish, Ayer & Wood Master
Portfolio, a master trust fund organized under the laws of the State of New
York. Under the terms of the Declaration of Trust, the 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 Adviser. SIMCO, One Financial Center, Boston, Massachusetts 02111,
serves as investment adviser to the Portfolio and the International Fixed Income
Fund pursuant to separate investment advi sory agreements and manages the
Portfolio's and the International Fixed Income Fund's investments and affairs
subject to the supervision of the Trustees of the Trust. SIMCO is a Delaware
limited partnership organized in 1991 and is a registered investment adviser
under the Investment Advisers Act of 1940. The general partner of the Adviser is
Standish which holds a 99.98% partnership interest. The limited partners, who
each hold a 0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Director of and
Senior Adviser to SIMCO and Standish, and D. Barr Clayson, Chairman of the Board
of SIMCO and Managing Director of Standish. Ralph S. Tate, Managing Direc tor of
Standish, is President and a Director of SIMCO. Richard S. Wood, Vice President
and a Managing Director of Standish and the President of the Trust, is the
Executive Vice President of SIMCO. Standish and SIMCO provide fully
discretionary management services and counseling and advisory services to a
broad range of clients throughout the United States and abroad. As of February
28, 1997, Standish man aged approximately $[ ] billion of assets.
The Portfolio's and the International Fixed Income Fund's portfolio manager is
Richard S. Wood. Mr. Wood has been primarily responsible for the day-to-day
management of the Funds' portfolios since their inception and of the Portfolio's
portfolio since the Global Fixed Income Fund's conversion to the master- feeder
structure on April 26, 1996. During the past five years, Mr. Wood has served as
a Vice President and a Managing Director (since 1995) of Standish, President of
the Trust and Executive Vice President of SIMCO.
Subject to the supervision and direction of the Trustees of the Trust and the
Portfolio Trust, SIMCO manages the Portfolio and International Fixed Income Fund
in accordance with their respective investment objectives and policies,
recommends investment decisions, places orders to purchase and sell securities
and permits the Portfolio and the International Fixed Income Fund to use the
name "Standish." For these services, the Portfolio and the International Fixed
Income Fund pay a monthly fee at a stated annual percentage rate of such Fund's
(Portfolio's) average daily net asset value:
Actual Rate
Paid for the Contractual
Year Ended Advisory Fee
December 31, Annual
1996 Rate
---- ----
International Fixed 0.40% 0.40%
Income Fund
Global Fixed Income 0.40% 0.40%
Portfolio
Administrator. Standish serves as administrator to the Global Fixed Income Fund.
As administrator, Standish manages the affairs of the Global Fixed Income Fund,
provides all necessary office space and services of executive personnel for
administering the affairs of the Global Fixed Income Fund, and allows the Global
Fixed Income Fund to use the name "Standish." For these services, Standish
currently does not receive any additional compensation. The Trustees of the
Trust may determine in the future to compensate Standish for its administrative
services.
Expenses. The Portfolio and each Fund bears the expenses of its respective
operations other than those incurred by SIMCO under the investment advisory
agreements or by Standish under the administration agreement. The Portfolio pays
investment advisory fees; bookkeeping, share pricing and custodian fees and
expenses; expenses or notices and reports to interest holders; and expense of
the Portfolio's administrator. The Global Fixed Income Fund pays shareholder
servicing fees and expenses, expenses of printing prospectuses, statements of
additional information and shareholder reporters which are furnished to existing
shareholders. The Global Fixed Income Fund and the Portfolio pay legal and
auditing fees; registration and reporting fees and expenses. The International
Fixed Income Fund, since it does not invest in a corresponding Portfolio, bears
all of the expenses listed above for both the Portfolio and the Global Fixed
Income Fund. Expenses of the Trust which relate to more than one series are
allocated among such series by Standish in an equitable manner.
19
<PAGE>
Standish Fund Distributors bears the distribution expenses attributable to the
offering and sale of Fund shares without subsequent reimbursement. Each Fund's
total annual operating expenses for the fiscal year ended December 31, 1996 are
described above under the caption "Financial Highlights."
Portfolio Transactions. Subject to the supervision of the Trustees of the Trust
and the Portfolio Trust, SIMCO selects the brokers and dealers that execute
orders to purchase and sell portfolio securities for the International Fixed
Income Fund and the Portfolio. SIMCO will generally seek to obtain the best
available price and most favorable execution with respect to all transactions
for the Portfolio and the International Fixed Income Fund. SIMCO may also
consider the extent to which a broker or dealer provides research to SIMCO and
the number of Fund shares sold by the broker or dealer in making its selection.
FEDERAL INCOME TAXES
Each Fund is a separate entity for federal tax purposes and presently qualifies
and intends to continue to qualify for taxation as a "regulated investment
company" under the Code. If it qualifies for treatment as a regulated investment
company, each Fund will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
Shareholders which are taxable entities or persons will be subject to federal
income tax on dividends and capital gain distributions made by the Funds.
Dividends paid by a Fund from net investment income, certain net foreign
currency gains, and any excess of net short-term capital gain over net long-term
capital loss will be taxable to shareholders as ordinary income, whether
received in cash or reinvested in Fund shares. These dividends generally will
not may 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 long-term capital gains,
whether received in cash or reinvested in Fund shares and without regard to how
long the shareholder has held shares of the Fund. Capital gain distributions do
not qualify for the corporate dividends received deduction. Dividends and
capital gain distributions may also be subject to state and local or foreign
taxes. Redemptions (including exchanges) and repurchases of shares are taxable
events on which a shareholder may recognize a gain or loss.
The International Fixed Income Fund and the 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 Funds may qualify to
elect to pass certain qualifying foreign taxes through shareholders. If this
election is made, shareholders would include their shares of qualified foreign
taxes in their gross incomes (in addition to any actual dividends and
distributions) and might be entitled to a corresponding federal income tax
credit or deduction. Shareholders will receive appropriate information if either
Fund makes this election 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.
20
<PAGE>
The Portfolio Trust was organized on January 18, 1996 as a New York trust. In
addition to the Portfolio, 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 February 1, 1997, Brown University, 164 Angell Street, Investment Office -
Box C, Providence, RI, 02912, had sole voting and investment power with respect
to more than 25% of the then outstanding share of the Global Fixed Income Fund.
Accordingly, this shareholder was deemed to beneficially own those shares and to
control the Global Fixed Income 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.
Although each Fund is offering only its own shares, since the Funds use this
combined Prospectus, it is possible that one Fund might become liable for a
misstatement or omission in this Prospectus regarding another Fund. The Trustees
have considered this factor in approving the use of this combined Prospectus.
CUSTODIAN, TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as the Funds' transfer agent, dividend disbursing agent and as custodian
for all cash and securities of the Funds and the Portfolio. Investors Bank &
Trust also provides
accounting services to the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109
and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI, serve as
independent accountants for the Trust and the Portfolio Trust, respectively, and
will audit the Funds' and the Portfolio's respective financial statements
annually.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust and Standish and its affiliates.
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions and
exchanges be reported to the IRS and that 31% be withheld if you fail to provide
your correct Taxpayer Identification Number ("TIN") and the TIN-related
certifications contained in the Account Purchase Application ("Application") or
you are otherwise subject to backup withholding. A Fund will not impose backup
withholding as a result of your failure to make any certification, except the
certifications in the Application that directly relate to your TIN and backup
withholding status. Amounts withheld and forwarded to the IRS can be credited as
a payment of tax when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minors Act, the TIN of the minor should be furnished. If you
do not have a TIN, you may apply for one using forms available at local offices
of the Social Security Administration or the IRS, and you should write "Applied
For" in the space for a TIN on the Application.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and underline "exempt" in section 2(a)
of the TIN section of the Application to avoid possible erroneous withholding.
Non-resident aliens and foreign entities may be subject to withholding of up to
30% on certain distributions received from the Funds and must provide certain
certifications on IRS Form W-8 to avoid backup withholding with respect to other
payments. For further information, see Code Sections 1441, 1442 and 3406 and/or
consult your tax adviser.
21
<PAGE>
STANDISH INTERNATIONAL FIXED INCOME FUND
STANDISH GLOBAL FIXED INCOME FUND
Investment Adviser
Standish International Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
Principal Underwriter Independent Accountants
Standish Fund Distributors, L.P. Coopers & Lybrand L.L.P.
One Financial Center One Post Office Square
Boston, MA 02111 Boston, Massachusetts 02109
Custodian
Investors Bank & Trust Company Coopers & Lybrand
89 South Street P.O. Box 219
Boston, Massachusetts 02111 Grand Cayman, Cayman Islands, BWI
(Global Fixed Income Portfolio Only)
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.
22
<PAGE>
[PINE CONE LOGO]
STANDISH GROUP OF EQUITY FUNDS
PROSPECTUS
APRIL 30, 1997
The Standish Group of Equity Funds includes the Standish Equity Fund, the
Standish Small Capitalization Equity Fund, the Standish Small Capitalization
Equity Fund II and the Standish International Equity Fund. Each Fund is
organized as a separate diversified investment series of Standish, Ayer & Wood
Investment Trust, an open end investment company. The Equity Fund, Small
Capitalization Equity Fund and Small Capitalization Equity Fund II invest
exclusively in the Standish Equity Portfolio, Standish Small Capitalization
Equity Portfolio and Standish Small Capitalization Equity Portfolio II,
respectively, each an open end investment company. Standish, Ayer & Wood, Inc.
("Standish") is the investment adviser to the Equity Portfolio, the Small
Capitalization Equity Portfolio, and the Small Capitalization Equity Portfolio
II. Standish International Management Company, L.P. ("SIMCO"), Boston,
Massachusetts, is the investment adviser to the International Equity Fund.
Standish and SIMCO are referred to in the Prospectus as the "Adviser" or the
"Advisers."
Investors may purchase shares in the Funds without charge from Standish Fund
Distributors, L.P. An application may be obtained by calling (800) 221-4795.
The Advisers seek to add value by capturing improving business momentum at
reasonable valuations. Their style blends quantitative and fundamental analysis
to find those stocks or markets where estimates of earnings are being revised
upwards but whose valuation does not yet reflect this positive trend. Standish
has been providing investment counseling to mutual funds, other institutional
investors and high net worth individuals for more than sixty years. Standish
offers a broad array of investment services that includes U.S., international
and global management of fixed income and equity securities for mutual funds and
separate accounts. SIMCO serves as Standish's international research and
investment arm for both debt and equity securities in all countries outside of
the United States. Privately held by twenty-two employee/directors and
headquartered in Boston, Massachusetts, Standish employs over eighty investment
professionals with a total staff of more than two hundred.
This Prospectus sets forth concisely the information about the Funds that a
prospective investor should know before investing and should be retained for
future reference. Additional information has been filed with the Securities and
Exchange Commission in a Statement of Additional Information dated April 30,
1997, as amended or supplemented from time to time. The Statement of Additional
Information is incorporated by reference into this Prospectus and is available
without charge upon request from (800) 221-4795.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. An investment in shares of the Funds involves
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of the Funds are not available for sale in every state. This Prospectus
is not intended to be an offer to sell shares, nor may an offer to purchase
shares be accepted from investors, in those states where shares of the Funds may
not legally be sold. Contact Standish Fund Distributors to determine whether the
Funds are available for sale in your state.
1
<PAGE>
[On inside front cover]
Table of Contents
Page
Fund Comparison Highlights.............................................4
Expense Information....................................................5
Financial Highlights...................................................6
Investment Objectives and Policies....................................10
The Equity Fund.......................................................10
The Small Capitalization Equity Fund..................................11
The Small Capitalization Equity Fund Ii...............................11
The International Equity Fund.........................................12
Description of Securities and Related Risks...........................12
Investment Techniques and Related Risks...............................15
Information about the Master-feeder Structure.........................17
Calculation of Performance Data.......................................18
Dividends and Distributions...........................................18
Purchase of Shares....................................................18
Net Asset Value.......................................................19
Exchange of Shares....................................................19
Redemption of Shares..................................................20
Management............................................................21
Federal Income Taxes..................................................23
The Funds and Their Shares............................................24
Custodians............................................................24
Transfer Agent and Dividend Disbursing Agent..........................24
Independent Accountants...............................................24
Legal Counsel.........................................................24
Tax Certification Instructions........................................24
2
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<TABLE>
<CAPTION>
FUND COMPARISON HIGHLIGHTS
The following table highlights information contained in this Prospectus
and is qualified in its entirety by the more detailed information contained
within. For a complete description of each Fund's distinct investment objective
and policies, see "Investment Objectives and Policies," "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks."
There can be no assurance that a Fund's investment objective will be achieved.
- --------------------------- ------------------------- ------------------------- ------------------------ ---------------------
Equity Fund Small Capitalization Small Capitalization International Equity
Equity Fund Equity Fund II Fund
- --------------------------- ------------------------- ------------------------- ------------------------ ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
<S> <C> <C> <C> <C>
Investment Objective Long-term growth of Long-term growth of Long-term growth of Long-term capital
capital through capital through capital growth through
investment primarily in investment primarily in investment in a
equity and equity and diversified
equity-related equity-related portfolio of foreign
securities of companies securities of small equity securities
which appear to be capitalization
undervalued companies
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Key Strategy Emphasize stocks Emphasize rapidly Emphasize rapidly Emphasize stocks
believed to offer above growing, high quality growing, high quality and markets
average potential for companies with market companies with market believed to offer
capital growth through capitalizations less capitalizations less than above average
the use of statistical than $700 million that $1 billion that are potential for
modeling techniques are involved with value involved with value capital growth
and fundamental added products or added products or through the use of
analysis services services statistical modeling
techniques
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Market Capitalization of No limit; general range $700 million or less $1 billion or less No limit; general
Companies Focused on is medium to large range is medium to
by the Fund capitalization large capitalization
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Foreign Securities Yes; no limit for Yes; limited to 15% of Yes; limited to 15% of Yes; without limit,
securities listed on a total assets. total assets. including up to 25%
U.S. exchange or traded of total assets in
in the U.S. securities of
over-the-counter issuers located in
("OTC") market but emerging markets
limited to 10% of total
assets for foreign
securities which are
not so listed or
traded.
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
Benchmark Index S&P 500 Russell 2000, Russell 2000, EAFE Index
Russell 2000 Growth, Russell 2000 Growth,
S&P 500 S&P 500
- --------------------------- ------------------------- -------------------------- ------------------------- ---------------------
</TABLE>
3
<PAGE>
EXPENSE INFORMATION
Total operating expenses are based on expenses for each Fund's fiscal year ended
December 31, 1996. Total operating expenses for the Equity Fund include expenses
of the Fund and the Equity Portfolio, for the Small Capitalization Equity Fund
include expenses of the Fund and the Small Capitalization Equity Portfolio, and
for the Small Capitalization Equity Fund II include expenses of the Fund and the
Small Capitalization Equity Portfolio II. The Trusts' Trustees believe that
total operating expenses of the Equity Fund, the Small Capitalization Equity
Fund and the Small Capitalization Equity Fund II are approximately equal to or
less than what would be the case if the Funds did not invest all of their
investable assets in their respective Portfolios.
<TABLE>
<CAPTION>
Small Small
Equity Capitalization Capitalization International
Fund Equity Fund Equity Fund II Equity Fund
Shareholder Transaction Expenses
<S> <C> <C> <C> <C>
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Annual Operating Expenses (as a percentage of average net
assets)
Management Fees (after applicable limitation) 0.50% 0.60% 0.00%* 0.00%
12b-1 Fees None None None None
Other Expenses (after applicable expense limitation)+ 0.21% 0.15% 0.00%* 0.50%*
----- ----- ------ ------
Total Operating Expenses (after applicable expense 0.71% 0.75% 0.00%* 0.50%*
===== ===== ====== =====-
limitation)
- ----------
* Standish has voluntarily and temporarily agreed to limit certain expenses of
the Small Cap II Fund and International Equity Fund. In the absence of such
agreements, the Management Fees, Other Expenses and Total Operating Expenses (as
a percentage of average daily net assets for the fiscal year ended December 31,
1996) would have been: Small Cap II Fund--0.60%, 1.55% and 2.15%, respectively;
and International Equity Fund--0.50%, 0.79% and 1.29%, respectively.
+ Other Expenses include custodian and transfer agent fees, registration costs,
payments for insurance, and audit and legal services.
Example
Hypothetically assume that each Fund's annual return is 5% and that its total
operating expenses are exactly as described. For every $1,000 invested, an
investor would have paid the following expenses if an account were closed after
the number of years indicated:
Small Small International
Capitalization Capitalization Equity
Equity Fund Equity Fund Equity Fund II Fund
After 1 Year $7 $8 $0 $5
After 3 Years 23 25 0 16
After 5 Years 41 43 0 28
After 10 Years 91 95 0 63
The purpose of the table is to assist investors in understanding the various
costs and expenses that an investor in each Fund will bear directly or
indirectly. The example is included solely for illustrative purposes and should
not be considered a representation of future performance or expenses. Actual
expenses may be more or less than those shown. See "Management" for additional
information about each Fund's expenses.
</TABLE>
4
<PAGE>
FINANCIAL HIGHLIGHTS
The financial highlights for periods after 1992 have been audited by Coopers
& Lybrand L.L.P., independent accountants, whose reports, together with the
Financial Statements of the Funds, are incorporated into the Statement of
Additional Information. Financial highlights for prior periods were audited by
other independent accountants. The Funds' annual reports, which contain
additional information about Fund performance, may be obtained from Standish
Fund Distributors without charge.
<TABLE>
<CAPTION>
EQUITY FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996** 1995 1994 1993 1992* 1991*,+
<S> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of period $34.81 $28.66 $30.89 $26.28 $25.66 $20.00
------------- ------------- ------------- ------------- ------------- -------------
Income from investment operations
Net investment income $0.60 $0.76 $0.45 $0.50 $0.56 $0.46
Net realized and unrealized gain (loss)
on investments 8.52 9.94 (1.62) 5.57 1.81 6.17
------------- ------------- ------------- ------------- ------------- -------------
Total from investment operations $9.12 $10.70 ($1.17) $6.07 $2.37 $6.63
------------- ------------- ------------- ------------- ------------- -------------
Less distributions declared to shareholders
From net investment income (0.56) (0.78) (0.44) (0.47) (0.54) (0.35)
From realized gain on investments (4.58) (3.77) (0.62) (0.99) (1.19) (0.62)
From paid-in capital - - - - (0.02) -
Total distributions declared to shareholders (5.14) (4.55) ($1.06) ($1.46) ($1.75) ($0.97)
------------- ------------- ------------- ------------- ------------- -------------
Net asset value - end of period $38.79 $34.81 $28.66 $30.89 $26.28 $25.66
============= ============= ============= ============= ============= =============
Total return3 26.84% 37.55% (3.78%) 20.79% 9.52% 33.45%t
Net assets at end of period (000 omitted) $105,855 $88,523 $86,591 $72,916 $14,679 $7,498
Ratios (to average daily net assets)/Supplemental Data
Expenses**1 0.71% 0.69% 0.70% 0.80% 0.00% 1.00%t
Net investment income** 1.53% 2.05% 1.55% 1.29% 2.52% 1.92%t
Portfolio turnover2 41% 159% 182% 192% 92% 86%
Average Commission Rate Paid2 $0.0499
- -------------
**For the year ended December 31, 1996 and the three-year period ended December
31, 1993, the investment adviser did not impose a portion of its advisory fee.
If this voluntary reduction had not been undertaken, the net investment income
per share and the ratios would have been:
Net Investment Income per share $0.59 $0.47 $0.34 $0.23
Ratios (to average net assets)
Expenses 0.72% 0.97% 1.00% 1.99%
Net Investment Income 1.52% 1.12% 1.52% 0.93%
t Computed on an annualized basis.
* Audited by other auditors.
+ For the period from January 2, 1991 (start of business) to December 31,
1991.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996 y in securities. The portfolio
turnover and average
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directlfolio are 78% and $0.0483,
respectively. broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the PortS&P 500
Index. The average annual total return of the
3 The Fund's performance benchmark is the S&P 500 Index. See "Calculation of
Performance Data" for a description of the S&P 500 Index for each year
since the Fund's inception was as follows (this total return information is
not audited):
Total Return: 1996 1995 1994 1993 1992 1991
S&P 500 22.96% 37.58% 1.32% 10.08% 7.63% 30.47%
5
<PAGE>
SMALL CAPITALIZATION EQUITY FUND
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
Net asset value - beginning of period $53.46 $42.15 $48.97 $39.83 $39.99
Income from investment operations
Net investment income(loss) -- -- -- ($0.07) ($0.11)
Net realized and unrealized gain (loss)
on investments 9.29 12.57 (1.84) 11.31 4
Total from investment operations 9.29 $12.57 ($1.84) $11.24 $3.89
Less distributions declared to shareholders
From net investment income __ __ __ __ __
From realized gains on investments (9.79) (1.26) (4.98) (2.1) (4.05)
From paid-in capital __ __ __ __ __
Total distributions declared to shareholders ($9.79) ($1.26) ($4.98) ($2.10) ($4.05)
Net asset value - end of period $52.96 $53.46 $42.15 $48.97 $39.83
Total return3 17.36% 29.83% (3.66)% 28.21% 9.74%
Net assets at end of period (000 omitted) $244,131 $180,470 $107,591 $85,141 $50,950
Ratios (to average net assets)
/Supplemental Data
Expenses1 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment income (0.44%) (0.30)% (0.27)% (0.18)% (0.38)%
Portfolio turnover2 28% 112% 130% 144% 101%
Average Broker Commission Rate2 $0.0450 __ __ __ __
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996 advisory fee. If this
voluntary reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $ (0.01)
Ratios (to average net assets):
Expenses 0.76%
Net investment income (0.45%)
+ For the period from August 31, 1990 (start of business) to December 31,
1990.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities. The portfolio
turnover and average broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the Portfolio are
76% and $0.04335 respectively.
3 The Fund's performance benchmarks are the S&P 500 Index, the Russell 2000
Index and the Russell 2000 Growth Index. See "Calculation of Performance
Data" for a description of these indices. The average annual total return
of these indices for each year since the Fund's inception was as follows
(this total return information is not audited):
<PAGE>
SMALL CAPITALIZATION EQUITY FUND
Year Ended December 31,
(continued)
- --------------------------------------------------------------------------------
1991* 1990*+
Net asset value - beginning of period $27.57 $26.24
Income from investment operations
Net investment income(loss) ($0.04) $0.01
Net realized and unrealized gain (loss)
on investments 17.87 1.33
Total from investment operations $17.83 $1.34
Less distributions declared to shareholders
From net investment income __ ($0.01)
From realized gains on investments (5.35) __
From paid-in capital (0.06) __
Total distributions declared to shareholders ($5.41) ($0.01)
Net asset value - end of period $39.99 $27.57
Total return3 64.71% 15.35%t
Net assets at end of period (000 omitted) $35,418 $13,273
Ratios (to average net assets)
/Supplemental Data
Expenses1 0.87% 1.48%t
Net investment income (0.15)% 0.17%t
Portfolio turnover2 96% 13%
Average Broker Commission Rate2 __ __
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996 advisory fee. If this
voluntary reduction had not been undertaken, the net investment income per
share and the ratios would have been:
Net investment income per share $ (0.01)
Ratios (to average net assets):
Expenses 0.76%
Net investment income (0.45%)
+ For the period from August 31, 1990 (start of business) to December 31,
1990.
1 Includes the Fund's share of Portfolio allocated expenses for the period
from May 3, 1996 through December 31, 1996
2 Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities. The portfolio
turnover and average broker commission rate for the period since the Fund
transferred substantially all of its investable assets to the Portfolio are
76% and $0.04335 respectively.
3 The Fund's performance benchmarks are the S&P 500 Index, the Russell 2000
Index and the Russell 2000 Growth Index. See "Calculation of Performance
Data" for a description of these indices. The average annual total return
of these indices for each year since the Fund's inception was as follows
(this total return information is not audited):
Total Return: 1996 1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
S&P 500 22.96% 37.58% 1.32% 10.08% 7.63% 39.47% (3.16)%
Russell 2000 16.53% 28.44% (1.83)% 10.89% 18.42% 41.64% (19.52)%
Russell 2000 Growth
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
SMALL CAPITALIZATION EQUITY FUND II
For the period December 23, 1996
(commencement of operations)
through December 31, 1996
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Net asset value - beginning of period $20.00
Income from investment operations
Net investment income(1) 0.00
Net realized and unrealized gain (loss)
on investments 0.39
Total from investment operations 0.38
Less distributions declared to shareholders
From net investment income __
From realized gain __
From paid-in capital
Total distributions declared to shareholders __
Net asset value - end of period $20.39
Total return1 __
Net assets at end of period (000 omitted) $484
Ratios (to average net assets)
/Supplemental Data
Expenses1* N/A 2
Net investment income* N/A 2
Portfolio turnover
Average Commission Rate Paid
----------------
* Computed on an annualized basis.
1 Includes the Fund's share of Portfolio allocated expenses.
2 Ratios are not meaningful due to the short period of operations. All
expenses were reimbursed by the investment adviser.
Total Return: 1996
----
S&P 500 22.96%
Russell 2000 16.53%
Russell 2000 Growth
4 Ratios are not meaningful due to the short period of operations. All
expenses were reimbursed by the investment advisor.
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
INTERNATIONAL EQUITY FUND
Year Ended December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.54 $23.12 $26.74 $19.78 $22.20
Income from investment operations
Net investment income $0.47 $0.04 $0.21 $0.26 $0.26
Net realized and unrealized gain (loss) on 1.28 0.45 (2.08) 7.29 (2.47)
investments
Total from investment operations $1.75 $0.49 ($1.87) $7.55 ($2.21)
Less distributions declared to shareholders
From net investment income ($0.51) ($0.12) ($0.23) ($0.21)
In excess of net investment income (0.36)
From realized gains on investments (1.53) (0.07) (1.63)
Total distributions declared to shareholders ($2.04) ($0.07) ($1.75) ($0.59) ($0.21)
Net asset value - end of period $23.25 $23.54 $23.12 $26.74 $19.78
Total return3 7.44% 2.14% (6.99%) 38.27% (9.95%)
Net assets at end of period $47,739 $59,47 3 $104,43 5 $92,419 $56,539
(000 omitted)
Ratios (to average net assets) /Supplemental
Data
Expenses 0.50%** 1.22% 1.23% 1.34% 1.53%
Net investment income 1.80%** 1.76% 1.52% 1.09% 1.18%
Portfolio turnover 163% 108% 75% 98% 98%
Average Broker Commission Rate Per Share $0.00921
- -------------
t Computed on an annualized basis.
* Audited by other auditors.
**The investment adviser voluntarily waived a portion of its investment
advisory fee. Had this action not been undertaken, the net investment income
per share and the ratios would have been:
Net investment income per share $0.27
Ratios (to average daily net assets)
Expenses 1.29%
Net investment income 1.01%
+ For the period from August 31, 1988 (start of business) to December 31,
1988.
1 Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
2 The Fund's performance benchmark is the Europe, Asia, Far-East ("EAFE")
Index. See "Calculation of Performance Data" for a description of the EAFE
Index. The average annual total return of the EAFE Index for each year
since the Fund's inception was as follows (this total return information is
not audited):
Total Return: 1996 1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ---- ----
EAFE 6.04% 11.22% 7.79% 32.57% (12.19)% (12.12)% (23.43)% 10.61% 0.60%
8
<PAGE>
INTERNATIONAL EQUITY FUND
Year Ended December 31,
(continued)
- ------------------------------------------------------------------------------------------------------------------------------------
1991* 1990* 1989* 1988*,+
Net asset value - beginning of period $20.16 $23.10 $20.07 $20.00
Income from investment operations
Net investment income $0.33 $0.55 $0.49 $0.06
Net realized and unrealized gain (loss) on 2.02 (2.67) 3.23 0.01
investments
Total from investment operations $2.35 ($2.12) $3.72 $0.07
Less distributions declared to shareholders
From net investment income ($0.30) ($0.41) ($0.50)
In excess of net investment income
From realized gain (0.01) (0.41) (0.19)
Total distributions declared to shareholders ($0.31) ($0.82) ($0.69) $0.00
Net asset value - end of period $22.20 $20.16 $23.10 $20.07
Total return3 11.73% (9.44%) 18.79% 5.32%t
Net assets at end of period $47,077 $24,872 $19,141 $10,158
(000 omitted)
Ratios (to average net assets) /Supplemental
Data
Expenses 1.54% 1.60% 1.60% 1.60%+
Net investment income 1.30% 2.19% 2.29% 3.90%+
Portfolio turnover 27% 48% 38% 0%
Average Commission Rate Paid Per Share
</TABLE>
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
INVESTMENT STRATEGY FOR THE STANDISH
GROUP OF EQUITY FUNDS
Each Fund is an actively managed diversified portfolio consisting primarily of
equity and equity-related securities. Each Fund is managed to achieve long-term
growth of capital. The Equity Fund seeks to achieve its objective by investing
primarily in equity and equity-related securities of companies which appear to
be undervalued. The Small Capitalization Equity Fund ("Small Cap Fund") and the
Small Capitalization Equity Fund II ("Small Cap II Fund") seek to achieve their
respective objectives by focusing on equity and equity-related securities of
small capitalization companies. The Small Cap Fund invests primarily in
securities of companies with market capitalizations less than $700 million while
the Small Cap II Fund invests primarily in securities of companies with market
capitalizations less than $1 billion. The International Equity Fund seeks to
achieve its objective by investing in a diversified portfolio of foreign equity
securities. The Equity Fund, the Small Cap Fund and the Small Cap II Fund each
invests all of its investable assets in a corresponding Portfolio. These Funds
are sometimes referred to in this Prospectus as the Standish Feeder Funds. This
structure, where one fund invests all of its investable assets in another
investment company, is described below under the caption "Information About The
Master-Feeder Structure."
The Advisers seek to add value to portfolios of securities by finding companies
with improving business momentum whose securities have reasonable valuations.
For the Equity Fund and the International Equity Fund, the Advisers utilize both
quantitative and fundamental analysis to find stocks whose estimates of earnings
are being revised upwards but whose valuation does not yet reflect this positive
trend. For the Small Cap and Small Cap II Funds, Standish emphasizes small
capitalization companies that have developed strong sector or industry positions
and have produced solid balance sheets.
The equity and equity-related securities in which each Fund invests include
exchange-traded and over-the-counter common and preferred stocks but may also
include warrants, rights, convertible securities, depositary receipts,
depositary shares, trust certificates, shares of other investment companies,
limited partnership interests and equity participations. These equity securities
may be issued by U.S. or foreign companies, although not all Funds invest to the
same extent in securities of foreign issuers. Please refer to each Fund's
specific investment objective and policies and "Description of Securities and
Related Risks" for a more comprehensive list of permissible securities and
investments.
* * *
Each Fund's specific investment objective, policies and strategies are set forth
below to assist the investor in differentiating each Fund's unique
characteristics. Because of the uncertainty inherent in all investments, no
assurance can be given that a Fund will achieve its investment objective. See
"Description of Securities and Related Risks" and "Investment Techniques and
Related Risks" below for additional information.
THE EQUITY FUND
The investment objective and characteristics of the Equity Fund correspond
directly to those of the Equity Portfolio in which the Fund invests all of its
investable assets. The following is a discussion of the investment objective and
policies of the Equity Portfolio.
Investment Objective. The Equity Portfolio's investment objective is to achieve
long-term growth of capital through investment primarily in equity and equity-
related securities of companies which appear to be undervalued.
Principal Investments. Under normal circumstances, at least 80% of the Equity
Portfolio's total assets will be invested in equity and equity-related
securities.
Investment Strategies. The Equity Portfolio follows a disciplined investment
strategy, emphasizing stocks which Standish believes offer above average
potential for capital growth. Although the precise application of the discipline
will vary according to market conditions, Standish intends to use statistical
modeling techniques that utilize stock specific factors (e.g., current price
earnings ratios, stability of earnings growth, forecasted changes in earnings
growth, trends in consensus analysts' estimates, and measures of earnings
results relative to expectations) to identify equity securities that are
attractive as purchase candidates. Once identified, these securities will be
subject to further fundamental analysis by Standish's professional staff before
they are included in the Equity Portfolio's holdings. Securities selected for
inclusion in the Equity Portfolio's holdings will represent various industries
and sectors.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Equity Portfolio may invest without limit in
equity and equity-related securities of foreign issuers that are listed on a
United States securities exchange or traded in the U.S. OTC market. The
Portfolio may not invest more than 10% of its total assets in such securities
which are not so listed or traded.
9
<PAGE>
The Equity Portfolio may invest in debt securities and preferred stocks which
are convertible into, or exchangeable for, common stocks. These securities will
be rated Aaa, Aa or A by Moody's Investor Service, Inc., or AAA, AA, or A by
Standard and Poor's Ratings Group, Duff and Phelps, Inc. or Fitch Investors
Service, Inc., or, if unrated, determined by Standish to be of comparable credit
quality. Up to 5% of the Equity Portfolio's total assets invested in convertible
debt securities and preferred stocks may be rated Baa by Moody's or BBB by
Standard & Poor's, Duff, or Fitch. The Equity Portfolio may enter into
repurchase agreements, engage in short selling and invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. The Equity Portfolio may purchase and
sell put and call options, enter into futures contracts on U.S. equity indices,
purchase and sell options on such futures contracts and engage in currency
transactions. See "Description of Securities and Related Risks" and "Investment
Techniques and Related Risks" below for additional information.
THE SMALL CAPITALIZATION
EQUITY FUND
The investment objective and characteristics of the Small Cap Fund correspond
directly to those of the Small Capitalization Equity Portfolio ("Small Cap
Portfolio") in which the Fund invests all of its investable assets. The
following is a discussion of the investment objectives and policies of the Small
Cap Portfolio.
Investment Objective. The Small Cap Portfolio's investment objective is to
achieve long-term growth of capital through investment primarily in equity and
equity-related securities of small capitalization companies.
Principal Investments. Under normal circumstances, at least 80% of the Small Cap
Portfolio's total assets will be invested in equity and equity-related
securities of small capitalization companies. The Small Cap Portfolio will focus
its investments in small capitalization companies that have market
capitalizations less than $700 million. When Standish believes that securities
of small capitalization companies are overvalued, the Small Cap Portfolio may
invest in securities of larger, more mature companies, provided that such
investments do not exceed 20% of the Portfolio's total assets. The Small Cap
Portfolio may participate in initial public offerings for previously privately
held companies which are expected to have market capitalizations less than $700
million after the consummation of the offering, and whose securities are
expected to be liquid after the offering.
Investment Strategies. The Small Cap Portfolio will pursue investments in
rapidly growing, high quality companies that are involved with value added
products or services. These companies will have market capitalizations less than
$700 million, although the Small Cap Portfolio may include securities of larger,
more mature companies. Companies with small market capitalizations may have more
limited operating histories and/or less experienced management than larger
capitalization companies and may pose additional risks.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Small Cap Portfolio may invest up to 15% of its
total assets in equity and equity-related securities of foreign issuers,
including issuers located in emerging markets. The Small Cap Portfolio may enter
into repurchase agreements, engage in short selling and invest in restricted and
illiquid securities, although it intends to invest in restricted and illiquid
securities on an occasional basis only. The Small Cap Portfolio may purchase and
sell put and call options, enter into futures contracts, purchase and sell
options on such futures contracts and engage in currency transactions. See
"Description of Securities and Related Risks" and "Investment Techniques and
Related Risks" below for additional information.
THE SMALL CAPITALIZATION
EQUITY FUND II
The investment objective and characteristics of the Small Cap II Fund correspond
directly to those of the Small Capitalization Equity Portfolio II ("Small Cap II
Portfolio") in which the Fund invests all of its investable assets. The
following is a discussion of the investment objectives and policies of the Small
Cap II Portfolio.
Investment Objective. The Small Cap II Portfolio's investment objective is to
achieve long term growth of capital.
Principal Investments. Under normal circumstances, at least 80% of the Small Cap
II Portfolio's total assets will be invested in equity and equity-related
securities of small capitalization companies. The Small Cap II Portfolio will
focus its investments in small capitalization companies on those with market
values less than $1 billion. When Standish believes that securities of small
capitalization companies are overvalued, the Small Cap II Portfolio may invest
in securities of larger, more mature companies, provided that such investments
do not exceed 20% of the Portfolio's total assets. The Small Cap II Portfolio
may participate in initial public offerings for previously privately held
companies which are generally expected
10
<PAGE>
to have market capitalizations less than $1 billion after the consummation of
the offering, and whose securities are expected to be liquid after the offering.
Investment Strategies. The Small Cap II Portfolio will pursue investments in
rapidly growing, high quality companies that are involved with value added
products or services. These companies will have market capitalizations less than
$1 billion. Companies with small market capitalizations may have more limited
operating histories and/or less experienced management than larger
capitalization companies and may pose additional risks.
Other Investments. When Standish believes that foreign markets offer above
average growth potential, the Small Cap II Portfolio may invest up to 15% of its
total assets in equity and equity-related securities of foreign issuers,
including issuers located in emerging markets. The Small Cap II Portfolio may
enter into repurchase agreements, engage in short selling and is permitted to
invest in restricted and illiquid securities, although it intends to invest in
restricted and illiquid securities on an occasional basis only. The Small Cap II
Portfolio may also purchase and sell put and call options, enter into futures
contracts, purchase and sell options on such futures contracts and engage in
currency transactions. See "Description of Securities and Related Risks" and
"Investment Techniques and Related Risks" below for additional information.
THE INTERNATIONAL EQUITY FUND
Investment Objective. The International Equity Fund's investment objective is to
obtain long-term capital growth through investment in a diversified portfolio of
foreign equity securities. Capital growth is expected to result primarily from
appreciation of the equity securities held in the Fund's portfolio; however, the
Fund may take advantage of changes in currency exchange rates in an effort to
realize additional capital appreciation. Income received on the Fund's
investments is incidental to the Fund's primary objective to obtain long-term
capital growth.
Principal Investments. Under normal circumstances, at least 65% of the
International Equity Fund's total assets will be invested in equity and
equity-related securities of companies located in the foreign countries
represented in the Morgan Stanley Capital International World Index (the "MSCI
Index") and the Europe, Australia, Far East Index (the "EAFE Index"), Canada
and, to a limited extent, emerging markets. The Fund intends to be invested in a
broad range of foreign countries, but is not required to invest in each country
represented in the EAFE Index or to invest in those countries in accordance with
their weightings in the EAFE Index. The Fund intends to invest in a minimum of
five countries.
Up to 25% of the Fund's total assets may be invested in securities of issuers
doing business in emerging markets, provided that not more than 5% of the Fund's
total assets may be invested in issuers located in any one emerging market.
SIMCO considers an emerging equity market to be any country that is not
represented in the MSCI World Index, which is an index of stocks in developed
markets.
Investment Strategy. The Fund follows a disciplined investment strategy,
emphasizing stocks and markets which SIMCO believes offer above average
potential for capital growth. Although the precise application of the discipline
varies according to market conditions, SIMCO uses statistical modeling
techniques that utilize stock and market specific factors to identify equity
securities and markets that are attractive as purchase candidates. These factors
include current and historical price multiple ratios and trends in consensus
analysis estimates. Once identified, these securities and markets are subject to
further review by the Fund's portfolio manager before they are included in the
Fund's portfolio. Securities selected for inclusion in the Fund's portfolio will
represent various industries and sectors.
Other Investments. The Fund may invest in fixed income securities such as bonds,
notes, Eurodollar securities and other debt obligations issued by the U.S.
government, its agencies, authorities and sponsored enterprises, foreign
governments and their political subdivisions, and corporate issuers located in
or doing business in foreign countries. These fixed income securities will be
rated at the time of investment A or better by Moody's, Standard & Poor's, Duff
or Fitch or, if unrated, determined by SIMCO to be of comparable credit quality.
The Fund may invest in preferred stocks of an issuer of any credit quality if
the common stocks of the issuer are not available to the Fund for investment.
The Fund may enter into repurchase agreements, engage in short selling and
invest in restricted and illiquid securities. The Fund may purchase and sell put
and call options, enter into futures contracts, purchase and sell options on
such futures contracts and engage in currency transactions. See "Description of
Securities and Related Risks" and "Investment Techniques and Related Risks"
below for additional information.
DESCRIPTION OF SECURITIES
AND RELATED RISKS
The following sections include descriptions of specific securities and the risks
that are associated with the purchase of a particular type of security or the
utilization of a specific investment technique. For
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purposes of the discussion in this section and the "Investment Techniques and
Related Risks" section of this Prospectus, the use of the term "Fund" or "Funds"
refers to each of the Equity Portfolio, the Small Cap Portfolio, the Small Cap
II Portfolio and the International Equity Fund, unless otherwise noted.
Common Stocks. Common stocks are shares of a corporation or other entity that
entitle the holder to a pro rata share of the profits of the corporation, if
any, without preference over any other shareholder or class of shareholders,
including holders of the entity's preferred stock and other senior equity.
Common stock usually carries with it the right to vote and frequently an
exclusive right to do so.
Small Capitalization Stocks. The Small Cap and Small Cap II Portfolios invests
primarily, and the other Funds may invest to a lesser extent, in securities of
small capitalization companies. Although investments in small capitalization
companies may present greater opportunities for growth, they also involve
greater risks than are customarily associated with investments in larger, more
established companies. The securities of small companies may be subject to more
volatile market movements than securities of larger, more established companies.
Smaller companies may have limited product lines, markets or financial
resources, and they may depend upon a limited or less experienced management
group. The securities of small capitalization companies may be traded only on
the over-the-counter market or on a regional securities exchange and may not be
traded daily or in the volume typical of trading on a national securities
exchange. As a result, the disposition by a Portfolio of securities in order to
meet redemptions or otherwise may require the Portfolio to sell securities at a
discount from market prices, over a longer period of time or during periods when
disposition is not desirable.
Convertible Securities Convertible debt securities and preferred stock entitle
the holder to acquire the issuer's stock by exchange or purchase for a
predetermined rate. Convertible securities are subject both to the credit and
interest rate risks associated with fixed income securities and to the stock
market risk associated with equity securities.
Warrants. Warrants acquired by a Fund entitle it to buy common stock from the
issuer at a specified price and time. Warrants are subject to the same market
risks as stocks, but may be more volatile in price. A Fund's investment in
warrants will not entitle it to receive dividends or exercise voting rights and
will become worthless if the warrants cannot be profitably exercised before
their expiration dates.
Foreign Securities. The International Equity Fund may invest in foreign
securities without limit. The Small Cap Portfolio and the Small Cap II Portfolio
limit their investments in foreign securities to 15% of their respective total
assets, including securities of foreign issuers that trade on a U.S. exchange or
in the U.S. OTC market. The Equity Fund may invest without limit in foreign
securities which trade on a U.S. exchange or in the U.S. OTC market, but is
limited to 10% of total assets on those foreign securities which are not so
listed or traded.
Investing in Foreign Securities. Investing in the securities of foreign issuers
involves risks that are not typically associated with investing in U.S.
dollar-denominated securities of domestic issuers. Investments in foreign
issuers may be affected by changes in currency rates, changes in foreign or U.S.
laws or restrictions applicable to such investments and in exchange control
regulations (e.g., currency blockage). A decline in the exchange rate of the
currency (i.e., weakening of the currency against the U.S. dollar) in which a
portfolio security is quoted or denominated relative to the U.S. dollar would
reduce the value of the portfolio security. Commissions on transactions in
foreign securities may be higher than those for similar transactions on domestic
stock markets. In addition, clearance and settlement procedures may be different
in foreign countries and, in certain markets, such procedures have on occasion
been unable to keep pace with the volume of securities transactions, thus making
it difficult to conduct such transactions.
Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to U.S. issuers.
There may be less publicly available information about a foreign issuer than
about a U.S. issuer. In addition, there is generally less government regulation
of foreign markets, companies and securities dealers than in the U. S. Most
foreign securities markets may have substantially less trading volume than U.S.
securities markets and securities of many foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.
Currency Risks. The U.S. dollar value of securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currencies in which a Fund's
investments are
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denominated relative to the U.S. dollar will affect the Fund's net asset value.
Exchange rates are generally affected by the forces of supply and demand in the
international currency markets, the relative merits of investing in different
countries and the intervention or failure to intervene of U.S. or foreign
governments and central banks. Some countries in emerging markets also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets are subject to the risk of restrictions upon the free
conversion of their currencies into other currencies. Any devaluations relative
to the U.S. dollar in the currencies in which a Fund's securities are quoted
would reduce the Fund's net asset value per share.
The International Equity Fund may invest any portion of its assets in securities
denominated in a particular currency. The portion of the International Equity
Fund's assets invested in securities denominated in non-U.S. currencies will
vary depending on market conditions.
Each Fund may enter into forward foreign currency exchange contracts and cross
currency forward contracts with banks or other foreign currency brokers or
dealers to purchase or sell foreign currencies at a future date and may purchase
and sell foreign currency futures contracts and cross-currency futures contracts
to hedge against changes in foreign currency exchange rates, although the
Equity, the Small Cap and Small Cap II Portfolios have no current intention to
engage in such transactions. A forward foreign currency exchange contract is a
negotiated agreement between the contracting parties to exchange a specified
amount of currency at a specified future time at a specified rate. A
cross-currency forward contract is a forward contract that uses one currency
which historically moves in relation to a second currency to hedge against
changes in that second currency. See "Strategic Transactions" within the
"Investment Techniques and Related Risks" section for a further discussion of
the risks associated with currency transactions.
Emerging Markets. The International Equity Fund is permitted to invest up to 25%
of its total assets in issuers located in emerging markets. The Equity, Small
Cap and Small Cap II Portfolios may invest up to 10% of their total assets in
issuers located in emerging markets generally and up to 3% of their total assets
in issuers of any one specific emerging market country. Investments in emerging
markets involves risks in addition to those generally associated with
investments in foreign securities. Political and economic structures in many
emerging markets may be undergoing significant evolution and rapid development,
and such countries may lack the social, political and economic stability
characteristics of more developed countries. As a result, the risks described
above relating to investments in foreign securities, including the risks of
nationalization or expropriation of assets, may be heightened. In addition,
unanticipated political or social developments may affect the values of the
Fund's investments and the availability to the Fund of additional investments in
such emerging markets. The small size of the securities markets in certain
emerging markets and the limited volume of trading in securities in those
markets may make the Fund's investments in such countries less liquid and more
volatile than investments in countries with more developed securities markets
(such as the U.S., Japan and most Western European countries).
Depositary Receipts and Depositary Shares. Depositary receipts and depositary
shares are typically issued by a U.S. or foreign bank or trust company and
evidence ownership of underlying securities of a U.S. or foreign issuer.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored depositary
instruments and their prices may be more volatile than if they were sponsored by
the issuers of the underlying securities. Examples of such investments include,
but are not limited to, American Depositary Receipts and Shares ("ADRs" and
"ADSs"), Global Depositary Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs").
Money Market Instruments and Short-Term Securities. Although each Fund intends
to stay invested in equity and equity-related securities to the extent practical
in light of its objective, each Fund may, under normal market conditions,
establish and maintain cash balances and may purchase money market instruments
with maturities of less than one year and short-term interest bearing fixed
income securities with maturities of one to three years ("Short-Term
Obligations") to maintain liquidity to meet redemptions. The Small Cap Portfolio
and Small Cap II Portfolio may hold up to 20% of their total assets in money
market instruments and Short-Term Obligations without regard to the liquidity
needs of their portfolios. Each Fund may also maintain cash balances and invest
in money market instruments and Short-Term Obligations without limitation as a
temporary defensive measure.
Money market instruments in which the Funds invest will be rated at the time of
purchase P-1 by Moody's or A-1 or Duff-1 by Standard & Poor's, Duff and Fitch
or, if unrated, determined by the Adviser to be of comparable quality. Money
market instruments and Short-Term Obligations include obligations issued or
guaranteed by the U.S. Government or any of its agencies and instrumentalities,
U.S. and foreign
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commercial paper, bank obligations, repurchase agreements and other debt
obligations of U.S. and foreign issuers. At least 95% of a Fund's assets that
are invested in Short-Term Obligations must be invested in obligations rated at
the time of purchase Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1
by Standard & Poor's, Duff or Fitch or, if unrated, determined by the Adviser to
be of comparable credit quality. Up to 5% of a Fund's total assets invested in
Short-Term Obligations may be invested in obligations rated Baa by Moody's or
BBB by Standard & Poor's, Duff or Fitch or, if unrated, determined by the
Adviser to be of comparable credit quality.
U.S. Government securities. include U.S. Treasury obligations and obligations
issued or guaranteed by U.S. Government agencies, instrumentalities or sponsored
enterprises which are supported by (a) the full faith and credit of the U.S.
Treasury (such as the Government National Mortgage Association), (b) the right
of the issuer to borrow from the U.S. Treasury (such as securities of the
Student Loan Marketing Association), (c) the discretionary authority of the U.S.
Government to purchase certain obligations of the issuer (such as the Federal
National Mortgage Association and Federal Home Loan Mortgage Corporation), or
(d) only the credit of the agency. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies,
instrumentalities or sponsored enterprises in the future. U.S. Government
securities also include Treasury receipts, zero coupon bonds, deferred interest
securities and other stripped U.S. Government securities, where the interest and
principal components of stripped U.S. Government securities are traded
independently ("STRIPS").
Securities rated within the top three investment grade ratings (i.e., Aaa, Aa, A
or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff or
Fitch) are generally regarded as high grade obligations. Securities rated Baa by
Moody's or BBB by Standard & Poor's, Duff or Fitch are generally considered
medium grade obligations and have some speculative characteristics. Adverse
changes in economic conditions or other circumstances are more likely to weaken
the medium grade issuer's capability to pay interest and repay principal than is
the case for high grade securities. If a security is rated differently by two or
more rating agencies, the Adviser uses the highest rating to determine its
rating category. If the rating of a security held by a Fund is downgraded below
the minimum rating, the Adviser will determine whether to retain that security
in the Fund's portfolio.
INVESTMENT TECHNIQUES
AND RELATED RISKS
Strategic Transactions. Each Fund may, but is not required to, utilize various
investment strategies to seek to hedge market risks (such as interest rates,
currency exchange rates and broad or specific equity market movements), or to
enhance potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by each Fund may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing their investment objectives, each Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity indices and other financial instruments; purchase and sell
financial futures contracts and options thereon; and, to the extent a Fund
invests in foreign securities denominated in foreign currencies, enter into
currency transactions such as forward foreign currency exchange contracts, cross
currency forward contracts, currency futures contracts, cross currency futures
contracts, currency swaps and options on currencies or currency futures,
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used in an attempt to protect against possible changes in
the market value of securities held in or to be purchased for a portfolio
resulting from securities markets, currency exchange rate or interest rate
fluctuations, to seek to protect unrealized gains in the value of portfolio
securities, to facilitate the sale of such securities for investment purposes,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities. In addition to the hedging
transactions referred to in the preceding sentence, Strategic Transactions may
also be used to enhance potential gain in circumstances where hedging is not
involved.
The ability of a Fund to utilize Strategic Transactions successfully will depend
on Standish's ability to predict pertinent market and interest rate movements,
which cannot be assured. Each Fund will comply with applicable regulatory
requirements when implementing these strategies, techniques and instruments. The
Funds' activities involving Strategic Transactions may be limited by the
requirements of the Code for qualification as a regulated investment company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
the Adviser's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such
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Strategic Transactions could result in losses greater than if they had not been
used. The writing of put and call options may result in losses to a Fund, force
the purchase or sale, respectively, of portfolio securities at inopportune times
or for prices higher than (in the case of purchases due to the exercise of put
options) or lower than (in the case of sales due to the exercise of call
options) current market values, limit the amount of appreciation a Fund can
realize on its investments or cause a Fund to hold a security it might otherwise
sell.
The use of options and futures transactions entails certain other risks. Futures
markets are highly volatile and the use of futures may increase the volatility
of a Fund's net asset value. In particular, the variable degree of correlation
between price movements of futures contracts and price movements in the related
portfolio position of a Fund creates the possibility that losses on the hedging
instrument may be greater than gains in the value of the Fund's position. The
writing of options could significantly increase a Fund's portfolio turnover rate
and associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses. Losses resulting from the use of Strategic Transactions could reduce net
asset value and the net result may be less favorable than if the Strategic
Transactions had not been utilized. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the position, at the same time, it can limit any
potential gain which might result from an increase in value of such position.
The loss incurred by a Fund in writing options on futures and entering into
futures transactions is potentially unlimited.
The use of currency transactions can result in a Fund incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency. Each Fund will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes to 3% of net
assets. In calculating a Fund's net loss exposure from such Strategic
Transactions, an unrealized gain from a particular Strategic Transaction would
be netted against an unrealized loss from a related position. See the Statement
of Additional Information for further information regarding the use of Strategic
Transactions.
Repurchase Agreements. Each Fund (except the International Equity Fund) may
invest up to 10% of its net assets in repurchase agreements. The International
Equity Fund is not subject to the same limit, except that investments in
repurchase agreements maturing in more than 7 days are subject to the Fund's 15%
limit on investments in illiquid securities. In a repurchase agreement, a Fund
buys a security at one price and simultaneously agrees to sell it back at a
higher price. Delays or losses could result if the other party to the agreement
defaults or becomes insolvent. Repurchase agreements acquired by a Fund will
always be fully collateralized as to principal and interest by money market
instruments and will be entered into only with commercial banks, brokers and
dealers considered creditworthy by the Adviser.
Short Sales. Each Fund may engage in short sales and short sales against the
box. In a short sale, a Fund sells a security it does not own in anticipation of
a decline in the market value of that security. In a short sale against the box,
a Fund either owns or has the right to obtain at no extra cost the security sold
short. The broker holds the proceeds of the short sale until the settlement
date, at which time the Fund delivers the security (or an identical security) to
cover the short position. The Fund receives the net proceeds from the short
sale. When a Fund enters into a short sale other than against the box, the Fund
must first borrow the security to make delivery to the buyer and must place cash
or liquid assets in a segregated account with the Fund's custodian that is
marked to market daily. Short sales other than against the box involve unlimited
exposure to loss. No securities will be sold short if, after giving effect to
any such short sale, the total market value of all securities sold short would
exceed 5% of the value of a Fund's net assets.
Restricted and Illiquid Securities. Each Fund may invest up to 15% of its net
assets in illiquid securities; however, the Equity Portfolio, the Small Cap
Portfolio and Small Cap II Portfolio invest in these securities only on an
occasional basis. Illiquid securities are those that are not readily marketable,
repurchase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days, swap transactions, certain
over-the-counter options and certain restricted securities. Based upon
continuing review of the trading markets for a specific restricted security, the
security may be determined to be eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 and, therefore, to
be liquid. Also, certain illiquid securities may be determined to be liquid if
they are found to satisfy certain relevant liquidity requirements.
The Boards of Trustees have adopted guidelines and delegated to the Adviser the
daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Boards of
Trustees, however, retain oversight and
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are ultimately responsible for such determinations. The purchase price and
subsequent valuation of illiquid securities normally reflect a discount, which
may be significant, from the market price of comparable securities for which a
liquid market exists.
Investments in Other Investment Companies. Each Fund is permitted to invest up
to 10% of its total assets in shares of investment companies and up to 5% of its
total assets in any one investment company as long as that investment does not
represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. Because certain emerging
markets are closed to investment by foreigners, the Funds may invest in issuers
in those markets primarily through specifically authorized investment funds. In
addition, each Fund may invest in investment companies that are designed to
replicate the composition and performance of a particular index. For example,
Standard & Poor's Depositary Receipts ("SPDERS") are exchange-traded shares of a
closed-end investment company designed to replicate the price performance and
dividend yield of the Standard & Poor's 500 Composite Stock Price Index. Another
example is World Equity Benchmark Series ("WEBS") which are exchange traded
shares of open-end investment companies designed to replicate the composition
and performance of publicly traded issuers in particular countries. Investments
in index baskets involve the same risks associated with a direct investment in
the types of securities included in the baskets.
Portfolio Turnover. A high rate of portfolio turnover (100% or more) involves
correspondingly higher transaction costs which must be borne directly by a Fund
and thus indirectly by its shareholders. It may also result in a Fund's
realization of larger amounts of short-term capital gains, distributions from
which are taxable to shareholders as ordinary income and may, under certain
circumstances, make it more difficult for the Fund to qualify as a regulated
investment company under the Code. See "Financial Highlights" for each Fund's
portfolio turnover rates.
Short-Term Trading. Each Fund will sell a portfolio security without regard to
the length of time such security has been held if, in Standish's view, the
security meets the criteria for disposal.
Investment Restrictions. The investment objectives of the Portfolios and the
Small Capitalization Equity Fund II are not fundamental and may be changed by
the Boards of Trustees without the approval of shareholders. The investment
objectives of the Equity Fund, the International Equity Fund and the Small
Capitalization Equity Fund are fundamental and may not be changed without a vote
of the applicable Fund's shareholders. If there is a change in a Fund's
investment objectives, shareholders should consider whether the Fund remains an
appropriate investment in light of their current financial situation. Each
Portfolio's and Fund's investment policies set forth in this Prospectus are
non-fundamental and may be changed without shareholder approval, except that the
Equity Fund's 10% limit on repurchase agreements is fundamental. Each Fund and
Portfolio has adopted fundamental policies which may not be changed without the
approval of the Funds' shareholders. See "Investment Restrictions" in the
Statement of Additional Information. If any percentage restriction is adhered to
at the time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of a Fund's assets will not constitute a
violation of the restriction.
INFORMATION ABOUT THE
MASTER-FEEDER STRUCTURE
Each Standish Feeder Fund seeks to achieve its investment objective by investing
all of its investable assets in its corresponding Portfolio, which has an
identical investment objective. Each of the Standish Feeder Funds is a feeder
fund and its corresponding Portfolio is the master fund in a so-called master-
feeder structure. The International Equity Fund purchases securities directly
and maintains its own individual portfolio.
In addition to the Standish Feeder Funds, other feeder funds may invest in these
Portfolios, and information about these other feeder funds is available from
Standish Fund Distributors. The other feeder funds invest in the Portfolios on
the same terms as the Funds and bear a proportionate share of the Portfolios'
expenses. The other feeder funds may sell shares on different terms and under a
different pricing structure than the Funds, which may produce different
investment results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment adviser or find a substitute master fund. Withdrawal of a Fund's
interest in its Portfolio might cause the Fund to incur expenses it would not
otherwise be required to pay.
If a Fund is requested to vote on a matter affecting its
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Portfolio, the Fund will call a meeting of the Fund's shareholders to vote on
the matter. The Fund will vote on any matter at the meeting of the Portfolio's
investors in the same proportion that the Fund's shareholders voted on the
matter. The Fund will vote the shares held by Fund shareholders who do not vote
in the same proportion as the shares of Fund shareholders who do vote.
A majority of the Trustees who are not "interested persons" (as defined in the
1940 Act) of the Trust or the Portfolio Trust, as the case may be, have adopted
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are trustees of the Trust and of
the Portfolio Trust.
CALCULATION OF PERFORMANCE DATA
From time to time, each Fund may advertise its annual total return is determined
by computing the average annual percentage change in the value of $1,000
invested at the maximum public offering price for specified periods ending with
the most recent calendar quarter, assuming reinvestment of all dividends and
distributions at net asset value. The total return calculation assumes a
complete redemption of the investment at the end of the relevant period. Each
Fund may also from time to time advertise total return on a cumulative, average,
year- by-year or other basis for various specified periods by means of
quotations, charts, graphs or schedules.
From time to time, a Fund may compare its performance in publications with that
of other mutual funds with similar investment objectives, to stock and other
relevant indices, and to performance rankings prepared by recognized mutual fund
statistical services. In addition, a Fund's performance may be compared to
alternative investment or savings vehicles or to indices or indicators of
economic activity.
The EAFE Index. The EAFE Index is a market capitalization weighted foreign
securities index which is widely used to measure the performance of European,
Australian, and Far Eastern stock markets. The EAFE Index currently includes
over 1,000 companies drawn from the following 20 countries: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, The Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland and the United Kingdom.
The S&P 500 Index. The S&P 500 Index is a market weighted compilation of 500
common stocks selected on a statistical basis by Standard & Poor's. Total return
for the S&P 500 Index assumes reinvestment of dividends. The S&P 500 Index is
typically composed of issues in the following sectors: industrial, financial,
public utilities and transportation. Most stocks that comprise the S&P 500 Index
are traded on the New York Stock Exchange, although some are traded on the
American Stock Exchange and in the over-the-counter market.
The Russell 2000 Index. The Russell 2000 Index is composed of approximately
2,000 small capitalization common stocks and is generally representative of
unmanaged small capitalization stocks in the U.S. markets. A company's stock
market capitalization is the total market value of its floating outstanding
shares.
The Russell 2000 Growth Index. The Russell 2000 Growth Index is composed of
approximately 2,000 small capitalization common stocks and is generally
considered to be representative of those Russell 2000 companies with higher
price-to-book ratios and forecasted growth.
DIVIDENDS AND DISTRIBUTIONS
The Funds' dividends from short-term and long-term capital gains, if any, after
reduction by capital losses, will be declared and distributed at least annually,
as will dividends from net investment income. In determining the amounts of its
dividends, the Equity Fund, Small Cap Fund and Small Cap II Fund will take into
account their share of the income, gain or loss, expense, and any other tax
items of its corresponding Portfolio. Dividends from net investment income and
capital gains distributions, if any, are automatically reinvested in additional
shares of the applicable Fund unless the shareholder elects to receive them in
cash.
PURCHASE OF SHARES
Shares of the Funds may be purchased from Standish Fund Distributors, which
offers the Funds' shares to the public on a continuous basis. Shares are sold at
the net asset value per share next computed after the purchase order is received
in good order by Standish Fund Distributors and payment for the shares is
received by the Fund's custodians (the "Custodians"). Investors Bank & Trust
Company serves as custodian for the Equity Fund, Small Cap Fund and Small Cap II
Fund and Morgan Stanley Trust Company serves as custodian for the International
Equity Fund. Please see each Fund's account application or call (800) 221- 4795
for instructions on how to make payment for shares to the Custodians. Each Fund
requires minimum initial investments of $100,000. Additional investments must be
in amounts of at least $10,000. Certificates for Fund shares are generally not
issued. Shares of the Funds may also be purchased through securities dealers.
Orders for the purchase of Fund shares received by dealers by the close of
regular
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trading on the New York Stock Exchange ("NYSE") on any business day and
transmitted to Standish Funds Distributor or its agent by the close of its
business day (normally 4:00 p.m., New York City time) will be effected as of the
close of regular trading on the NYSE on that day, if payment for the shares is
also received by the Custodians that day. Otherwise, orders will be effected at
the net asset value per share determined on the next business day. It is the
responsibility of dealers to transmit orders so they will be received by
Standish Fund Distributors before the close of its business day. Shares of a
Fund purchased through dealers may be subject to transaction fees on purchase or
redemption, no part of which will be received by the Funds, Standish Fund
Distributors or the Advisers.
In the sole discretion of the Trust, each Fund may accept securities instead of
cash for the purchase of shares. The Trust will ask the applicable Adviser to
determine that any securities acquired by the Funds in this manner are
consistent with the investment objective, policies and restrictions of the
applicable Fund. The securities will be valued in the manner stated below. The
purchase of shares of a Fund for securities instead of cash may cause an
investor who contributed them to realize a taxable gain or loss with respect to
the securities transferred to the Fund.
The Trust reserves the right in its sole discretion (i) to suspend the offering
of a Fund's shares, (ii) to reject purchase orders when in the best interest of
a Fund, (iii) to modify or eliminate the minimum initial or subsequent
investment in Fund shares and (iv) to eliminate duplicate mailings of Fund
material to shareholders who reside at the same address. A Fund's investment
minimums do not apply to accounts for which Standish or any of its affiliates
serves as investment adviser or to employees of Standish or any of its
affiliates or to members of such persons' immediate families. A Fund's
investment minimums apply to the aggregate value invested in omnibus accounts
rather than to the investment of the underlying participants in the omnibus
accounts.
NET ASSET VALUE
Each Fund's net asset value per share is computed each day on which the NYSE is
open as of the close of regular trading on the NYSE (normally 4:00 p.m., New
York City time). The net asset value per share is calculated by determining the
value of all a Fund's assets (the value of their investments in the
corresponding Portfolio and other assets in the case of the Standish Feeder
Funds), subtracting all liabilities and dividing the result by the total number
of shares outstanding. Portfolio securities are valued at the last sale prices
on the exchange or national securities market on which they are primarily
traded. Securities not listed on an exchange or national securities market or
securities for which there were no reported transactions are valued at the last
quoted bid prices. Securities for which market prices are not readily available
and all other assets are valued at fair value as determined in good faith by the
applicable Adviser in accordance with procedures approved by the Trustees. Money
market instruments with less than sixty days remaining to maturity when acquired
by a Fund are valued on an amortized cost basis unless the Trustees determine
that amortized cost does not represent fair value. If a Fund acquires a money
market instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date unless the
Trustees determine during such sixty-day period that amortized cost does not
represent fair value.
Portfolio securities traded on more than one U.S. national securities exchange
or on a U.S. exchange and a foreign securities exchange are valued at the last
sale price from the exchange representing the principal market for such
securities on the business day when such value is determined. The value of all
assets and liabilities expressed in foreign currencies will be converted into
U.S. dollar values at currency exchange rates determined by Investors Bank and
Trust Company, the Funds' transfer agent, to be representative of fair levels at
times prior to the close of trading on the NYSE. If such rates are not
available, the rate of exchange will be determined in good faith under
procedures established by the Trustees. Trading in securities on European and
Far Eastern securities exchanges and over-the-counter markets is normally
completed well before the close of business on the NYSE and may not take place
on all business days that the NYSE is open and may take place on days when the
NYSE is closed. Events affecting the values of portfolio securities that occur
between the time their prices are determined and the close of regular trading on
the NYSE will not be reflected in the Funds' calculation of net asset values
unless the Adviser determines that the particular event would materially affect
net asset value, in which case an adjustment will be made.
EXCHANGE OF SHARES
Shares of the Funds may be exchanged for shares of one or more other funds in
the Standish fund family subject to the terms and restrictions imposed on the
purchase of shares of such funds. Shares of a fund redeemed in an exchange
transaction are valued at the net asset value next determined after the exchange
request is received by Standish Fund Distributors or its agent. Shares of a fund
purchased in an exchange transaction are valued at the net asset value next
determined after the exchange request is received by
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Standish Fund Distributors or its agent and payment for the shares is received
by the fund into which shares are to be exchanged. Until receipt of the purchase
price by the fund into which shares are to be exchanged (which may take up to
three business days), your money will not be invested. To obtain a current
prospectus for any of the other funds in the Standish fund family, please call
(800) 221-4795. Please consider the differences in investment objectives and
expenses of a fund as described in its prospectus before making an exchange.
Written Exchanges. Shares of the Funds may be exchanged by written order to
Standish Fund Distributors, One Financial Center, Boston, Massachusetts 02111. A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as described under "Written Redemption" below.
Telephone Exchanges. Shareholders who elect telephone privileges may exchange
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Proper
identification will be required for each telephone exchange. Please see
"Telephone Transactions" below for more information regarding telephone
transactions.
General Exchange Information. All exchanges are subject to the following
exchange restrictions: (i) the fund into which shares are being exchanged must
be lawfully available for sale in your state; (ii) exchanges may be made only
between funds that are registered in the same name, address and, if applicable,
taxpayer identification number; and (iii) unless waived by the Trust, the amount
to be exchanged must satisfy the minimum account size of the fund to be
exchanged into. Exchange requests will not be processed until payment for the
shares of the current Fund has been received by Standish Fund Distributors. The
exchange privilege may be changed or discontinued and may be subject to
additional limitations upon sixty (60) days' notice to shareholders, including
certain restrictions on purchases by market-timer accounts.
REDEMPTION OF SHARES
Shares of the Funds may be redeemed or repurchased by the methods described
below at the net asset value per share next determined after receipt by Standish
Fund Distributors or its agent of a redemption or repurchase request in proper
form. Redemptions will not be processed until a completed account application
and payment for the shares to be redeemed have been received.
Written Redemption. Shares of each Fund may be redeemed by written order to
Standish Fund Distributors, One Financial Center, 26th Floor, Boston,
Massachusetts 02111. A written redemption request must (a) state the name of the
Fund and the number of shares or the dollar amount to be redeemed, (b) identify
the shareholder's account number and (c) be signed by each registered owner
exactly as the shares are registered. Signature(s) must be guaranteed by a
member of either the Securities Transfer Association's STAMP program or the
Exchange's Medallion Signature Program or by any one of the following
institutions, provided that the institution meets credit standards established
by Investors Bank & Trust Company, the Funds' transfer agent: (i) a bank; (ii) a
securities broker or dealer, including a government or municipal securities
broker or dealer, that is a member of a clearing corporation or has net capital
of at least $100,000; (iii) a credit union having authority to issue signature
guarantees; (iv) a savings and loan association, a building and loan
association, a cooperative bank, or a federal savings bank or association; or
(v) a national securities exchange, a registered securities exchange or a
clearing agency. Standish Fund Distributors reserves the right to waive the
requirement that signatures be guaranteed. Additional supporting documents may
be required in the case of estates, trusts, corporations, partnerships and other
shareholders that are not individuals. Redemption proceeds will normally be paid
by check mailed within three business days of receipt by Standish Fund
Distributors of a written redemption request in proper form. If shares to be
redeemed were recently purchased by check, the Funds may delay transmittal of
redemption proceeds until such time as they are assured that good funds have
been collected for the purchase of the shares. This may take up to fifteen (15)
days in the case of payments made by check.
Telephone Redemption. Shareholders who elect telephone privileges may redeem
shares by calling Standish Fund Distributors at (800) 221-4795. Telephone
privileges are not available to shareholders automatically. Redemption proceeds
will be mailed or wired in accordance with the shareholder's instruction on the
account application to a pre-designated account. Redemption proceeds will
normally be paid promptly after receipt of telephone instructions, but no later
than three business days thereafter, except as described above for shares
purchased by check. Redemption proceeds will be sent only by check payable to
the shareholder of record at the address of record, unless the shareholder has
indicated, in the initial application for the purchase of shares, a
20
<PAGE>
commercial bank to which redemption proceeds may be sent by wire. These
instructions may be changed subsequently only in writing, accompanied by a
signature guarantee, and additional documentation in the case of shares held by
a corporation or other entity or by a fiduciary such as a trustee or executor.
Wire charges, if any, will be deducted from redemption proceeds. Proper
identification will be required for each telephone redemption.
Repurchase Order. In addition to written redemption of Fund shares, Standish
Fund Distributors may accept telephone orders from brokers or dealers for the
repurchase of Fund shares. Brokers and dealers are obligated to transmit
repurchase orders to Standish Fund Distributors promptly prior to the close of
Standish Fund Distributors' business day (normally 4:00 p.m.). Brokers or
dealers may charge for their services in connection with a repurchase of Fund
shares, but neither the Trust nor Standish Fund Distributors imposes a charge
for share repurchases.
Telephone Transactions. By maintaining an account that is eligible for telephone
exchange and redemption privileges, the shareholder authorizes the Advisers,
Standish Fund Distributors, the Trust and the Custodians to act upon
instructions of any person to redeem and/or exchange shares from the
shareholder's account. Further, the shareholder acknowledges that, as long as
the Funds employ reasonable procedures to confirm that telephone instructions
are genuine, and follow telephone instructions that they reasonably believe to
be genuine, neither the Advisers, Standish Fund Distributors, the Trust, the
applicable Fund, the Custodians, nor their respective officers or employees,
will be liable for any loss, expense or cost arising out of any request for a
telephone redemption or exchange, even if such transaction results from any
fraudulent or unauthorized instructions.
Depending upon the circumstances, the Funds intend to employ personal
identification or written confirmation of transaction procedures, and if they do
not, a Fund may be liable for any losses due to unauthorized or fraudulent
instructions. All telephone transaction requests will be recorded. Shareholders
may experience delays in exercising telephone transaction privileges during
periods of abnormal market activity. During these periods, shareholders should
transmit redemption and exchange requests in writing.
* * * *
The proceeds paid upon redemption or repurchase may be more or less than the
cost of the shares, depending upon the market value of the applicable Fund's or
Portfolios' portfolio investments at the time of redemption or repurchase. The
Funds intend to pay cash for all shares redeemed, but under certain conditions,
the Funds may make payments wholly or partially in securities for this purpose.
Please see the Statement of Additional Information for further information.
Each Fund may redeem, at net asset value, the shares in any account which has a
value of less than $25,000 as a result of redemptions or transfers. Before doing
so, the Fund will notify the shareholder that the value of the shares in the
account is less than the specified minimum and will allow the shareholder 30
days to make an additional investment to increase the value of the account to an
amount equal to or above the stated minimums.
MANAGEMENT
Trustees. Each Fund is a separate investment series of the Trust, a
Massachusetts business trust. Under the terms of the Agreement and Declaration
of Trust establishing the Trust, the Trustees of the Trust are ultimately
responsible for the management of its business and affairs. Each Portfolio is a
separate investment series of the Standish, Ayer & Wood Master Portfolio
("Portfolio Trust"), a master trust fund organized under the laws of the State
of New York. Under the terms of the Declaration of Trust, each Portfolio's
affairs are managed under the supervision of the Portfolio Trust's Trustees. See
"Management" in the Statement of Additional Information for more information
about the Trustees and officers of the Trust and the Portfolio Trust.
Investment Advisers. Standish, Ayer & Wood, Inc., ("Standish"), One Financial
Center, Boston, Massachusetts 02111, serves as investment adviser to the Equity
Portfolio, Small Cap Portfolio and Small Cap II Portfolio pursuant to separate
investment advisory agreements. Standish is a Massachusetts corporation
incorporated in 1933 and is a registered investment adviser under the Investment
Advisers Act of 1940.
Standish International Management Company, L.P. ("SIMCO"), One Financial Center,
Boston, MA 02111, serves as investment adviser to the International Equity Fund
pursuant to an investment advisory agreement and manages the International
Equity Fund's investments and affairs subject to the supervision of the Trustees
of the Trust. SIMCO is a Delaware limited partnership which was organized in
1991 and is a registered investment adviser under the Investment Advisers Act of
1940. The general partner of SIMCO is Standish, which holds a 99.98% partnership
interest. The limited partners, who each hold a 0.01% interest in SIMCO, are
Walter M. Cabot, Sr., Director and Senior Adviser to Standish, and D.
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Barr Clayson, Chairman of the Board and a Director of SIMCO and a Managing
Director of Standish. Ralph S. Tate, a Managing Director of Standish, is
President and a Director of SIMCO. Richard S. Wood, Vice President and a
Managing Director of Standish and the President of the Trust, is the Executive
Vice President and a Director of SIMCO.
Standish and SIMCO provide fully discretionary management services and
counseling and advisory services to a broad range of clients throughout the
United States and abroad. As of February 28, 1997, Standish or SIMCO managed
approximately $[ ] billion of assets.
The Equity Portfolio's portfolio managers are Ralph S. Tate and David C.
Cameron. Mr. Tate and Mr. Cameron have been primarily responsible for the
day-to-day management of the Fund's portfolio since its inception in January,
1991 and of the Portfolio's portfolio since the Fund's conversion to the
master-feeder structure on May 3, 1996. During the past five years, Mr. Tate has
served as a Managing Director of Standish and President of SIMCO (since 1996)
and both Messrs. Tate and Cameron have each served as a Director and Vice
President of Standish and a Director of SIMCO (since 1995 for Mr. Cameron).
The International Equity Fund's portfolio manager is Remi J. Browne, who has
been primarily responsible for the day-to-day management of the Fund's portfolio
since December 1996. During the past five years, Mr. Browne has served as Vice
President and Chief Investment Officer of SIMCO and Vice President of Standish
since 1996 and as Managing Director of Ark Asset Management Company, New York,
prior thereto.
The Small Capitalization Equity Portfolio's portfolio manager is Nicholas S.
Battelle. Mr. Battelle has been primarily responsible for the day-to-day
management of the Fund's portfolio since its inception in August, 1990 and of
the Portfolio's portfolio since the Fund's conversion to the master-feeder fund
structure on May 3, 1996. During the past five years, Mr. Battelle has served as
a Vice President as well as a Director of Standish.
The Small Capitalization Equity Portfolio II's portfolio has two portfolio
managers: Mr. Nicholas S. Battelle and Mr. Andrew L. Beja. Mr. Battelle has been
primarily responsible for the day-to-day management of the Portfolio since 1990.
During the past five years, Mr. Battelle has served as a Vice President as well
as a Director of Standish. Mr. Beja has been associated with Standish since
March 1996 as Senior Analyst on the small capitalization company team and is a
Vice President of Standish. Prior to joining Standish, Mr. Beja was a Vice
President and analyst at Advest, Inc. from 1985-1996.
Subject to the supervision and direction of the Trustees of the Trust and the
Portfolio Trust, Standish manage the Portfolios' investments and SIMCO manages
the International Equity Fund's investments in accordance with their respective
investment objectives and policies, recommend investment decisions, place orders
to purchase and sell securities and permit the Portfolios' and the Funds to use
the name "Standish." For these services, each Portfolio pays Standish and the
International Equity Fund pays SIMCO a monthly fee at a stated annual percentage
rate of such Portfolio's ("Fund's") average daily net asset value:
Actual Rate
Contractual Paid for the
Advisory Year Ended
Fee Annual December 31,
Rate 1996
Equity Portfolio 0.50% 0.50%
Small Cap Equity Portfolio 0.60% 0.60%
Small Cap Equity II Portfolio 0.60% 0.00%*
International Equity Fund 0.80% 0.00%*
- ----------
* The applicable Adviser has voluntarily and temporarily agreed to limit total
expenses (excluding brokerage commissions, taxes and extraordinary expenses) of
the Small Cap II Fund and the International Equity Fund to 0.00% and 0.50% of
the applicable Fund's average daily net assets. The Advisers may terminate or
revise these agreements at any time although they have no current intention to
do so. If an expense limit is exceeded, the compensation due to an Adviser shall
be proportionately reduced by the amount of such excess by a reduction or refund
thereof, subject to readjustment during the period during which such limit is in
place.
Administrator. Standish serves as administrator to the Equity Fund, Small Cap
Fund and Small Cap II Fund. As administrator, Standish manages the affairs of
these Funds, provides all necessary office space and services of executive
personnel for administering the affairs of the Funds, and allows these Funds to
use the name "Standish." For these services, Standish currently does not receive
any additional compensation. The Trustees of the Trust may determine in the
future to compensate Standish for its administrative services.
Expenses. Each Portfolio and each Fund bears the expenses of its respective
operations other than those incurred by the respective Adviser under the
investment advisory agreements or the administration agreement.
Each Portfolio pays investment advisory fees; bookkeeping, share pricing and
custodian fees and expenses; expenses of notices and reports to interest
holders; and expenses of the Portfolio's administrator.
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Each Standish Feeder Fund pays shareholder servicing fees and expenses, expenses
of prospectuses, statements of additional information and shareholder reports
which are furnished to existing shareholders. Each Standish Feeder Fund and its
corresponding Portfolio pays legal and auditing fees; registration and reporting
fees and expenses. The International Equity Fund, since it does not invest in a
corresponding portfolio, bears all of the expenses listed above for both the
Portfolios and the Funds. Expenses of the Trust which relate to more than one
series are allocated among such series by Standish in an equitable manner.
Standish Fund Distributors bears the distribution expenses attributable to the
offering and sale of Fund shares without subsequent reimbursement.
Each Fund's total annual operating expenses for the fiscal year ended December
31, 1996 are described above under the caption "Financial Highlights."
Portfolio Transactions. Subject to the supervision of the Trustees of the Trust
and the Portfolio Trust, the Advisers select the brokers and dealers that
execute orders to purchase and sell portfolio securities for the Portfolios and
the International Equity Fund. The Advisers will generally seek to obtain the
best available price and most favorable execution with respect to all
transactions for the Portfolios and the International Equity Fund. The Advisers
may also consider the extent to which a broker or dealer provides research to
the Advisers and the number of Fund shares sold by the broker or dealer in
making their selection.
FEDERAL INCOME TAXES
Each Fund is a separate entity for federal tax purposes and presently qualifies
and intends to continue to qualify for taxation as a "regulated investment
company" under the Code. If it qualifies for treatment as a regulated investment
company, each Fund will not be subject to federal income tax on income
(including capital gains) distributed to shareholders in the form of dividends
or capital gain distributions in accordance with certain timing requirements of
the Code.
Shareholders which are taxable entities or persons will be subject to federal
income tax on dividends and capital gain distributions made by the Funds.
Dividends paid by a Fund from net investment income, certain net foreign
currency gains, and any excess of net short-term capital gain over net long-term
capital loss will be taxable to shareholders as ordinary income, whether
received in cash or reinvested in Fund shares. No portion of such dividends paid
by the International Equity Fund is expected to qualify for the corporate
dividends received deduction under the Code. A portion of such dividends paid by
the other Funds will generally qualify for that deduction, subject to certain
requirements and limitations under the Code. Dividends paid by a Fund from net
capital gain (the excess of net long-term capital gain over net short-term
capital loss), called "capital gain distributions," will be taxable to
shareholders as long-term capital gains, whether received in cash or reinvested
in Fund shares and without regard to how long the shareholder has held shares of
the Fund. Capital gain distributions do not qualify for the corporate dividends
received deduction. Dividends and capital gain distributions may also be subject
to state and local or foreign taxes. Redemptions (including exchanges) and
repurchases of shares are taxable events on which a shareholder may recognize a
gain or loss.
The International Equity Fund and the Portfolios may be subject to foreign taxes
with respect to income or gains from certain foreign investments, which will
reduce the yield or return from such investments. The International Equity Fund
may, but the other Funds are not likely to, qualify to elect to pass certain
qualifying foreign taxes through to shareholders. If this election is made,
shareholders would include their shares of qualified foreign taxes in their
gross incomes (in addition to any actual dividends and distributions) and might
be entitled to a corresponding federal income tax credit or deduction.
Shareholders will receive appropriate information from the Trust if this
election is made for any year.
Individuals and certain other classes of shareholders may be subject to 31%
backup withholding of federal income tax on dividends, capital gain
distributions, and the proceeds of redemptions or repurchases of shares, if they
fail to furnish the applicable Fund with their correct taxpayer identification
number and certain certifications or if they are otherwise subject to backup
withholding. Individuals, corporations and other shareholders that are not U.S.
persons under the Code are subject to different tax rules and may be subject to
nonresident alien withholding at the rate of 30% (or a lower rate provided by an
applicable tax treaty) on amounts treated as ordinary dividends from the Funds
and, unless a current IRS Form W-8 or an acceptable substitute is furnished to
the applicable Fund, to backup withholding on certain payments from that Fund.
After the close of each calendar year, the Funds will send a notice to
shareholders that provides information about the federal tax status of
distributions to shareholders for such calendar year.
23
<PAGE>
THE FUNDS AND THEIR SHARES
The Trust was organized on August 13, 1986 as a Massachusetts business trust. In
addition to the Funds offered in this Prospectus, the Trust offers other series
to the public. Shareholders of each Fund are entitled to one full or fractional
vote for each share of that Fund. There is no cumulative voting and shares have
no preemption or conversion rights. All series of the Trust vote together except
as provided in the 1940 Act or the Declaration of Trust. The Trust does not
intend to hold annual meetings of shareholders. The Trustees will call special
meetings of shareholders to the extent required by the Trust's Declaration of
Trust or the 1940 Act. The 1940 Act requires the Trustees, under certain
circumstances, to call a meeting to allow shareholders to vote on the removal of
a Trustee and to assist shareholders in communicating with each other.
Certificates for Fund shares are not issued.
The Portfolio Trust was organized on January 18, 1996 as a New York trust. In
addition to the Portfolios, the Portfolio Trust offers interests in other series
to certain qualified investors. See "Information about the Master- Feeder
Structure" above for additional information about the Portfolio Trust.
Inquiries concerning the Funds should be made by contacting Standish Fund
Distributors at the address and telephone number listed on the back cover of
this Prospectus.
Although each Fund is offering only its own shares, since the Funds use this
combined Prospectus, it is possible that one Fund might become liable for a
misstatement or omission in this Prospectus regarding another Fund. The Trustees
have considered this factor in approving the use of this combined Prospectus.
CUSTODIANS
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as custodian for all cash and securities of the Portfolios and the Equity
Fund, Small Cap Equity Fund and Small Cap Equity II Fund.
Morgan Stanley Trust Company, One Pierrepont Plaza, Brooklyn, New York 11201,
serves as custodian for all cash and securities of the International Equity
Fund.
TRANSFER AGENT
AND DIVIDEND DISBURSING AGENT
Investors Bank & Trust Company, 89 South Street, Boston, Massachusetts 02111,
serves as the Funds' transfer agent, dividend disbursing agent and Investors
Bank & Trust also provides accounting services to the Funds.
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P., One Post Office Square, Boston, Massachusetts 02109
and Coopers & Lybrand, P.O. Box 219, Grand Cayman, Cayman Islands, BWI, serves
as independent accountants for the Trust and the Portfolio Trust, respectively,
and will audit the Funds' and Portfolios' financial statements annually.
LEGAL COUNSEL
Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, is legal
counsel to the Trust, the Portfolio Trust and Standish and its affiliates.
TAX CERTIFICATION INSTRUCTIONS
Federal law requires that taxable distributions and proceeds of redemptions and
exchanges be reported to the IRS and that 31% be withheld if you fail to provide
your correct Taxpayer Identification Number ("TIN") and the TIN-related
certifications contained in the Account Purchase Application ("Application") or
you are otherwise subject to backup withholding. A Fund will not impose backup
withholding as a result of your failure to make any certification, except the
certifications in the Application that directly relate to your TIN and backup
withholding status. Amounts withheld and forwarded to the IRS can be credited as
a payment of tax when completing your Federal income tax return.
For most individual taxpayers, the TIN is the social security number. Special
rules apply for certain accounts. For example, for an account established under
the Uniform Gift to Minors Act, the TIN of the minor should be furnished. If you
do not have a TIN, you may apply for one using forms available at local offices
of the Social Security Administration or the IRS, and you should write "Applied
For" in the space for a TIN on the Application.
Recipients exempt from backup withholding, including corporations and certain
other entities, should provide their TIN and underline "exempt" in section 2(a)
of the TIN section of the Application to avoid possible erroneous withholding.
Non-resident aliens and foreign entities may be subject to withholding of up to
30% on certain distributions received from the Funds and must provide certain
certifications on IRS Form W- 8 to avoid backup withholding with respect to
other payments. For further information, see Code Sections 1441, 1442 and 3406
and/or consult your tax adviser.
24
<PAGE>
STANDISH FUNDS GROUP OF EQUITY FUNDS
Investment Adviser
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111
(Equity Fund,
Small Capitalization Equity Fund and
Small Capitalization Equity Fund II)
Investment Adviser
Standish International Management Company, L.P.
One Financial Center
Boston, Massachusetts 02111
(International Equity Fund)
Principal Underwriter Independent Accountants
Standish Fund Distributors, L.P. Coopers & Lybrand L.L.P.
One Financial Center One Post Office Square
Boston, MA 02111 Boston, Massachusetts 02109
Custodian Custodian
Investors Bank & Trust Company Morgan Stanley Trust Company
89 South Street One Pierrepont Plaza
Boston, Massachusetts 02111 Brooklyn, New York 11201
(Equity Fund, (Standish International Equity Fund)
Small Capitalization Equity Fund and
Small Capitalization Equity Fund II)
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
----------------------------------------------
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus or
in the Statement of Additional Information, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
25
<PAGE>
[ ], 1997
STANDISH GROUP OF FIXED INCOME FUNDS
STANDISH FIXED INCOME FUND
STANDISH FIXED INCOME FUND II
STANDISH SHORT-TERM ASSET RESERVE FUND
STANDISH CONTROLLED MATURITY FUND
STANDISH SECURITIZED FUND
One
Financial Center
Boston, Massachusetts 02111
(800) 221-4795
STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the combined
Prospectus dated [ ], 1997, as amended and/or supplemented from time to time
(the "Prospectus"), of the Standish Fixed Income Fund ("Fixed Income Fund"), the
Standish Fixed Income Fund II ("Fixed Income Fund II"), the Standish Short-Term
Asset Reserve Fund ("Short-Term Asset Reserve Fund"), the Standish Controlled
Maturity Fund ("Controlled Maturity Fund") and the Standish Securitized Fund
("Securitized Fund"), each a separate investment series of Standish, Ayer & Wood
Investment Trust (the "Trust"). These five funds 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
Prospectus, a copy of which may be obtained without charge by writing or calling
the Trust's principal underwriter, Standish Fund Distributors, L.P. (the
"Principal Underwriter"), at the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
-----------------------------------------------------
CONTENTS
INVESTMENT OBJECTIVES AND POLICIES.....................................2
INVESTMENT RESTRICTIONS...............................................13
CALCULATION OF PERFORMANCE DATA.......................................17
REDEMPTION OF SHARES..................................................30
PORTFOLIO TRANSACTIONS................................................30
DETERMINATION OF NET ASSET VALUE......................................30
THE FUNDS AND THEIR SHARES............................................31
THE PORTFOLIO AND ITS INVESTORS.......................................32
TAXATION..............................................................32
ADDITIONAL INFORMATION................................................36
EXPERTS AND FINANCIAL STATEMENTS......................................36
1
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The Prospectus describes the investment objectives and policies of each
Fund. The following discussion supplements the description of the Funds'
investment policies in the Prospectus. Each Fund's investment adviser, except
for the Fixed Income Fund as discussed below, is Standish, Ayer & Wood, Inc.
(the "Adviser").
As described in the Prospectus, the Fixed Income Fund seeks to achieve its
investment objective by investing all its investable assets in the Standish
Fixed Income Portfolio (the "Portfolio"), a series of Standish, Ayer & Wood
Master Portfolio (the "Portfolio Trust"), an open-end management investment
company. The Portfolio has the same investment objective and restrictions as the
Fixed Income Fund. Standish, Ayer & Wood, Inc. is the adviser to the Portfolio.
The Prospectus describes the investment objective of the Fixed Income Fund
and the Portfolio and summarizes the investment policies they will follow. Since
the investment characteristics of the Fixed Income Fund correspond directly to
those of the Portfolio, the following discusses the various investment
techniques employed by the Portfolio. See the Prospectus for a more complete
description of each Fund's and the Portfolio's investment objective, policies
and restrictions. For the purposes of discussion in this section of this
Statement of Additional Information, the use of the term "Funds" includes
references to the Portfolio unless otherwise voted.
Effective July 1, 1995, the Short-Term Asset Reserve Fund changed its name
from the Consolidated Standish Short-Term Asset Reserve Fund to the Standish
Short- Term Asset Reserve Fund.
Maturity and Duration
The effective maturity of an individual portfolio security in which a Fund
invests is defined as the period remaining until the earliest date when the Fund
can recover the principal amount of such security through mandatory redemption
or prepayment by the issuer, the exercise by the Fund 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 Fund
than was anticipated at the time the securities were purchased. A Fund'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 Fund.
Under normal market conditions, the Fixed Income Fund II will maintain an
option-adjusted duration in the range of plus or minus 15% of the duration of
the Lehman Government/Corporate Index. 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 Fund 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. Each Fund may use various techniques to shorten or
lengthen the option-adjusted duration of its portfolio, including the
acquisition of debt obligations at a premium or discount, and the use of
mortgage swaps and interest rate swaps, caps, floors and collars.
Money Market Instruments and Repurchase Agreements
Money market instruments include short-term U.S. Government securities,
commercial paper (promissory notes issued by corporations to finance their
short-term credit needs), negotiable certificates of deposit, non-negotiable
fixed time deposits, bankers' acceptances and repurchase agreements.
U.S. Government securities include securities which are direct obligations
of the U.S. Government backed by the full faith and credit of the United States
and securities issued by agencies and instrumentalities of the U.S. Government
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal Farm
Credit Bank, the Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Federal Home Loan Banks and the Federal National Mortgage Association.
Investments in commercial paper by the Portfolio, the Fixed Income Fund II
and the Securitized Fund will
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be rated Prime-1 by Moody's Investors Service, Inc. ("Moody's") or A-1 by
Standard & Poor's Ratings Group ("S&P") or Duff 1+ by Duff & Phelps, which are
the highest ratings assigned by these rating services (even if rated lower by
one or more of the other agencies), or which, if not rated or rated lower by one
or more of the agencies and not rated by the other agency or agencies, are
judged by the Adviser to be of equivalent quality to the securities so rated.
A repurchase agreement is an agreement under which a Fund acquires money
market instruments (generally U.S. Government securities) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed-upon price
and date (normally the next business day). The resale price reflects an
agreed-upon interest rate effective for the period the instruments are held by
the Fund and is unrelated to the interest rate on the instruments. The
instruments acquired by the Fund (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
custodian bank for the Fund until they are repurchased. In evaluating whether to
enter into a repurchase agreement, the Adviser will carefully consider the
creditworthiness of the seller pursuant to procedures reviewed and approved by
the Board of Trustees of the Trust or the Portfolio Trust, as the case may be.
The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
a Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Structured or Hybrid Notes
As more fully described in the Prospectus, each Fund may invest in
structured or hybrid notes. It is expected that not more than 5% of each Fund'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 Fund's net asset
value. Further, certain structured or hybrid notes may be illiquid for purposes
of the Funds' limitations on investments in illiquid securities.
Mortgage-Related Obligations
Some of the characteristics of mortgage-related obligations and the issuers
or guarantors of such securities are described below.
Life of Mortgage-Related Obligations
The average life of mortgage-related obligations is likely to be
substantially less than the stated maturities of the mortgages in the mortgage
pools underlying such securities. Prepayments or refinancing of principal by
mortgagors and mortgage foreclosures will usually result in the return of the
greater part of principal invested long before the maturity of the mortgages in
the pool.
As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.
GNMA Certificates
The Government National Mortgage Association ("GNMA") was established in
1968 when the Federal National Mortgage Association ("FNMA") was separated into
two organizations, GNMA and FNMA. GNMA is a wholly-owned government corporation
within the Department of Housing and Urban Development. GNMA developed the first
mortgage-backed pass-through instruments in 1970 for Farmers Home
Administration-FHMA-insured, Federal Housing Administration-FHA-insured and for
Veterans Administration-or VA-guaranteed mortgages ("government mortgages").
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
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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.
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
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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.
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.
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Strategic Transactions
Each Fund may, but is not required to, utilize various other investment
strategies as described below to seek to hedge various market risks, to manage
the effective maturity or duration of fixed-income securities, or to enhance
potential gain. Such strategies are generally accepted as part of modern
portfolio management and are regularly utilized by many mutual funds and other
institutional investors. Techniques and instruments used by the Funds may change
over time as new instruments and strategies are developed or regulatory changes
occur.
In the course of pursuing its investment objectives, each Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; enter into
various interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (the Portfolio and Securitized Fund only) (collectively, all the above
are called "Strategic Transactions"). Strategic Transactions may be used in an
attempt to protect against possible changes in the market value of securities
held in or to be purchased for the Funds' portfolios resulting from general
market, interest rate or currency exchange rate fluctuations, to protect the
Funds' unrealized gains in the value of their portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage
effective maturity or duration, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. In addition to the hedging transactions referred to in the preceding
sentence, Strategic Transactions may also be used to enhance potential gain in
circumstances where hedging is not involved although each Fund will attempt to
limit its net loss exposure resulting from Strategic Transactions entered into
for such purposes. The Portfolio, the Fixed Income Fund II, the Short-Term Asset
Reserve Fund, the Controlled Maturity Fund and the Securitized Fund will attempt
to limit net loss exposure from Strategic Transaction entered into for
non-hedging purposes to 3%, 1%, 1%, 1% and 3% respectively, of net assets.
(Transactions such as writing covered call options are considered to involve
hedging for the purposes of this limitation.) In calculating each Fund's net
loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if the Adviser
believes that short-term interest rates as indicated in the forward yield curve
are too high, a Fund may take a short position in a near-term Eurodollar futures
contract and a long position in a longer-dated Eurodollar futures contract.
Under such circumstances, any unrealized loss in the near-term Eurodollar
futures position would be netted against any unrealized gain in the longer-dated
Eurodollar futures position (and vice versa) for purposes of calculating the
Fund's net loss exposure. The ability of a Fund to utilize these Strategic
Transactions successfully will depend on the Adviser's ability to predict
pertinent market and interest rate movements, which cannot be assured. Each Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. The Funds' activities involving
Strategic Transactions may be limited by the requirements of 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 or interest rate movements is incorrect,
the risk that the use of such Strategic Transactions could result in losses
greater than if they had not been used. The writing of put and call options may
result in losses to a Fund, force the purchase or sale, respectively, of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation a Fund can realize on its investments or cause a Fund to
hold a security it might otherwise sell. The use of currency transactions can
result in a Fund incurring losses as a result of a number of factors including
the imposition of exchange controls, suspension of settlements, or the inability
to deliver or receive a specified currency (the Portfolio and the Securitized
Fund only). The use of options and futures transactions entails certain other
risks. In particular, the variable degree of correlation between price movements
of futures contracts and price movements in the related portfolio position of
the Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. The writing of options
could significantly increase the Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads. In addition, futures and options
markets may not be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, in certain markets, a Fund might not
be able to close out a transaction without incurring substantial losses, if at
all. Although the use of futures and options transactions for hedging should
tend to minimize the risk of loss due to a decline in the value of the hedged
position, at the same time, in certain circumstances, they tend to limit any
potential gain which might result from an increase in
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value of such position. The loss incurred by a Fund in writing options on
futures and entering into futures transactions is potentially unlimited;
however, as described above, each Fund will attempt to limit its net loss
exposure resulting from Strategic Transactions entered into for non-hedging
purposes. Futures markets are highly volatile and the use of futures may
increase the volatility of a Fund's net asset value. Finally, entering into
futures contracts would create a greater ongoing potential financial risk than
would purchases of options where the exposure is limited to the cost of the
initial premium. Losses resulting from the use of Strategic Transactions would
reduce net asset value and the net result may be less favorable than if the
Strategic Transactions had not been utilized.
General Characteristics of Options
Put options and call options typically have similar structural
characteristics and operational mechanics regardless of the underlying
instrument on which they are purchased or sold. Thus, the following general
discussion relates to each of the particular types of options discussed in
greater detail below. In addition, many Strategic Transactions involving options
require segregation of a Fund's assets in special accounts, as described below
under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy
(if the option is exercised), the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, a Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. A Fund may purchase a call option
on a security, futures contract, index, currency or other instrument to seek to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may be exercised
at any time during the option period while a European style put or call option
may be exercised only upon expiration or during a fixed period prior thereto.
Each Fund is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC" options). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is in-the-money
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
A Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A Fund will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. OTC options purchased by a Fund, and
portfolio securities "covering" the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are subject to each Fund's restriction on illiquid securities, unless
determined to be liquid in accordance with procedures adopted by the Boards of
Trustees. For OTC options written with "primary dealers" pursuant to an
agreement requiring a
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closing purchase transaction at a formula price, the amount which is considered
to be illiquid may be calculated by reference to a formula price. The Funds'
expect generally to enter into OTC options that have cash settlement provisions,
although they are not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in an OTC option. As a result, if the Counterparty fails to make
delivery of the security, currency or other instrument underlying an OTC option
it has entered into with a Fund or fails to make a cash settlement payment due
in accordance with the terms of that option, the Fund will lose any premium it
paid for the option as well as any anticipated benefit of the transaction.
Accordingly, the Adviser must assess the creditworthiness of each such
Counterparty or any guarantor or credit enhancement of the Counterparty's credit
to determine the likelihood that the terms of the OTC option will be satisfied.
A Fund will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"Primary dealers," or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or the debt of which is determined to be of equivalent credit quality
by the Adviser.
If a Fund sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
The Funds, except for the Short-Term Asset Reserve Fund, may purchase and
sell (write) call options on securities including U.S. Treasury and agency
securities, mortgage-backed securities, asset backed securities, corporate debt
securities, equity securities (including convertible securities) and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies (Portfolio and
Securitized only) and futures contracts. The Short-Term Asset Reserve Fund may
purchase and sell call options on securities, including U.S. Treasury and agency
securities and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in over-the-counter markets, and on securities indices
and futures contracts. All calls sold by a Fund must be covered (i.e., the Fund
must own the securities or the futures contract subject to the call) or must
meet the asset segregation requirements described below as long as the call is
outstanding. In addition, each Fund may cover a written call option or put
option by entering into an offsetting forward contract and/or by purchasing an
offsetting option or any other option which, by virtue of its exercise price or
otherwise, reduces the Fund's net exposure on its written option position. Even
though the Fund will receive the option premium to help offset any loss, the
Fund may incur a loss if the exercise price is below the market price for the
security subject to the call at the time of exercise. A call sold by a Fund also
exposes the Fund during the term of the option to possible loss of opportunity
to realize appreciation in the market price of the underlying security or
instrument and may require the Fund to hold a security or instrument which it
might otherwise have sold.
A Fund may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage backed securities, asset backed
securities, foreign sovereign debt (Portfolio and Securitized only), corporate
debt securities, equity securities (including convertible securities) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts. The
Short- Term Asset Reserve Fund may purchase and sell put options on securities
including U.S. Treasury and agency securities and Eurodollar instruments
(whether or not it holds the above securities in its portfolio), and on
securities indices and futures contracts. A Fund will not sell put options if,
as a result, more than 50% of the Fund's assets would be required to be
segregated to cover its potential obligations under such put options other than
those with respect to futures and options thereon. In selling put options, there
is a risk that a Fund may be required to buy the underlying security at a price
above the market price.
Options on Securities Indices and Other Financial
Indices
Each Fund may also purchase and sell (write) call and put options on
securities indices and other financial indices. Options on securities indices
and other financial indices are similar to options on a security or other
instrument except that, rather than settling by physical delivery of the
underlying instrument, they settle by cash settlement. For example, an option on
an index gives the holder the right to receive, upon exercise of the option, an
amount of cash if the closing level of the index upon which the option is based
exceeds, in the case of a call, or is less than, in the case of a put, the
exercise price of the option (except if, in the case of an OTC option, physical
delivery is specified). This amount of cash is equal to the differential between
the closing price of the index and the exercise price of the option, which also
may be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery of this amount
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upon exercise of the option. In addition to the methods described above, each
Fund may cover call options on a securities index by owning securities whose
price changes are expected to be similar to those of the underlying index, or by
having an absolute and immediate right to acquire such securities without
additional cash consideration (or for additional cash consideration held in a
segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio.
General Characteristics of Futures
Each Fund may enter into financial futures contracts or purchase or sell
put and call options on such futures. Futures are generally bought and sold on
the commodities exchanges where they are listed and involve payment of initial
and variation margin as described below. All futures contracts entered into by a
Fund are traded on U.S. exchanges or boards of trade that are licensed and
regulated by the Commodity Futures Trading Commission ("CFTC") or on certain
foreign exchanges.
The sale of futures contracts creates a firm obligation by a Fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by a Fund, as
purchaser to purchase a financial instrument at a specific time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position, if the option is exercised.
A Fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that a Fund may use commodity
futures and option positions (i) for bona fide hedging purposes without regard
to the percentage of assets committed to margin and option premiums, or (ii) for
other purposes permitted by the CFTC to the extent that the aggregate initial
margin and option premiums required to establish such non-hedging positions (net
of the amount that the positions were "in the money" at the time of purchase) do
not exceed 5% of the net asset value of a Fund's portfolio, after taking into
account unrealized profits and losses on such positions. Typically, maintaining
a futures contract or selling an option thereon requires the Fund to deposit,
with its custodian for the benefit of a futures commission merchant, or directly
with the futures commission merchant, as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited directly with the futures commission merchant thereafter on a daily
basis as the value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the Fund. If a Fund exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
Currency Transactions
The Portfolio and the Securitized Fund may engage in currency transactions
with Counterparties in order to seek to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value or
to enhance potential gain. Currency transactions include currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. The Portfolio and
the Securitized Fund may enter into over-the-counter currency transactions with
Counterparties which have received, combined with any credit enhancements, a
long term debt rating of A by S&P or Moody's, respectively, or that have an
equivalent rating from a NRSRO or (except for OTC currency options) are
determined to be equivalent credit quality by the Adviser.
The Portfolio's and the Securitized Fund's transactions in forward currency
contracts and other currency transactions such as futures, options, options on
futures and swaps will generally be limited to hedging involving either specific
transactions or portfolio positions. See "Strategic Transactions." Transaction
hedging is entering into a currency transaction with respect to specific assets
or liabilities of the Portfolio or a
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Fund, which will generally arise in connection with the purchase or sale of its
portfolio securities or the receipt of income therefrom. Position hedging is
entering into a currency transaction with respect to portfolio security
positions denominated or generally quoted in that currency.
The Portfolio and the Securitized Fund will not enter into a transaction to
hedge currency exposure to an extent greater, after netting all transactions
intended wholly or partially to offset other transactions, than the aggregate
market value (at the time of entering into the transaction) of the securities
held in its portfolio that are denominated or generally quoted in or currently
convertible into such currency, other than with respect to proxy hedging as
described below.
The Portfolio and the Securitized Fund may also cross-hedge currencies by
entering into transactions to purchase or sell one or more currencies that are
expected to decline in value in relation to other currencies to which the
Portfolio or Securitized Fund has or in which the Portfolio or Securitized Fund
expects to have portfolio exposure. For example, the Portfolio may hold a French
government bond and the Adviser may believe that French francs will deteriorate
against German marks. The Portfolio would sell French francs to reduce its
exposure to that currency and buy German marks. This strategy would be a hedge
against a decline in the value of French francs, although it would expose the
Portfolio to declines in the value of the German mark relative to the U.S.
dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, the Portfolio and
Securitized Fund may also engage in proxy hedging. Proxy hedging is often used
when the currency to which a Fund's portfolio is exposed is difficult to hedge
or to hedge against the U.S. dollar. Proxy hedging entails entering into a
forward contract to sell a currency whose changes in value are generally
considered to be linked to a currency or currencies in which certain of a Fund's
portfolio securities are or are expected to be denominated, and to buy U.S.
dollars. The amount of the contract would not exceed the value of the portfolio
securities denominated in linked currencies. For example, if the Adviser
considers that the Austrian schilling is linked to the German deutschemark (the
"D- mark"), and a portfolio contains securities denominated in schillings and
the Adviser believes that the value of schillings will decline against the U.S.
dollar, the Adviser may enter into a contract to sell D-marks and buy dollars.
Proxy hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in
losses to the Portfolio and Securitized Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived linkage between various currencies
may not be present or may not be present during the particular time that the
Portfolio and Securitized Fund is engaging in proxy hedging. If the Portfolio or
Securitized Fund enters into a currency hedging transaction, it will comply with
the asset segregation requirements described below.
Risks of Currency Transactions
Currency transactions are subject to risks different from those of other
portfolio transactions. Because currency control is of great importance to the
issuing governments and influences economic planning and policy, purchases and
sales of currency and related instruments can be negatively affected by
government exchange controls, blockages, and manipulations or exchange
restrictions imposed by governments. These can result in losses to the Portfolio
and the Securitized Fund if they are unable to deliver or receive currency or
funds in settlement of obligations and could also cause hedges they have entered
into to be rendered useless, resulting in full currency exposure as well as
incurring transaction costs. Buyers and sellers of currency futures are subject
to the same risks that apply to the use of futures generally. Further,
settlement of a currency futures contract for the purchase of most currencies
must occur at a bank based in the issuing nation. Trading options on currency
futures is relatively new, and the ability to establish and close out positions
on such options is subject to the maintenance of a liquid market which may not
always be available. Currency exchange rates may fluctuate based on factors
extrinsic to that country's economy.
Combined Transactions
Each Fund may enter into multiple transactions, including multiple options
transactions, multiple futures transactions, multiple currency transactions
(including forward currency contracts - the Portfolio and Securitized Fund only)
and multiple interest rate transactions, structured notes and any combination of
futures, options, currency (the Portfolio and Securitized Fund only) and
interest rate transactions ("component transactions"), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of the Funds 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.
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Swaps, Caps, Floors and Collars
Among the Strategic Transactions into which the Funds may enter are
interest rate, currency (the Portfolio and Securitized Fund only) and index
swaps and the purchase or sale of related caps, floors and collars. The Funds
expect to enter into these transactions primarily for hedging purposes,
including, but not limited to, preserving a return or spread on a particular
investment or portion of a Fund's portfolio, protecting against currency
fluctuations (the Portfolio and Securitized Fund only), as a duration management
technique or protecting against an increase in the price of securities a Fund
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, each Fund will attempt to limit its net loss
exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes. The Portfolio, the Fixed Income
Fund II, the Short-Term Asset Reserve Fund, the Controlled Maturity Fund and the
Securitized Fund will attempt to limit net loss exposure from Strategic
Transaction entered into for non- hedging purposes to not more than 3%, 1%, 1%,
1% and 3% respectively, of net assets. A Fund will not sell interest rate caps
or floors where it does not own securities or other instruments providing the
income stream the Fund may be obligated to pay. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain rate of return
within a predetermined range of interest rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a Fund receiving or paying, as the case may
be, only the net amount of the two payments. A Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from an NRSRO or the Counterparty issues debt that is determined to be of
equivalent credit quality by the Adviser. If there is a default by the
Counterparty, the Fund may have contractual remedies pursuant to the agreements
related to the transaction. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the swap market has become relatively liquid. Caps, floors and collars are more
recent innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of a Fund's policy regarding illiquid securities, unless it is determined, based
upon continuing review of the trading markets for the specific security, that
such security is liquid. The Boards of Trustees of the Portfolio Trust and the
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 is ultimately
responsible for such determinations. The Staff of the SEC currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
each Fund's limitation on investing in illiquid securities.
Eurodollar Contracts
Each Fund may make investments in Eurodollar contracts. Eurodollar
contracts are U.S. dollar-denominated futures contracts or options thereon which
are linked to the London Interbank Offered Rate ("LlBOR"), although foreign
currency-denominated contracts are available from time to time. Eurodollar
futures contracts enable purchasers to obtain a fixed rate for the lending of
funds and sellers to obtain a fixed rate for borrowings. A Fund might use
Eurodollar futures contracts and options thereon to hedge against changes in
LIBOR, to which many interest rate swaps and fixed income instruments are
linked.
Risks of Strategic Transactions Outside the United
States
The Portfolio and the Securitized Fund may use strategic transactions to
seek to hedge against currency exchange rate risks. When conducted outside the
United States, Strategic Transactions may not be regulated as rigorously as in
the United States, may not involve a clearing mechanism and related guarantees,
and are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities, currencies
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and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in the Portfolio's or Securitized Fund's
ability to act upon economic events occurring in foreign markets during
non-business hours in the United States, (iii) the imposition of different
exercise and settlement terms and procedures and margin requirements than in the
United States, (iv) lower trading volume and liquidity, and (v) other complex
foreign political, legal and economic factors. At the same time, Strategic
Transactions may offer advantages such as trading in instruments that are not
currently traded in the United States or arbitrage possibilities not available
in the United States.
Use of Segregated Accounts
Each Fund will hold securities or other instruments whose values are
expected to offset its obligations under the Strategic Transactions. Each Fund
will cover Strategic Transactions as required by interpretive positions of the
SEC. A Fund will not enter into Strategic Transactions that expose the Fund to
an obligation to another party unless it owns either (i) an offsetting position
in securities or other options, futures contracts or other instruments or (ii)
cash, receivables or liquid securities with a value sufficient to cover its
potential obligations. A Fund may have to comply with any applicable regulatory
requirements for Strategic Transactions, and if required, will set aside cash
and other assets in a segregated account with its custodian bank in the amount
prescribed. In that case, the Funds' custodian would maintain the value of such
segregated account equal to the prescribed amount by adding or removing
additional cash or other assets to account for fluctuations in the value of the
account and the Fund's obligations on the underlying Strategic Transactions.
Assets held in a segregated account would not be sold while the Strategic
Transaction is outstanding, unless they are replaced with similar assets. As a
result, there is a possibility that segregation of a large percentage of a
Fund's assets could impede portfolio management or the Fund's ability to meet
redemption requests or other current obligations.
"When-Issued", "Delayed Delivery Securities" and
"Forward Commitment" Securities
The Portfolio, the Fixed Income II and Controlled Maturity Funds may invest
up to 15% of their net assets in securities purchased on a when-issued or
delayed delivery basis. The Short-Term Asset Reserve Fund may commit up to 10%
of its net assets to purchase such securities. The Securitized Fund may invest
up to 25% of its net assets in securities purchased on a when-issued basis,
forward rolls and forward commitments. 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 Fund enters into
the commitment, but interest will not accrue to the Fund until delivery of and
payment for the securities. Although a Fund will only make commitments to
purchase "when-issued" and "delayed delivery" securities with the intention of
actually acquiring the securities, each Fund may sell the securities before the
settlement date if deemed advisable by the Adviser. The Short-Term Asset Reserve
Fund may also, with respect to up to 25% of its net assets, enter into contracts
to purchase securities for a fixed price at a future date beyond customary
settlement time.
Unless a Fund 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
Fund's commitment will be segregated with the Fund's custodian bank. If the
market value of these securities declines, additional cash or securities will be
segregated daily so that the aggregate market value of the segregated securities
equals the amount of the Fund's commitment.
Securities purchased on a "when-issued", "delayed delivery" or "forward
commitment" basis may have a market value on delivery which is less than the
amount paid by a Fund. Changes in market value may be based upon the public's
perception of the creditworthiness of the issuer or changes in the level of
interest rates. Generally, the value of "when-issued", "delayed delivery" and
"forward commitment" securities will fluctuate inversely to changes in interest
rates, i.e., they will appreciate in value when interest rates fall and will
depreciate in value when interest rates rise.
Portfolio Turnover
It is not the policy of any of the Funds to purchase or sell securities for
trading purposes. However, each Fund places no restrictions on portfolio
turnover and it may sell any portfolio security without regard to the period of
time it has been held, except as may be necessary to enable the Fund to maintain
its status as a regulated investment company under the Code. A Fund may
therefore generally change its portfolio investments at any time in accordance
with the Adviser's appraisal of factors affecting any particular issuer or
market, or the economy in general. A rate of turnover of 100% would occur if the
value of the lesser of purchases and sales of portfolio securities for a
particular year equaled the average monthly value of portfolio securities owned
during the year (excluding short-term securities). A high rate of portfolio
turnover (100% or more) involves a correspondingly greater amount of brokerage
commissions and other costs which must be borne
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directly by a Fund and thus indirectly by its shareholders. It may also result
in the realization of larger amounts of net short-term capital gains,
distributions of which are taxable to shareholders as ordinary income and may,
under certain circumstances, make it more difficult for the Funds to qualify as
regulated investment companies under the Code.
INVESTMENT RESTRICTIONS
The Funds and the Portfolio have adopted the following fundamental
policies. Each of the Fund's and the Portfolio's fundamental policies cannot be
changed unless the change is approved by the "vote of the outstanding voting
securities" of a 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.
Standish Fixed Income Fund and Portfolio
As a matter of fundamental policy, the Portfolio (Fixed Income Fund) may
not:
1. Invest, with respect to at least 75% of its total assets, more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
2. Issue senior securities, borrow money or securities or
pledge or mortgage its assets, except that the
Portfolio (Fixed Income Fund) may (a) borrow
money from banks as a temporary measure for
extraordinary or emergency purposes (but not for
investment purposes) in an amount up to 15% of the
current value of its total assets, (b) enter into
forward roll transactions, and (c) pledge its assets to
an extent not greater than 15% of the current value
of its total assets to secure such borrowings;
however, the Fixed Income Fund may not make any
additional investments while its outstanding bank
borrowings exceed 5% of the current value of its
total assets.
3. Lend portfolio securities except that the Portfolio (i)
may lend portfolio securities in accordance with the
Portfolio's investment policies up to 33 1/3% of the
Portfolio's total assets taken at market value, (ii)
enter into repurchase agreements, and (iii) purchase
all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of
deposit, bankers' acceptances, debentures or other
securities, whether or not the purchase is made
upon the original issuance of the securities, and
except that the Fund may enter into repurchase
agreements with respect to 5% of the value of its
net assets.
4. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. Government
securities, including mortgage pass-through securities (GNMAs).
5. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio
(Fund) may be deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Portfolio
(Fund) may purchase marketable securities of companies which deal in real
estate, real estate mortgage loans or interests therein.
7. Purchase securities on margin (except that the Portfolio (Fund) may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities).
8. Purchase or sell commodities or commodity contracts except that the
Portfolio (Fund) may purchase and sell financial futures contracts and
options on financial futures contracts and engage in foreign currency
exchange transactions.
The following restrictions are not fundamental policies and may be changed
by the Trustees of the Portfolio Trust (Trust) without investor approval in
accordance with applicable laws, regulations or regulatory policy. The Portfolio
(Fund) may not:
A. Invest in the securities of an issuer for the
purpose of exercising control or management,
but it may do so where it is deemed advisable
to protect or enhance the value of an existing
investment.
B. Purchase securities of any other investment
company except to the extent permitted by the
1940 Act.
C. Invest more than 15% of its net assets in
illiquid securities.
D. Invest more than 5% of its net assets in
repurchase agreements (this restriction is
fundamental with respect to the Fixed Income
Fund, but not the Portfolio).
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E. Purchase additional securities if the
Portfolio's bank borrowings exceed 5% of its
net assets. (This policy is fundamental with
respect to the Fund but not the Portfolio.)
Notwithstanding any fundamental or non-fundamental policy, the Fixed Income
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 Fixed Income Fund.
Standish Fixed Income Fund II
As a matter of fundamental policy, the Fund may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. Government
securities or mortgage-backed securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
2. Issue senior securities, except as permitted by
paragraphs 3, 7 and 8 below. For purposes of this
restriction, the issuance of shares of beneficial
interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures
contracts, forward commitments and repurchase
agreements entered into in accordance with the
Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior
securities.
3. Borrow money, except (i) from banks for temporary
or short-term purposes or for the clearance of
transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the
amount borrowed) taken at market value, (ii) in
connection with the redemption of Fund shares or to
finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other
assets; (iii) in order to fulfill commitments or plans
to purchase additional securities pending the
anticipated sale of other portfolio securities or assets
and (iv) the Fund may enter into reverse repurchase
agreements and forward roll transactions. For
purposes of this investment restriction, investments
in short sales, futures contracts, options on futures
contracts, securities or indices and forward
commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the Fund
may (i) acquire or lease office space for its own
use, (ii) invest in securities of issuers that invest in
real estate or interests therein, (iii) invest in
securities that are secured by real estate or interests
therein, (iv) purchase and sell mortgage-related
securities and (v) hold and sell real estate acquired
by the Fund as a result of the ownership of
securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities or commodity
contracts, except the Fund may purchase and sell
options on securities, securities indices and
currency, futures contracts on securities, securities
indices and currency and options on such futures,
forward foreign currency exchange contracts,
forward commitments, securities index put or call
warrants and repurchase agreements entered into
in accordance with the Fund's investment policies.
8. Make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's
investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into
repurchase agreements, and (3) purchase all or a
portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other
securities, whether or not the purchase is made
upon the original issuance of the securities.
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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The following restrictions are not fundamental policies and may be changed
by the Trustees without shareholder approval, in accordance with applicable
laws, regulations or regulatory policy. The Fund may not:
A. Invest in the securities of an issuer for the purpose
of exercising control or management, but it may do
so where it is deemed advisable to protect or
enhance the value of an existing investment.
B. Purchase securities of any other investment company
except to the extent permitted by the 1940 Act.
C. Purchase securities on margin, except any short-term credits which may be
necessary for the clearance of transactions and the initial or maintenance
margin in connection with options and futures contracts and related
options.
D. Invest more than 15% of its net assets in securities
which are illiquid.
E. Purchase additional securities if the Fund's
borrowings exceed 5% of its net assets.
Short-Term Asset Reserve Fund
As a matter of fundamental policy, the Fund may not:
1. Invest, with respect to at least 75% of its total assets, more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
2. Issue senior securities, borrow money or securities,
enter into reverse repurchase agreements or pledge
or mortgage its assets, except that the Fund may
(a) borrow money from banks as a temporary
measure for extraordinary or emergency purposes
(but not for investment purposes) in an amount up
to 15% of the current value of its total assets,
(b) enter into forward roll transactions, (c) enter into
reverse repurchase agreements in an amount up to
15% of the current value of its total assets, and
(d) pledge its assets to an extent not greater than
15% of the current value of its total assets to secure
such borrowings; however, the Fund may not make
any additional investments while its outstanding
bank borrowings exceed 5% of the current value of
its total assets.
3. Make loans of portfolio securities, except that the Fund may enter into
repurchase agreements with respect to 25% of the value of its net assets.
4. Invest more than 25% of its total assets in a single
industry except that this restriction shall not apply
to government securities. For purposes of this
restriction, the industry classification of an asset-
backed security is determined by its underlying
assets. For example, certificates for automobile
receivables and certificates for amortizing revolving
debts constitute two different industries.
5. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Fund may
purchase CMOs, mortgage-backed pass-through securities and marketable
securities of companies which deal in real estate.
7. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
8. Purchase or sell commodities or commodity contracts except that the Fund
may engage in financial futures contracts and related options transactions.
9. Purchase the securities of other investment
companies, provided that the Fund may make such
a purchase (a) in the open market involving no
commission or profit to a sponsor or dealer (other
than the customary broker's commission), provided
that immediately thereafter (i) not more than 10%
of the Fund's total assets would be invested in
such securities, (ii) not more than 5% of the Fund's
total assets would be invested in the securities of
any one investment company and (iii) not more
than 3% of the voting stock of any one investment
company would be owned by the Fund, or (b) as
part of a merger, consolidation, or acquisition of
assets.
The following restrictions are not fundamental policies and may be changed
by the Trustees without shareholder approval, in accordance with applicable
laws, regulations or regulatory policy. The Fund may not:
A. Invest in the securities of an issuer for the purpose
of exercising control or management, but it may do
so where it is deemed advisable to protect or
enhance the value of an existing investment.
B. Invest more than 15% of its net assets in securities
which are illiquid.
15
<PAGE>
Controlled Maturity Fund.
As a matter of fundamental policy, the Fund may not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to U.S. Government
securities or mortgage-backed securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
2. Issue senior securities, except as permitted by
paragraphs 3, 7 and 8 below. For purposes of this
restriction, the issuance of shares of beneficial
interest in multiple classes or series, the deferral of
trustees' fees, the purchase or sale of options, futures
contracts, forward commitments and repurchase
agreements entered into in accordance with the
Fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior
securities.
3. Borrow money, except (i) from banks for temporary
or short-term purposes or for the clearance of
transactions in amounts not to exceed 33 1/3% of the
value of the Fund's total assets (including the
amount borrowed) taken at market value, (ii) in
connection with the redemption of Fund shares or to
finance failed settlements of portfolio trades without
immediately liquidating portfolio securities or other
assets; (iii) in order to fulfill commitments or plans
to purchase additional securities pending the
anticipated sale of other portfolio securities or assets
and (iv) the Fund may enter into reverse repurchase
agreements and forward roll transactions. For
purposes of this investment restriction, investments
in short sales, futures contracts, options on futures
contracts, securities or indices and forward
commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the Fund may
(i) acquire or lease office space for its own use, (ii)
invest in securities of issuers that invest in real estate
or interests therein, (iii) invest in securities that are
secured by real estate or interests therein, (iv)
purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Fund as a
result of the ownership of securities.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities or commodity
contracts, except the Fund may purchase and sell
options on securities, securities indices and
currency, futures contracts on securities, securities
indices and currency and options on such futures,
forward foreign currency exchange contracts,
forward commitments, securities index put or call
warrants and repurchase agreements entered into
in accordance with the Fund's investment policies.
8. Make loans, except that the Fund (1) may lend
portfolio securities in accordance with the Fund's
investment policies up to 33 1/3% of the Fund's
total assets taken at market value, (2) enter into
repurchase agreements, and (3) purchase all or a
portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit,
bankers' acceptances, debentures or other
securities, whether or not the purchase is made
upon the original issuance of the securities.
See the discussion following the Fixed Income Fund II's fundamental
investment restrictions for additional information on industry concentration.
The following restrictions are not fundamental policies and may be changed
by the Trustees without shareholder approval, in accordance with applicable
laws, regulations or regulatory policy. The Fund may not:
A. Invest in the securities of an issuer for the purpose
of exercising control or management, but it may do
so where it is deemed advisable to protect or
enhance the value of an existing investment.
B. Purchase securities of any other investment
company except to the extent permitted by the
1940 Act.
C. Purchase securities on margin, except any short-term credits which may be
necessary for the clearance of transactions and the initial or maintenance
margin in connection with options and futures contracts and related
options.
D. Invest more than 15% of its net assets in securities
which are illiquid.
E. Purchase additional securities if the Fund's
borrowings exceed 5% of its net assets.
16
<PAGE>
Securitized Fund
As a matter of fundamental policy, the Fund may not:
1. Invest, with respect to at least 75% of its total assets, more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
2. Issue senior securities, borrow money or securities or
pledge or mortgage its assets, except that the Fund
may (a) borrow money from banks as a temporary
measure for extraordinary or emergency purposes
(but not for investment purposes) in an amount up
to 15% of the current value of its total assets, (b)
enter into forward roll transactions and (c) pledge its
assets to an extent not greater than 15% of the
current value of its total assets to secure such
borrowings; however, the Fund may not make any
additional investments while its outstanding bank
borrowings exceed 5% of the current value of its
total assets.
3. Lend portfolio securities, except that the Fund may enter into repurchase
agreements with respect to 15% of the value of its net assets.
4. Invest more than 25% of the current value of its total assets in any single
industry except the real estate industry.
5. Underwrite the securities of other issuers, except to the extent that in
connection with the disposition of portfolio securities the Fund may be
deemed to be an underwriter under the Securities Act of 1933.
6. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities, commodity contracts,
or real estate, except that the Fund may purchase
and sell obligations which are secured by real estate
or by mortgages on real estate, securities of issuers
which invest or deal in real estate, or have a call on
real estate or are convertible into real estate, and the
Fund may purchase and sell financial futures
contracts and options on financial futures contracts
and engage in foreign currency exchange
transactions.
8. Purchase the securities of other investment
companies, except that the Fund may make such a
purchase (a) in the open market involving no
commission or profit to a sponsor or dealer (other
than the customary broker's commission), provided
that immediately thereafter (i) not more than 10% of
the Fund's total assets would be invested in such
securities, (ii) not more than 5% of the Fund's total
assets would be invested in the securities of any one
investment company and (iii) not more than 3% of
the voting stock of any one investment company
would be owned by the Fund, or (b) as part of a
merger, consolidation, or acquisition of assets.
The following restrictions are not fundamental policies and may be changed
by the Trustees without shareholder approval, in accordance with applicable
laws, regulations or regulatory policy. The Fund may not:
A. Invest in the securities of an issuer for the purpose of
exercising control or management, but it may do so
where it is deemed advisable to protect or enhance
the value of an existing investment.
B. Invest more than 15% of its net assets in securities
which are illiquid.
--------------------------------------------
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from a
change in the value of the Portfolio's or a Fund'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 Funds' yield 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
17
<PAGE>
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 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 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 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.
The Funds' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended December 31, 1996 and average
annualized yield for the 30-day period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
---------------------------
Fund 1-Year 5-Year 10-Year Yield
- ---- ------ ------ ------- -----
<S> <C> <C> <C> <C>
Fixed Income Fund 5.48% 7.82% 9.04%1 7.10%
Fixed Income Fund II 3.77% 6.41%2 N/A 6.46%
Controlled Maturity Fund 5.13% 6.26%2 N/A 6.24%
Securitized Fund 4.41% 6.36% 8.54%3 7.07%
Short-Term Asset Reserve Fund 5.62% 5.02% 6.60%4 5.91%
- ---------------------------
1 Fixed Income Fund commenced operations on March 27, 1987.
2 Fixed Income Fund II and Controlled Maturity Fund commenced operations on July 3, 1995.
3 Securitized Fund commenced operations on August 31, 1989.
4 Short-Term Asset Reserve Fund commenced operations on January 3, 1989.
</TABLE>
These performance quotations should not be considered as representative of
any Fund's performance for any specified period in the future.
In addition to average annual return quotations, the Funds may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis as follows:
Fixed Income Fund
Quarter/Year Net Gross
- ---------------------- --------------------- ---------------------
2Q87 (1.14)% (0.95)%
3Q87 (2.16) (2.04)
4Q87 4.15 4.30
1987 0.74 1.20
1Q88 4.36 4.52
2Q88 1.18 1.29
3Q88 1.98 2.11
4Q88 0.78 0.91
1988 8.53 9.09
18
<PAGE>
1Q89 1.23 1.37
2Q89 7.57 7.70
3Q89 1.13 1.26
4Q89 3.30 3.42
1989 13.76 14.33
1Q90 (0.50) (0.38)
2Q90 3.69 3.84
3Q90 0.89 1.00
4Q90 4.95 5.06
1990 9.23 9.77
1Q91 3.16 3.28
2Q91 1.71 1.84
3Q91 6.19 6.29
4Q91 5.58 5.68
1991 17.65 18.15
1Q92 (0.95) (0.84)
2Q92 4.95 5.4
3Q92 3.43 3.53
4Q92 (0.58) (0.47)
1992 6.88 7.33
1Q93 5.88 5.98
2Q93 3.42 3.52
3Q93 3.42 3.52
4Q93 1.23 1.33
1993 14.64 15.08
1Q94 (3.99) (3.90)
2Q94 (1.88) (1.78)
3Q94 0.67 0.77
4Q94 0.32 0.42
1994 (4.86) (4.48)
1Q95 4.39 4.48
2Q95 5.91 6.01
3Q95 2.46 2.56
4Q95 4.64 4.73
1995 18.54 18.97
1Q96 (1.58) (1.49)
2Q96 0.84 0.93
3Q96 2.58 2.67
4Q96 3.60 3.70
1996 5.48 5.86
Fixed Income Fund II
Quarter/Year Net Gross
- ------------------ ------------------ ------------------
3Q95 1.35 1.44
4Q95 4.38 4.48
1995 5.79 5.97
1Q96 (1.90) (1.81)
2Q96 0.39 0.48
3Q96 2.18 2.28
4Q96 3.12 3.21
1996 3.77 4.15
Short-Term Asset Reserve Fund
Quarter/Year Net Gross
1Q89 1.58% 1.70%
2Q89 3.52 3.64
3Q89 1.71 1.82
4Q89 2.38 2.51
1989 9.50 10.01
1Q90 1.34 1.45
2Q90 2.56 2.69
3Q90 2.17 2.27
4Q90 2.62 2.73
1990 8.97 9.45
1Q91 2.10 2.20
2Q91 1.97 2.07
3Q91 2.62 2.71
4Q91 2.39 2.47
1991 9.41 9.79
1Q92 0.84 0.91
2Q91 2.08 2.17
3Q92 1.18 1.28
4Q92 0.17 0.27
1992 4.33 4.70
1Q93 1.90 1.98
2Q93 1.10 1.19
3Q93 1.20 1.28
4Q93 0.78 0.86
1993 5.08 5.41
1Q94 0.06 0.14
2Q91 0.06 0.14
3Q94 1.31 1.39
4Q94 0.83 0.91
1994 2.27 2.60
1Q95 2.08 2.16
2Q95 2.14 2.22
3Q95 1.55 1.62
4Q95 1.89 1.97
1995 7.85 8.20
1Q96 1.08 1.17
2Q96 1.31 1.40
3Q96 1.51 1.60
4Q96 1.60 1.69
1996 5.62 5.99
Controlled Maturity Fund
Quarter/Year Net Gross
- ---------------------- --------------------- -------------------
3Q95 1.55% 1.64%
4Q95 2.61 2.70
1995 4.20 4.38
1Q96 0.25 0.35
2Q96 1.05 1.14
3Q96 1.71 1.80
4Q96 2.03 2.12
1996 5.13 5.51
<PAGE>
Securitized Funds
Quarter/Year Net Gross
- ---------------------- --------------------- ---------------------
3Q89 0.00% (0.04)%
4Q89 4.01 4.17
1989 4.01 4.21
1Q90 0.45 0.57
2Q90 3.58 3.69
3Q90 1.29 1.40
4Q90 5.79 5.91
1990 11.49 11.99
1Q91 2.89 3.00
2Q91 1.84 1.95
3Q91 5.16 5.27
4Q91 4.90 5.03
1991 15.57 16.10
1Q92 (1.58) (1.47)
2Q92 4.38 4.49
3Q92 1.80 1.91
4Q92 (.49) (.38)
1992 4.07 4.52
1Q93 4.37 4.48
2Q93 2.56 2.67
3Q93 2.38 2.49
4Q93 0.38 0.49
1993 10.02 10.48
1Q94 (2.53) (2.42)
2Q94 (0.83) (0.72)
3Q94 0.89 1.00
4Q94 0.338) 0.447)
1994 (2.16) (1.72)
1Q95 4.78 4.89
2Q95 5.31 5.43
3Q95 2.16 2.27
4Q95 3.19 3.32
1995 16.32 16.85
1Q96 (1.23) (1.11)
2Q96 0.51 0.62
3Q96 2.09 2.22
4Q96 3.03 3.14
1996 4.41 4.91
These performance quotations should not be considered as representative of
a Fund's performance for any specified period in the future. Each Fund's
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the Portfolio, Fixed Income
Fund and Fixed Income Fund II Fund may compare their 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 Short-Term Asset Reserve Fund may compare its
performance to The IBC/Donoghue Money Market Average/All Taxable Index, which is
generally considered to be representative of the performance of domestic,
taxable money market funds, and the One Year Treasury Bills. However, the
average maturity of the Short-Term Asset Reserve Fund's portfolio is longer than
that of a money market fund and, unlike a money market fund, the net asset value
of the Short-Term Asset Reserve Fund's shares may fluctuate. The Controlled
Maturity Fund may compare its performance to the Merrill Lynch 1-3 Year U.S.
Treasury Index, the Merrill Lynch 1-5 Year U.S. Treasury Index and the Merrill
Lynch 1 Year Treasury Bill Index. The Securitized Fund may compare its
performance to the Lehman Brothers Aggregate Index, the Salomon Mortgage Index
and the Shearson Mortgage Index. The Salomon and Shearson Indices are considered
to be
representative of the performance of fixed rate securitized mortgage pools of
GNMA, FNMA and FHLNC securities. 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.
19
<PAGE>
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis and
Martin, and Ms. Banfield, Chase, Herrmann and Kneeland, who hold the same office
with the Portfolio Trust as with the Trust. All executive officers of the Trust
and the Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc., the
Portfolio and the Fund's investment adviser.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer &
One Financial Center Wood, Inc. since 1990;
Boston, MA 02111 formerly, President of Standish,
Ayer & Wood, Inc.
Director of
Standish International
Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.O. Box 5600 Director, Holyoke Mutual Insurance
Beverly Farms, MA 01915 Company
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management
Company, L.P.
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
20
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President and Secretary Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since October 1996; formerly Senior Vice
One Financial Center President, Treasurer and Chief Financial
Boston, MA 02111 Officer of Liberty Financial Bank Group
(1993-95); prior to 1993, Corporate
Controller, The Berkeley Financial Group
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and
Boston, MA 02111 Compliance Officer,
Freedom Capital Management
Corp. (1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Remi Browne, 10/15/53 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. Vice President and Chief Investment Officer
One Financial Center of Standish International Management
Boston, MA 02111 Company, L.P., prior to
August 1996, Managing Director
Ark Asset Management Company
Walter M. Cabot, 1/16/33 Vice President Senior Adviser and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
Senior Adviser and Director of
Standish International Management
Company, L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management
Company, L.P.
21
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Lavinia B. Chase, 6/4/46 Vice President Vice President and Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Susan B. Coan, 5/1/52 Vice President Vice President
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA O2111
W. Charles Cook II, 7/16/63 Vice President Vice President and Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President,
Boston, MA 02111 Standish International Management
Company, L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director, Standish International
Boston, MA 02111 Management Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President and Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President
Boston, MA 02111 Standish International Management
Company, L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995 formerly
Boston, MA 02111 Vice President Scudder, Stevens and Clark
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
22
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly,
One Financial Center Investment Sales,
Boston, MA 02111 Cigna Corporation (1993) and
Travelers Corporation (1984-1993)
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management
Company, L.P.
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director
Boston, MA 02111 Standish International Management
Company, L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since August, 1993;
Boston, MA 02111 formerly, Vice President,
Commerzbank, Frankfurt,
Germany Vice President,
Standish International Management
Company, L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center November 2, 1993;
Boston, MA 02111 formerly, Consultant
Cambridge Associates
David C. Stuehr, 3/1/58 Vice President Vice President and Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
23
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center April, 1990; formerly, Vice
Boston, MA 02111 President, Aetna Life & Casualty
President and Director,
Standish International Management
Company, L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher W. Van Alstyne, Vice President Vice President,
3/24/60 Standish, Ayer & Wood, Inc.;
c/o Standish, Ayer & Wood, Inc. Formerly Regional Marketing Director,
One Financial Center Gabelli-O'Connor Fixed Income
Boston, MA 02111 Management
* Indicates that Trustee is an interested person of the Trust for purposes of the 1940 Act.
</TABLE>
Compensation of Trustees and Officers
Neither the Trust nor the Portfolio Trust pays compensation to the Trustees
of the Trust or the Portfolio Trust that are affiliated with Standish or to the
Trust's and Portfolio Trust's officers. None of the Trustees or officers have
engaged in any financial transactions (other than the purchase or redemption of
the Funds' shares) with the Trust, the Portfolio Trust or the Adviser during the
year ended December 31, 1996.
The following table sets forth all compensation paid to the Trust's and the
Portfolio Trust's Trustees as of the Funds' fiscal years ended December 31,
1996:
Aggregate Compensation from the Funds
-----------------------------------------------------
<TABLE>
<CAPTION>
Pension or
Retirement
Short-Term Benefits Total Compensation
Fixed Fixed Controlled Asset Accrued as from Funds and
Income Income Securitized Maturity Resource Part of Funds' Portfolio and Other
Name of Trustee Fund** Fund II Fund Fund Fund Expenses Funds in Complex*
--------------- ------ ------- ---- ---- ---- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0 $0
Samuel C. Fleming $21,002 $247 $629 $126 $2,772 $0 $49,250
Benjamin M. Friedman $19,403 $228 $579 $117 $2,561 $0 $45,500
John H. Hewitt $19,403 $228 $579 $117 $2,561 $0 $45,500
Edward H. Ladd $0 $0 $0 $0 $0 $0 $0
24
<PAGE>
Caleb Loring, III $19,403 $228 $579 $117 $2,561 $0 $45,500
Richard S. Wood $0 $0 $0 $0 $0 $0 $0
* As of the date of this Statement of Additional Information there were 20
funds in the fund complex. Total compensation is presented for the calendar
year ended December 31, 1996.
** The Fixed Income Fund bears its pro rata allocation of Trustees' fees paid
by the Portfolio to the Trustees of the Portfolio Trust.
</TABLE>
Certain Shareholders
At February 1, 1997, Trustees and officers of the Trust and the Portfolio
Trust as a group beneficially owned (i.e., had voting and/or investment power)
less than 1% of the then outstanding shares of each Fund. At February 1, 1997,
the Fixed Income Fund beneficially owned approximately 100% of the then
outstanding interests of the Portfolio and therefore controlled the Portfolio.
Also at that date, no person beneficially owned 5% or more of the then
outstanding shares of any Fund except:
Fixed Income Fund II
Percentage of
Name and Address Outstanding Shares
---------------- ------------------
Exeter Health Resources, 71%*
Inc.
10 Buzell Avenue
Exeter, NH 03833
Miss Porter's School 11%
60 Main Street
Farmington, CT 06032
Houston General Insurance 10%
Empl.
P.O. Box 2932
Fort Worth, TX 76113
Mentor Trust Co. 8%
TTEE FBO
Life Technologies, Inc.
Two Logan Square,
6th Floor
Philadelphia, PA 19103
Short-Term Asset Reserve Fund
Percentage of
Name and Address Outstanding Shares
---------------- ------------------
Virginia Portfolio 17%
84 State Street, Suite 900
Boston, MA 02109
University of Rochester 11%
Administration Bldg. 263
Rochester, NY 14627
Wellesley College 11%
106 Central Street
Wellesley, MA 02181
The Nature Conservancy 8%
1815 N. Lynn Street
Arlington, VA 22209
Shands Teaching Hospital 6%
& Clinics, Inc.
Bankers Trust Trustee
P.O. Box 100336
Gainesville, FL 32610
Blue Cross Blue Shield 5%
of Vermont
P.O. Box 186
Montpelier, VT 05602
New England Deaconess 5%
Hospital
185 Pilgrim Road
Boston, MA 02215
25
<PAGE>
The Controlled Maturity Fund
Percentage of
Outstanding
Name and Address Shares
- ------------------------------------------- -------------------
Essex County Gas and Company 32%*
7 North Hunt Road
Amesbury, MA 01913
San Francisco Opera Association 28%*
301 Van Ness Avenue
San Francisco, CA 94102
Saturn & Co. FBO Cumming 8%
Foundation
P.O. Box 1537
Boston, MA 02205
Saturn & Co. Ian M. Cumming IRA 6%
P.O. Box 1537
Boston, MA 02205
Hebrew College Campaign Fund 5%
Hebrew College
43 Hawes Street
Brookline, MA 02146
Saturn & Co. FBO David Edward 5%
Cumming Trust
P.O. Box 1537
Boston, MA 02205
Securitized Fund
Percentage of
Outstanding
Name and Address Shares
- ------------------------------------------ ---------------------
Allendale Mutual Insurance 73%*
Company
Allendale Park
P.O. Box 7500
Johnston, RI 02919
Potter & Co. 8%
Bank of Boston
150 Royall Way
Canton, MA
Colonial Williamsburg Pension 7%
The Colonial Williamsburg
Foundation
P.O. Box C
Williamsburg, VA 23187
*Because the shareholder beneficially owned more than 25% of the then
outstanding shares of the indicated Fund, the shareholder was considered to
control such Fund. As a controlling person, the shareholder may be able to
determine whether a proposal submitted to the shareholders of such Fund will be
approved or disapproved.
Investment Adviser
Standish serves as the Adviser to the Portfolio and the Funds (other than
Fixed Income Fund) pursuant to written investment advisory agreements. Prior to
the close of business on May 3, 1996, Standish managed directly the assets of
the Fixed Income Fund pursuant to an investment advisory agreement. This
agreement was terminated by the Fixed Income Fund on such date subsequent to the
approval by the Fixed Income Fund's shareholders on March 29, 1996 to implement
certain changes in the Fixed Income Fund's investment restrictions which enable
the Fixed Income Fund to invest all of its investable assets in the Portfolio.
The Adviser is a Massachusetts corporation organized in 1933 and is registered
under the Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of the Adviser, are the Adviser's controlling persons: Caleb F.
Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K.
Chandor, D. Barr Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A.
Flaherty, Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H.
Ladd, Laurence A. Manchester, George W. Noyes, Arthur H. Parker, Howard B.
Rubin, Austin C. Smith, David C. Stuehr, James J. Sweeney, Ralph S. Tate, and
Richard S. Wood.
Certain services provided by the Adviser under the advisory agreements are
described in the Prospectus. These services are provided without reimbursement
by the Portfolio or the Funds for any costs incurred. In addition to those
services, the Adviser provides the Funds (but not the Portfolio) with office
space for managing their affairs, with the services of required executive
personnel, and with certain clerical services and facilities. Under the
investment advisory agreements, the Adviser is paid a fee based upon a
percentage of the applicable Fund's or Portfolio's average daily net asset value
computed as set forth below. The advisory fees are payable monthly.
26
<PAGE>
Contractual Advisory Fee Rate
Fund (as a percentage of average daily net assets)
- ---- ---------------------------------------------
Fixed Income Portfolio 0.40% of the first $250 million
0.35% of the next $250 million
0.30% of over $500 million
Fixed Income Fund II 0.40%
Controlled Maturity Fund 0.35%
Securitized Fund 0.25%
Short-Term Asset Reserve Fund 0.25%
During the last three fiscal years ended December 31, the Funds and the
Portfolio paid advisory fees in the following amounts:
Fund 1994 1995 1996
- ---- ---- ---- ----
Fixed Income Fund 4,750,132 6,321,967 2,493,7431
Fixed Income Portfolio N/A N/A 5,121,7562
Fixed Income Fund II N/A 03 03
Controlled Maturity Fund N/A 04 04
Securitized Fund 149,2535 107,8925 102,9815
Short-Term Asset Reserve Fund 730,1916 705,1296 643,488
- ------------------------
1 Fixed Income Fund was converted to the master/feeder fund structure on May 3,
1996 and does not pay directly advisory fees after that date. The Fund bears its
pro rata allocation of the Portfolio's expenses, including advisory fees.
2 The Portfolio commenced operations on May 3, 1996.
3 The Fixed Income Fund II commenced operations on July 3, 1995. The Adviser
voluntarily agreed not to impose its advisory fee for the period July 3, 1995
through December 31, 1995 and for the fiscal year ended December 31, 1996, which
would otherwise have been $42,628 and $61,291, respectively.
4 The Controlled Maturity Fund commenced operations on July 3, 1995. The Adviser
voluntarily agreed not to impose its advisory fee for the period July 3, 1995
through December 31, 1995 and for the fiscal year ended December 31, 1996, which
would otherwise have been $11,617 and $35,907, respectively.
5 For the fiscal years ended December 31, 1994, 1995 and 1996, the Adviser
voluntarily agreed not to impose its fee in the amount of $24,168, $31,998 and
$29,535.
6 Prior to July 1, 1995, Standish and Consolidated Investment Corporation
("Consolidated") served as the Short-Term Asset Reserve Fund's co- investment
advisers and each received 50% of the advisory fees paid by the Fund. For the
period January 1, 1995 through June 30, 1995, Standish and Consolidated received
fees in the aggregate of $345,111. For the period July 1, 1995 through December
31, 1995, Standish received fees of $360,018.
Pursuant to the investment advisory agreements, each Fund (other than Fixed
Income Fund) and the Portfolio bears expenses of its operations other than those
incurred by the Adviser pursuant to the investment advisory agreement. Among
other expenses, the Funds and the Portfolio will pay share pricing and
shareholder servicing fees and expenses; custodian fees and expenses; legal and
auditing fees and expenses; expenses of prospectuses, statements of additional
information and shareholder reports; registration and reporting fees and
expenses; and Trustees' fees and expenses.
Adviser has voluntarily agreed to limit certain "Total Fund Operating
Expenses" (excluding litigation, indemnification and other extraordinary
expenses) to 0.40% of the Fixed Income Fund II's and Controlled Maturity Fund's
average daily net assets and to 0.45%
27
<PAGE>
per annum of the Securitized Funds' average daily net assets. These agreements
are voluntary and temporary and may be discontinued or revised by the Adviser at
any time.
Unless terminated as provided below, the investment advisory agreements
continue in full force and effect from year to year but only so long as each
such continuance is approved annually (i) by either the Trustees of the Trust or
the Portfolio Trust (as applicable) or by the "vote of a majority of the
outstanding voting securities" of the Portfolio or the applicable Fund, and, in
either event (ii) by vote of a majority of the Trustees of the Trust or the
Portfolio Trust (as applicable) who are not parties to the investment advisory
agreement or "interested persons" (as defined in the 1940 Act) of any such
party, cast in person at a meeting called for the purpose of voting on such
approval. Each investment advisory agreement may be terminated at any time
without the payment of any penalty by vote of the Trustees of the Trust or the
Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the applicable Fund or the 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 Funds and the Portfolio, the Adviser, the Principal Underwriter, the
Trust and the Portfolio Trust have each adopted extensive restrictions on
personal securities trading by personnel of the Adviser and its affiliates.
These restrictions include: pre-clearance of all personal securities
transactions and a prohibition of purchasing initial public offerings of
securities. These restrictions are a continuation of the basic principle that
the interests of the Funds and their shareholders, and the Portfolio and its
investors, come before those of the Adviser and its employees.
Administrator of the Fund
Standish also serves as the administrator to the Fixed Income Fund (the
"Fund Administrator") pursuant to a written administration agreement with the
Trust on behalf of the Fund. Certain services provided by the Fund Administrator
under the administration agreement 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. The Fixed
Income Fund's 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 the Portfolio (the "Portfolio
Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator provides
the Portfolio Trust with office space for managing its affairs, and with certain
clerical services and facilities. For its services to the Portfolio Trust, the
Portfolio Administrator currently receives a fee from the Portfolio in the
amount of $7,500 annually. The Portfolio's administration agreement can be
terminated by either party on not more than sixty days' written notice.
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.
28
<PAGE>
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem Fund shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during which
the New York Stock Exchange is closed (other than customary weekend or holiday
closings) or trading on the exchange is restricted; (ii) for any period during
which an emergency exists as a result of which disposal by a Fund of securities
owned by it or determination by a Fund of the value of its net assets is not
reasonably practicable; or (iii) for such other periods as the SEC may permit
for the protection of shareholders of a Fund.
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. The Portfolio
has advised the Trust that the Portfolio will not redeem in-kind except in
circumstances in which the Fixed Income Fund is permitted to redeem in-kind or
except in the event the Fixed Income Fund completely withdraws its interest from
the Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing each Fund's and the Portfolio's
portfolio transactions and will do so in a manner deemed fair and reasonable to
the Funds and the Portfolio and not according to any formula. The primary
consideration in all portfolio transactions will be prompt execution of orders
in an efficient manner at the most favorable price. In selecting broker-dealers
and in negotiating commissions, the Adviser will consider the firm's
reliability, the quality of its execution services on a continuing basis and its
financial condition. 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 Funds and the Portfolio may pay
commissions to such broker in an amount greater than the amount another firm may
charge. Research services may include (i) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, (ii)
furnishing analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts, and (iii) effecting securities transactions and performing functions
incidental thereto (such as clearance and settlement). Research services
furnished by firms through which the Funds and the Portfolio effect their
securities transactions may be used by the Adviser in servicing other accounts;
not all of these services may be used by the Adviser in connection with the Fund
or the Portfolio generating the soft dollar credits. The investment advisory fee
paid by the Funds and the Portfolio under the investment advisory agreements
will not be reduced as a result of the Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory accounts.
The Adviser will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for a Fund or 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 a Fund
or 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.
Because most of the Funds' and the Portfolio's securities transactions are
effected on a principal basis involving a "spread" or "dealer mark-up," the
Funds and the Portfolio have not paid any brokerage commissions during the past
three years.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated each day on which the New York
Stock Exchange is open (a "Business Day"). Currently, the New York Stock
Exchange is not open on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., New York
City time) and is computed by dividing the value of all securities and other
assets of a Fund (substantially all of which, in the case of the Fixed Income
Fund, will be represented by the Fixed Income Fund's interest in the Portfolio)
less all liabilities by the number of Fund
29
<PAGE>
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 the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Fixed Income Fund is determined. Each investor in the Portfolio,
including the Fixed Income Fund, may add to or reduce its investment in the
Portfolio on each Business Day. As of 4:00 p.m. (Eastern time) on each Business
Day, the value of each investor's interest in the Portfolio will be determined
by multiplying the net asset value of the Portfolio by the percentage
representing that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or reductions which are to be effected on that day will
then be effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio will then be recomputed as the percentage equal to
the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of the net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. on the
following Business Day.
With respect to each Fund (other than Short-Term Asset Reserve Fund) and
the Portfolio, portfolio securities that are fixed income securities (other than
money market instruments) for which accurate market prices are readily available
are valued at their current market value on the basis of quotations, which may
be furnished by a pricing service or provided by dealers in such securities.
Fixed income securities for which accurate market prices are not readily
available and other assets are valued at fair value as determined in good faith
by the Adviser in accordance with procedures approved by the Trustees, which may
include the use of yield equivalents or matrix pricing.
Money market instruments with less than sixty days remaining to maturity
when acquired by a Fund or the Portfolio are valued on an amortized cost basis.
If a Fund or the Portfolio acquires a money market instrument with more than
sixty days remaining to its maturity, it is valued at current market value until
the sixtieth day prior to maturity and will then be valued at amortized cost
based upon the value on such date unless the Trustees determine during such
sixty-day period that amortized cost does not represent fair value.
The Board of Trustees of the Trust has approved with respect to Short-Term
Asset Reserve Fund determining the current market value of securities with one
year or less remaining to maturity on a spread basis which will be employed in
conjunction with the periodic use of market quotations. Under the spread
process, the Adviser determines in good faith the current market value of these
portfolio securities by comparing their quality, maturity and liquidity
characteristics to those of United States Treasury bills.
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, only the Fixed Income Fund invests all of its investible
assets in another open-end investment company.
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
30
<PAGE>
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, on behalf of the Fixed
Income Fund, is requested to vote on a fundamental policy of or matters
pertaining to the Portfolio, the Trust will hold a meeting of the Fixed Income
Fund's shareholders and will cast its vote proportionately as instructed by the
Fixed Income Fund's shareholders. Fixed Income 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 Fixed Income Fund shareholders not voting will be
voted by the Trustees of the Trust in the same proportion as the Fixed Income
Fund shareholders who do, in fact, vote. Subject to applicable statutory and
regulatory requirements, the Fixed Income 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 Fixed Income 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 Fixed Income Fund. Any proposal
submitted to holders in the Portfolio, and that is not required to be voted on
by shareholders of the Fixed Income Fund, would nonetheless be voted on by the
Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
The Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a
newly formed trust and, like the Fixed Income Fund, is an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Portfolio Trust was organized as a master trust fund under the laws of the State
of New York on January 18, 1996.
Interests in the Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. The Portfolio would be required to hold a meeting
of holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of the Portfolio
continue to hold office until their successors are elected and have qualified.
Holders holding a specified percentage of interests in the Portfolio may call a
meeting of holders in the Portfolio for the purpose of removing any Trustee. A
Trustee of the Portfolio may be removed upon a majority vote of the interests
held by holders in the Portfolio qualified to vote in the election. The 1940 Act
requires the Portfolio to assist its holders in calling such a meeting. Upon
liquidation of the Portfolio, holders in the Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
holders. Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund has qualified and elected to
be treated as a "regulated investment company" ("RIC") under Subchapter M of the
Code, and intends to continue to so qualify in the future. As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, each Fund will not be subject to Federal income tax on its investment
company taxable income (i.e., all taxable income, after reduction by deductible
expenses, other than its "net capital gain," which is the excess, if any, of its
net long-term capital gain over its net short-term capital loss) and net capital
gain which are distributed to shareholders in accordance with the timing
requirements of the Code.
The Portfolio is treated as a partnership for federal income tax purposes.
As such, the Portfolio is not subject to federal income taxation. Instead, the
Fixed Income Fund must take into account, in computing its federal income tax
liability (if any), its share of the
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<PAGE>
Portfolio's income, gains, losses, deductions, credits and tax preference items,
without regard to whether it has received any cash distributions from the
Portfolio. Because the Fixed Income Fund invests its assets in the Portfolio,
the Portfolio normally must satisfy the applicable source of income and
diversification requirements in order for the Fund to satisfy them. The
Portfolio will allocate at least annually among its investors, including the
Fixed Income Fund, each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of income,
gain, loss, deduction or credit. The Portfolio will make allocations to the
Fixed Income 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 Fixed Income Fund to satisfy the tax
distribution requirements that apply to the Fixed Income Fund and that must be
satisfied in order to avoid Federal income and/or excise tax on the Fixed Income
Fund. For purposes of applying the requirements of the Code regarding
qualification as a RIC, the Fixed Income Fund will be deemed (i) to own its
proportionate share of each of the assets of the Portfolio and (ii) to be
entitled to the gross income of the Portfolio attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by the
Funds during October, November or December of the year but paid during the
following January. Such distributions will be taxable to taxable shareholders as
if received on December 31 of the year the distributions are declared, rather
than the year in which the distributions are received.
Each Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
Each Fund will not distribute net capital gains realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, a Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Fixed Income Fund has $[ ] of capital loss carryforwards,
which expire on December 31, 2002, available to offset future net capital gains.
The Short-Term Asset Reserve Fund has $3,071,161, $1,512,610, $5,263,400,
$568,968 and $277,757 of capital loss carryforwards, which expire on December
31, 2000, December 31, 2001, December 31, 2002, December 31, 2003, and December
31, 2004 respectively. The Controlled Maturity Fund has $10,860 of capital loss
carryforwards which expire on December 31, 2004, and the Securitized Fund has
$1,745,441 and $234,501 of capital loss carryforwards which expire on December
31, 2002 and December 31, 2004, respectively, available to offset future net
capital gains.
If a Fund or the Portfolio invests in zero coupon securities, certain
increasing rate or deferred interest securities or, in general, other securities
with original issue discount (or with market discount if a Fund elects to
include market discount in income currently), the Fund or 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 Portfolio, in the case of the Fixed Income Fund, to
shareholders to qualify as a regulated investment company under the Internal
Revenue Code and avoid federal income and excise taxes. Therefore, a Fund or the
Portfolio may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to enable the Funds to satisfy the distribution requirements.
Limitations imposed by the Codes on regulated investment companies like the
Funds may restrict a Fund's or the Portfolio's ability to enter into futures,
options or currency forward transactions. Only the Portfolio and Securitized
Fund may engage in currency forward transactions.
Certain options, futures or currency forward transactions undertaken by a
Fund or the Portfolio may cause the Fund to recognize gains or losses from
marking to market even though the Fund's or 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 Fund or realized by the Portfolio and allocable to the
Fixed Income Fund. Any net mark to market gains may also have to be distributed
by a Fund to satisfy the distribution requirements referred to above even though
no corresponding cash amounts may concurrently be received, possibly requiring
the
32
<PAGE>
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 Fund or the
Portfolio is eligible and chooses to make one or more of certain tax elections
that may be available. These transactions may affect the amount, timing and
character of a Fund's distributions to shareholders. Each Fund will take into
account the special tax rules applicable to options, futures or forward
contracts in order to minimize any potential adverse tax consequences.
The Federal income tax rules applicable to dollar rolls, currency swaps,
and interest rate swaps, caps, floors and collars are unclear in certain
respects, and a Fund or the Portfolio may be required to account for these
instruments under tax rules in a manner that, under certain circumstances, may
limit its transactions in these instruments. Due to possible unfavorable
consequences under present tax law, each Fund and the Portfolio do not currently
intend to acquire "residual" interests in real estate mortgage investment
conduits ("REMICs"), although the Funds or the Portfolio may acquire "regular"
interests in REMICs.
Foreign exchange gains and losses realized by the Portfolio and the
Securitized Fund in connection with certain transactions, if any, involving
foreign currency- denominated debt securities, certain foreign currency futures
and options, foreign currency forward contracts, foreign currencies, or payables
or receivables denominated in a foreign currency are subject to Section 988 of
the Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of Fund
distributions to shareholders. In some cases, elections may be available that
would alter this treatment. Any such transactions that are not directly related
to the Portfolio's or the Securitized Fund's investment in stock or securities,
possibly including speculative currency positions or currency derivatives not
used for hedging purposes, may increase the amount of gain it is deemed to
recognize from the sale of certain investments held for less than three months,
which gain (or share of such gain in the case of the Fixed Income Fund plus any
such gain the Fund may realize from other sources) is limited under the Code to
less than 30% of each Fund's gross income for its taxable year, and could under
future Treasury regulations produce income not among the types of "qualifying
income" from which each Fund must derive at least 90% of its gross income for
its taxable year.
The Portfolio or the Securitized Fund may be subject to withholding and
other taxes imposed by foreign countries with respect to its investments in
foreign securities. Tax conventions between certain countries and the U.S. may
reduce or eliminate such taxes in some cases. Investors in the Fixed Income Fund
or the Securitized Fund would be entitled to claim U.S. foreign tax credits with
respect to such taxes, subject to certain provisions and limitations contained
in the Code, only if more than 50% of the value of the applicable Fund's total
assets (in the case of the Fixed Income Fund, taking into account its allocable
share of the Portfolio's assets) at the close of any taxable year were to
consist of stock or securities of foreign corporations and the Fund were to file
an election with the Internal Revenue Service. Because the investments of the
Portfolio and the Securitized Fund are such that each Fund expects that it will
not meet this 50% requirement, shareholders of each Fund generally will not
directly take into account the foreign taxes, if any, paid by the Portfolio and
allocable to the Fixed Income Fund or paid by the Securitized Fund, and will not
be entitled to any related tax deductions or credits. Such taxes will reduce the
amounts each Fund would otherwise have available to distribute.
If the Portfolio or the Securitized Fund acquires stock in certain foreign
corporations that receive at least 75% of their annual gross income from passive
sources (such as interest, dividends, rents, royalties or capital gain) or hold
at least 50% of their assets in investments producing such passive income
("passive foreign investment companies"), the Fixed Income Fund or the
Securitized Fund could be subject to Federal income tax and additional interest
charges on "excess distributions" actually or constructively received from such
companies or gain from the actual or deemed sale of stock in such companies,
even if all income or gain actually realized is timely distributed to its
shareholders. They would not be able to pass through to their shareholders any
credit or deduction for such a tax. Certain elections may, if available,
ameliorate these adverse tax consequences, but any such election would require
them to recognize taxable income or gain without the concurrent receipt of cash.
The Portfolio and the Securitized Fund may limit and/or manage stock holdings,
if any, in passive foreign investment companies to minimize each Fund's tax
liability or maximize its return from these investments.
Investment in debt obligations by the Portfolio that are at risk of or in
default presents special tax issues for the Fixed Income Fund. Tax rules are not
entirely clear about issues such as when the Portfolio may cease to accrue
interest, original issue discount, or market discount, when and to what extent
deductions may be taken for bad debts or worthless securities, how payments
received on obligations in default should be allocated between principal and
income, and whether exchanges of debt obligations in a workout context are
taxable. These and other issues will be addressed by the
33
<PAGE>
Portfolio, in the event that it holds such obligations, in order to reduce the
risk of the Fixed Income Fund, or any other RIC investing in the Portfolio,
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.
A Fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends received deduction, subject
to certain holding period requirements and limitations on debt financing under
the Code, only to the extent a Fund earned dividend income (or, in the case of
the Fixed Income Fund, was allocated dividend income of the Portfolio) from
stock investments in U.S. domestic corporations. The Funds and the Portfolio are
permitted to acquire preferred stocks, and it is therefore possible that a
portion of a Fund's distributions, from the dividends attributable to such
preferred stocks, may qualify for the dividends received deduction. Such
qualifying portion, if any, may affect a corporate shareholder's liability for
alternative minimum tax and/or result in basis reductions in certain
circumstances.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to undistributed net investment income and/or
realized or unrealized appreciation in the Fund's portfolio (or share of the
Portfolio's portfolio in the case of the Fixed Income Fund). 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 (including a repurchase) of shares of a Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will generally be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares,
subject to the rules described below. Any loss realized on a redemption may be
disallowed to the extent the shares disposed of are replaced with other shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
adviser for more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent,
if any, a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fixed Income Fund's indirect ownership (through the
Portfolio) of any such obligations, as well as the Federal, and any other state
or local, tax consequences of ownership of shares of, and receipt of
distributions from, a Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which their
investment in the 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
34
<PAGE>
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 Fund.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC, which
may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
EXPERTS AND FINANCIAL STATEMENTS
Except as noted in the next sentence, each Fund's financial statements
contained in the 1996 Annual Reports of the Funds have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated by reference into
and attached to this Statement of Additional Information. Financial highlights
of Fixed Income Fund, Securitized Fund and Short-Term Asset Reserve Fund for
periods from commencement of operations through December 31, 1992 were audited
by Deloitte & Touche, LLP, independent auditors. The Portfolio's financial
statements contained in the Fixed Income Fund's 1996 Annual Report have been
audited by Coopers & Lybrand, an affiliate of Coopers & Lybrand L.L.P.
35
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
In sharp contrast to the stellar returns of 1995, the bond market had a tough
year in 1996 as fears of an overheating economy made many fixed income investors
nervous. Over the course of the year, the yield of the 30-year Treasury rose
from its low of 5.95% at the beginning of the year to a high in early July of
7.20%, ending in mid range at 6.64%. With shorter maturities holding up best,
the broad domestic bond market indices provided disappointing total returns of
roughly 2% to 4%. Against this backdrop, the Standish Fixed Income Fund provided
a good relative return of 5.48% versus 3.61% and 2.91% for the Lehman Brothers
Aggregate and Government/Corporate Indices, respectively.
1996 started off on a weak note. The first and second quarters for the U.S.
Treasury market were very difficult as investors reacted to economic reports
that suggested a rapidly expanding economy. Consumer confidence, auto and
housing sales, new orders and the much anticipated employment reports all
contributed to the sell-off. The second half of the year was much better as
fears of a runaway economy subsided, inflation statistics continued to show very
little to worry about, and the election preserved the status quo. Above all, the
Federal Reserve did not raise the discount rate. The overseas bond markets were
much more investor friendly as weakening economies and increasing unemployment
across Europe and Japan led to solid returns all year.
The fund's positive relative return was the result of a number of strategies
that worked well throughout the year. Most importantly, the fund's allocation to
nondollar bonds was maintained for the entire year and contributed significantly
to outperformance. The strategy of focusing on the higher yielding countries
proved especially beneficial as the political commitment to European Monetary
Union (EMU) resulted in a convergence of yield spreads to Germany. Our
proclivity to hedge currencies also added to performance as the dollar
appreciated.
An overweighting in corporate bonds and solid security selection particularly
among medium grade issuers also added to results. The mortgage sector performed
well during the first half of the year and finished well despite a rallying
market. We started to trim our mortgage allocation as the year ended in favor of
U.S.
Treasuries and corporate bonds.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Fixed
Income Fund have been invested in a "Portfolio" having substantially the same
investment objective, policies and restrictions as the corresponding fund. The
fund in which you are invested is now considered a "Spoke," sharing in the
activities of the Portfolio proportionately according to its relative size.
As always, we thank you for your continued confidence as shareholders and hope
that this information is helpful to you in reviewing your overall investment
strategies.
Caleb F. Aldrich
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund Series
Comparison of Change in Value of $100,000 Investment in Standish Fixed
Income Fund,
Lehman Gov't/Corp Index and Lehman Aggregate Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Fixed Income
Fund compared with the Lehman Gov't/Corp Index and Lehman Aggregate Index for
the period March 30, 1987 to December 31, 1996, based upon a $100,000
investment. Also included are the average annual total returns for one year,
five year, and since inception.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Investment in Standish Fixed Income Portfolio (Portfolio) at value (Note 1A) $ 2,616,111,481
Receivable for Fund shares sold 11,189,329
Other assets 65,572
-----------------
Total assets 2,627,366,382
Liabilities
Distribution payable $ 17,828,221
Payable for Fund shares redeemed 5,885,122
Accrued expenses and other liabilities 24,770
---------------
Total liabilities 23,738,113
-----------------
Net Assets $ 2,603,628,269
=================
Net Assets consist of:
Paid-in capital $ 2,567,721,565
Undistributed net investment income (loss) 5,299,151
Accumulated net realized gain (loss) (1,219,259)
Net unrealized appreciation (depreciation) 31,826,812
=================
Total $ 2,603,628,269
=================
Shares of beneficial interest outstanding 126,807,250
=================
Net asset value, offering price and redemption price per share $ 20.53
=================
(Net assets / shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B):
Interest income $ 57,577,069
Dividend income (net of withholding tax expense of $8,394) 669,192
Interest income allocated from Portfolio 118,492,713
Dividend income allocated from Portfolio 3,449,029
Expenses allocated from Portfolio (5,959,995)
---------------
Total income 174,228,008
Expenses -
Investment Advisory Fee (Note 3) $ 2,493,743
Trustee fees 50,635
Accounting, custody, and transfer agent fees 231,955
Legal and audit fees 204,942
Insurance 20,524
Miscellaneous 90,402
----------------
Total expenses 3,092,201
---------------
Net investment income (loss) 171,135,807
---------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment security transactions 13,818,375
Financial futures (77,350)
Written option transactions 1,799,333
Foreign currency and forward foreign currency contracts 3,872,910
Net realized gain (loss) from Portfolio on:
Investment security transactions (2,396,986)
Financial futures 459,448
Written option transactions 5,492,345
Foreign currency and forward foreign currency contracts (1,683,196)
----------------
Net realized gain (loss) 21,284,879
Change in unrealized appreciation (depreciation) of investments from:
Investment security transactions (145,526,933)
Financial futures 14,559
Written option transactions 560,849
Foreign currency and forward foreign currency contracts 648,048
From Portfolio 87,004,141
----------------
Net change in unrealized appreciation (depreciation) (57,299,336)
Net realized and unrealized gain (loss) (36,014,457)
---------------
Net increase (decrease) in net assets resulting from operations $ 135,121,350
===============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- -----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 171,135,807 $ 145,836,911
Net realized gain (loss) 21,284,879 23,525,323
Change in net unrealized appreciation (depreciation) (57,299,336) 166,624,878
----------------------
-----------------------
Net increase (decrease) in net assets from operations $ 135,121,350 $ 335,987,112
---------------------- -----------------------
Distributions to shareholders
From net investment income $ (176,422,831) $ (142,241,343)
---------------------- -----------------------
Fund share (principal) transactions, (Note 6)
Net proceeds from sale of shares $ 425,224,438 $ 569,023,301
Net asset value of shares issued to shareholders
in payment of distributions declared 130,822,616 100,609,209
Cost of shares redeemed (178,224,191) (239,204,674)
----------------------
-----------------------
Increase (decrease) in net assets from Fund share transactions $ 377,822,863 $ 430,427,836
----------------------
-----------------------
Net increase (decrease) in net assets $ 336,521,382 $ 624,173,605
Net Assets:
At beginning of period 2,267,106,887 1,642,933,282
----------------------
-----------------------
At end of period (including undistributed net investment income of $ 2,603,628,269 $ 2,267,106,887
====================== =======================
$5,299,151 and $3,798,973 at December 31, 1996 and 1995, respectively)
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 (3) 1995 1994 1993
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $ 20.92 $ 18.91 $ 21.25 $ 20.55
------------- ------------- ------------ -------------
Income from investment operations:
Net investment income $1.46 $1.35 $1.25 $1.50
Net realized and unrealized gain
(loss) on investments (0.37) 2.08 (2.29) 1.45
------------- ------------- ------------ -------------
Total from investment operations $1.09 $3.43 ($1.04) $2.95
------------- ------------- ------------ -------------
Less distributions to shareholders:
From net investment income ($1.48) ($1.42) ($1.10) ($1.51)
In excess of net investment income - - - (0.04)
From net realized gains on investments - - (0.04) (0.70)
From paid-in capital - - (0.16) -
------------ ------------- ------------ -------------
Total distributions declared to shareholders ($1.48) ($1.42) ($1.30) ($2.25)
------------- ------------ -------------
-------------
Net asset value - end of period $ 20.53 $ 20.92 $ 18.91 $ 21.25
============= ============= ============ =============
Total Return 5.48% 18.54% -4.86% 14.64%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.38% 0.38% 0.38% 0.40%
Net investment income 7.13% 7.80% 7.25% 7.07%
Portfolio Turnover (2) 49% 132% 122% 150%
Net assets, end of year (000 omitted) $ 2,603,628 $ 2,267,107 $ 1,642,933 $ 1,307,099
* Audited by other auditors
(1) Includes the Fund's share of Standish Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
(3) Calculated based on average shares outstanding.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
(continued)
Year Ended December 31,
---------------------------
1992 * 1991
----------- -----------
Net asset value - Beginning of period $ 20.96 $ 19.56
----------- -----------
Income from investment operations:
Net investment income $1.59 $1.68
Net realized and unrealized gain
(loss) on investments (0.18) 1.66
----------- -----------
Total from investment operations $1.41 $3.34
----------- -----------
Less distributions to shareholders:
From net investment income ($1.52) ($1.49)
In excess of net investment income -
From net realized gains on investments (0.30) (0.45)
From paid-in capital -
----------- -----------
Total distributions declared to shareholders ($1.82) ($1.94)
----------- -----------
Net asset value - end of period $ 20.55 $ 20.96
=========== ===========
Total Return 6.88% 17.65%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.41% 0.46%
Net investment income 7.61% 8.28%
Portfolio Turnover (2) 217% 176%
Net assets, end of year (000 omitted) $ 919,909 $ 631,457
* Audited by other auditors
(1) Includes the Fund's share of Standish Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
(3) Calculated based on average shares outstanding.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Fixed Income Fund (the "Fund") is a separate
diversified investment series of the Trust.
On May 3, 1996, the Fund contributed substantially all of its
investable assets to the Standish Fixed Income Portfolio (the
"Portfolio"), a subtrust of Standish, Ayer & Wood Master Portfolio (the
"Portfolio Trust"), which is organized as a New York trust, in exchange
for an interest in the Portfolio. The Fund invests all of its
investable assets in the interests in the Portfolio, which has the same
investment objective as the Fund. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net
assets of the Portfolio (approximately 100% at December 31, 1996). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies followed by the Fund in the preparation of the
financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. .Investment security valuations--
The Fund records its investments in the Portfolio at value. Valuation
of securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B...Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
C...Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D...Other-
All net investment income and realized and unrealized gains and losses
of each Portfolio are allocated pro rata among its respective investors
in the Portfolio.
(2) Distributions to Shareholders
Dividends from net investment income will be declared and distributed
quarterly. The Fund's dividends from short-term and long-term capital
gains, if any, after reduction by capital losses will be declared and
distributed at least annually. In determining the amounts of its
dividends, the Fund will take into account its share of the income,
gains or losses, expenses, and any other tax items of the Portfolio.
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Income and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for mortgage
backed securities and foreign currency transactions. Permanent book and
tax basis differences relating to shareholder distributions will result
in reclassifications between paid-in capital, undistributed net
investment income and accumulated net realized gain (loss).
<PAGE>
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid monthly at the annual rate of 0.40% of the
Fund's first $250,000,000 of average daily net assets, 0.35% of the
next $250,000,000 of average daily net assets, and 0.30% of the average
daily net assets in excess of $500,000,000. SA&W has voluntarily agreed
to limit total annual operating expenses of the Fund and Portfolio
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.38% of the Fund's average daily net assets. Currently, the Fund pays
no compensation directly to SA&W for such services now performed for
the Portfolio, but indirectly bears its pro rata share of the
compensation paid by the Portfolio to SA&W for such services. See Note
2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. The Fund pays no compensation directly to its
trustees who are affiliated with the SA&W or to its officers, all of
whom receive remuneration for their services to the Fund from SA&W.
Certain of the trustees and officers of the Trust are directors or
officers of SA&W.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
U.S. Government Securities $827,067,931 $716,353,411
================== ==================
Non-U.S. government securities $416,284,103 $379,043,531
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$2,562,639,030 and $151,384,941, respectively.
(6) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Period Ended December 31, 1996
1996 1995
------------------ -------------------
<S> <C> <C>
Shares sold 20,679,081 28,240,659
Shares issued in payment of distributions declared 6,418,558 4,933,561
Shares reacquired (8,638,095) (11,707,017)
================== ===================
Net increase (decrease) 18,459,544 21,467,203
================== ===================
</TABLE>
(7).....Financial Instruments:
Prior to the Fund's contribution of investable assets to the Portfolio
on May 3, 1996, the following instruments were used for hedging
purposes and were used to enhance potential gain in circumstances where
hedging was not involved. The nature, risks and objectives of these
investments are set forth more fully in the Fund's Prospectus and
Statement of Additional Information. The Fund traded the following
financial instruments with off-balance sheet risk:
<PAGE>
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund used options to hedge against risks of market
exposure and changes in security prices and foreign currencies, as well
as to enhance returns. Options, both held and written by the Fund are
reflected in the accompanying Statement of Assets and Liabilities at
market value. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which
are exercised or are closed are added to or offset against the proceeds
or amount paid on the transaction to determine the realized gain or
loss. If a put option written by the Fund is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The
Fund, as a writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of
the security underlying the written option. A summary of such
transactions for the period January 1, 1996 through May 3, 1996 is as
follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 5 $41,775
Options written 14 1,458,659
Options exercised (3) (229,294)
Options expired (6) (346,698)
Options closed (1) (37,976)
------------------ ------------------
Outstanding, prior to conversion 9 886,446
Options contributed to Portfolio (9) (886,446)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 4 $824,687
Options written 17 1,687,282
Options exercised 0 0
Options expired (6) (1,066,295)
Options closed (4) (546,547)
------------------ ------------------
Outstanding, prior to conversion 11 899,127
Options contributed to Portfolio (11) (899,127)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Cross Currency Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 3 $327,525
Options written 4 222,641
Options exercised 0 0
Options expired 0 0
Options closed (2) (91,982)
------------------ ------------------
Outstanding, prior to conversion 5 458,184
Options contributed to Portfolio (5) (458,184)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
<PAGE>
.........Forward currency exchange contracts--
Prior to May 3, 1996, the Fund could enter into forward foreign
currency and cross currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts were used by the Fund primarily to protect the value
of the Fund's foreign securities from adverse currency movements.
.........Futures contracts--
Prior to May 3, 1996, the Fund could enter into financial futures
contracts for the delayed sale or delivery of securities or contracts
based on financial indices at a fixed price on a future date. The Fund
was required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments were
made or received by the Fund each day, dependent on the daily
fluctuations in the value of the underlying security, and are recorded
for financial statement purposes as unrealized gains or losses by the
Fund. There are several risks in connection with the use of futures
contracts as a hedging device. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments or
indices, which may not correlate with changes in the value of hedged
investments. The Fund entered into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
security prices and foreign currencies.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund: We have audited the accompanying statement of
assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish Fixed
Income Fund (the "Fund"), as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years then ended and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended December 31,
1992, presented herein, were audited by other auditors, whose report, dated
February 12, 1993, expressed an unqualified opinion on such financial
highlights. We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Fixed Income Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years then ended and the financial highlights for each of the four years
in the period then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
BONDS and NOTES - 95.7%
Asset Backed - 2.4%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.00% 2/25/2006 1,911,107 1,974,935
AFC Home Equity Loan Trust 1993-2 6.00 1/20/2013 118,022 115,403
Contimortgage Home Equity 1994-5 A2 9.07 10/15/2009 12,185,686 12,355,143
Contimortgage Home Equity 1995 IA 8.60 2/15/2010 5,421,347 5,475,560
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.30 9/25/2007 514,344 510,487
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55 11/25/2007 111,947 111,649
The Money Store Home Equity 1992-B 6.90 7/15/2007 588,015 588,015
The Money Store Home Equity 1994-DA4 8.75 9/15/2020 3,250,000 3,392,188
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 18,638,000 18,859,326
UCFC Home Equity Loan Trust 1994 BA-6 7.10 3/10/2023 1,670,922 1,682,409
UCFC Home Equity Loan Trust 1994-D A4 8.78 2/10/2016 16,562,000 17,198,602
-----------------
62,263,717
-----------------
Collateralized Mortgage Obligations - 0.2%
- --------------------------------------------------------------
FNMA P/O Trust 108 0.00 3/01/2020 1,597,535 1,257,450
Merrill Lynch Investment Trust 1995-C2 7.94 6/15/2021 2,784,813 2,640,351
Midstate Trust II A3 9.35 4/01/1998 450,000 459,844
Veterans Affairs 1992-1 Cl D 7.75 12/15/2014 50,000 50,875
-----------------
4,408,520
-----------------
Corporate - 31.3%
- --------------------------------------------------------------
Basic Industry - 1.4%
- --------------------------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 17,575,000 19,112,813
Brascan Ltd. 7.38 10/01/2002 9,475,000 9,493,287
Domtar Inc. 9.50 8/01/2016 6,550,000 7,164,063
-----------------
35,770,163
-----------------
Capital Goods - 1.2%
- --------------------------------------------------------------
American Standard Sr Notes 10.88 5/15/1999 15,350,000 16,251,813
Conseco Finance Trust 8.70 11/15/2026 8,450,000 8,548,612
Washington Reit Notes 7.25 8/13/2006 6,225,000 6,207,321
-----------------
31,007,746
-----------------
Consumer Cyclical - 1.7%
- --------------------------------------------------------------
General Motors Acceptance Corp. 6.50 4/25/2000 5,075,000 5,079,669
General Motors Acceptance Corp. 6.70 4/30/2001 40,535,000 40,648,093
-----------------
45,727,762
-----------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Consumer Stable - 0.8%
- --------------------------------------------------------------
ADT Operations 8.25% 8/01/2000 8,360,000 8,686,960
Southland Corp. 4.50 6/15/2004 8,175,000 6,294,750
Southland Corp. 5.00 12/15/2003 6,500,000 5,305,625
-----------------
20,287,335
-----------------
Energy - 0.4%
- --------------------------------------------------------------
Clark Oil 10.50 12/01/2001 9,325,000 9,698,000
-----------------
Financial - 17.7%
- --------------------------------------------------------------
Aames Financial Corp. 9.13 11/01/2003 10,175,000 10,327,625
Advanta Corp. 7.00 5/01/2001 5,850,000 5,862,402
Anchor Bancorp 8.94 7/09/2003 7,325,000 7,508,125
Bank America Corp. Capital Securities 144A 7.70 12/31/2026 11,400,000 11,088,438
Bank United Corp. 8.05 5/15/1998 10,000,000 9,810,000
Bankboston Capital Trust 144A 8.25 12/15/2026 13,425,000 13,662,623
Barnett Banks Capital Securities 144A 8.06 12/01/2026 9,350,000 9,443,968
Bayview Capital 144A 8.42 6/01/1999 11,000,000 11,206,250
Capital One Bank Co. 5.95 2/15/2001 10,000,000 9,658,400
Capital One Bank Co. 6.39 6/29/1998 250,000 250,035
Capital One Bank Co. 6.84 6/13/2000 8,675,000 8,684,716
Capital One Bank Co. 6.88 4/24/2000 2,550,000 2,556,452
Capital One Bank Co. 7.00 4/30/2001 5,000,000 5,016,100
Capital One Bank Co. 7.35 6/20/2000 6,250,000 6,346,125
Chartwell Re Holdings 10.25 3/01/2004 3,058,000 3,260,593
Coast Federal Bank 13.00 12/31/2002 5,000,000 5,537,500
Commercial Federal 7.95 12/01/2006 2,250,000 2,247,188
Contifinacial Corp. 8.38 8/15/2003 10,225,000 10,469,889
Corestates Capital CFL 144A 8.00 12/15/2026 6,975,000 6,958,888
Enterprise Corp. 7.00 6/15/2000 8,225,000 8,324,523
Equitable Life 6.95 12/01/2005 10,475,000 10,275,766
First Chicago Corp Notes 144A 7.75 12/01/2026 11,825,000 11,703,676
First Nationwide 9.13 1/15/2003 5,500,000 5,589,375
First Nationwide 12.25 5/15/2001 13,200,000 14,850,000
First Nationwide Escrow 144A 10.63 10/01/2003 18,000,000 19,350,000
First USA Bank 5.75 1/15/1999 200,000 197,320
First USA Bank 5.85 2/22/2001 250,000 240,073
First USA Bank 7.00 8/20/2001 4,650,000 4,691,897
Goldman Sachs Inc. 144A 6.20 12/15/2000 16,725,000 16,500,902
Goldman Sachs Inc. 144A 6.38 6/15/2000 11,850,000 11,774,397
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 15,000,000 14,759,487
Hartford National Bank Corp. 9.85 6/01/1999 300,000 321,405
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Financial - (continued)
- --------------------------------------------------------------
Irsa Parcks Cvt 144A 4.50% 8/02/2003 1,050,000 1,039,500
ISP Holdings Inc. 144A 9.00 10/15/2003 8,825,000 8,913,250
Liberty Mutual Insurance Co. 144A 7.88 10/15/2026 11,300,000 11,339,437
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 2,000,000 2,139,440
Meditrust 7.82 9/10/2026 5,000,000 5,180,850
Merrill Lynch & Co 6.00 3/01/2001 9,705,000 9,484,017
Merrill Lynch & Co 6.50 4/01/2001 6,775,000 6,757,046
Merrill Lynch & Co 6.70 8/01/2000 500,000 503,450
Midtlantic Bank 9.88 12/01/1999 75,000 81,549
Morgan Stanley Group Inc. 6.70 5/01/2001 11,825,000 11,840,964
Reliance Group Holdings Corp. 9.00 11/15/2000 17,375,000 17,809,361
Riggs National Corp. 9.65 6/15/2009 125,000 143,625
Salomon Brothers Inc. 6.29 4/05/1999 4,300,000 4,235,500
Salomon Brothers Inc. 6.63 11/30/2000 13,625,000 13,545,021
Salomon Brothers Inc. 6.82 7/26/1999 8,625,000 8,681,925
Salomon Brothers Inc. 7.00 5/15/1999 2,275,000 2,292,973
Salomon Brothers Inc. 7.13 8/01/1999 1,950,000 1,971,879
Salomon Brothers Inc. 7.25 5/01/2001 9,190,000 9,276,937
Salomon Brothers Inc. 7.75 5/15/2000 6,640,000 6,818,151
Signet Bank 9.63 6/01/1999 3,250,000 3,466,613
Smith Barney Holdings 6.63 6/01/2000 300,000 300,711
TIG Holdings Inc. 8.13 4/15/2005 50,000 52,520
Transamerica Capital 144A 7.80 12/01/2026 17,975,000 17,435,750
Travelers Capital II 7.75 12/01/2036 11,355,000 10,948,605
UCFC Home Equity Loan Trust 1996 BA-1 7.70 1/15/2004 7,500,000 7,488,825
Union Planters Corp 144A 8.20 12/15/2026 8,200,000 8,046,824
United Companies Financial 7.00 7/15/1998 5,050,000 5,067,827
United Companies Financial 9.35 11/01/1999 11,175,000 11,885,395
USF&G Corp. 7.00 5/15/1998 50,000 50,439
World Financial Properties 144A 6.91 9/01/2013 16,862,285 16,617,255
-----------------
461,889,777
-----------------
Health Care - 1.2%
- --------------------------------------------------------------
Healthsouth Rehabilitation 9.50 4/01/2001 14,975,000 15,836,063
Highwoods Properties REIT Notes 6.75 12/01/2003 14,950,000 14,666,997
R P Scherer Corp. 6.75 2/01/2004 50,000 48,141
-----------------
30,551,201
-----------------
Real Estate - 1.9%
- --------------------------------------------------------------
Avalon Property REIT 7.38 9/15/2002 175,000 177,847
Duke Realty REIT Investments 7.38 9/22/2005 150,000 149,547
Healthcare Properties REIT 6.50 2/15/2006 7,875,000 7,474,320
Merry Land Co. REIT 7.25 10/01/2002 150,000 152,006
Shopping Center Associates 6.75 1/15/2004 10,000,000 9,738,900
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Real Estate - (continued)
- --------------------------------------------------------------
Spieker Properties 6.65% 12/15/2000 225,000 223,405
Spieker Properties 6.90 1/15/2004 10,000,000 9,737,800
Sun Communities 7.38 5/01/2001 5,425,000 5,466,393
Taubman Realty Group 8.00 6/15/1999 10,025,000 10,241,139
United Dominion Realty Trust 7.95 7/12/2006 5,850,000 6,091,020
Wellsford Residential Property 7.75 8/15/2005 300,000 307,710
-
-----------------
49,760,087
------------------
Services - 4.7%
- --------------------------------------------------------------
Century Communications 9.50 8/15/2000 2,700,000 2,774,250
Comcast Corp. 10.63 7/15/2012 8,950,000 9,744,313
Erac Usa Finance 7.88 3/15/1998 16,775,000 17,098,370
Hertz Corp. 7.00 4/15/2001 35,000 35,448
News America Holdings Corp. 7.70 10/30/2025 5,075,000 4,804,198
News America Holdings Corp. 8.88 4/26/2023 2,400,000 2,564,184
News America Holdings Corp. 9.50 7/15/2024 4,250,000 4,860,130
Time Warner Inc. 6.85 1/15/2026 6,000,000 5,850,180
Time Warner Inc. 9.13 1/15/2013 32,880,000 35,811,252
Viacom Inc. 6.75 1/15/2003 7,200,000 6,891,552
Viacom Inc. 7.63 1/15/2016 5,525,000 4,991,285
Viacom Inc. 7.75 6/01/2005 31,055,000 30,578,927
-
-----------------
126,004,089
------------------
Technology - 0.3%
- --------------------------------------------------------------
Jones Intercable 9.63 3/15/2002 7,950,000 8,347,500
------------------
TOTAL Corporate 819,043,660
------------------
Australia - 0.2% Australian
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
New South Wales Treasury 0.00 9/03/2010 10,730,000 3,025,989
South Australia Government Finance 0.00 12/21/2015 4,700,000 877,415
Treasury Corp. of Victoria 0.00 8/31/2011 5,500,000 1,419,990
-
-----------------
5,323,394
------------------
Canada - 0.0% Canadian
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
Govt. of Canada 7.75 9/01/1999 1,200,000 941,190
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Denmark - 0.5% Danish
- --------------------------------------------------------------
Government Krone
- -------------------------------------------------------------- ----------------
Kingdom of Denmark 8.00% 11/15/2001 9,700,000 1,826,952
------------------
Other
- --------------------------------------------------------------
Denmark Nykredit 7.00 10/01/2026 53,472,000 8,509,158
Denmark Nykredit 8.00 10/01/2026 12,626,000 2,157,091
Denmark Realkredit 7.00 10/01/2026 3,116,000 495,858
-
-----------------
11,162,107
------------------
TOTAL Denmark 12,989,059
------------------
Finland - 0.2% Finnish
- --------------------------------------------------------------
Government Markka
- -------------------------------------------------------------- ----------------
Govt. of Finland 7.25 4/18/2006 18,000,000 4,191,236
------------------
Germany - 0.8% German
- --------------------------------------------------------------
Government Deutschmark
- -------------------------------------------------------------- ----------------
Baden Nurttemberg 6.20 11/22/2013 3,000,000 2,017,644
Deutschland Republic 6.00 1/05/2006 1,170,000 770,051
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 7,100,000 5,271,191
Federal Republic of Germany 5.88 5/15/2000 2,255,000 1,537,586
Federal Republic of Germany 6.25 1/04/2024 1,000,000 614,411
Federal Republic of Germany 6.88 5/12/2005 2,000,000 1,395,910
Federal Republic of Germany 8.00 7/22/2002 920,000 681,953
Federal Republic of Germany 8.38 5/21/2001 5,600,000 4,159,740
Federal Republic of Germany 9.00 10/20/2000 4,450,000 3,343,061
Province of Buenos Aires 10.00 3/05/2001 2,000,000 1,389,159
-
-----------------
21,180,706
------------------
Other
- --------------------------------------------------------------
LKB Global 6.00 1/25/2006 1,150,000 748,079
------------------
TOTAL Germany 21,928,785
------------------
Ireland - 0.4% Irish
- --------------------------------------------------------------
Government Punt
- -------------------------------------------------------------- ----------------
Irish Gilts 6.25 4/01/1999 640,000 1,089,801
Irish Gilts 6.50 10/18/2001 2,810,000 4,837,254
Irish Gilts 8.00 10/18/2000 2,520,000 4,551,417
Irish Gilts 9.25 7/11/2003 415,000 814,899
-
-----------------
11,293,371
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Italy - 1.1% Italian
- --------------------------------------------------------------
Government Lira
- -------------------------------------------------------------- ----------------
Govt. of Italy 8.50% 1/01/1999 7,275,000,000 4,983,782
Govt. of Italy 9.50 5/01/2001 3,640,000,000 2,649,364
Govt. of Italy 10.50 11/01/2000 7,000,000,000 5,196,774
Govt. of Italy 10.50 11/01/2000 3,010,000,000 2,234,613
Govt. of Italy 12.00 9/01/2001 9,200,000,000 7,272,179
-
-----------------
22,336,712
------------------
Other
- --------------------------------------------------------------
Bank Nederlandse 10.50 6/18/2003 1,300,000,000 997,465
Govt. of Italy 12.00 9/01/2001 2,400,000,000 1,897,090
-
-----------------
2,894,555
------------------
TOTAL Italy 25,231,267
------------------
Japan - 0.5% Japanese
- --------------------------------------------------------------
Government Yen
- -------------------------------------------------------------- ----------------
Govt. of Finland 6.00 1/29/2002 250,000,000 2,573,129
Govt. of Italy 5.13 7/29/2003 280,000,000 2,805,184
Kingdom of Spain 5.75 3/23/2002 205,000,000 2,092,349
-
-----------------
7,470,662
------------------
Other
- --------------------------------------------------------------
Interamer Development Bank 6.00 10/30/2001 145,000,000 1,488,007
KFW International Finance 6.00 11/29/1999 301,000,000 2,949,479
Kingdom of Belgium 5.00 12/17/1999 220,000,000 2,102,721
-
-----------------
6,540,207
------------------
TOTAL Japan 14,010,869
------------------
New Zealand - 0.4% New Zealand
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
Government Property Services 7.25 3/15/1999 4,850,000 3,383,411
Housing New Zealand 8.00 11/15/2006 2,500,000 1,771,364
-
-----------------
5,154,775
------------------
Other
- --------------------------------------------------------------
Fernz Capital 9.80 4/15/2002 3,800,000 2,717,872
Fletcher Challenge 10.00 4/30/2005 1,500,000 1,129,923
Fletcher Challenge Cvt 11.25 12/15/2002 3,100,000 2,446,853
-
-----------------
6,294,648
------------------
TOTAL New Zealand 11,449,423
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Norway - 0.4% Norwegian
- --------------------------------------------------------------
Government Krona
- -------------------------------------------------------------- ----------------
Govt. of Norway 7.00% 5/31/2001 34,000,000 5,701,177
Govt. of Norway 9.50 10/31/2002 8,000,000 1,499,043
-
-----------------
7,200,220
------------------
Other
- --------------------------------------------------------------
Union Bank of Norway 12.75 10/26/2002 12,500,000 2,052,759
Vital Forsikring 7.85 9/22/2003 8,100,000 1,338,134
-
-----------------
3,390,893
------------------
-----------------
TOTAL Norway 10,591,113
------------------
Spain - 0.8% Spanish
- --------------------------------------------------------------
Government Peseta
- -------------------------------------------------------------- ----------------
Castilla Junta 8.30 11/29/2001 85,000,000 706,099
Junta de Andalucia 11.10 12/02/2005 690,000,000 6,697,168
Kingdom of Spain 10.10 2/28/2001 650,000,000 5,754,213
Kingdom of Spain 10.30 6/15/2002 520,600,000 4,754,106
Kingdom of Spain 12.25 3/25/2000 421,000,000 3,840,997
-
-----------------
21,752,583
------------------
Sweden - 0.4% Swedish
- --------------------------------------------------------------
Government Krone
- -------------------------------------------------------------- ----------------
Kingdom of Sweden 13.00 6/15/2001 33,500,000 6,307,526
Kingdom of Sweden #1036 10.25 5/05/2000 24,100,000 4,066,569
-
-----------------
10,374,095
------------------
Other
- --------------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 2,357,280 344,869
-
-----------------
TOTAL Sweden 10,718,964
------------------
British
United Kingdom - 1.0% Pound
- --------------------------------------------------------------
Government Sterling
- -------------------------------------------------------------- ----------------
UK Gilt Treasury 6.00 8/10/1999 612,000 1,024,497
UK Gilt Treasury 9.00 3/03/2000 1,000,000 1,800,810
UK Treasury 6.75 11/26/2004 1,790,000 2,942,858
UK Treasury 7.50 12/07/2006 1,530,000 2,616,904
UK Treasury 8.00 12/07/2000 600,000 1,055,769
UK Treasury 8.50 12/07/2005 2,000,000 3,646,560
-
-----------------
13,087,398
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Other
- --------------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75% 12/07/2006 1,700,000 2,968,608
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 1,000,000 1,764,965
Mepc Plc 12.00 6/30/2006 1,280,000 2,722,765
Northern Rock Building Soc. 9.38 10/17/2021 1,100,000 1,962,294
Smithkline Beecham Corp. 8.13 11/25/1998 1,500,000 2,603,310
Woolwich Building Society 11.63 12/18/2001 600,000 1,171,971
-
-----------------
13,193,913
------------------
TOTAL United Kingdom 26,281,311
------------------
Yankee Bonds - 5.0%
- --------------------------------------------------------------
Cominco Ltd. 6.88 2/15/2006 16,950,000 16,180,640
Doman Industries Limited 8.75 3/15/2004 12,300,000 11,485,125
Falconbridge Case Limited 7.35 11/01/2006 22,050,000 22,276,454
Fletcher Challenge 7.75 6/20/2006 11,150,000 11,587,972
Govt. of Argentina 6.63 3/31/2005 5,292,000 4,604,040
Malette Inc. 12.25 7/15/2004 7,050,000 7,525,875
Methanex Corp. 7.40 8/15/2002 4,500,000 4,590,000
Methanex Corp. 7.75 8/15/2005 23,685,000 24,336,338
Novacor Chemical 6.50 9/22/2000 525,000 520,569
St Georges Bank 144A 7.15 10/15/2005 19,200,000 19,169,664
Tembec Finance Corp. 9.88 9/30/2005 9,400,000 8,883,000
-
-----------------
131,159,677
------------------
U.S. Government Agency - 31.3%
- --------------------------------------------------------------
Pass Thru Securities - 31.3%
- --------------------------------------------------------------
CSFB 1995-A 144A 7.54 11/15/2005 11,150,000 11,076,828
FDIC Remic Trust 1994-C1 2C 8.45 9/25/2025 250,000 260,625
FHLMC 5.25 3/06/1997 4,425,000 4,371,439
FHLMC 5.50 1/15/1997 21,600,000 21,537,300
FHLMC 5.52 1/22/1997 10,000,000 9,960,133
FHLMC 6.50 3/01/2026 - 5/01/2026 36,032,385 34,482,327
FHLMC 7.50 6/01/2026 - 9/01/2026 128,217,772 128,371,733
FNMA 5.53 1/17/1997 5,000,000 4,983,871
FNMA 6.50 12/01/2025 - 5/01/2026 80,229,107 76,577,846
FNMA 7.00 11/01/2023 - 7/01/2026 276,089,336 270,351,449
GNMA 7.00 4/15/2022 - 1/15/2025 93,412,339 91,779,374
GNMA 7.50 12/15/2021 - 5/15/2023 14,827,737 14,900,252
GNMA 9.00 4/15/2016 - 8/15/2026 96,831,245 103,427,228
Lehman Brothers Commercial Conduit Mortgage Trust 1995-C2 7.05 9/25/2025 1,930,000 1,882,353
Resolution Trust Corp. 1994 C2 E 8.00 4/25/2025 5,329,746 5,298,101
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Pass Thru Securities - (continued)
- --------------------------------------------------------------
Resolution Trust Corp. 1994-1 Cl M2 7.75% 9/25/2029 3,657,522 3,679,239
Resolution Trust Corp. 1994-C2 D AL 1 8.00 4/25/2025 4,736,749 4,830,004
Resolution Trust Corp. 1995 Cl E 6.90 2/25/2027 13,246,240 11,271,722
Resolution Trust Corp. 1995-2B1 7.45 9/15/2025 2,197,978 2,195,231
Resolution Trust Corp. P-T Ser 1992-M4 A1 8.00 8/25/2023 1,997,141 2,010,871
Structured Asset Security Corp. 1994-C1 D 6.87 8/25/2026 10,000,000 9,640,625
Structured Asset Security Corp. 1996-Cfl C 6.53 2/25/2028 6,700,000 6,545,063
------------------
TOTAL U.S. Government Agency 819,433,614
------------------
U.S. Treasury Obligations - 18.8%
- --------------------------------------------------------------
Treasury Bonds - 6.4%
- --------------------------------------------------------------
U.S. Treasury Bond 6.50 8/15/2005 14,975,000 15,070,990
U.S. Treasury Bond 7.63 2/15/2025 11,075,000 12,301,889
U.S. Treasury Bond 7.88 2/15/2021 3,345,000 3,780,887
U.S. Treasury Bond 8.13 8/15/2019 118,845,000 137,470,388
-
-----------------
168,624,154
------------------
Treasury Notes - 12.4%
- --------------------------------------------------------------
U.S. Treasury Note 5.63 11/30/2000 7,165,000 7,035,099
U.S. Treasury Note 5.75 10/31/2000 8,645,000 8,530,194
U.S. Treasury Note 6.25 4/30/2001 40,975,000 41,064,735
U.S. Treasury Note 6.38 1/15/2000 5,795,000 5,845,706
U.S. Treasury Note 6.38 3/31/2001 24,825,000 24,991,824
U.S. Treasury Note 6.63 6/30/2001 77,975,000 79,229,618
U.S. Treasury Note 6.88 3/31/2000 23,425,000 23,952,063
U.S. Treasury Note 7.13 2/29/2000 39,275,000 40,434,791
U.S. Treasury Note 6.13 7/31/2000 67,600,000 67,600,000
U.S. Treasury Note (Strip) 0.00 11/15/1999 3,605,000 3,040,349
U.S. Treasury Note (Strip) 0.00 8/15/2008 44,095,000 20,618,822
U.S. Treasury Note (Strip) 0.00 8/15/2015 4,965,000 1,404,003
-
-----------------
323,747,204
------------------
TOTAL U.S. Treasury Obligations 492,371,358
------------------
TOTAL BONDS and NOTES (Cost $2,476,654,211) 2,505,383,111
------------------
Preferred Stock - 2.4%
- --------------------------------------------------------------
Australia & New Zealand Bank 358,000 9,710,750
Bank United of Texas 148,380 3,950,618
Capita Preferred Trust 449,200 11,623,050
Credit Lyon Capital 144A 244,250 5,831,469
First Nationwide Bank 8,400 963,900
Fresenius Medical Care* 2,500 2,543,750
Par Value
Security Value (1) (Note 1A)
- --------------------------------------------------------------------- --------------------- -------------------
Preferred Stock - (continued)
- --------------------------------------------------------------
Newscorp Overseas Ltd. Ser B 232,000 5,307,000
Public Service of New Hampshire 73,220 1,845,144
Riggs National Corp. 58,075 1,662,397
Time Warner Inc. 10.25% Ser M 17,158 18,359,256
------------------
TOTAL Preferred Stock (Cost $59,889,391) 61,797,334
------------------
Principal
Amount of
- --------------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- -------------------------------------------------------------- ----------------
BGB 7% Put/ Str 106.29, 4/24/97 112,000,000 36,736
BTPS 9.50% Put/ Str 108.47, 4/30/97 5,700,000,000 17,100
BTPS 9.5% Put/ Str 107.44, 10/08/97 6,200,000,000 0
CAN 7% Call, Str 105.71, 1/16/97 5,000,000 31,365
CHF Put/AUD Call, Str .9725, 9/10/97 2,400,000 141,492
CHF Put/GBP Call, Str 2.26, 9/25/97 5,700,000 115,277
CHF Put/USD Call, Str 1.30, 1/31/97 3,800,000 112,860
DBR 6.25% Call, Str 101.92, 10/20/97 6,300,000 70,894
DBR 6.25% Call, Str 102.33, 5/9/97 7,200,000 57,485
DBR 6.25% Call, Str 94.13, 2/6/97 5,700,000 44,774
DBR 6.25% Call, Str 96.00, 2/28/97 6,700,000 27,832
DEM 8.375% Call, Str 114.62, 1/09/97 7,440,000 4,829
DEM Put/ITL Call, Str 40.0000, 09/08/97 5,900,000 129,452
DEM Put/USD Call, Str 1.5020, 09/05/97 4,800,000 144,000
DEM Put/USD Call, Str 1.550, 4/22/97 3,700,000 46,990
DGB 8% Call, Str 108.84, 3/17/97 20,900,000 47,192
FRF 6.5% Put/ Str 103.65, 4/16/97 21,000,000 41,265
FRF Put/USD Call, Str 5.265, 3/20/97 3,900,000 29,250
FRF Put/USD Call, Str 5.3000, 12/01/97 3,900,000 53,040
ITL 9.5% Call, Str 109.68, 3/6/97 4,500,000,000 36,000
ITL 9.5% Put/ Str 102.07, 1/10/97 5,065,000,000 0
JGB 6.4% Call, Str 120.603, 2/5/97 1,000,000,000 3,000
JPY 4.8% Call, Str 115.912, 2/03/97 950,000,000 9,500
JPY Put/AUD Call, Str 86.0000, 9/10/97 200,000,000 94,800
JPY Put/ITL Call, Str 14.5000, 09/08/97 400,000,000 235,200
JPY Put/USD Call, Str 120.00, 1/05/98 3,900,000 50,310
SPGB 8.40% Call, Str 107.910, 2/19/97 450,000,000 51,750
SPGB 8.40% Put/ Str 105.65, 4/30/97 470,000,000 7,050
UKT 7.5% Call, Str 99.0625, 2/14/97 2,200,000 51,788
USD Put/MXP Call, Str 9.12, 9/30/97 1,600,000 67,520
-
-----------------
Total Purchased Options (Premium Paid $1,617,827) 1,758,751
------------------
Par Value
Security Value (1) (Note 1A)
- --------------------------------------------------------------------- --------------------- -------------------
Repurchase Agreement - 0.4%
- --------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $10,888,941 (Collateralized by
FNMA FNAR with a rate of 7.832% and a maturity date of
8/01/25 with a market value of $11,103,192. (Cost $10,885,482) 10,885,482 10,885,482
------------------
TOTAL INVESTMENTS (Cost $2,549,046,911) - 98.6% 2,579,824,678
Principal
Amount of
- --------------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- -------------------------------------------------------------- ----------------
AUD Put/CHF Call, Str .9060, 9/10/97 2,400,000 (10,030)
AUD Put/JPY Call, Str 79.0000, 9/10/97 200,000,000 (12,200)
DBR 6.25% Call, Str 101.92, 4/18/97 6,300,000 (65,029)
DBR 6.25% Put/ Str 101.60, 4/16/97 6,200,000 (39,444)
DBR 6.25% Put/ Str 101.650, 4/24/97 5,400,000 (36,455)
DBR 8.25% Put/ Str 112.420, 2/19/97 5,400,000 (5,962)
DBR 8.25% Put/ Str 113.57, 4/30/97 5,580,000 (47,452)
DBR 8.25% Put/ Str 113.58, 4/30/97 5,700,000 (57,725)
DEM 6.25% Put/ Str 101.95, 1/08/97 6,200,000 (806)
DGB 8% Call, Str 111.84, 3/17/97 20,900,000 (12,415)
DGB 8% Put/ Str 105.84, 3/17/97 20,900,000 (9,572)
GBP Put/CHF Call, Str 1.835, 9/25/97 4,800,000 (4,301)
ITL 9.5% Call, Str 111.68, 3/6/97 4,500,000,000 (9,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 4,500,000,000 (4,500)
ITL Put/DEM Call, Str 80.0000, 09/08/97 5,900,000 (11,487)
ITL Put/JPY Call, Str 15.1000, 09/08/97 400,000,000 (26,000)
JPY Put/USD Call, Str 105.00, 1/05/98 3,900,000 (50,310)
UKT 7.5% Call, Str 102.0625, 2/14/97 2,200,000 (10,595)
USD Put/CHF Call, Str 1.22, 1/31/97 3,800,000 (1,900)
USD Put/CHF Call, Str 1.42, 3/20/97 3,900,000 (11,700)
USD Put/DEM Call, Str 1.3800, 09/05/97 4,800,000 (20,160)
USD Put/DEM Call, Str 1.425, 4/22/97 3,700,000 (8,880)
-
-----------------
Total Written Options (Premium Received $1,081,780) (455,923)
------------------
Other Assets less Liabilities - 1.4% 36,742,834
------------------
NET ASSETS - 100.0% 2,616,111,589
=================
144A - Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration.
(1) - Denominated in United States currency unless otherwise noted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $2,549,046,911) $ 2,579,824,678
Foreign currency, at value (cost, $237,494) 263,220
Receivable for investments sold 19,198,227
Interest and dividends receivable 36,872,639
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 3,529,710
Deferred organizational costs (Note 1F) 85,593
-----------------
Total assets $ 2,639,774,067
Liabilities:
Payable for investments purchased $ 19,979,132
Payable for daily variation margin on open
financial futures contracts (Note 5) 36,718
Written options outstanding, at value (premiums received, $1,081,781) (Note 5) 455,923
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 2,915,337
Accrued trustee fees 5,824
Payable to Investment Adviser (Note 1F) 100,920
Accrued expenses and other liabilities 168,624
--------------
Total liabilities 23,662,478
-----------------
Net Assets (applicable to investors' beneficial interest) $ 2,616,111,589
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
December 31, 1996
Investment Income:
Interest Income $ 118,492,713
Dividend income 3,449,029
----------------
Total income 121,941,742
Expenses
Investment advisory fee (Note 2) $ 5,121,756
Trustees fees 52,250
Accounting, custody and transfer agent fees 513,352
Legal and audit services 181,791
Insurance expense 67,074
Amortization of organization expense (Note 1F) 10,067
Miscellaneous 13,705
--------------
Total expenses 5,959,995
----------------
Net investment income (loss) 115,981,747
----------------
Realized and Unrealized Gain (Loss)
Net realized gain(loss):
Investment security transactions (2,396,988)
Financial futures 459,448
Written options 5,492,345
Foreign currency and forward foreign
currency exchange contracts (1,683,196)
--------------
Net realized gain (loss) 1,871,609
Change in unrealized appreciation (depreciation):
Investment securities 87,702,505
Financial futures (9,849)
Written options 152,462
Foreign currency transactions and forward foreign
currency contracts (840,977)
--------------
Change in net unrealized appreciation (depreciation) 87,004,141
----------------
Net realized and unrealized gain (loss) 88,875,750
----------------
Net increase (decrease) in net assets from operations $ 204,857,497
================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 115,981,747
Net realized gain (loss) 1,871,609
Change in net unrealized appreciation (depreciation) 87,004,141
-----------------
Net increase (decrease) in net assets from operations 204,857,497
-----------------
Capital transactions
Assets contributed by Standish Fixed Income Fund at commencement
(including unrealized loss of $55,177,329) 2,294,116,139
Contributions 268,522,894
Withdrawals (151,384,941)
-----------------
Increase in net assets resulting from capital transactions 2,411,254,092
-----------------
Total increase (decrease) in net assets 2,616,111,589
Net Assets
At beginning of period -
-----------------
At end of period $ 2,616,111,589
=================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.37% *
Net investment income 7.14% *
Portfolio Turnover 69%
* Annualized
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Fixed Income Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies consistently followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued at amortized cost. If the Portfolio acquires a
short term instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon
the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Dividend income is recorded
on the ex-dividend date. Realized gains and losses from securities sold
are recorded on the identified cost basis. The Portfolio does not
isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
<PAGE>
E. Foreign currency transactions--
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
F. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April 2001. These costs were paid for by the investment adviser
and will be reimbursed by the Portfolio.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.40% of the Portfolio's first
$250,000,000 of average daily net assets, 0.35% of the next
$250,000,000 of average daily net assets, and 0.30% of the average
daily net assets in excess of $500,000,000. The Portfolio pays no
compensation directly to its trustees who are affiliated with SA&W or
to its officers, all of whom receive remuneration for their services to
the Portfolio from the investment adviser. Certain of the trustees and
officers of the Portfolio Trust are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, short-term
obligations, were as follows:
Purchases Sales
U.S. Government Securities $ 1,149,839,373 $ 1,107,554,471
================== ===================
Non-U.S. government securities $ 710,165,569 $ 510,341,415
================== ===================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $2,550,487,586
Gross unrealized appreciation $48,492,562
Gross unrealized depreciation (19,155,471)
==================
Net unrealized appreciation (depreciation) $29,337,091
==================
(5) Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks, and objectives of these instruments are set forth more
fully in the Funds' Prospectus and Statement of Additional Information.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
<PAGE>
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Options, both held and written
by the Portfolio, are reflected in the accompanying Statement of Assets
and Liabilities at market value. Premiums received from writing options
which expire are treated as realized gains. Premiums received from
writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option purchased by the
Portfolio is exercised, the premium reduces the cost basis of the
securities purchased by the Portfolio. The Portfolio, as a writer of an
option, has no control over whether the underlying securities may be
sold (call) or purchased (put) and as a result bears the market risk of
an unfavorable change in the price of the security underlying the
written option. A summary of such transactions for the period May 3,
1996 through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
<S> <C> <C>
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 9 886,446
Options written 35 3,426,954
Options exercised 0 0
Options expired (18) (3,317,837)
Options closed (17) (786,441)
------------------- -------------------
Outstanding, end of period 9 $ 209,122
=================== ===================
Written Call Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 11 899,127
Options written 17 957,654
Options exercised (5) (366,812)
Options expired 8 (620,798)
Options closed 7 (469,532)
------------------- -------------------
Outstanding, end of period 8 $ 399,639
=================== ===================
Written Cross Currency Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 5 458,184
Options written 12 666,145
Options exercised 0 0
Options expired (2) (28,387)
Options closed (10) (622,922)
------------------- -------------------
Outstanding, end of period 5 $ 473,020
=================== ===================
</TABLE>
<PAGE>
Forward currency exchange contracts--
The Portfolio may enter into forward foreign currency and cross
currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts are used by the Portfolio primarily to protect the
value of the Portfolio's foreign securities from adverse currency
movements. At December 31, 1996, the Portfolio held the following
forward foreign currency and cross currency exchange contracts:
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Contract Aggregate Market Unrealized
Contracts to Receive Value Date Face Amount Value Gain/(Loss)
- ------------------------------------ --------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Australian Dollar 02/06/97-02/10/97 2,501,837 2,452,899 (48,938)
Canadian Dollar 02/10/97 1,099,480 1,074,899 (24,581)
German Deutche Mark 08/01/97 6,768,265 6,609,443 (158,822)
Danish Krone 01/10/97-08/04/97 5,261,840 5,275,871 14,031
Finnish Markka 01/08/97 799,475 782,904 (16,571)
Greek Drachma 08/01/97 2,129 2,137 8
Irish Punt 01/17/97 1,635,871 1,695,858 59,987
Italian Lira 01/02/97-08/01/97 6,151,580 6,201,368 49,788
Japanese Yen 02/24/97 4,008,443 3,826,123 (182,320)
Norwegian Krone 01/13/97 874,650 890,165 15,515
-------------------- -----------------
==================== ================= ==============
$29,103,570 $28,811,669 ($291,903)
==================== ================= ==============
U.S. $ U.S. $ U.S. $
Contract Aggregate Market Unrealized
Contracts to Deliver Value Date Face Amount Value Gain/(Loss)
- ------------------------------------ --------------- -------------------- ----------------- --------------
Australian Dollar 02/06/97-02/10/97 7,746,835 7,792,626 (45,791)
Canadian Dollar 02/10/97-02/28/97 2,123,472 2,102,078 21,394
German Deutche Mark 01/09/97-08/01/97 23,612,580 23,474,215 138,365
Danish Krone 01/10/97-08/04/97 18,050,544 17,838,326 212,218
Spanish Peseta 01/29/97-06/20/97 21,846,426 21,542,405 304,022
Finnish Markka 05/19/97-06/03/97 4,797,274 4,764,208 (33,066)
British Pound Sterling 01/21/97-03/27/97 24,454,601 25,494,163 (1,039,562)
Greek Drachma 08/01/97 3,323,273 3,406,979 (83,706)
Irish Punt 01/17/97-02/24/97 12,507,341 12,979,367 (472,026)
Italian Lira 01/02/97-08/01/97 32,787,646 33,058,136 (270,490)
Japanese Yen 02/05/97-03/13/97 20,034,449 18,483,348 1,551,101
Norwegian Krone 01/13/97-07/21/97 11,494,896 11,446,334 48,562
New Zealand Dollar 01/13/97-02/18/97 11,347,684 11,425,010 (77,326)
Swedish Krona 01/08/97-06/05/97 11,677,065 11,479,388 197,677
-------------------- ----------------- --------------
$205,804,086 $205,286,583 $517,505
-------------------- ----------------- --------------
==================== ================= ==============
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Contract Market Contracts Market Unrealized
Contracts to Deliver Date Value to Receive Value Gain/(Loss)
- ------------------------------------ ----------- --------------- -------------------- ----------------- --------------
Swiss Franc 07/21/97 3,021,890 Norwegian Krone 3,394,395 372,505
Swiss Franc 08/04/97 2,747,379 Danish Krone 2,981,552 234,173
German Deutsche Mark 08/01/97 3,263,328 Greek Drachma 3,404,842 141,514
German Deutsche Mark 08/01/97 1,680,746 Italian Lira 1,753,313 72,567
Danish Krone 08/04/97 3,010,970 Swiss Franc 2,747,379 (263,591)
Finnish Markka 01/08/97 782,904 Swedish Krona 825,634 42,730
French Franc 08/27/97 3,372,578 Czech Koruna 3,393,065 20,487
Norwegian Krone 07/21/97 3,253,504 Swiss Franc 3,021,890 (231,614)
--------------- ================= --------------
$21,133,299 $21,522,070 $388,771
--------------- ================= --------------
=============== ==============
</TABLE>
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies. At December 31,
1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ------------------------------------------------ ---------- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Note 10 year (47 contracts) Long 03/31/97 $5,128,875 ($32,781)
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient cash and
or securities to cover margin requirements on open futures contracts.
.........Interest rate swap contracts--
Interest rate swaps involve the exchange by the 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. Credit and market risk exist
with respect to these instruments. The Portfolio expects to enter into
these transactions primarily for hedging purposes including, but not
limited to, preserving a return or spread on a particular investment or
portion of its portfolio, protecting against currency fluctuations, as
a duration management technique or protecting against an increase in
the price of securities the Portfolio anticipates purchasing at a later
date. At December 31, 1996, there were no open interest rate swap
contracts.
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Fixed Income Portfolio: We have audited the accompanying statement of
assets and liabilities of Standish Fixed Income Portfolio, including the
portfolio of investments, as of December 31, 1996, and the related statement of
operations, the statement of changes in net assets and the supplementary data
for the period from May 3, 1996 (commencement of operations) to December 31,
1996. These financial statements and supplementary data are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and supplementary data based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Fixed Income Portfolio as of December 31, 1996, and the
results of its operations, changes in its net assets and supplementary data for
the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
The bond market offered a wild ride for investors during 1996 - and higher
interest rates overall. At year end, the long bond's 6.64% yield reflected a
rise of 69 basis points versus year end 1995. On a quarterly basis, rates rose
in the first and second quarters, as a rapidly expanding economy heightened
investor concerns. Yields continued to rise through August based upon ongoing
signs of economic strength and worries of Federal Reserve tightening - which
never happened. The Fed's decision not to raise interest rates sparked a rally
that lasted through the end of November when rates, once again, resumed their
rise. While inflation concerns waxed and waned throughout the year, inflation
proved to be quite subdued: core and consumer price inflation remained below
three percent while producer price inflation fluctuated around 2.5%. Wage
inflation also showed little evidence of being a potential problem.
For 1996, the Fund's 3.77% total return outperformed the 3.63% return posted by
the Lehman Aggregate Index by 14 basis points and the 2.90% return of the Lehman
Government/Corporate Index by 87 basis points. Corporate and mortgage returns
well offset the adverse impact of the slightly longer duration position the fund
maintained throughout the year.
During the year, the fund maintained an overweighted posture in corporate bonds
and mortgages - sectors that proved to be steady return contributors through
most of the year. These two spread sectors, corporates and mortgages, helped
cushion the blow of higher interest rates. In the corporate sector, investor
confidence in the economy proved a positive. Due to an insatiable demand for
yield on the part of bond investors, corporate spreads narrowed, in spite of
record issuance of investment grade corporates. The corporates held in the fund
outperformed in the first, third and fourth quarters and posted neutral returns
versus the index for the second quarter. 1996 proved to be a good performance
year for mortgages as moderately higher interest rates, especially in the first
three quarters of the year, served to reduce prepayment risk and allowed yield
spreads to narrow. We reduced our exposure to mortgages - a heavy overweighting
at the beginning of the year - as the sector outperformed.
As we enter 1997, the fund continues to be overweighted versus the Lehman
Aggregate Index in both the corporate and mortgage sectors. For 1997, as was the
case in 1996, we believe the fund's yield advantage versus its benchmark index
will continue to be an important determinant of absolute return going forward.
Overall, the fund is well positioned for an environment of more stable or
modestly higher interest rates.
In closing, we hope that this information is helpful to you in reviewing your
overall investment strategies. As always, we appreciate and thank you for your
continued confidence as shareholders.
David C. Stuehr Caleb Aldrich
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Comparison of Change in Value of $100,000 Investment in
Standish Fixed Income Fund II, Lehman Gov't/Corp Index and Lehman
Aggregate Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Fixed Income
Fund II compared with the Lehman Gov't/Corp Index and Lehman Aggregate Index for
the period July 3, 1995 to December 31, 1996, based upon a $100,000 investment.
Also included is the average annual total return for one year and since
inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
BONDS and NOTES - 82.1%
Asset Backed - 5.1%
- ---------------------------------------------------
<S> <C> <C> <C> <C>
AFC Home Equity Loan Trust 1994 31A 8.00% 10/25/2024 $ 605,827 $ 617,186
Continental Mortgage Home Equity 1996-4 A9 6.88 1/15/2028 600,000 591,750
Equacredit Home Equity 1996-1 6.19 12/15/2010 75,000 73,430
Mortgage Cap Fd 96 Non-Erisa 7.80 4/15/2006 100,000 103,063
RTC 1994-C1 C Non-Erisa 8.00 6/25/2026 75,000 76,852
RTC 1994-C2 C 8.00 4/25/2025 75,000 76,852
The Money Store Home Equity 1996-A5 Erisa 6.85 6/15/2019 100,000 100,016
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 75,000 75,891
UCFC Home Equity Loan Trust 1994-D A4 8.78 2/10/2016 100,000 103,844
----------------
Total Asset Backed 1,818,884
----------------
Collateralized Mortgage Obligation - 1.1%
- ---------------------------------------------------
Merrill Lynch Mortgage Investments 1996-C2E 6.96 12/21/2028 400,000 375,125
----------------
Corporate - 30.5%
- ---------------------------------------------------
Basic Industry - 0.3%
- ---------------------------------------------------
Brascan Ltd. 7.38 10/01/2002 100,000 100,193
--------------
Capital Goods - 0.5%
- ---------------------------------------------------
Conseco Finance Trust II 8.70 11/15/2026 175,000 177,042
----------------
Consumer Cyclical - 0.3%
- ---------------------------------------------------
Ford Motor 8.38 1/15/2000 100,000 105,296
----------------
Consumer Stable - 0.3%
- ---------------------------------------------------
ADT Operations 8.25 8/01/2000 100,000 103,911
----------------
Energy - 0.2%
- ---------------------------------------------------
Kern River Funding 144A ** 6.72 9/30/2001 75,000 74,897
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Financial - 18.5%
- ---------------------------------------------------
Advanta National Bank 6.45% 10/30/2000 $ 75,000 $ 74,075
Bank America Corp. Capital Securities 144A ** 7.70 12/31/2026 100,000 97,267
Capital One Bank Co. 5.95 2/15/2001 250,000 241,460
Capital One Bank Co. 7.00 4/30/2001 250,000 250,805
Comdisco Inc. 5.75 2/15/2001 350,000 338,797
Corestates Capital CFL 144A ** 8.00 12/15/2026 350,000 349,192
First Chicago Corp Notes 144A ** 7.75 12/01/2026 175,000 173,205
First USA Bank 7.00 8/20/2001 250,000 252,253
Fleet Financial Group 7.13 5/01/2000 100,000 101,846
Goldman Sachs Inc. 144A ** 6.38 6/15/2000 400,000 397,448
Loewen Group International Inc. 144A ** 8.25 10/15/2003 575,000 580,767
Mellon Bank I 7.72 12/01/2026 175,000 171,395
Merrill Lynch 6.00 1/15/2001 75,000 73,557
Merrill Lynch & Co 6.50 4/01/2001 300,000 299,205
Midatlantic Bank 9.88 12/01/1999 193,000 209,853
Morgan Stanley Group Inc., Med. Term Notes 5.75 2/15/2001 100,000 96,918
Morgan Stanley Group Inc. 6.70 5/01/2001 250,000 250,793
Nordbanken 144A ** 7.25 10/30/2006 325,000 326,079
Post Apt Homes REIT Nts Ncl 7.25 10/01/2003 100,000 101,005
Salomon Brothers Inc. 6.63 11/30/2000 300,000 298,239
Salomon Brothers Inc. 7.00 5/15/1999 100,000 100,790
Salomon Brothers Inc. 7.25 5/01/2001 300,000 302,838
Sears Roebuck 7.13 9/13/2001 250,000 254,458
Security Connecticut Corp. 7.13 3/01/2003 100,000 98,068
Simon Debartolo 6.88 11/15/2006 350,000 341,303
Smith Barney Holdings 6.63 6/01/2000 100,000 100,237
UCFC Home Equity Loan 1996 7.70 1/15/2004 150,000 149,777
Union Planters Corp. 6.25 11/01/2003 50,000 48,022
United Companies Financial 9.35 11/01/1999 400,000 425,428
USF&G Corp. 8.38 6/15/2001 75,000 79,656
--
--------------
6,584,736
----------------
Health Care - 2.4%
- ---------------------------------------------------
Ahmanson (H.F.) & Co. 144A ** 8.36 12/01/2026 175,000 174,785
Highwoods Properties REIT Notes 6.75 12/01/2003 525,000 515,057
Trinet Corp. Realty Trust 7.30 5/15/2001 150,000 151,590
--
--------------
841,432
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Real Estate - 3.2%
- ---------------------------------------------------
Avalon Property REIT 7.38% 9/15/2002 $ 100,000 $ 101,600
Duke Realty REIT Investments 7.38 9/22/2005 100,000 99,698
Meditrust 7.38 7/15/2000 275,000 280,198
Shopping Center Associates 6.75 1/15/2004 250,000 243,473
Spieker Properties 6.65 12/15/2000 100,000 99,291
Storage USA REIT 7.13 11/01/2003 200,000 198,570
Wellsford Residential Property 7.75 8/15/2005 100,000 102,570
--
--------------
1,125,400
----------------
Services - 3.8%
- ---------------------------------------------------
News America Holdings Corp. 7.70 10/30/2025 300,000 286,635
News America Holdings Corp. 9.50 7/15/2024 100,000 114,356
Time Warner Inc. 6.85 1/15/2026 50,000 48,752
Time Warner Entertainment 8.38 3/15/2023 250,000 254,093
Time Warner Inc. 9.15 2/01/2023 400,000 435,092
Viacom Inc. 7.75 6/01/2005 225,000 221,551
--
--------------
1,360,479
----------------
Technology - 1.0%
- ---------------------------------------------------
ITT Corp. 6.25 11/15/2000 350,000 344,453
----------------
Total Corporate 10,817,839
----------------
U.S. Government Agency - 35.5%
- ---------------------------------------------------
Pass Thru Securities - 35.5%
- ---------------------------------------------------
FHLMC 6.50 3/01/2026 - 5/01/2026 99,435 95,147
FHLMC 7.50 11/01/2026 - 11/01/2026 1,755,842 1,757,474
FNMA 5.22 1/23/1997 1,000,000 985,922
FNMA 6.18 3/15/2001 75,000 74,557
FNMA 6.50 3/01/2026 - 4/01/2026 1,041,911 994,065
FNMA 7.00 9/01/2025 - 10/01/2026 3,894,670 3,808,907
FNMA 8.00 7/25/2023 175,000 182,766
GNMA 7.00 10/15/2025 - 1/15/2026 1,650,806 1,616,706
GNMA 7.50 9/15/2025 - 10/15/2026 827,902 828,488
GNMA 9.00 4/15/2016 - 4/15/2025 1,905,380 2,045,021
Resolution Trust Corp. 1995-2 Ca1 7.45 9/15/2025 203,787 203,023
----------------
TOTAL U.S. Government Agency 5/25/2029 12,592,076
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
U.S. Treasury Obligations - 6.6%
- ---------------------------------------------------
Treasury Bonds - 1.1%
- ---------------------------------------------------
U.S. Treasury Bond 8.13% 8/15/2019 $ 350,000 $ 404,852
----------------
Treasury Notes - 5.5%
- ---------------------------------------------------
U.S. Treasury Note 5.38 11/30/1997 200,000 199,562
U.S. Treasury Note + 5.75 10/31/2000 450,000 444,024
U.S. Treasury Note 6.25 2/15/2003 300,000 299,625
U.S. Treasury Note + 6.63 6/30/2001 700,000 711,263
U.S. Treasury Note 7.13 2/29/2000 150,000 154,430
U.S. Treasury Note (Strip) 0.00 8/15/2008 200,000 93,520
U.S. Treasury Coupon Strip 0.00 2/15/2019 250,000 55,043
--
--------------
1,957,467
----------------
TOTAL U.S. Treasury Obligations 2,362,319
----------------
Yankee Bonds - 3.3%
- ---------------------------------------------------
Cominco Ltd. 6.88 2/15/2006 449,000 428,620
Methanex Corp. 7.75 8/15/2005 100,000 102,750
Noranda Forrest Inc 6.88 11/15/2005 375,000 364,879
Se Banken 144A Euro Step Up ** 8.13 9/06/2049 250,000 257,620
----------------
Total Yankee Bonds 1,153,869
----------------
TOTAL BONDS and NOTES (Cost $35,485,304) 29,120,112
----------------
Preferred Stock - 0.6% Shares
- --------------------------------------------------- -------------
Capital Preferred Trust * (Cost $200,000) 8,000 207,000
----------------
Short-Term Investments - 16.5%
- ---------------------------------------------------
Par
Commercial Paper - 15.3% Value
- --------------------------------------------------- ---------------
Anheuser Busch 5.30 1/22/1997 $ 1,000,000 986,308
Coca Cola Company 5.24 1/07/1997 1,000,000 994,032
Eli Lilly Corp. + 5.32 4/16/1997 1,000,000 973,991
General Electric Co. 5.30 1/24/1997 1,000,000 985,572
Nynex Corp 0.00 3/05/1997 1,000,000 988,200
Sears Roebuck 5.32 1/30/1997 500,000 492,537
--
--------------
5,420,640
----------------
U.S. Government Agency - 0.0%
- ---------------------------------------------------
FNMA Discount Notes + 5.40 1/17/1997 10,000 9,957
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Repurchase Agreements - 1.2%
- ---------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $437,345 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $445,950 +) $ 437,206 $ 437,206
----------------
Total Short-Term Investments (Cost $5,870,258) 5,867,803
----------------
TOTAL INVESTMENTS (Cost $35,203,789) - 99.2% 35,194,915
Other Assets Less Liabilities - 0.8% 290,389
----------------
NET ASSETS - 100.0% $ 35,485,304
================
* Non-income producing security
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
** This security is restricted, but eligible for resale under 144A
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REIT - Real Estate Investment Trust
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statement of Assets and Liabilitites
December 3l, 1996
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $35,203,789) $35,194,915
Receivable for investments sold 346,961
Interest and dividends receivable 359,900
Deferred organization costs (Note 1E) 8,692
Receivable from investment adviser (Note 2) 5,946
-------------------
Total assets 35,916,414
Liabilities
Payable for investments purchased $357,069
Payable for daily variation margin on financial futures contracts (Note 6) 38,906
Accrued audit services 22,274
Accrued expenses and other liabilities 12,702
Accrued trustee fees (Note 3) 159
----------------
Total liabilities 431,110
-------------------
Net Assets $35,485,304
===================
Net Assets consist of
Paid - in capital $35,425,262
Undistributed net investment income 11,552
Accumulated undistributed net realized gain (loss) 56,763
Net unrealized appreciation (depreciation) (8,273)
-------------------
Total Net Assets $35,485,304
===================
Shares of beneficial interest outstanding 1,894,219
===================
Net asset value, offering price, and redemption price per share $18.73
===================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statement of Operations
Year Ended December 31, 1996
Income
Interest income $1,051,457
Dividend income 3,360
-----------------
Total income 1,054,817
Expenses
Investment advisory fee (Note 2) $61,291
Accounting, custody and transfer agent fees 60,571
Audit services 24,730
Registration costs 2,707
Legal fees 3,338
Amortization of organization costs (Note 1E) 2,499
Trustees fees (Note 2) 806
Miscellaneous 4,613
---------------
Total expenses 160,555
Deduct:
Waiver of investment advisory fee (Note 2) (61,291)
Reimbursement of Fund operating expenses (Note 2) (38,689)
---------------
Total waiver/reimbursement of Fund expenses (99,980)
Net expenses 60,575
-----------------
Net investment income 994,242
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities ($48,224)
Written options transactions 15,655
Financial futures contracts 91,523
---------------
Net realized gain (loss) 58,954
Change in net unrealized appreciation (depreciation)
Investment securities (236,147)
Financial futures contracts (600)
---------------
Net change in net unrealized appreciation (depreciation) (236,747)
-----------------
Net realized and unrealized gain (loss) (177,793)
-----------------
Net increase (decrease) in net assets from operations $816,449
=================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statements of Changes in Net Assets
For the Period
Year Ended July 3, l995
December 31, (start of business) to
1996 December 31, l995
----------------- --------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $994,242 $707,724
Net realized gain (loss) 58,954 806,785
Change in net unrealized appreciation (depreciation) (236,747) 228,474
----------------- -----------------
Net increase (decrease) in net assets from operations 816,449 1,742,983
----------------- -----------------
Distributions to shareholders
From net investment income (975,274) (705,113)
From net realized capital gains on investments (642,185) (176,818)
----------------- -----------------
Total distributions to shareholders (1,617,459) (881,931)
----------------- -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 28,147,072 27,181,697
Net asset value of shares issued to shareholders in
payment of distributions declared 1,584,262 327,947
Cost of shares redeemed (1,491,504) (20,324,212)
----------------- -----------------
Increase (decrease) in net assets from Fund share transactions 28,239,830 7,185,432
----------------- -----------------
Net increase (decrease) in net assets 27,438,820 8,046,484
Net Assets
At beginning of period 8,046,484 0
----------------- -----------------
At end of period (including undistributed investment
income of $11,552 and $0 at December 31, 1996 and 1995, respectively) $35,485,304 $8,046,484
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Financial Highlights
For the Period July 3, l995
Year Ended (Start of business) to
December 31, 1996 December 31, l995
---------------------- ----------------------
<S> <C> <C>
Net asset value - beginning of period $20.52 $20.00
---------------------- ----------------------
Income from investment operations
Net investment income * $1.16 $0.53
Net realized and unrealized gain (loss) (0.52) 0.64
---------------------- ----------------------
Total from investment operations 0.64 1.17
---------------------- ----------------------
Less distributions declared to shareholders
From net investment income (1.15) (0.53)
In excess of net investment income (0.12)
From net realized gains on investments (1.28) -
---------------------- ----------------------
Total distributions declared to shareholders (2.43) (0.65)
---------------------- ----------------------
Net asset value - end of period $18.73 $20.52
====================== ======================
Total return 3.77% 5.79%
Net assets at end of period (000 omitted) $35,485 $8,046
Ratios (to average daily net assets)/Supplemental Data:
Expenses * 0.40% 0.40% t
Net investment income * 6.57% 6.64% t
Portfolio turnover 124% 389%
* The investment adviser voluntarily waived its
investment advisory fee and reimbursed the fund for
a portion of its operating expenses. Had these actions
not been taken, the net investment income
per share and the ratios would have been:
Net investment income per share $1.04 $0.29
Ratios (to average daily net assets):
Expenses 1.06% 1.29% t
Net investment income 5.91% 5.75% t
t Computed on an annualized basis
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Fixed Income Fund II (the "Fund") is a separate
diversified investment series of the Trust. The following is a summary
of significant accounting policies followed by the Fund in the
preparation of the financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term instruments with less
than sixty-one days remaining to maturity when acquired by the Fund are
valued at amortized cost basis. If the Fund acquires a short-term
instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity
and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. .Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. .Securities transactions and income--
Securities transactions are recorded as of the trade date. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount on debt securities when
required for federal income tax purposes.
D. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
E. .Deferred organization cost--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized, on a straight-line basis,
through June, 2000.
F. .Distributions to shareholders-
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments
for mortgage and asset backed securities. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in-capital, undistributed net investment
income and accumulated net realized gains (losses).
<PAGE>
(2) ...Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.40%
of the Fund's average daily net assets. SA&W voluntarily agreed to
limit the Fund's total operating expense to 0.40% of the Fund's average
daily net assets for the Fund's fiscal year ended December 31, 1996.
For the year ended December 31, 1996, SA&W voluntarily waived its
investment advisory fee of $61,291, and reimbursed the Fund for $38,689
of its operating expenses. The Fund pays no compensation directly to
its trustees who are affiliated with SA&W or to its officers, all of
whom receive remuneration for their services to the Fund from SA&W.
Certain of the trustees and officers of the Trust are directors or
officers of SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations
were as follows:
(4) ....Shares of Beneficial Interest:
Purchases Sales
----------------- -----------------
U.S. Government securities $23,561,580 $13,271,294
================== ==================
Non-U.S. Government securities $15,872,747 $4,170,120
================== ==================
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the Period
For the Year Ended July 3, l995 to
December 31, 1996 December 31, 1995
<S> <C> <C>
Shares sold 1,494,596 1,367,590
Shares issued to shareholders in payment of distributions declared 85,215 16,103
Shares redeemed (77,808) (991,477)
--------------------- -----------------
Net increase 1,502,003 392,216
===================== =================
</TABLE>
At December 31, 1996, one shareholder, Exeter Health Resources, Inc.,
was record owner of approximately 71% of the total outstanding shares
of the Fund.
On August 15, 1995, securities with a fair market value of $7,132,126
were contributed to the Fund by shareholders. In return for such
securities, shareholders received shares of the Fund.
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate Cost $35,204,211
=================
Gross unrealized appreciation 128,754
Gross unrealized depreciation (138,050)
-----------------
Net unrealized depreciation ($9,296)
=================
<PAGE>
(6) ....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks, and objectives of these instruments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. Premiums received from writing
options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option purchased by the
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as writer of an option, has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the security underlying the written option. A summary of
such transactions for the year ended December 31, 1996 is as follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 0 $0
Options written 1,370 14,405
Options exercised - -
Options expired (1,370) (14,405)
Options closed - -
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 0 $0
Options written 400 1,250
Options exercised (200) (1,000)
Options expired (200) (250)
Options closed - -
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
<PAGE>
.........Futures contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not
correlate with changes in the value of hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in security prices and foreign
currencies. At December 31, 1996, the Fund held the following futures
contracts: At December 31, 1996, the fund had segregated sufficient
cash and/or securities to cover margin requirements on open futures
contracts.
<TABLE>
<CAPTION>
Unrealized
Expiration Underlying Face Appreciation
Contract Position Date Amount at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US 5 Yr Note Future (1 contract) Long 03/19/97 $106,594 ($416)
US 10 YR Note Future (1contract) Long 03/19/97 1,527,750 (9,764)
US Bond (4 contracts) Long 03/19/97 2,477,750 10,780
---------------- --------------------
$4,112,094 $600
================ ====================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund II:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund II (the
"Fund"), including the portfolio of investments, as of December 31, 1996, and
the related statement of operations for the year then ended, changes in net
assets and the financial highlights for the year then ended and for the period
July 3, 1995 (start of business) to December 31, 1995. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund II as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the year then ended
and for the period July 3, 1995 (start of business) to December 31, 1995, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
The year 1996 was reasonably positive for investors in short duration assets.
For the full year ended December 31, 1996, the STAR Fund returned 5.62%,
outperforming the IBC Donoghue Money Market Average at 4.90%, a margin of 72
basis points (bp). We experienced quite a volatile market environment and are
pleased that we were able to turn in positive performance for the year.
As we have noted throughout the year, 1996 was a very choppy market environment.
It was almost as if investors did a complete turnaround on January 1, 1996 after
a very strong market environment during 1995. The first half of 1996 was
characterized by concern that the economy was reaching record low levels of
unemployment, and that inflation was bound to heat up, causing the Federal
Reserve to tighten monetary policy. In the first six months of the year, rates
rose by 60-100 bp, depending on the maturity. As the year continued, the
economic news continued to be good on all fronts, resulting in a very strong
fourth quarter during which rates fell by about 30 bp across the board. Despite
this strong fourth quarter rally, we still ended the full year with a rate
increase of 35-70 bp in the short end of the curve. The yield curve also
steepened significantly during the year; as we opened 1996, there was a yield
pickup of only 20 bp from 3 months to 3 years; at December 31 the yield pickup
was 83 bp. The market environment was generally quite good for the types of
spread products that we employ during the year. Corporate bonds experienced
spread tightening for the year to historically narrow levels, and Asset Backed
Securities (ABS) tightened as well, despite a year of record high issuance.
Our performance attribution models show us that the STAR Fund performance was
positively impacted by our holdings in non- Treasury sectors, which averaged
75-80% of the portfolio throughout the year. As previously mentioned, corporate
securities either narrowed or maintained their spread (depending on the
particular name), allowing the additional yield to accrue to the bottom line of
the fund. The asset backed sector which comprised about 20-25% of our portfolio
for much of the year was a particular standout, as spreads tightened
significantly. We continue to believe that this is the single most attractive
sector in the short term markets as we enter 1997.
Our duration decisions were generally neutral to positive for the year. Although
we suffered during the first half as interest rates rose, we maintained our
duration, believing that the rate rise was unwarranted. We were rewarded for our
fortitude, especially during the fourth quarter, when the market rallied
strongly. Our general strategy is to avoid making major changes in duration over
the short term but to adopt a longer term outlook and to make modest changes as
conditions warrant.
During the fourth quarter of 1996, we began to employ a new type of options
strategy on the portfolio in conjunction with our desire to add value
opportunistically through the use of options. Because market participants had
turned complacent at year end, the volatility in the markets had decreased
substantially. Thus, it was possible to buy call options at a relatively low
price that would allow us to maintain our current portfolio duration and
participate in any substantial market rallies, while keeping our downside risk
at the same level. We expect that these strategies will continue to play an
important role for us during 1997.
Looking back on 1996 performance, we are pleased that we were able to turn in
attractive returns in such a volatile market environment, and we continue to
have a very positive outlook for an extended duration short term portfolio. We
would like to thank our shareholders for their support during the year, and we
would like to assure you that we are working our hardest to turn in competitive
performance during the next year.
Jennifer A. Pline
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund Series
Comparison of Change in Value of $1,000,000 Investment in Standish
Short-Term Asset Reserve Fund and IBC Donoghue Average
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Short-Term
Asset Reserve Fund compared with the IBC Donoghue Average for the period January
3, 1989 to December 31, 1996, based upon a $1,000,000 investment. Also included
are the average annual total returns for one year, five year, and since
inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund
Portfolio of Investments
December 31, 1996
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
BONDS and NOTES - 99.0%
- ---------------------------------------------------------
Asset Backed - 30.0%
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1993-4 A1 5.50% 04/15/00 3/25/2010 $ 736,116 700,920
Aircraft Lease Portfolio Trust 1994-1 A2 7.15% 12/31/97 9/15/2004 3,633,940 3,672,550
AT&T Capital Equipment 1996-1A2 5.95% 01/10/98 7/15/2000 3,030,000 3,034,734
Beneficial California Incorporated Home Equity 1994-1 B (a) 6.35% 02/28/97 3/29/2044 1,873,699 1,882,468
Capital Home Equity 1990-1B (a) 6.75% 02/28/97 12/31/1997 1,212,513 1,214,782
Capital Home Equity 1992-1 (a) 6.30% 02/20/97 12/25/2012 371,562 371,968
Case Equipment Trust Loan 1995-BA2 5.95% 02/28/97 9/15/2000 565,421 565,981
Charter Financial Corp 1994-1A 7.40% 02/28/98 10/25/2001 1,549,075 1,571,585
Contimortgage Hel Trust 6.86% 09/30/97 7/15/2010 2,175,000 2,177,719
Contimortgage Home Equtiy 1994-4A 7.96% 12/30/97 9/15/2009 4,421,533 4,482,330
Continental Mortgage Home Equity 1996-4 A2 6.23% 02/05/98 10/15/2011 2,850,000 2,845,547
Equacredit Home Equity 1993-4 5.73% 06/15/99 12/15/2008 2,062,559 2,013,573
Equacredit Home Equity 1994-1A 5.80% 08/30/99 3/15/2009 665,668 649,546
Equicon Home Equity 1995-2 A1 6.45% 08/30/97 7/18/2010 1,301,702 1,300,482
Equicon Home Equity 1995-4 A1 6.15% 04/15/97 7/15/2004 2,333,362 2,332,632
Greentree Financial Corp. 1996-9 A1 5.96% 10/06/97 1/15/2028 4,170,408 4,169,073
Greentree Financial Corp. 6.10% 12/15/97 4/15/2018 1,711,346 1,706,520
Greentree Financial Corp. 1993-3 5.20% 04/15/97 10/15/2018 4,709,548 4,683,033
Greentree Financial Corp. 1995-DA1 6.05% 04/15/97 9/15/2025 1,871,802 1,874,104
Home Equity Loan 1992-2 A1 (a) 6.22% 02/20/97 10/20/2007 420,930 422,243
Home Equity Loan Trust 1992-2A 6.65% 02/15/99 11/20/2012 629,917 629,327
Merrill Lynch Asset Backed 1992-B A2 8.05% 05/15/97 4/15/2012 1,550,139 1,554,975
Merrill Lynch Home Equity 1991-2A2 (a) 5.91% 02/15/97 4/15/2006 170,326 170,379
Merrill Lynch Home Equity 1993-1B (a) 6.69% 02/15/97 2/15/2003 1,450,693 1,456,583
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55% 01/25/99 11/25/2007 606,369 604,758
Olympic Auto Receivables Trust 1995-D A2 5.80% 02/15/97 10/15/1998 917,242 917,242
Onyx Acceptance Trust 1996-1 A 5.40% 09/15/98 5/15/2001 3,028,477 3,001,977
Security Pacific Home Equity Cl 1991-1 Cl A 7.85% 03/01/97 5/15/1998 103,371 103,726
Security Pacific Home Equity Cl 1991-2 A 8.10% 03/31/97 6/15/2020 573,025 574,097
Security Pacific Home Equity Cl 1991-2 B 8.15% 12/15/97 6/15/2020 2,600,598 2,638,185
The Money Store Home Equity 1994-A A1 4.88% 07/30/97 3/15/2008 2,186,225 2,169,145
<PAGE>
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
Asset Backed - (continued)
- ---------------------------------------------------------
The Money Store Home Equity 1994-C A1 6.78% 02/28/97 9/15/2007 $ 127,153 127,312
The Money Store Home Equity 1995-B A2 6.50% 02/28/97 10/15/2006 718,598 717,251
TransAmerica Leasing 1995-1 A 6.40% 10/15/97 9/15/2001 1,119,810 1,124,972
UCFC Home Equity Loan Trust 1994 D1 A2 8.38% 06/10/97 3/10/2007 585,418 586,881
UCFC Home Equity Loan Trust 1995 B1 A1 6.75% 01/10/97 10/10/2004 197,392 197,392
----------
TOTAL Asset Backed 58,245,992
----------
Corporate - 46.8%
- ---------------------------------------------------------
Basic Industry - 0.8%
- ---------------------------------------------------------
Georgia Pacific Corp. 9.85% 6/15/1997 1,475,000 1,498,984
----------
Consumer Cyclical - 7.1%
- ---------------------------------------------------------
Chrysler Financial Corp. 8.06% 1/27/1997 600,000 600,822
Chrysler Financial Corp. 5.02% 1/27/1997 2,000,000 1,999,280
Chrysler Financial Corp. 7.89% 2/10/1997 3,300,000 3,306,204
Dayton Hudson Corp. 9.55% 4/15/1997 800,000 808,352
Dayton Hudson Corp. 9.77% 6/15/1997 2,200,000 2,237,510
Ford Motor Credit Corp. (a) 5.81% 11/09/1998 2,800,000 2,799,076
Sears Roebuck Co 9.25% 4/15/1998 2,000,000 2,077,060
----------
13,828,304
----------
Financial - 32.9%
- ---------------------------------------------------------
Bank of Boston (a) 5.55% 8/28/1998 3,000,000 2,995,230
Bear Stearns Co (a) 6.10% 1/14/1999 2,800,000 2,786,000
Capital One Bank Co. 8.63% 1/15/1997 5,500,000 5,503,080
Centura Bank 6.00% 4/07/1997 5,125,000 5,125,000
Citicorp (a) 5.76% 1/30/1998 4,100,000 4,095,900
Comdisco Inc Notes 6.29% 10/22/1998 425,000 425,631
Dean Witter Discover (a) 5.51% 3/10/1999 2,800,000 2,753,940
Discover Credit 7.81% 3/18/1997 2,400,000 2,409,912
Discover Credit 7.76% 5/13/1997 2,000,000 2,013,380
<PAGE>
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
Financial - (continued)
- ---------------------------------------------------------
Discover Credit 7.82% 5/13/1997 $ 1,000,000 1,006,890
First Interstate 12.75% 5/01/1997 1,660,000 1,695,607
First USA Bank 8.10% 2/21/1997 2,350,000 2,356,392
Fleet Mortgage Group Inc. 6.13% 8/15/1997 1,000,000 1,000,590
Goldman Sachs Inc. 144A (a) 5.93% 1/26/1999 3,000,000 3,012,000
Great Western Bank 9.50% 7/01/1997 3,800,000 3,866,614
Heller Financial 7.75% 5/15/1997 3,350,000 3,371,373
International Lease Finance 5.50% 4/01/1997 5,400,000 5,395,194
Merrill Lynch Cmt (a) 5.77% 4/07/1997 6,150,000 6,147,909
Morgan Stanley 5.65% 6/15/1997 650,000 649,578
Norwest Corp. 9.25% 5/01/1997 1,140,000 1,152,175
Salomon Brothers Inc. 5.47% 8/29/1997 2,000,000 1,994,800
Wells Fargo & Co. (a) 5.98% 6/25/1997 4,000,000 4,006,320
----------
63,763,515
----------
Health Care - 1.5%
- ---------------------------------------------------------
Health & Rehab Property (a) 6.28% 7/13/1999 2,900,000 2,863,605
----------
Real Estate - 4.5%
- ---------------------------------------------------------
Equity Residential Property Operating LP (a) 6.25% 12/22/1997 5,800,000 5,794,076
Taubman Realty (a) 6.00% 11/03/1997 3,025,000 3,017,407
----------
8,811,483
----------
TOTAL Corporate 90,765,891
----------
U.S. Government Agency - 5.2%
- ---------------------------------------------------------
Pass Thru Securities
- ---------------------------------------------------------
FHLMC (a) 7.82% 05/01/98 2/01/2023 380,413 388,794
FHLMC 7.00% 02/16/97 8/01/1999 2,437,975 2,461,593
FHLMC 8.00% 05/01/97 2/01/2000 - 7/01/20 3,797,216 3,885,621
Resolution Trust Corp. 1992 Cl B 7.15% 06/30/97 12/25/2020 2,054,182 2,054,182
Resolution Trust Corp. 1992-12 A-A2 7.50% 12/15/97 08/25/2023 553,538 555,614
Resolution Trust Corp. 1992-7 A3 (a) 7.36% 06/30/97 3/25/2022 757,057 756,584
----------
TOTAL U.S. Government Agency 10,102,388
----------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------- ---------- ------------------ ---------------- ----------
U.S. Treasury Obligations - 17.0%
- ---------------------------------------------------------
Treasury Notes - 17.0%
- ---------------------------------------------------------
U.S. Treasury Note 5.88% 8/15/1998 $ 7,800,000 7,803,666
U.S. Treasury Note 5.88% 10/31/1998 1,375,000 1,374,780
U.S. Treasury Note 5.63% 11/30/1998 16,695,000 16,619,372
U.S. Treasury Note 5.13% 11/30/1998 7,000,000 6,907,040
U.S. Treasury Note 5.38% 5/31/1998 325,000 323,323
----------
TOTAL U.S. Treasury Obligations 33,028,181
----------
TOTAL BONDS and NOTES (Cost $192,381,683) 192,142,452
----------
Principal
Amount of
Contracts
--------------
Purchased Options - 0.0%
- ---------------------------------------------------------
- ---------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- ---------------------------------------------------------
UST Call, 5.75% 12/23/98, Str 100.09375, 3/24/97 (Premiums Paid $10,563) 52,000 8,125
----------
Par
Value
--------------
Repurchase Agreements - 0.0%
- ---------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $40,697 (Collateralized by
FNMA FNARM with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $41,497. (Cost $40,864) $ 40,864 40,864
----------
TOTAL INVESTMENTS (Cost $192,433,110) - 99.0% 192,191,441
Other Assets less Liabilities - 1.0% 1,882,164
----------
NET ASSETS - 100.0% $194,073,605
==========
(a) Variable Rate Security
* This security is restricted, but eligible for resale under 144A
FHLMC - Federal Home Loan Mortgage Corporation
UST - U.S. Treasury
FNARM - FNMA Adjustable Rate Mortgage
UCFC - United Co.'s Financial Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Assets and Liabilitites
December 31, l996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $192,433,110) $192,191,441
Receivable for investments sold 156,050
Interest receivable 2,135,074
--------------------
Total assets 194,482,565
Liabilities
Distribution payable $380,297
Accrued trustee fees (Note 3) 2,022
Accrued expenses and other liabilities 26,641
----------------
Total liabilities 408,960
--------------------
Net Assets $194,073,605
====================
Net Assets consist of
Paid - in capital $205,255,771
Distributions in excess of net investment income (131,817)
Accumulated undistributed net realized gain (loss) (10,808,680)
Net unrealized appreciation (depreciation) (241,669)
--------------------
Total Net Assets $194,073,605
====================
Shares of beneficial interest outstanding 9,953,704
====================
Net asset value, offering price, and redemption price per share $19.50
====================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Operations
Year Ended December 31, l996
Income
Interest income $15,608,502
Expenses
Investment advisory fee (Note 3) $643,488
Accounting, custody and transfer agent fees 143,850
Legal fees 34,803
Audit services 22,092
Insurance expense 9,902
Trustees fees (Note 3) 9,630
Registration costs 9,326
Miscellaneous 11,829
---------------
Total expenses 884,920
-----------------
Net investment income 14,723,582
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities (407,753)
Written option transactions 28,818
---------------
Net realized gain (loss) (378,935)
Change in net unrealized appreciation (depreciation)
Investment securities (494,693)
Written options (547)
---------------
Change in net unrealized appreciation (depreciation) (495,240)
-----------------
Net realized and unrealized gain (loss) (874,175)
-----------------
Net increase (decrease) in net assets from operations $13,849,407
=================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------ -----------------
Increase (decrease) in Net Assets
From operations:
<S> <C> <C>
Net investment income $14,723,582 $16,422,079
Net realized gain (loss) (378,935) 91,489
Change in net unrealized appreciation (depreciation) (495,240) 4,729,922
------------------ -----------------
Net increase (decrease) in net assets from operations 13,849,407 21,243,490
------------------ -----------------
Distributions to shareholders
From net investment income (14,723,192) (16,408,848)
In excess of net investment income ----- (72,090)
------------------ -----------------
Total distributions to shareholders (14,723,192) (16,480,938)
------------------ -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 190,145,017 224,454,605
Net asset value of shares issued to shareholders in
payment of distributions declared 10,684,739 11,942,616
Cost of shares redeemed. (249,381,886) (274,677,022)
------------------ -----------------
Increase (decrease) in net assets from Fund share transactions (48,552,130) (38,279,801)
------------------ -----------------
Net increase (decrease) in net assets (49,425,915) (33,517,249)
Net Assets
At beginning of period 243,499,520 277,016,769
------------------ -----------------
At end of period (including distributions in excess of net
investment income of $131,817 and $ 72,090 at
December 31, 1996 and 1995, respectively) $194,073,605 $243,499,520
================== =================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund
Financial Highlights
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992 *
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $19.55 $19.22 $19.79 $19.96 $20.46
------------ ------------ ------------ ------------- -----------
Income from investment operations
Net investment income $1.11 $1.13 $1.01 $1.31 $1.35
Net realized and unrealized gain (loss) (0.04) 0.33 (0.57) (0.17) (0.48)
------------ ------------ ------------ ------------- -----------
Total from investment operations 1.07 1.46 0.44 1.14 0.87
------------ ------------ ------------ ------------- -----------
Less distributions declared to shareholders
From net investment income (1.12) (1.12) (1.01) (1.31) (1.35)
In excess of net investment income ----- (0.01) ----- ----- -----
From net realized gains on investments ----- ----- ----- ----- (0.02)
----------- ------------ ------------ ------------- ------------
Total distributions declared to shareholders (1.12) (1.13) (1.01) (1.31) (1.37)
------------ ------------ ------------ ------------- -----------
Net asset value - end of period $19.50 $19.55 $19.22 $19.79 $19.96
============ ============ ============ ============= ===========
Total return 5.62% 7.85% 2.27% 5.08% 4.33%
Net assets at end of period (000's omitted) $194,074 $243,500 $277,017 $275,080 $289,969
Ratios (to average daily net assets)/Supplemental Data:
Expenses 0.35% 0.33% 0.33% 0.33% 0.37%
Net investment income 5.75% 5.95% 5.24% 5.82% 6.60%
Portfolio turnover 156% 208% 154% 182% 167%
* Audited by other auditors.
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Short-Term Asset Reserve Fund (the "Fund") is a
separate diversified investment series of the Trust. The following is a
summary of significant accounting policies consistently followed by the
Fund in the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily at their fair value as
determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees. Short-term
instruments with less than sixty-one days remaining to maturity when
acquired by the Fund are valued on an amortized cost basis. If the Fund
acquires a short-term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth
day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. .Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. .Securities transactions and income--
Securities transactions are recorded as of the trade date. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount or amortization of premiums
debt securities when required for federal income tax purposes.
D. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. At December 31, 1996, the Fund, for federal income tax purposes,
had capital loss carryovers which will reduce the Fund's taxable income
arising from future net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryovers are $3,071,161, $1,512,610, $5,263,400
$568,968 and $277,757 which expire on December 31, 2000, December 31,
2001, December 31, 2002, December 31, 2003, and December 31, 2004
respectively. The Fund elected to defer to its fiscal year ending
December 31, 1997, $113,973 of losses recognized during the period
November 1, 1996 to December 31, 1996.
(2) ....Distributions to Shareholders:
Dividends on shares of the Fund are declared daily from net investment
income and distributed monthly. Net capital gains, if any, are
distributed annually. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Distributions to shareholders are recorded on the ex-dividend
date. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatment of asset backed securities. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
and accumulated net realized gain (loss).
<PAGE>
(3) ....Investment Advisory Fee:
The investment advisory fee is paid to Standish, Ayer & Wood, Inc.
(SA&W) for overall investment advisory and administrative services, and
general office facilities, monthly at the annual rate of 0.25% of the
Fund's average daily net assets. The advisory agreement provides that
if the total Fund operating expenses (excluding brokerage, taxes and
extraodinary expenses) of the Fund in any fiscal year exceed 0.50% of
the Fund's average daily net assets, the compensation due to SA&W shall
be reduced by the amount of the excess. The Fund pays no compensation
directly to its trustees who are affiliated with SA&W or to its
officers, all of whom receive remuneration for their services to the
Fund from SA&W. Certain of the trustees and officers of the Trust are
directors or officers of SA&W.
(4) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations
were as follows:
Purchases Sales
U.S. Government securities $316,467,507 $286,457,375
================== ==================
Non-U.S. Government securities $83,425,120 $102,574,333
================== ==================
(5) ....Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Shares sold 9,748,426 11,547,118
Shares issued to shareholders in payment of distributions declared 548,316 614,434
Shares redeemed (12,798,043) (14,122,510)
------------------ ------------------
Net decrease (2,501,301) (1,960,958)
================== ==================
</TABLE>
(6) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as
computed on a federal income tax basis, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Cost $192,436,358
Gross unrealized appreciation $191,489
Gross unrealized depreciation (436,406)
------------------
Net unrealized depreciation ($244,917)
==================
</TABLE>
<PAGE>
(7) ....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund uses options to seek to hedge against risks of
market exposure and changes in securities prices as well as to seek to
enhance returns. Options, both held and written by the Fund, are
reflected in the accompanying Statement of Assets and Liabilities at
market value. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which
are exercised or are closed are added to or offset against the proceeds
or amount paid on the transaction to determine the realized gain or
loss. If a put option written by the Fund is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The
Fund, as writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of
the security underlying the written option. The Fund has no open
written option contracts at December 31, 1996. A summary of written
option transactions for the year ended December 31, 1996 is as follows:
Written Call Option Transactions
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 7,000 $4,922
Options written 91,915 94,599
Options exercised (5,000) (3,321)
Options expired (73,415) (78,095)
Options closed (20,500) (18,105)
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Short-Term Asset Reserve Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish Short-Term Asset Reserve Fund (the "Fund"), including the portfolio of
investments, as of December 31, 1996, and the related statement of operations
for the year then ended, changes in net assets for each of the two years in the
period then ended and financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 1992, presented
herein, were audited by other auditors, whose report, dated February 12, 1993,
expressed an unqualified opinion on such financial highlights. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Short-Term Asset Reserve Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
Standish, Ayer & Wood Investment Trust
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Management Discussion
Tough lessons were learned in 1996 concerning investor expectations versus
actual market performance. Perceived moderate growth, little or no inflationary
pressures, and a strong dollar were expected to carry the 1995 bond rally well
into 1996. Instead, bond prices generally declined as investors reacted
cautiously to a steady stream of conflicting economic data. In this environment
short and intermediate maturity bond portfolios performed reasonable well with
less exposure relative to longer maturities to rising interest rates. For the
full year ended December 31, 1996 the Controlled Maturity Fund provided a total
return of 5.13% versus 4.98% for the Merrill Lynch 1-3 Year Treasury Index.
Early in 1996 the prices of bonds with shorter maturities reacted favorably when
the Fed cut interest rates in January. When it became apparent that inflation
was not going to decline any further and the economy appeared stronger than
expected, yields began to climb with a corresponding decline in bond prices. The
yield on five-year Treasuries increased from 5.37% in January to 6.50% by the
end of June. In the second half of the year lower inflation and weaker
employment data strengthened bond markets. Short-term bonds prices reacted
favorably during this period with the fund making up some of the ground lost
during the first half of the year. The yield on the five-year Treasury finished
the year at 6.21%.
During the year the fund maintained an overweighted position in corporate bonds
and asset-backed securities. The additional yield earned on these securities
helped to offset the effects of rising interest rates. Demand for corporate
bonds remained strong throughout the year as the fundamental outlook for most
sectors of the economy remained favorable. Despite an increase in the supply of
new issues, spreads on asset-backed securities tightened significantly as more
investors added to their positions in this sector. Throughout the year
asset-backed securities continued to offer attractive high quality yields in the
short term markets.
The fund's average maturity was maintained at a level slightly longer than the
benchmark index throughout the course of the year, reflecting our neutral to
slightly positive outlook for interest rates. In the first half of the year, our
longer average maturity hindered performance as interest rates increased. When
the market rallied in the fourth quarter, our strategy of maintaining a slightly
longer maturity relative to the index rewarded shareholders with attractive
relative returns.
During 1996 we employed a new type of options strategy in the portfolio in order
to opportunistically add incremental returns. At certain times during the year
volatility in the bond markets had decreased. This enabled us to
opportunistically purchase call options at a relatively low price while
maintaining the average maturity of the portfolio. Adding call options to the
portfolio decreased the downside risk associated with market declines, while
enabling the portfolio to participate fully in any substantial market rallies.
We expect that these strategies will continue to play an important role for us
during 1997.
We are pleased that we were able to earn relatively attractive returns for our
shareholders in such a volatile market environment. Looking toward the futures
we continue to maintain a positive outlook for controlled maturity portfolios.
Howard B. Rubin
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Comparison of Change in Value of $100,000 Investment in
Standish Controlled Maturity Fund and Merrill Lynch 1-3 Year Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Controlled
Maturity Fund compared with the Merrill Lynch 1-3 Year Index for the period July
3, 1995 to December 31, 1996, based upon a $100,000 investment. Also included is
the average annual total return for one year and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
BONDS and NOTES - 99.6%
Asset Backed - 26.9%
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.00 % 2/25/2006 $ 158,708 164,008
Advanta Home Equity Trust Loan 1992-2 A1 7.15 6/25/2008 22,634 22,726
Advanta Home Equity Trust Loan 1993-4 A1 5.50 3/25/2010 222,189 211,566
AFC Home Equity 1996-3 1A2 7.22 12/25/2027 75,000 75,914
AFC Home Equity Loan Trust 1993-2 A 6.00 1/20/2013 236,180 230,939
Contimortgage Hel Trust 6.86 7/15/2010 100,000 100,219
Equacredit Home Equity 1993-4 5.73 12/15/2008 127,462 124,435
Equacredit Home Equity 1995-4 A2 6.35 10/15/2009 120,000 120,000
Equicon Home Equity 1995-2 Cl A2 6.50 7/18/2010 100,000 99,531
First Sierra Equipment Lease 6.29 11/10/2004 100,000 99,750
General Motors Acceptance Corp. 7.00 8/15/1997 25,000 25,173
Greentree Financial Corp.1993-4 A2 5.85 1/15/2019 100,000 99,750
Home Equity Loan Trust 1992-2A 6.65 11/20/2012 10,804 10,794
MBNA Master Card Trust 1991-1 7.75 10/15/1998 20,000 20,019
Ml Mtg Inv 1992-D A2 7.40 7/15/2017 30,203 30,278
Newcourt 1996-2 A 6.87 6/20/2004 68,655 69,114
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.30 9/25/2007 56,436 56,012
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55 11/25/2007 46,741 46,617
Rnfc Trust 1995-3A2 6.80 12/20/2007 50,000 50,086
Security Pacific Home Equity Cl 1991-2 B 8.15 6/15/2020 32,239 32,705
The Money Store Home Equity 1992-B 6.90 7/15/2007 224,980 224,980
The Money Store Home Equity 1993-D A1 5.68 2/15/2009 68,401 65,857
The Money Store Home Equity 1994-DA4 8.75 9/15/2020 175,000 182,656
The Money Store Home Equity 1996-B A3 6.82 3/15/2010 150,000 150,609
Trans Leasing 1996-1A 5.98 11/20/2002 192,974 192,492
UCFC Home Equity Loan Trust 1993-B 1A 6.08 7/25/2014 227,885 223,612
UCFC Home Equity Loan Trust 1994 BA-6 7.10 6/10/2023 181,622 182,871
UCFC Home Equity Loan Trust 1995-A1 A4 8.25 4/01/2016 100,000 102,938
UCFC Home Equity Loan Trust 1995-B1 A2 6.60 7/10/2009 150,000 150,609
UCFC Home Equity Loan Trust 1996-D1 A3 6.54 11/15/2013 200,000 199,500
---------------
TOTAL Asset Backed (Cost $3,359,369) 3,365,760
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ----------------
Collateralized Mortgage Obligations - 0.1%
- -----------------------------------------------------
Collateralized Mortgage Obligation Trust 13-A
(Cost $6,723) 5.81 % 1/20/2003 $ 6,799 6,782
---------------
TOTAL Collateralized Mortgage Obligations (Cost $6,723)
Corporate - 48.5%
- -----------------------------------------------------
Basic Industry - 1.4%
- -----------------------------------------------------
Brascan Ltd. 7.38 10/01/2002 75,000 75,145
Great Northern Nekoosa 9.13 2/01/1998 100,000 102,961
---------------
178,106
---------------
Capital Goods - 2.8%
- -----------------------------------------------------
Caterpillar Finance 6.10 7/15/1999 100,000 99,400
Comdisco Inc Medium Term Notes 7.75 1/29/1997 125,000 125,169
WMX Technologies 6.25 4/01/1999 125,000 124,926
---------------
349,495
---------------
Consumer Cyclical - 3.6%
- -----------------------------------------------------
Chrysler Financial Corp. 5.38 10/15/1998 50,000 49,324
Ford Motor Credit Co 5.63 1/15/1999 125,000 123,569
General Motors Acceptance Corp. 7.50 7/22/1999 150,000 154,055
Sears Roebuck Co 7.94 2/06/1998 50,000 51,091
Sears Roebuck Co 9.25 4/15/1998 75,000 77,890
---------------
455,929
---------------
Consumer Stable - 0.6%
- -----------------------------------------------------
ADT Operations 8.25 8/01/2000 75,000 77,933
---------------
Energy - 0.8%
- -----------------------------------------------------
Occidental Petroleum 5.90 11/09/1998 100,000 99,278
---------------
Financial - 29.2%
- -----------------------------------------------------
Advanta National Bank Nts Ncl 6.25 7/08/1997 150,000 150,190
Ahmanson H F & Co 9.88 11/15/1999 175,000 190,136
Associates Corp. 6.63 11/15/1997 50,000 50,272
Associates Corp. 6.88 1/15/1997 50,000 50,011
Bank of Boston 9.50 8/15/1997 75,000 76,622
Bear Stearns Co 6.50 6/15/2000 125,000 124,963
Bear Stearns Co 6.75 8/15/2000 100,000 100,599
Capital One Bank Co. 6.39 6/29/1998 50,000 50,007
Capital One Bank Co. 6.66 8/17/1998 75,000 75,266
Chase Manhattan Corp. 7.50 12/01/1997 50,000 50,622
Chase Manhattan Corp. 8.00 6/15/1999 100,000 103,581
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
Financial - (continued)
- -----------------------------------------------------
Cit Group Hldgs 6.20 % 4/15/1998 $ 150,000 150,644
CitiCorp. Mtn 8.42 2/12/1997 125,000 125,306
Comdisco Inc. 6.50 6/15/2000 75,000 74,875
First Chicago 8.50 6/01/1998 75,000 77,441
First Chicago 9.88 7/01/1999 130,000 140,386
First Union Corp. 9.45 6/15/1999 100,000 106,857
First USA Bank 5.75 1/15/1999 100,000 98,660
First USA Bank 6.38 10/23/2000 75,000 73,904
Fleet Financial Group 6.00 10/26/1998 75,000 74,855
Fleet Financial Group 7.25 10/15/1997 25,000 25,230
Goldman Sachs Group 6.75 4/20/2000 55,000 55,308
Goldman Sachs Group 6.88 9/15/1999 125,000 126,646
Greyhound Financial 8.50 2/15/1999 100,000 104,157
Hartford National Bank Corp. 9.85 6/01/1999 75,000 80,351
Integra Financial Corp Nts Ncl 6.50 4/15/2000 200,000 198,910
International Lease Finance Co. 6.13 11/01/1999 150,000 148,457
Merrill Lynch Cmt 5.77 4/07/1997 50,000 49,983
Norwest Financial Inc. 6.38 11/15/2001 100,000 99,511
Salomon Brothers Inc. 6.63 11/30/2000 75,000 74,560
Salomon Brothers Inc. 6.82 7/26/1999 100,000 100,660
Salomon Brothers Inc. 7.75 5/15/2000 75,000 77,012
Smith Barney Holdings 5.50 1/15/1999 50,000 49,328
Smith Barney Shearson 5.63 11/15/1998 50,000 49,483
Transamerica Corp. 9.88 1/01/1998 125,000 129,644
United Companies Financial 7.00 7/15/1998 120,000 120,424
USF&G Corp. 7.00 5/15/1998 225,000 226,976
---------------
3,661,837
---------------
Real Estate - 4.4%
- -----------------------------------------------------
Equity Residential Property Operating LP 6.25 12/22/1997 50,000 49,949
Equity Residential Property Operating LP 144A * 8.50 5/15/1999 200,000 207,118
Federal Realty Investment Trust 8.88 1/15/2000 110,000 116,327
Meditrust 7.38 7/15/2000 50,000 50,945
Spieker Properties 6.65 12/15/2000 75,000 74,468
Wellsford Residential Property 7.25 8/15/2000 50,000 50,752
---------------
549,559
---------------
Services - 3.5%
- -----------------------------------------------------
Hertz Corp. 9.50 5/15/1998 125,000 130,441
News America Holdings Corp. 7.50 3/1/2000 150,000 153,429
Time Warner Inc. 7.95 2/01/2000 150,000 154,897
---------------
438,767
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
Technology - 1.8%
- -----------------------------------------------------
ITT Corp. 6.25 % 11/15/2000 $ 225,000 221,434
---------------
Utilities - 0.4%
- -----------------------------------------------------
System Energy Resources Corp. 7.63 4/01/1999 50,000 50,935
----------------
TOTAL Corporate (Cost $6,137,893) 6,083,273
---------------
Foreign - 1.7%
- -----------------------------------------------------
Canada - 1.7%
- -----------------------------------------------------
Noranda Forest Inc Notes NCL 8.88 10/15/1999 200,000 210,166
---------------
TOTAL Foreign (Cost $212,642) 210,166
---------------
U.S. Government Agency - 6.2%
- -----------------------------------------------------
Pass Thru Securities - 6.2%
- -----------------------------------------------------
Federal Farm Credit Bank 6.61 10/06/1999 200,000 200,562
FHLMC 7.00 8/01/1999 62,324 62,928
FHLMC 7.50 3/01/1997-8/01/2000 182,189 185,190
FHLMC 8.00 2/01/2000 26,030 26,636
FHLMC 10.50 7/1/2015 2,299 2,541
FNMA Remic Pac 1994 -8SE 6.00 11/25/2006 75,000 73,805
GNMA 9.00 11/15/2016 - 12/15/2024 159,779 169,777
Resolution Trust Corp. 1992-7 A1 6.82 3/25/2022 43,277 42,925
Resolution Trust Corp. P-T A-1 7.75 7/25/2030 8,726 8,786
Resolution Trust Corp. P-T A-2 8.63 7/25/2030 4,025 4,075
---------------
TOTAL U.S. Government Agency (Cost $778,373) 777,225
---------------
U.S. Treasury Obligations - 16.1%
- -----------------------------------------------------
Treasury Notes - 16.1%
- -----------------------------------------------------
U.S. Treasury Note 5.88 8/15/1998 50,000 50,024
U.S. Treasury Note + 6.38 5/15/1999 1,550,000 1,563,315
U.S. Treasury Note 6.38 3/31/2001 25,000 25,168
U.S. Treasury Note 6.63 6/30/2001 375,000 381,033
---------------
TOTAL U.S. Treasury Obligations (Cost $2,026,333) 2,019,540
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ----------------
Purchased Options - 0.0%
- -----------------------------------------------------
- -----------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- -----------------------------------------------------
UST Call, 5.75% 12/23/98, Str 100.09375, 3/24/97
(Premium Paid $609) 3/24/1997 $ 3,000 469
---------------
Total Purchased Options (Premium Paid $609)
Short-Term Investments - 1.0%
- -----------------------------------------------------
Repurchase Agreements - 1.0%
- -----------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $126,324 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $128,809) 126,283 126,283
---------------
TOTAL INVESTMENTS (Cost $12,648,225) - 100.5% 12,589,498
Other Assets less Liabilities - (0.5)% (64,623)
---------------
NET ASSETS - 100.0% 12,524,875
===============
* This Security is restricted, but eligible for resale under 144A
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A)(identified cost, $12,648,225) $12,589,498
Interest receivable 159,919
Deferred organization expenses (Note 1 E) 8,205
Receivable from Investment Adviser (Note 2) 622
----------------
Total assets 12,758,244
Liabilities
Distribution payable $128,733
Payable for investments purchased 79,240
Accrued expenses and other liabilities 18,870
Accrued custodian fees 6,526
----------------
Total liabilities 233,369
----------------
Net Assets $12,524,875
================
Net Assets consist of
Paid-in capital $12,585,485
Undistributed net investment income 14,419
Accumulated net realized gain (loss) (16,302)
Net unrealized appreciation (depreciation) (58,727)
----------------
Total Net Assets $12,524,875
================
Shares of beneficial interest outstanding 626,464
================
Net asset value, offering price, and redemption price per share $19.99
================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Operations
For the Year ending December 31, 1996
Investment income
Interest income $714,652
Expenses
Investment advisory fee (Note 2) $35,907
Accounting, custody and transfer agent fees 58,473
Audit services 22,265
Legal fees 1,104
Amortization of organization costs (Note 1E) 2,355
Miscellaneous 7,229
----------------
Total expenses 127,333
Deduct:
Waiver of investment advisory fee (Note 2) (35,907)
Reimbursement of Fund operating expenses (Note 2) (50,610)
----------------
Total waiver of investment advisory fee and reimbursement of operating expenses (86,517)
Net expenses 213,850
----------------
Net investment income 500,802
----------------
Realized and unrealized gain (loss)
Realized gain (loss)
Investment securities (22,349)
Change in net unrealized appreciation (depreciation)
Investment securities (124,788)
----------------
Net realized and unrealized gain (loss) (147,137)
----------------
Net increase (decrease) in net assets from operations $353,665
================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statements of Changes in Net Assets
Year Ended For the Period July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
----------------- -----------------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $500,802 $213,340
Net realized gain (loss) (22,349) 15,239
Change in net unrealized appreciation (depreciation) (124,788) 66,061
----------------- -----------------------------
Net increase (decrease) in net assets from operations 353,665 294,640
----------------- -----------------------------
Distributions to shareholders
From net investment income (653,352) (213,237)
From net realized gains on investments (5,114) (10,245)
----------------- -----------------------------
Total distributions to shareholders (658,466) (223,482)
----------------- -----------------------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 4,854,921 9,300,102
Net asset value of shares issued to shareholders in
payment of distributions declared 226,009 68,587
Cost of shares redeemed (1,292,135) (572,000)
----------------- -----------------------------
Increase (decrease) in net assets from Fund share transactions 3,788,795 8,796,689
----------------- -----------------------------
Net increase (decrease) in net assets 3,483,994 8,867,847
Net Assets
At beginning of period 8,867,847 0
----------------- -----------------------------
At end of period (including undistributed net investment
income of $14,419 and $0 at December 31, 1996 and 1995, respectively) $12,351,841 $8,867,847
================= =============================
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Highlights
For the Period
Year Ended July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
----------------------- -----------------------
Net asset value - beginning of period $20.24 $20.00
----------------------- -----------------------
Income from investment operations
Net investment income * 1.27 0.57
Net realized and unrealized gain (loss) (0.27) 0.24
----------------------- -----------------------
Total from investment operations 1.00 0.81
----------------------- -----------------------
Less distributions declared to shareholders
From net investment income (1.24) (0.57)
From net realized gains on investments (0.01)
----------------------- -----------------------
Total distributions declared to shareholders (1.25) (0.57)
----------------------- -----------------------
Net asset value - end of period $19.99 $20.24
======================= =======================
Total return 5.13% 4.20%
Ratios (to average daily net assets)/Supplemental Data
Expenses * 0.40% 0.40% t
Net investment income * 6.60% 6.29% t
Portfolio turnover 107% 127%
Net assets at end of period (000 omitted) $12,525 $8,868
* The investment adviser voluntarily waived its investment advisory fee and
reimbursed the Fund for a portion of its operating expenses. Had these
actions not been taken, the net investment income per share and the ratios
would have been:
Net investment income per share $1.11 $0.38
Ratios (to average daily net assets):
Expenses 1.25% 2.51% t
Net investment income 5.75% 4.18% t
t Computed on an annualized basis
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (Trust) is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Controlled Maturity Fund (Fund) is a separate
diversified investment series of the Trust. The following is a summary
of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short-term instruments with less
than sixty-one days remaining to maturity when acquired by the Fund are
valued on an amortized cost basis. If the Fund acquires a short-term
instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity
and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. .Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. .Securities transactions and income--
Securities transactions are recorded as of the trade date. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount and amoritization of
premium on debt securities when required for federal income tax
purposes.
D. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. At December 31, 1996, the Fund, for federal income tax purposes,
had a capital loss carryover which will reduce the Fund's taxable
income arising from net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryover is $10,860 which expires on December 31,
2004. The Fund elected to defer to its fiscal year ending December 31,
1997, $5,066 of losses recognized during the period November 1, 1996 to
December 31, 1996.
E. .Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized, on a straight-line basis,
through June, 2000.
<PAGE>
F. .Distributions to shareholders-
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. The differences are primarily due to differing treatment of
asset and mortgage backed securities. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.35%
of the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the Fund's total operating expenses to 0.40% of the Fund's
average daily net assets for the Fund's fiscal year ended December 31,
1996. For the year ended December 31, 1996, SA&W voluntarily waived its
investment advisory fee of $35,907 and reimbursed the Fund for $50,610
of operating expenses. The Fund pays no compensation directly to its
trustees who are affiliated with SA&W or to its officers, all of whom
receive remuneration for their services to the Fund from SA&W. Certain
of the trustees and officers of the Trust are directors or officers of
SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations,
were as follows:
Purchases Sales
Non-U.S. government securities $6,949,143 $2,300,416
================== =================
U.S. Government securities $6,945,990 $7,232,599
================== =================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the Period
Year Ended July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
-------------------------- --------------------------
<S> <C> <C>
Shares sold 241,487 462,667
Shares issued to shareholders in payment of distributions declared 11,325 3,396
Shares redeemed (64,441) (27,970)
-------------------------- --------------------------
Net increase 188,371 438,093
========================== ==========================
</TABLE>
At December 31, 1996, two shareholders were record owners of approximately 32%
and 28% respectively of the total outstanding shares of the Fund.
<PAGE>
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate cost $12,648,741
=========================
Gross unrealized appreciation 22,999
Gross unrealized depreciation (82,242)
-------------------------
Net unrealized depreciation ($59,243)
=========================
(6) ....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks, and objectives of these instruments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial insturments with off-balance
sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices, as well as to seek
to enhance returns. Options, both held and written by the Fund, are
reflected in the accompanying Statement of Assets and Liabilities at
market value. Premiums received from writing options which expire are
treated as realized gains. Premiums received from writing options which
are exercised or are closed are added to or offset against the proceeds
or amount paid on the transaction to determine the realized gain or
loss. If a put option purchased by the Fund is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The
Fund, as writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of
the security underlying the written option. During 1996, the fund had
the following written option transactions. There were no outstanding
written option contracts at December 31, l996.
<TABLE>
<CAPTION>
Written Call Option Transactions
Number
of Contracts Premiums
-------------------------- ---------------------------
<S> <C> <C>
Outstanding, beginning of period 0 0
Options written 3,000 2,988
Options exercised 0 0
Options expired (2,500) (2,500)
Options closed (500) (488)
-------------------------- ---------------------------
Outstanding, end of period 0 0
========================== ===========================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Controlled Maturity Fund: We have audited the accompanying statement
of assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Controlled Maturity Fund (the "Fund"), including the portfolio of investments,
as of December 31, 1996, and the related statement of operations for the year
then ended, changes in net assets and the financial highlights for the year then
ended and for the period from July 3, 1995 (start of business) to December 31,
1995. These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audit. We conducted
our audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996 by
correspondence with the custodian and brokers. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion. In our opinion, the
financial statements and financial highlights referred to above present fairly,
in all material respects, the financial position of Standish, Ayer & Wood
Investment Trust: Standish Controlled Maturity Fund as of December 31, 1996, the
results of its operations for the year then ended and the changes in its net
assets and the financial highlights for the year then ended and for the period
from July 3, 1995 (start of business) to December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
The mortgage sector posted solid returns in the fourth quarter. Benefitting from
declining prepayment risk as interest rates rose during the year, mortgages
outperformed Treasuries. For the past year, with a duration profile closer to
the Lehman Aggregate Index, the Securitized Fund returned, net of fees, 4.41%
and a gross return of 4.86%. In comparison, the Lehman Aggregate and Lehman
Mortgage Indices returned 3.61% and 5.36%, respectively.
Higher interest rates, coupled with moderately declining volatility, created a
favorable environment for mortgages. Rising mortgage rates diminished
refinancing activity and prepayments slowed. With reduced call risk, yield
spreads over Treasuries narrowed enhancing mortgage returns. Also contributing
to the sector's strong performance were positive market technicals. As yield
spreads have trended tighter across most sectors during the year, investors have
turned to mortgages for incremental yield. Also, the sustained decline in net
supply of mortgages benefitted spreads. (Net supply is defined as gross agency
issuance less prepayments.)
Looking back at 1996, pass-through spreads have narrowed significantly from
their extremely undervalued levels at the beginning of the year. At currently
tighter spread levels, the mortgage sector is clearly closer to fair value. We
have reduced the fund's allocation to pass-throughs as they have outperformed.
Alternatively, we have found attractive values in both commercial mortgage bonds
and home equity asset backeds. In particular, the commercial mortgage market has
offered compelling investment opportunities throughout the year. The incremental
yield of commercial mortgage bonds over both Treasuries and similar quality
corporates makes them especially good values. Also, through the use of
prepayment penalties, commercial mortgages provide investors with better call
protection, and therefore, less convexity risk than is typically found in most
mortgage assets. As the marketplace has become familiar with the structural and
credit considerations of commercial mortgages, yield spreads have narrowed. But
even at today's tighter spread levels, select opportunities within the sector
remain quite attractive.
In the coming year, it is less likely that spread product will benefit from the
compression in yield spreads similar to what sectors experienced in 1996.
Therefore, we are focused on finding stable attractively priced bonds and look
for opportunities to rotate sectors as relative values change. We look forward
to serving you in 1997.
Dolores S. Driscoll James J. Sweeney
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund Series
Comparison of Change in Value of $1,000,000 Investment in Standish Securitized
Fund,
the Lehman Aggregate Index, and the Lehman Mortgage Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Securitized
Fund compared with the Lehman Aggregate Index and the Lehman Mortgage Index for
the period August 31, 1989 to December 31, 1996, based upon a $1,000,000
investment. Also included are the average annual total returns for one year,
five year, and since inception.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- ------------ --------------------------- --------------- ----------------
BONDS and NOTES - 111.6%
- --------------------------------------------------------
Asset Backed - 4.2%
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank Credit Card Master Trust 0.000% 2/07/2003 $ 1,425,000 $ 1,099,031
Continental Mortgage Home Equity 1996-4 A9 6.880 1/15/2028 550,000 542,438
Greentree Financial Corp 7.240 11/15/2028 500,000 491,250
--------------
TOTAL Asset Backed (Cost $2,168,812) 2,132,719
--------------
Collateralized Mortgage Obligation - 2.0%
- --------------------------------------------------------
FNMA P/O Trust 108 (Cost$ $1,077,844) 0.000 3/01/2020 1,291,932 1,017,396
--------------
U.S. Government Agency - 93.3%
- --------------------------------------------------------
Pass Thru Securities - 93.3%
- --------------------------------------------------------
Chase Comm Cert 1996 1A1 7.600 12/18/2005 494,737 510,043
CSFB 1995-A 144A * 7.542 11/15/2005 750,000 745,071
FDIC Remic Trust 1994-C1 2C 8.450 9/25/2025 500,000 521,250
FHA Insured Project Mtg Series #15 7.450 5/01/2021 1,404,228 1,413,005
FHA #113 Puttable Project 8/3 7.430 6/01/2024 3,837,205 3,888,768
FHLMC 6.500 12/01/2023 - 4/01/2026 3,316,412 3,178,347
FHLMC 7.500 8/01/2026 973,275 974,180
FNMA + 6.500 7/01/2025 - 3/01/2026 3,413,631 3,260,017
FNMA + x 7.000 10/01/2023 - 2/01/2027 8,552,955 8,365,722
FNMA REMIC 1994-84 PJ 8.000 7/25/2023 975,000 1,017,656
GE Capital 96-A Erisa 7.250 12/25/11 494,220 495,456
GNMA + 7.000 11/15/2022 - 6/15/2026 8,618,004 8,450,809
GNMA + 7.500 10/15/2022 - 9/15/2025 1,705,617 1,711,638
GNMA 9.000 5/15/2016 - 9/15/2026 2,703,905 2,877,183
Lehman Brothers Commercial Conduit Mortgage Trust 1995-C2 7.054 9/25/2025 575,000 560,805
Merrill Lynch Mortgage Investments 1996-C2E 6.960 12/21/2028 700,000 656,469
Midstate Trust II A3 9.350 4/01/1998 150,000 153,281
ML Mtg Inv 1994-C1 Cl C 8.892 11/25/2020 1,095,000 1,132,812
Mortgage Capital Funding 1996 7.800 4/15/2026 497,000 512,221
Resolution Trust Corp. 1991-6 C-1 9.000 9/25/2028 226,620 232,710
Resolution Trust Corp. 1992-C2 A1 9.000 10/25/2021 225,573 227,054
Resolution Trust Corp. 1994-C2 D AL 1 8.000 4/25/2025 710,512 724,501
Resolution Trust Corp. 1995 C1 Cl C 6.900 2/25/2027 900,000 879,469
Resolution Trust Corp. 1995-1 A2C Erisa + 7.500 10/25/2028 1,000,000 1,009,688
Resolution Trust Corp. P-T Ser 1992-5 Sr A6 + 9.239 5/25/2026 2,150,000 2,202,406
Resolution Trust Corp. P-T Ser 1992-M4 A1 8.000 9/25/2021 404,184 406,963
Sears Credit Account 1987-B 8.000 5/25/2017 125,914 125,835
Structured Asset Security Corp. 1994-C1 D 6.870 8/25/2026 825,000 795,352
Structured Asset Security Corp. 1996-Cfl C 6.525 2/25/2028 200,000 195,375
--------------
TOTAL U.S. Government Agency (Cost $47,129,814) 47,224,086
--------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- ------------ --------------------------- --------------- --------------
U.S. Treasury Obligations - 12.1%
- --------------------------------------------------------
Treasury Bonds - 5.6%
- --------------------------------------------------------
U.S. Treasury Bond + 7.625% 2/15/2025 $ 1,625,000 $ 1,805,018
U.S. Treasury Bond + 8.125 8/15/2019 875,000 1,012,130
--------------
2,817,148
--------------
Treasury Notes - 6.5%
- --------------------------------------------------------
U.S. Treasury Note 5.625 11/30/1998 400,000 398,188
U.S. Treasury Note 6.625 6/30/2001 2,375,000 2,413,214
U.S. Treasury Note (Strip) 0.000 8/15/2008 1,000,000 467,600
--------------
3,279,002
--------------
TOTAL U.S. Treasury Obligations (Cost $6,138,988) 6,096,150
--------------
TOTAL BONDS and NOTES (Cost $56,515,458) 56,470,351
--------------
Principal
Purchased Options - 0.0% Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -------------
UST Put/ 6.25% 10/1, Str 100.1328125, 1/6/97 (Premiums Paid $6,445) 11,000 3,438
--------------
Short-Term Investments - 3.3%
- --------------------------------------------------------
Repurchase Agreements - 3.2%
- --------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $1,599,920 (Collateralized by Par
FNMA FNARM with a rate of 6.084% and a maturity date of Value
-------------
12/01/35 with a market value of $1,631,399) $ 1,599,411 1,599,411
--------------
U.S. Government Agency - 0.1%
- --------------------------------------------------------
FNMA 5.400 1/17/1997 65,000 64,717
--------------
TOTAL Short-Term Investments (Cost $1,664,128) 1,664,128
--------------
TOTAL INVESTMENTS (Cost $58,186,030) - 114.9% $ 58,137,917
==============
<PAGE>
Principal
Written Options - 0.0% Amount of
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -------------
UST Call, 6.25% 10/01, Str 101.1328125, 1/6/97 11,000 $ (86)
--------------
Total Written Options (Premium Received $4,555) (86)
--------------
Other Assets Less Liabilities - (14.9%) (7,520,575)
--------------
NET ASSETS - 100.0% $ 50,617,256
==============
* This security is restricted but eligible for resale under 144A
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
x Denotes all or part of security is delayed delivery contract (see Note 7)
Abbreviations used in this statement
FNMA - Federal National Mortgage Association
FHLMC - Federal Home Loan Mortgage Corporation
GNMA - Government National Mortgage Association
FDIC - Federal Depository Insurance Corporation
FHA - Federal Housing Authority
ML - Merrill Lynch
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $58,186,030) $ 58,137,917
Interest receivable 342,617
Cash 27,790
Receivable for daily variation margin on fianancial futures contracts (Note 6) 24,219
Other assets 2,488
------------------
Total assets 58,535,031
Liabilities
Distribution payable $ 1,504,685
Payable for delayed delivery transactions, (Note 7) 6,384,219
Written options outstanding, at value (premiums received, $4,555) 86
Accrued trustee fees (Note 2) 362
Accrued expenses and other liabilities 28,423
-----------------
Total liabilities 7,917,775
------------------
Net Assets $50,617,256
==================
Net Assets consist of
Paid-in capital $ 52,745,999
Distributions in excess of net investment income (97,839)
Accumulated undistributed net realized loss (2,053,795)
Net unrealized appreciation 22,891
------------------
Total Net Assets $ 50,617,256
Shares of beneficial interest outstanding 2,569,380
==================
Net asset value, offering price, and redemption price per share $ 19.70
==================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Interest income $3,921,909
Expenses
Investment advisory fee (Note 2) $132,516
Accounting, custody and transfer agent fees 89,679
Audit services 31,509
Registration costs 3,257
Trustee fees (Note 2) 2,168
Legal services 2,880
Insurance expense 2,182
Miscellaneous 2,600
-----------------
Total expenses 266,791
Deduct:
Waiver of investment advisory fee (Note 2) (29,535)
-----------------
Net expenses 296,326
------------------
Net investment income 3,625,583
------------------
Realized and unrealized gain (loss)
Net realized gain (loss):
Investment securities ($235,337)
Written options 218,408
Financial futures contracts (349,453)
Foreign currency and forward foreign exchange contracts 33,042
-----------------
Net realized gain (loss) (333,340)
Change in net unrealized appreciation (depreciation):
Investment securities ($1,319,348)
Written options 10,153
Financial futures contracts 155,513
-----------------
Change in net unrealized appreciation (depreciation) (1,153,682)
------------------
Net realized and unrealized gain (loss) (1,487,022)
------------------
Net increase (decrease) in net assets from operations $2,138,561
==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995
----------------- ------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $3,684,653 $3,780,223
Net realized gain (loss) (333,340) 1,131,513
Change in net unrealized (depreciation) appreciation (1,153,682) 3,537,677
----------------- ------------------
Net increase in net assets from operations 2,197,631 8,449,413
----------------- ------------------
Distributions to shareholders
From net investment income (3,663,175) (3,731,675)
----------------- ------------------
Total distributions to shareholders (3,663,175) (3,731,675)
----------------- ------------------
Fund share principal transactions (Note 4)
Net proceeds from sale of shares 70,000 1,275,000
Net asset value of shares issued to shareholders in
payment of distributions declared 402,234 591,437
Cost of shares redeemed (3,590,133) (5,162,432)
----------------- ------------------
Increase (decrease) in net assets from Fund share transactions (3,117,899) (3,295,995)
----------------- ------------------
Net increase (decrease) in net assets (4,583,443) 1,421,743
Net assets
At beginning of period 55,200,699 53,778,956
----------------- ------------------
At end of period (including distributions in excess of net investment income
of $97,839 and $163,094 at December 31, 1996 and 1995, respectively) $50,617,256 $55,200,699
================= ==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992*
-------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $20.25 $18.61 $20.24 $20.14 $20.97
-------------- ----------- ----------- ------------ -----------
Income (loss) from investment operations
Net investment income+ 1.43 1.32 1.42 1.45 1.43
Net realized and unrealized (loss) gain
on investments (0.57) 1.66 (1.86) 0.54 (0.61)
-------------- ----------- ----------- ------------ -----------
Total income (loss) from investment operations 0.86 2.98 (0.44) 1.99 0.82
-------------- ----------- ----------- ------------ -----------
Less distributions declared to shareholders
From net investment income (1.41) (1.34) (1.19) (1.48) (1.57)
In excess of net investment income --- --- --- (0.05) ---
From net realized gains on investments --- --- --- (0.36) (0.07)
In excess of net realized gains on investments --- --- --- --- (0.01)
-------------- ----------- ----------- ------------ -----------
Total distributions declared to shareholders (1.41) (1.34) (1.19) (1.89) (1.65)
-------------- ----------- ----------- ------------ -----------
Net asset value - end of period $19.70 $20.25 $18.61 $20.24 $20.14
============== =========== =========== ============ ===========
Total return 4.41% 16.32% (2.16%) 10.02% 4.07%
Net assets at end of period (In thousands) $50,617 $55,201 $53,779 $78,054 $90,460
Supplemental Data
Ratios to average daily net assets:
Expenses + 0.45% 0.45% 0.45% 0.45% 0.45%
Net investment income + 6.99% 6.78% 6.79% 6.75% 6.94%
Portfolio turnover 212% 225% 138% 130% 301%
+ The investment adviser did not impose a portion of its advisory fee. If this voluntary reduction
had not been undertaken, the net investment income per share and the ratios would have been:
Net investment income per share $1.40 $1.22 $1.41 $1.44 $1.42
Ratios to average daily net assets:
Expenses 0.51% 0.51% 0.49% 0.48% 0.51%
Net Investment Income 6.93% 6.72% 6.76% 6.72% 6.88%
* Audited by other auditors.
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the Trust) is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Securitized Fund ("the Fund") is a separate
diversified investment series of the Trust. The following is a summary
of significant accounting policies followed by the Fund in the
preparation of the financial statements. The preparation of financial
statements in accordance with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short - term instruments with
less than sixty-one days remaining to maturity when acquired by the
Fund are valued on an amortized cost basis. If the Fund acquires a
short - term instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon
the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. .Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. .Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis.
D. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. At December 31, 1996, the Fund, for federal income tax purposes,
had a capital loss carryover which will reduce the Fund's taxable
income arising from net realized gain on investments, if any, to the
extent permitted by the Internal Revenue Code and thus will reduce the
amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryovers are $1,745,441 and $234,501 which expire
on December 31, 2002 and December 31, 2004, respectively.
E. .Distributions to shareholders--
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments
for mortgage backed securities, futures and options transactions and
foreign currency transactions. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications
between paid-in capital, undistributed net investment income and
accumulated net realized gain (loss).
<PAGE>
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.25%
of the Fund's average daily net assets up to the first $500,000,000 and
0.20% of assets in excess of this amount. SA&W has agreed to limit
total Fund operating expenses to 0.45% of the Fund's average daily net
assets. For the year ended December 31, 1996, SA&W voluntarily waived
$29,535 of its fee. The Fund pays no compensation directly to its
trustees who are affiliated with SA&W or to its officers, all of whom
receive remuneration for their services to the Fund from SA&W. Certain
trustees and officers of the Trust are directors or officers of SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations,
were as follows:
Purchases Sales
U.S. government securities $121,694,322 $126,243,666
================== ==================
Non-U.S. government securities $5,301,904 $4,506,758
================== ==================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1996 1995
----------------- ------------------
<S> <C> <C>
Shares sold 3,450 64,329
Shares issued to shareholders in payment of distributions declared 20,413 29,757
Shares redeemed (179,930) (258,806)
----------------- ------------------
Net decrease (156,067) (164,720)
================= ==================
</TABLE>
At December 31, 1996, one shareholder, Allendale Mutual
Insurance Co., together with its affiliates, was record owner of
approximately 82% of the total outstanding shares of the Fund.
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate Cost $58,191,889
Gross unrealized appreciation 619,007
Gross unrealized depreciation (672,979)
-----------------
Net unrealized depreciation ($53,972)
=================
<PAGE>
6) .....Financial Instruments
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. Premiums received from writing
options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option written by the
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as writer of an option, has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the security underlying the written option. A summary of
written option transactions for the twelve months ended December 31,
1996 is as follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 2,750 $11,816
Options written 9,725 74,708
Options exercised (6,525) (29,965)
Options expired (4,850) (50,461)
Options closed (1,100) (6,098)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 3,900 $26,926
Options written 25,950 146,679
Options exercised (1,000) (5,000)
Options expired (13,750) (63,699)
Options closed (14,000) (100,351)
------------------ ------------------
Outstanding, end of period 1,100 $4,555
================== ==================
.........Forward foreign currency and cross currency exchange contracts--
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar and
other foreign currencies. The forward foreign currency and cross
currency exchange contracts are marked to market using the forward
foreign currency rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date. Forward currency exchange contracts
are used by the Fund primarily to protect the Fund's foreign securities
from adverse currency movements. At December 31, 1996, there were no
open forward foreign currency contracts.
<PAGE>
.........Futures Contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or index, which may not correlate
with changes in value of the hedged investments. In addition, there is
the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in securities prices and foreign
currencies. At December 31, 1996, the Fund held the following futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Appreciation
- -------------------------- ------------------------ ------------- ----------------------------------
<S> <C> <C> <C> <C>
US 10 Year Note (31 contracts) Short 03/31/97 $3,382,875 $66,535
================ ================
</TABLE>
At December 31, 1996, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
(7) ....Delayed Delivery Transactions:
The Fund may purchase securities on a when-issued or forward commitment
basis. Payment and delivery may take place a month or more after the
date of the transactions. The price of the underlying securities and
the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. The Fund instructs its
custodian to segregate securities having a value at least equal to the
amount of the purchase commitment. At December 31, 1996, the Fund had
entered into the following delayed delivery transactions:
Type Security Settlement Date Amount
- ----------------------------------------------------------------------
Buy FNMA 2/13/97 $6,384,219
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Securitized Fund: We have audited the accompanying statement of
assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Securitized Fund (the "Fund"), including the portfolio of investments, as of
December 31, 1996, and the related statement of operations for the year then
ended, changes in net assets for each of the two years in the period ended, and
financial highlights for each of the four years in the period then ended. These
financial statements and financial highlights are the responsibility of the
Fund's management. Our responsibility is to express an opinion on these
financial statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights. We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion. In our opinion, the financial statements and financial
highlights referred to above present fairly, in all material respects, the
financial position of Standish, Ayer & Wood Investment Trust: Standish
Securitized Fund as of December 31, 1996, the results of its operations for the
year then ended, the changes in its net assets for each of the two years in the
period then ended, and financial highlights for each of the four years in the
period then ended, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
[ ] 1997
STANDISH INTERNATIONAL FIXED INCOME FUND
STANDISH GLOBAL FIXED INCOME FUND
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information is not a prospectus, but
expands upon and supplements the information contained in the combined
Prospectus dated [ ], 1997, as amended and/or supplemented from time to time
(the "Prospectus"), of the Standish International Fixed Income Fund
("International Fixed Income Fund") and the Standish Global Fixed Income Fund
("Global Fixed Income Fund"), each a separate investment series of Standish,
Ayer & Wood Investment Trust (the "Trust"). This Statement of Additional
Information should be read in conjunction with the Prospectus, a copy of which
may be obtained without charge by writing or calling the Trust's principal
underwriter, Standish Fund Distributors, L.P. (the "Principal Underwriter"), at
the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
----------------------------
CONTENTS
Page
Investment Objective and Policies.......................................1
Investment Restrictions................................................10
Calculation of Performance Data........................................12
Management ............................................................14
Redemption of Shares...................................................23
Portfolio Transactions.................................................24
Determination of Net Asset Value.......................................25
The Funds and Their Shares.............................................26
The Portfolio and its Investors........................................27
Taxation...............................................................27
Additional Information.................................................32
Experts and Financial Statements.......................................32
<PAGE>
INVESTMENT OBJECTIVE
AND POLICIES
The Prospectus describes the investment objective and policies of each
Fund. The following discussion supplements the description of the Funds'
investment policies in the Prospectus.
As described in the Prospectus, the Global Fixed Income Fund seeks to
achieve its investment objective by investing all its investable assets in the
Standish Global Fixed Income Portfolio (the "Portfolio"), a series of Standish,
Ayer & Wood Master Portfolio (the "Portfolio Trust"), an open-end management
investment company. The Portfolio has the same investment objective and
restrictions as the Global Fixed Income Fund. Standish International Management
Company, L.P. ("SIMCO" or the "Adviser") is the adviser to the Portfolio and the
International Fixed Income Fund.
The Prospectus describes the investment objective of the Global Fixed
Income Fund and the Portfolio and summarizes the investment policies they will
follow. Since the investment characteristics of the Global Fixed Income Fund
correspond directly to those of the Portfolio, the following discusses the
various investment techniques employed by the Portfolio. See the Prospectus for
a more complete description of each Fund's and the Portfolio's investment
objective, policies and restrictions. For the purposes of the discussion in this
section of this Statement of Additional Information, the use of the term "Fund"
or "Funds" includes references to the Portfolio and the International Fixed
Income Fund unless otherwise noted.
Money Market Instruments and Repurchase Agreements. Money market instruments
include short-term U.S. and foreign Government securities, commercial paper
(promissory notes issued by corporations to finance their short-term credit
needs), negotiable certificates of deposit, non-negotiable fixed time deposits,
bankers' acceptances and repurchase agreements.
U.S. Government securities include securities which are direct obligations
of the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. Government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal Farm
Credit Bank, the Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Federal Home Loan Banks and the Federal National Mortgage Association.
Investments in commercial paper will be rated "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 SIMCO to be of
equivalent quality to the securities so rated. In determining whether securities
are of equivalent quality, SIMCO may take into account, but will not rely
entirely on, ratings assigned by foreign rating agencies.
A repurchase agreement is an agreement under which a Fund acquires money
market instruments (generally U.S. Government securities) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed-upon price
and date (normally the next business day). The resale price reflects an
agreed-upon interest rate effective for the period the instruments are held by
the Fund and is unrelated to the interest rate on the instruments. The
instruments acquired by each Fund (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
custodian bank for the Fund until they are repurchased. The Trustees will
monitor the standards that SIMCO will use in reviewing the creditworthiness of
any party to a repurchase agreement with the Funds.
The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments
- 1 -
<PAGE>
acquired by a Fund at a time when their market value has declined, the Fund may
incur a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Strategic Transactions. Each Fund may, but is not required to, utilize various
other investment strategies as described below to seek to hedge various market
risks (such as interest rates, currency exchange rates, and broad or specific
fixed-income market movements), to manage the effective maturity or duration of
fixed-income securities, or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional in vestors. Techniques and
instruments used by the Funds may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing its investment objective, each Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; enter into
vari ous interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
currency futures contracts, currency swaps or options on currencies or currency
futures (collectively, all the above are called "Strategic Transactions").
Strategic Transactions may be used in an attempt to protect against possible
changes in the market value of securities held in or to be purchased for a
Fund's portfolio resulting from securities mar ket, interest rate or currency
exchange rate fluctuations, to protect a Fund's unrealized gains in the value of
its portfolio securities, to facilitate the sale of such securities for
investment purposes, to manage the effective maturity or duration of a Fund's
portfolio, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved although each Fund will attempt to limit its net loss
exposure resulting from Strategic Transactions entered into for such purposes to
not more than 3% of its net assets at any one time and, to the extent necessary,
each Fund will close out transactions in order to comply with this limitation.
(Transactions such as writing covered call options are considered to involve
hedging for the purposes of this limitation.) In calculating each Fund's net
loss exposure from such Strategic Transactions, an unrealized gain from a
particular Strategic Transaction position would be netted against an unrealized
loss from a related Strategic Transaction position. For example, if SIMCO
anticipates that the Belgian franc will appreciate relative to the French franc,
the Fund may take a long forward currency position in the Belgian franc and a
short foreign currency position in the French franc. Under such circumstances,
any unrealized loss in the Belgian franc position would be netted against any
unrealized gain in the French franc position (and vice versa) for purposes of
calculating the Fund's net loss exposure. The ability of a Fund to utilize these
Strategic Transactions successfully will depend on SIMCO's ability to predict
pertinent market and interest rate movements, which cannot be assured. Each Fund
will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. The Funds' activities involving
Strategic Transactions may be limited by the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
regulated investment companies.
Risks of Strategic Transactions. The use of Strategic Transactions has
associated risks in cluding possible default by the other party to the
transaction, illiquidity and, to the extent SIMCO's view as to certain market or
interest rate movements is incorrect, the risk that the
- 2 -
<PAGE>
use of such Strategic Transactions could result in losses greater than if they
had not been used. The writing of put and call options may result in losses to a
Fund, force the purchase or sale, respectively, of portfolio securities at
inopportune times or for prices higher than (in the case of purchases due to the
exercise of put options) or lower than (in the case of sales due to the exercise
of call options) current market values, limit the amount of appreciation a Fund
can realize on its investments or cause a Fund to hold a security it might
otherwise sell. The use of currency transactions can result in a Fund incurring
losses as a result of a number of factors including the imposition of exchange
controls, suspension of settlements, or the inability to deliver or receive a
specified currency. The use of options and futures transactions entails certain
other risks. In particular, the variable degree of correlation between price
movements of futures contracts and price movements in the related portfolio
position of a Fund creates the possibility that losses on the hedging instrument
may be greater than gains in the value of the Fund's position. The writing of
options could significantly increase a Fund's portfolio turnover rate and,
therefore, associated brokerage commissions or spreads. In addition, futures and
options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets, a
Fund might not be able to close out a transaction without incurring substantial
losses, if at all. Although the use of futures and options transactions for
hedging should tend to minimize the risk of loss due to a decline in the value
of the hedged position, at the same time, in certain circumstances, they tend to
limit any potential gain which might result from an increase in value of such
position. The loss incurred by a Fund in writing options on futures and en
tering into futures transactions is potentially unlimited; however, as described
above, each Fund will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes to not more than 3%
of its net assets at any one time. Futures markets are highly volatile and the
use of futures may increase the volatility of a Fund's net asset value. Finally,
entering into futures contracts would create a greater ongoing potential
financial risk than would purchases of options where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value and the net result may be less
favorable than if the Strategic Transactions had not been utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of each Fund's assets in special accounts, as
described below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy
(if the option is exercised), the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, a Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. Each Fund may purchase a call
option on a security, futures contract, index, currency or other instrument to
seek to protect the Fund against an increase in the price of the under lying
instrument that it intends to purchase in the future by fixing the price at
which it may purchase such instrument. An American style put or call option may
be exercised at any time during the option period while a European style put or
call option may be exercised only upon expiration or during a fixed period prior
thereto. Each Fund is authorized to purchase and sell exchange listed options
and over-the-counter options ("OTC options"). Exchange listed options are issued
by a regulated intermediary such as the Options Clearing
- 3 -
<PAGE>
Corporation ("OCC"), which guarantees the performance of the obligations of the
parties to such options. The discussion below uses the OCC as an example, but is
also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A Fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct 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. Each Fund will
generally sell (write) OTC options (other than OTC currency options) that are
subject to a buy-back provision permitting the Fund to require the Counterparty
to sell the option back to the Fund at a formula price within seven days. OTC
options purchased by a Fund, and portfolio securities "covering" the amount of a
Fund's obligation pursuant to an OTC option sold by it (the cost of the
sell-back plus the in-the-money amount, if any) are subject to each Fund's
restriction on illiquid securities, unless determined to be liquid in accordance
with procedures adopted by the Boards of Trustees. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. Each Fund expects generally
to enter into OTC options that have cash settlement provisions, although it is
not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, SIMCO 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.
Each Fund will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers," or broker-dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the Adviser.
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If a Fund sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
Each Fund may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, corporate debt securities, equity securities (including convertible
securities) and Eurodollar instruments that are traded on U.S. and foreign
securities exchanges and in the over-the-counter markets, and on securities
indices, currencies and futures contracts. All calls sold by a Fund must be
"covered" (i.e., the Fund must own the securities or the futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. In addition, each Fund may cover a
written call option or put option by entering into an offsetting forward
contract and/or by purchasing an offsetting option or any other option which,
but virtue of its exercise price or otherwise, reduces the Fund's net exposure
on its written option position. Even though a Fund will receive the option
premium to help offset any loss, the Fund may incur a loss if the exercise price
is below the market price for the security subject to the call at the time of
exercise. A call sold by a Fund also exposes the Fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the Fund to hold
a security or instrument which it might otherwise have sold.
Each Fund may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage-backed and asset-backed
securities, foreign sovereign debt, corporate debt securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A Fund will not sell put options if, as a
result, more than 50% of the Fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that a Fund may be required to buy the underlying security at a price above the
market price.
Options on Securities Indices and Other Financial Indices. Each Fund may also
purchase and sell (write) call and put options on securities indices and other
financial indices. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement. For example, an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the differential between the closing price of the index and the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount upon exercise of the option. In addition to the
methods described above, each Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio.
General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures. Futures are
generally bought and sold on the commodities exchanges where they are listed and
involve payment of initial and variation margin as described below. All future
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the
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Commodity Futures Trading Commission ("CFTC") or on certain foreign exchanges.
The sale of futures contracts creates a firm obligation by a Fund, as seller, to
deliver to the buyer the specific type of financial instrument called for in the
contract at a specific future time for a specified price (or, with respect to
index futures and Eurodollar instruments, the net cash amount). The purchase of
futures contracts creates a corresponding obligation by a Fund, as purchaser, to
purchase a financial instrument at a specific time and price. Options on futures
contracts are similar to options on securities except that an option on a
futures contract gives the purchaser the right in return for the premium paid to
assume a position in a futures contract and obligates the seller to deliver such
position upon exercise of the option.
Each Fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that a Fund may use commodity
futures and option positions (i) for bona fide hedging purposes without regard
to the percentage of assets committed to margin and option premiums, or (ii) for
other purposes permitted by the CTFC to the extent that the aggregate initial
margin and option premiums required to establish such non-hedging positions (net
of the amount that the positions were "in the money" at the time of purchase) do
not exceed 5% of the net asset value of the Fund's portfolio, after taking into
account unrealized profits and losses on such positions. Typically, maintaining
a futures contract or selling an option thereon requires a Fund to deposit, with
its custodian for the benefit of a futures commission merchant, or directly with
the futures commission merchant, as security for its obligations an amount of
cash or other specified assets (initial margin) which initially is typically 1%
to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited directly with the futures commission merchant thereafter on a daily
basis as the value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the Fund. If a Fund exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to seek to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value or
to enhance potential gain. Currency transactions include currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed-upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. A Fund may enter
into over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) whose obligations are determined to be of
equivalent credit quality by SIMCO.
Each Fund's transactions in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will
generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to
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specific assets or liabilities of a Fund, which will generally arise in
connection with the purchase or sale of its portfolio securities or the receipt
of income therefrom. Position hedging is entering into a currency transaction
with respect to portfolio security positions denomi nated or generally quoted in
that currency.
Each Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
Each Fund may also cross-hedge currencies by entering into transactions to
purchase or sell one or more currencies that are expected to decline in value in
relation to other currencies to which the Fund has or in which the Fund expects
to have portfolio exposure. For example, a Fund may hold a French gov ernment
bond and SIMCO may believe that French francs will deteriorate against German
marks. The Fund would sell French francs to reduce its exposure to that currency
and buy German marks. This strategy would be a hedge against a decline in the
value of French francs, although it would expose the Fund to declines in the
value of the German mark relative to the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, each Fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a Fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a Fund's portfolio securities are or
are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the Fund's securities denominated in
linked currencies. For example, if SIMCO considers that the Austrian schilling
is linked to the German deutschemark (the "D-mark"), and a portfolio contains
securities denominated in schillings and SIMCO believes that the value of
schillings will decline against the U.S. dollar, SIMCO may enter into a contract
to sell D-marks and buy dollars. Proxy hedging involves some of the same risks
and considerations as other transactions with similar instruments. Currency
transactions can result in losses to a Fund if the currency being hedged
fluctuates in value to a degree or in a direction that is not anticipated.
Further, there is the risk that the perceived linkage between various currencies
may not be present or may not be present during the particular time that a Fund
is engaging in proxy hedging. If a Fund enters into a currency hedging
transaction, the Fund will comply with the asset segregation requirements
described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions
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(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
SIMCO, it is in the best interests of the Funds 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
SIMCO'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 Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter into
these transactions primarily for hedging purposes, including, but not limited
to, preserving a return or spread on a particular investment or portion of its
portfolio, protecting against currency fluctuations, as a duration management
technique or protecting against an increase in the price of securities a Fund
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, each Fund will attempt to limit its net loss
exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes to not more than 3% of the Fund's
net assets at any one time. Each Fund will not sell interest rate caps, floors
or collars where it does not own securities or other instruments providing the
income stream the Fund may be obligated to pay. Interest rate swaps involve the
exchange by the Fund with another party of their respective commitments to pay
or receive interest, e.g., an exchange of floating rate payments for fixed rate
payments with respect to a notional amount of principal. A currency swap is an
agreement to exchange cash flows on a notional amount of two or more currencies
based on the relative value differential among them and an index swap is an
agreement to swap cash flows on a notional amount based on changes in the values
of the reference indices. The purchase of a cap entitles the purchaser to
receive payments on a notional principal amount from the party selling such cap
to the extent that a specified index exceeds a predetermined interest rate or
amount. The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that a
specified index falls below a predetermined interest rate or amount. A collar is
a combination of a cap and a floor that preserves a certain rate of return
within a predetermined range of interest rates or values.
Each Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. Each Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from an NRSRO or the Counterparty issues debt that is determined to be of
equivalent credit quality by SIMCO. If there is a default by the Counterparty, a
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of each Fund's policy regarding illiquid securities, unless it is determined,
based upon continuing review of the trading markets for the specific security,
that such security is liquid. The Boards of Trustees of the Trust and the
Portfolio Trust have adopted guidelines and delegated to SIMCO the daily
function of determining and monitoring the liquidity of swaps, caps, floors and
collars. The Boards of
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Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and they are ultimately responsible
for such determinations. The staff of the SEC currently takes the position that
swaps, caps, floors and collars are illiquid, and are subject to each Fund's
limitation on investing in illiquid securities.
Eurodollar Contracts. Each Fund may make investments in Eurodollar contracts.
Eurodollar contracts are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Inter bank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the United States. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) lesser availability than in the United States of data on which to make
trading decisions, (ii) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iii) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, (iv) lower trading volume and
liquidity, and (v) other complex foreign political, legal and economic factors.
At the same time, Strategic Transactions may offer advantages such as trading in
instruments that are not currently traded in the United States or arbitrage
possibilities not available in the United States.
Use of Segregated Accounts. Each Fund will hold securities or other instruments
whose values are expected to offset its obligations under the Strategic
Transactions. Each Fund will cover Strategic Transactions as required by
interpretive positions of the staff of the SEC. A Fund will not enter into
Strategic Transactions that expose a Fund to an obligation to another party
unless it owns either (i) an offsetting position in securities or other options,
futures contracts or other instruments or (ii) cash, receivables or liquid
securities with a value sufficient to cover its potential obligations. Each Fund
may have to comply with any applicable regulatory requirements for Strategic
Transactions, and if required, will set aside cash and other assets in a
segregated account with its custodian bank in the amount prescribed. In that
case, each Fund's custodian would maintain the value of such segregated account
equal to the prescribed amount by adding or removing additional cash or other
assets to account for fluctuations in the value of the account and the Fund's
obligations on the underlying Strategic Transactions. Assets held in a
segregated account would not be sold while the Strategic Transaction is
outstanding, unless they are replaced with similar assets. As a result, there is
a possibility that segregation of a large percentage of a Fund's assets could
impede portfolio management or the Fund's ability to meet redemption requests or
other current obligations.
"When-Issued" and "Delayed Delivery" Securities. Each Fund may commit up to 25%
of its net assets to purchase securities 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 Fund enters into the commitment, but interest will
not accrue to the Fund until delivery of and payment for the securities.
Although each Fund will only make commitments to purchase "when-issued" and
"delayed delivery" securities with the intention of actually acquiring the
securities, a Fund may sell the securities before the settlement date if deemed
advisable by SIMCO. Unless a Fund 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 equal to the
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amount of the Fund's commitment will be segregated with the Fund's custodian
bank. If the market value of these securities declines, additional cash or
securities will be segregated daily so that the aggregate market value of the
segregated securities equals the amount of the Fund's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may
have a market value on delivery which is less than the amount paid by a Fund.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued" securities will fluctuate inversely to
changes in interest rates, i.e., they will appreciate in value when interest
rates fall and will decline in value when interest rates rise.
Portfolio Turnover. It is not the policy of either Fund to purchase or sell
securities for trading purposes. However, neither Fund places any restrictions
on portfolio turnover and each may sell any portfolio security without regard to
the period of time it has been held, except as may be necessary to maintain its
status as a regulated investment company under the Code. Each Fund may therefore
generally change its portfolio investments at any time in accordance with
SIMCO's appraisal of factors affecting any particular issuer or market, or
relevant economic conditions.
INVESTMENT RESTRICTIONS
The Funds and the Portfolio have adopted the following fundamental
policies. Each of the Fund's and Portfolio's fundamental policies cannot be
changed unless the change is approved by a "vote of the outstanding voting
securities" of a 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 Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund or Portfolio are present or
represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund or Portfolio.
International Fixed Income Fund.
As a matter of fundamental policy, the International Fixed Income Fund may not:
1. Invest, with respect to at least 50% of its total assets, more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
2. Issue senior securities, borrow money or securities or pledge or mortgage
its assets, except that the Fund may (a) borrow money from banks as a
temporary measure for extraordinary or emergency purposes (but not for
investment purposes) in an amount up to 15% of the current value of its
total assets, (b) enter into forward roll transactions, and (c) pledge its
assets to an extent not greater than 15% of the current value of its total
assets.
3. Lend portfolio securities, except that the Fund may lend its portfolio
securities with a value up to 20% of its total assets (with a 10% limit for
any borrower) and may enter into repurchase agreements with respect to 25%
of the value of its net assets.
4. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to debt securities
issued or guaranteed by the United States government or its agencies or
instrumentalities.
5. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Fund may be
deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Fund may
purchase marketable securities of companies which deal in real estate, real
estate mortgage loans or interests therein.
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7. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
8. Purchase or sell commodities or commodity contracts except that the Fund
may purchase and sell financial futures contracts and options on financial
futures contracts and engage in foreign currency exchange transactions.
The following restrictions are not fundamental policies and may be changed
by the Trustees without shareholder approval, in accordance with applicable
laws, regulations or regulatory policy. The Fund may not:
a. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
b. Purchase securities of any other investment company except to the extent
permitted by the 1940 Act.
c. Invest more than 15% of its net assets in securities which are illiquid.
d. Purchase additional securities if the Fund's borrowings exceed 5% of its
net assets.
Global Fixed Income Fund and Global Fixed
Income Portfolio.
As a matter of fundamental policy, the Global Fixed Income Portfolio (Fund) may
not:
1. Invest more than 25% of the current value of its total assets in any single
industry, provided that this restriction shall not apply to debt securities
issued or guaranteed by the United States government or its agencies or
instrumentalities.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio
(Fund) may be deemed to be an underwriter under the Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans, although the Portfolio
(Fund) 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 the Portfolio (Fund) may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities).
5. Purchase or sell commodities or commodity contracts except that the
Portfolio (Fund) may purchase and sell financial futures contracts and
options on financial futures contracts and engage in foreign currency
exchange transactions.
6. With respect to at least 50% of its total assets, invest more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio
(Fund) may (a) borrow from banks as a temporary measure for extraordinary
or emergency purposes (but not investment purposes) in an amount up to 15%
of the current value of its total assets to secure such borrowings, (b)
enter into forward roll transactions, and (c) pledge its assets to an
extent not greater than 15% of the current value of its total assets to
secure such borrowings; however, the Fund may not make any additional
investments while its outstanding borrowings exceed 5% of the current value
of its total assets.
8. Lend portfolio securities, except that the Portfolio (Fund) may lend its
portfolio securities with a value up to 20% of its total assets (with a 10%
limit for any borrower), except that the Portfolio may enter into
repurchase agreements and
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except that the Fund may enter into repurchase agreements with respect to
25% of the value of its net assets.
The following restrictions are not fundamental policies and may be changed
by the Trustees of the Portfolio Trust (Trust) without investor approval, in
accordance with applicable laws, regulations or regulatory policy. The Portfolio
(Fund) may not:
a. Invest in the securities of an issuer for the purpose of exercising control
or management but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
b. Purchase the securities of any other
investment company except to the extent
permitted by the 1940 Act.
c. Invest more than 25% of its net assets in repurchase agreements (this
restriction is fundamental with respect to the Fund but not the Portfolio).
d. Purchase additional securities if the Portfolio's borrowings exceed 5% of
its net assets (this restriction is fundamental with respect to the Fund
but not the Portfolio).
Notwithstanding any fundamental or non- fundamental policy, the Global
Fixed Income 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 Global Fixed Income Fund.
------------------
Purchases of securities of other investment companies permitted under the
restrictions above could cause the Funds to pay additional management and
advisory fees and distribution fees. If any percentage restriction described
above is adhered to at the time of investment, a subsequent increase or decrease
in the percentage resulting from a change in the value of the Funds' 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 Funds' yield 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 (net asset
value) per share on the last day of the period.
The Funds may also quote nonstandardized 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
- 12 -
<PAGE>
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the 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 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.
The Funds' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended December 31, 1996 and average
annualized yield for the 30-day period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------------
Fund 1-Year 5-Year 10-Year Yield
- ---- ------ ------ ------- -----
<S> <C> <C> <C> <C>
International Fixed Income Fund 15.28% 10.59% 11.32%1 5.74%
Global Fixed Income Fund 13.03% 7.46%2 N/A 6.86%
- ---------------------------
1 International Fixed Income Fund commenced operations on January 2, 1991.
2 Global Fixed Income Fund commenced operations on January 3, 1994.
</TABLE>
These performance quotations should not be considered as representative of
any Fund's performance for any specified period in the future.
In addition to average annual return quotations, the Funds may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis as follows:
International Fixed Income Fund
Quarter/Year Net Gross
- ---------------------------------------
1Q91 (2.90)% (2.75)%
2Q91 (1.76) (1.48)
3Q91 9.99 10.18
4Q91 9.69 9.84
1991 15.07 15.95
1Q92 (2.43) 2.26
2Q92 9.45 9.59
3Q92 4.30 4.44
4Q92 (2.97) (2.82)
1992 8.07 8.71
1Q93 6.18 6.31
2Q93 5.41 5.54
3Q93 5.26 5.40
4Q93 5.06 5.18
1993 23.77 24.38
1Q94 (5.78) (5.66)
2Q94 (4.48) (4.35)
3Q94 (0.95) (0.82)
4Q94 1.84 1.97
1994 (9.22) (8.74)
1Q95 2.59 2.72
2Q95 4.71 4.84
3Q95 4.01 4.16
4Q95 5.74 5.88
1995 18.13 18.75
- 13 -
<PAGE>
1Q96 0.73 0.86
2Q96 3.49 3.63
3Q96 5.36 5.49
4Q96 4.95 5.07
1996 15.28 15.85
Global Fixed Income Fund
Quarter/Year Net Gross
- --------------------------------------
1Q94 (4.80)% (4.64)%
2Q94 (3.56) (3.40)
3Q94 (0.77) (0.05)
4Q94 1.44 1.60
1994 (7.06) (6.46)
1Q95 2.94 3.10
2Q95 5.21 5.36
3Q95 3.80 3.95
4Q95 5.09 5.26
1995 18.13 18.84
1Q96 0.05 0.21
2Q96 2.59 2.75
3Q96 4.97 5.14
4Q96 4.91 5.08
1996 13.03 13.76
These performance quotations should not be considered as representative of
a Fund's performance for any specified period in the future. Each Fund's
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the International Fixed
Income Fund may compare its performance to the J.P. Morgan Non-U.S. Government
Bond Index, which is generally considered to be representative of unmanaged
government bonds in foreign markets, 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.
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis and
Martin, and Ms. Banfield, Chase, Herrmann and Kneeland, who hold the same office
with the Portfolio Trust as with the Trust. All executive officers of the Trust
and the Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc., the
Portfolio and the Fund's investment adviser.
- 14 -
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer &
One Financial Center Wood, Inc. since 1990;
Boston, MA 02111 formerly President of Standish,
Ayer & Wood, Inc.
Director of
Standish International
Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.O. Box 5600 Director, Holyoke Mutual Insurance
Beverly Farms, MA 01915 Company
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management
Company, L.P.
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
- 15 -
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Anne P. Herrmann, 1/26/56 Vice President and Secretary Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since October 1996; formerly Senior Vice
One Financial Center President, Treasurer and Chief Financial
Boston, MA 02111 Officer of Liberty Financial Bank Group
(1993-95); prior to 1993, Corporate
Controller, The Berkeley Financial Group
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and
Boston, MA 02111 Compliance Officer,
Freedom Capital Management
Corp. (1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Walter M. Cabot, 1/16/33 Vice President Senior Adviser and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
Senior Adviser and Director of
Standish International Management
Company, L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management
Company, L.P.
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Lavinia B. Chase, 6/4/46 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
- 16 -
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Susan B. Coan, 5/1/52 Vice President Vice President and Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA O2111
W. Charles Cook II, 7/16/63 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President,
Boston, MA 02111 Standish International Management
Company, L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director, Standish International
Boston, MA 02111 Management Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President
Boston, MA 02111 Standish International Management
Company, L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995; formerly
Boston, MA 02111 Vice President, Scudder, Stevens and Clark
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
- 17 -
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly,
One Financial Center Investment Sales,
Boston, MA 02111 Cigna Corporation (1993) and
Travelers Corporation (1984-1993)
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management
Company, L.P.
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director
Boston, MA 02111 Standish International Management
Company, L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since August, 1993;
Boston, MA 02111 formerly, Vice President,
Commerzbank, Frankfurt,
Germany Vice President,
Standish International Management
Company, L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center November 2, 1993; formerly Consultant
Boston, MA 02111 Cambridge Associates
- 18 -
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
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
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management
Company, L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center April, 1990; formerly Vice
Boston, MA 02111 President, Aetna Life & Casualty
President and Director,
Standish International Management
Company, L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher W. Van Alstyne, Vice President Vice President,
3/24/60 Standish, Ayer & Wood, Inc.;
c/o Standish, Ayer & Wood, Inc. Formerly Regional Marketing Director,
One Financial Center Gabelli-O'Connor Fixed Income
Boston, MA 02111 Management
* Indicates that Trustee is an interested person of the Trust for purposes of
the 1940 Act.
</TABLE>
Compensation of Trustees and Officers
Neither the Trust nor the Portfolio Trust pays compensation to the Trustees
of the Trust or the Portfolio Trust that are affiliated with Standish, Ayer &
Wood, Inc. ("Standish") as administrator of the Global Fixed Income Fund, SIMCO
or to the Trust's and Portfolio Trust's officers. None of the Trustees or
officers have engaged in any financial transactions (other than the purchase or
redemption of the Funds' shares) with the Trust, the Portfolio Trust or the
Adviser during the year ended December 31, 1996.
The following table sets forth all compensation paid to the Trust's and the
Portfolio Trust's Trustees as of the Funds' fiscal years ended December 31,
1996:
- 19 -
<PAGE>
<TABLE>
<CAPTION>
Aggregate Compensation
from the Funds
Pension or
International Global Retirement
Fixed Fixed Benefits Accrued Total Compensation from
Income Income as Part of Funds' Funds and Portfolio and
Name of Trustee Fund Fund** Expenses Other Funds in Complex*
--------------- ---- ---- -------- ----------------------
<S> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0
Samuel C. Fleming $9,658 $1,292 $0 $49,250
Benjamin M. Friedman $8,922 $1,194 $0 $45,500
John H. Hewitt $8,922 $1,194 $0 $45,500
Edward H. Ladd $0 $0 $0 $0
Caleb Loring, III $8,922 $1,194 $0 $45,500
Richard S. Wood $0 $0 $0 $0
- -------------------
* As of the date of this Statement of Additional Information there were 20 funds in the fund complex. Total compensation is
presented for the calendar year ended December 31, 1996.
** The Global Fixed Income Fund bears its pro rata allocation of Trustees'
fees paid by the Portfolio to the Trustees of the Portfolio Trust.
</TABLE>
Certain Shareholders
At February 1, 1997, Trustees and officers of the Trust and the Portfolio
Trust as a group beneficially owned (i.e., had voting and/or investment power)
less than 1% of the then outstanding shares of each Fund. At February 1, 1997,
the Global Fixed Income Fund beneficially owned approximately 100% of the then
outstanding interests of the Portfolio and therefore controlled the Portfolio.
Also at that date, no person beneficially owned 5% or more of the then
outstanding shares of any Fund except:
International Fixed Income Fund
Percentage of
Name and Address Outstanding Shares
MAC & Co. 14%
P.O. Box 3198
Pittsburg, PA 15230
Maryland State Retirement 7%
& Pension System
Room 701
301 West Preston Street
Baltimore, MD
Boston & Co. 6%
Mellon Bank
P.O. Box 3198
Pittsburg, PA 15230
Global Fixed Income Fund
Percentage of
Name and Address Outstanding Shares
- ---------------- ------------------
Brown University 25%*
164 Angell Street
Investment Office - Box C
Providence, RI 02912
Childrens Medical Center 16%
Corp.
1295 Boylston Street
Suite 300
Boston, MA 02215
- 20 -
<PAGE>
Lafayette College 13%
234 Markle Hall
Easton, PA 18042-1779
Wenner-Gren Foundation 9%
220 Fifth Avenue
New York, NY 10001
Trustees of Boston College 8%
St. Thomas More Hall
Room 310
Chestnut Hill, MA 02167
Sisters of Mercy Health 5%
System
2039 N. Geyer Road
St. Louis, MO 63131
- ----------------
*Because the shareholder beneficially owned more than 25% of the then
outstanding shares of the indicated Fund, the shareholder was considered to
control such Fund. As a controlling person, the shareholder may be able to
determine whether a proposal submitted to the shareholders of such Fund will be
approved or disapproved.
Investment Adviser
SIMCO serves as the Adviser to the Global Fixed Income Portfolio and the
International Fixed Income Fund pursuant to written investment advisory
agreements. Prior to the close of business on May 3, 1996, SIMCO managed
directly the assets of the Global Fixed Income Fund pursuant to an investment
advisory agreement. This agreement was terminated by the Global Fixed Income
Fund on such date subsequent to the approval by the Global Fixed Income Fund's
shareholders on March 29, 1996 to implement certain changes in the Global Fixed
Income Fund's investment restrictions which enable the Global Fixed Income Fund
to invest all of its investable assets in the Portfolio. SIMCO is a Delaware
limited partnership organized in 1991 and is registered under the Investment
Advisers Act of 1940. The General Partner of the Adviser is Standish, One
Financial Center, Boston, MA 02111, which holds a 99.98% partnership interest.
The Limited Partners, who each hold a 0.01% interest in SIMCO, are Walter M.
Cabot, Sr., a Director of and a Senior Adviser to Standish, and D. Barr Clayson,
Chairman of the Board of SIMCO and a Managing Director of Standish. Ralph S.
Tate, a Managing Director of Standish, is President and a Director of SIMCO.
Richard S. Wood, a Managing Director and Vice President of Standish and the
President of the Trust, is the Executive Vice President of SIMCO.
The following, constituting all of the Directors and all of the
shareholders of Standish, are Standish's controlling persons: Caleb F. Aldrich,
Nicholas S. Battelle, Walter M. Cabot, 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, James J. Sweeney, Ralph S. Tate, and Richard S. Wood.
Certain services provided by SIMCO under the advisory agreements are
described in the Prospectus. These services are provided without reimbursement
by the Portfolio or the International Fixed Income Fund for any costs incurred.
In addition to those services, SIMCO provides the International Fixed Income
Fund (but not the Portfolio) with office space for managing their affairs, with
the services of required executive personnel, and with certain clerical services
and facilities. Under the investment advisory agreements, SIMCO is paid a fee
based upon a percentage of the International Fixed Income Fund's or the
Portfolio's average daily net asset value computed as set forth below. The
advisory fees are payable monthly.
- 21 -
<PAGE>
<TABLE>
<CAPTION>
Contractual Advisory Fee Rate
Fund (as a percentage of average daily net assets)
- ---- -------------------------------------------
Global Fixed Income Portfolio 0.40%
International Fixed Income Fund 0.40%
During the last three fiscal years ended December 31, the Funds and the
Portfolio paid advisory fees in the following amounts:
Fund 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Global Fixed Income Fund 407,392 535,630 198,7471
Global Fixed Income Portfolio N/A2 N/A2 412,2162
International Fixed Income Fund 4,402,708 3,916,500
- ------------------------
1 Global Fixed Income Fund was converted to the master/feeder fund structure on
May 3, 1996 and does not pay directly advisory fees after that date. The Fund
bears its pro rata allocation of the Portfolio's expenses, including advisory
fees.
2 The Portfolio commenced operations on May 3, 1996.
</TABLE>
Pursuant to the investment advisory agreements each of the International
Fixed Income Fund and the Portfolio bears expenses of its operations other than
those incurred by SIMCO pursuant to the investment advisory agreement. Among
other expenses, the International Fixed Income Fund and the Portfolio 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.
SIMCO has voluntarily agreed to limit certain "Total Fund Operating
Expenses" (excluding brokerage commissions, taxes and other extraordinary
expenses) to 0.80% per annum of the International Fixed Income Fund's average
daily net assets. This agreement is voluntary and temporary and may be
discontinued or revised by SIMCO at any time. The investment advisory agreement
between SIMCO and the Portfolio Trust with respect to the Portfolio provides
that SIMCO's advisory fees shall be reduced to the extent necessary so that
total expenses (excluding brokerages, taxes and extraordinary expenses) of the
Portfolio in any fiscal year exceed 0.65% of the Portfolio's average daily net
assets.
Unless terminated as provided below, the investment advisory agreements
continue in full force and effect from year to year but only so long as each
such continuance is approved annually (i) by either the Trustees of the Trust or
the Portfolio Trust (as applicable) or by the "vote of a majority of the
outstanding voting securities" of the Portfolio or the Fund, and, in either
event (ii) by vote of a majority of the Trustees of the Trust or the Portfolio
Trust (as applicable) who are not parties to the investment advisory agreement
or "interested persons" (as defined in the 1940 Act) of any such party, cast in
person at a meeting called for the purpose of voting on such approval. Each
investment advisory agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of the Trust or the Portfolio Trust or by
the "vote of a majority of the outstanding voting securities" of the Fund or the
Portfolio or by SIMCO, on sixty days' written notice to the other parties. The
investment advisory agreements terminate in the event of their assignment as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio transactions
for the Funds and the Portfolio, SIMCO, the Principal Underwriter, the Trust and
the Portfolio Trust have each adopted extensive restrictions on personal
securities trading by personnel of the
- 22 -
<PAGE>
Adviser and its affiliates. These restrictions include: pre-clearance of all
personal securities transactions and a prohibition of purchasing initial public
offerings of securities. These restrictions are a continuation of the basic
principle that the interests of the Funds and their shareholders, and the
Portfolio and its investors, come before those of the Adviser and its employees.
Administrator of the Global Fixed Income Fund
Standish also serves as the administrator to the Global Fixed Income Fund
(the "Fund Administrator") pursuant to a written administration agreement with
the Trust on behalf of the Global Fixed Income Fund. Certain services provided
by the Fund Administrator under the administration agreement 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. The Global Fixed Income Fund's administration agreement
can be terminated by either party on not more than sixty days' written notice.
Administrator of the Global Fixed Income
Portfolio
IBT Trust Company (Cayman) Ltd., P.O. Box 501, Grand Cayman, Cayman
Islands, BWI, serves as the administrator to the Portfolio (the "Portfolio
Administrator") pursuant to a written administration agreement with the
Portfolio Trust on behalf of the Portfolio. The Portfolio Administrator provides
the Portfolio Trust with office space for managing its affairs, and with certain
clerical services and facilities. For its services to the Portfolio Trust, the
Portfolio Administrator currently receives a fee from the Portfolio in the
amount of $7,500 annually. The Portfolio's administration agreement can be
terminated by either party on not more than sixty days' written notice.
Distributor of the Funds
Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of Standish, serves as the Trust's exclusive principal underwriter and
holds itself available to receive purchase orders for each Fund's shares. In
that capacity, the Principal Underwriter has been granted the right, as agent of
the Trust, to solicit and accept orders for the purchase of each Fund's shares
in accordance with the terms of the Underwriting Agreement between the Trust and
the Principal Underwriter. Pursuant to the Underwriting Agreement, the Principal
Underwriter has agreed to use its best efforts to obtain orders for the
continuous offering of each Fund's shares. The Principal Underwriter receives no
commissions or other compensation for its services, and has not received any
such amounts in any prior year. The Underwriting Agreement shall continue in
effect with respect to each Fund until two years after its execution and for
successive periods of one year thereafter only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trustees of the Trust or (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Underwriting Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or, with respect to a Fund, by a vote of the
holders of a majority of the Fund's outstanding shares, in any case without
payment of any penalty on not more than 60 days' written notice to the other
party. The offices of the Principal Underwriter are located at One Financial
Center, 26th Floor, Boston, Massachusetts 02111.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the Prospectus.
The Trust may suspend the right to redeem Fund shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during which
the New York Stock Exchange is closed (other than customary weekend or holiday
closings) or trading on the
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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.
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. The Portfolio
has advised the Trust that the Portfolio will not redeem in-kind except in
circumstances in which the Global Fixed Income Fund is permitted to redeem
in-kind or except in the event the Global Fixed Income Fund completely withdraws
its interest from the Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the International Fixed Income
Fund's and the Portfolio's portfolio transactions and will do so in a manner
deemed fair and reasonable to the Fund and the Portfolio and not according to
any formula. The primary consideration in all portfolio transactions will be
prompt execution of orders in an efficient manner at the most favorable price.
In selecting broker-dealers and in negotiating commissions, SIMCO 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 SIMCO determines in good faith that the amount of
commissions charged by a broker is reasonable in relation to the value of the
brokerage and research services provided by such broker, the International Fixed
Income Fund and the Portfolio may pay commissions to such broker in an amount
greater than the amount another firm may charge. Research services may include
(i) furnishing advice as to the value of securities, the advisability of
investing in, purchasing or selling securities, and the availability of
securities or purchasers or sellers of securities, (ii) furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy, and the performance of accounts, and (iii) effecting
securities transactions and performing functions incidental thereto (such as
clearance and settlement). Research services furnished by firms through which
the Fund and the Portfolio effect their securities transactions may be used by
SIMCO in servicing other accounts; not all of these services may be used by the
Adviser in connection with the Fund or the Portfolio generating the soft dollar
credits. The investment advisory fee paid by the Fund and the Portfolio under
the investment advisory agreements will not be reduced as a result of SIMCO's
receipt of research services.
SIMCO also places portfolio transactions for other advisory accounts. SIMCO
will seek to allocate portfolio transactions equitably whenever concurrent
decisions are made to purchase or sell securities for the Fund or 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
International Fixed Income Fund or the Portfolio. In making such allocations,
the main factors considered by SIMCO 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.
Because most of the International Fixed Income Fund's and the Portfolio's
securities transactions are effected on a principal basis involving a "spread"
or "dealer mark-up," the Fund and the Portfolio have not paid any
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brokerage commissions during the past three years.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated each day on which the New York
Stock Exchange is open (a "Business Day"). Currently, the New York Stock
Exchange is not open on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., New York
City time) and is computed by dividing the value of all securities and other
assets of a Fund (substantially all of which, in the case of the Global Fixed
Income Fund, will be represented by the Global Fixed Income Fund's interest in
the Portfolio) less all liabilities by the 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 the Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Global Fixed Income Fund is determined. Each investor in the
Portfolio, including the Global Fixed Income Fund, may add to or reduce its
investment in the Portfolio on each Business Day. As of 4:00 p.m. (Eastern time)
on each Business Day, the value of each investor's interest in the Portfolio
will be determined by multiplying the net asset value of the Portfolio by the
percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or reductions which are to be effected
on that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 4:00 p.m. on such day plus or minus, as the
case may be, the amount of net additions to or reductions in the investor's
investment in the Portfolio effected on such day, and (ii) the denominator of
which is the aggregate net asset value of the Portfolio as of 4:00 p.m. on such
day plus or minus, as the case may be, the amount of the net additions to or
reductions in the aggregate investments in the Portfolio by all investors in the
Portfolio. The percentage so determined will then be applied to determine the
value of the investor's interest in the Portfolio as of 4:00 p.m. on the
following Business Day.
Portfolio securities that are fixed income securities (other than money
market instruments) for which accurate market prices are readily available are
valued at their current market value on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities. Fixed
income securities for which accurate market prices are not readily available and
other assets are valued at fair value as determined in good faith by the Adviser
in accordance with procedures approved by the Trustees, which may include the
use of yield equivalents or matrix pricing.
Money market instruments with less than sixty days remaining to maturity
when acquired by the International Fixed Income Fund or the Portfolio are valued
on an amortized cost basis. If the Fund or the Portfolio acquires a money market
instrument with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will then be
valued at amortized cost based upon the value on such date unless the Trustees
determine during such sixty-day period that amortized cost does not represent
fair value.
Generally, trading in securities on foreign securities exchanges is
substantially completed each day at various times prior to the close of regular
trading on the New York Stock Exchange. The values of foreign securities (whose
principal trading markets are such foreign exchanges) used in computing the net
asset value of the International Fixed Income Fund's and the Portfolio's shares
are determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the New York Stock
Exchange. Occasionally,
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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' or the Portfolio's net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities are valued at their fair value as determined in good faith by
the Trustees.
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 Global Fixed Income Fund invests all of its
investible assets in another open-end investment company.
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, on behalf of the Global
Fixed Income Fund, is requested to vote on a fundamental policy of or matters
pertaining to the Portfolio, the Trust will hold a meeting of the Global Fixed
Income Fund's shareholders and will cast its vote proportionately as instructed
by the
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Global Fixed Income Fund's shareholders. Global Fixed Income 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 Global Fixed Income Fund
shareholders not voting will be voted by the Trustees of the Trust in the same
proportion as the Global Fixed Income Fund shareholders who do, in fact, vote.
Subject to applicable statutory and regulatory requirements, the Global Fixed
Income 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
Global Fixed Income 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 Global Fixed Income Fund. Any proposal submitted to holders
in the Portfolio, and that is not required to be voted on by shareholders of the
Global Fixed Income Fund, would nonetheless be voted on by the Trustees of the
Trust.
THE PORTFOLIO AND ITS INVESTORS
The Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a
newly formed trust and, like the Global Fixed Income Fund, is an open-end
management investment company under the Investment Company Act of 1940, as
amended. The Portfolio Trust was organized as a master trust fund under the laws
of the State of New York on January 18, 1996.
Interests in the Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. The Portfolio would be required to hold a meeting
of holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of the Portfolio
continue to hold office until their successors are elected and have qualified.
Holders holding a specified percentage of interests in the Portfolio may call a
meeting of holders in the Portfolio for the purpose of removing any Trustee. A
Trustee of the Portfolio may be removed upon a majority vote of the interests
held by holders in the Portfolio qualified to vote in the election. The 1940 Act
requires the Portfolio to assist its holders in calling such a meeting. Upon
liquidation of the Portfolio, holders in the Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
holders. Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund has qualified and elected to
be treated as a "regulated investment company" ("RIC") under Subchapter M of the
Code, and intends to continue to so qualify in the future. As such and by
complying with the applicable provisions of the Code regarding the sources of
its income, the timing of its distributions, and the diversification of its
assets, each Fund will not be subject to Federal income tax on its investment
company taxable income (i.e., all taxable income, after reduction by deductible
expenses, other than its "net capital gain," which is the excess, if any, of its
net long-term capital gain over its net short-term capital loss) and net capital
gain which are distributed to shareholders in accordance with the timing
requirements of the Code.
The Portfolio is treated as a partnership for federal income tax purposes.
As such, the Portfolio is not subject to federal income taxation. Instead, the
Global Fixed Income Fund must take into account, in computing its federal income
tax liability (if any), its share of the Portfolio's income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Portfolio. Because the Global Fixed
Income Fund invests its assets in the Portfolio, the Portfolio normally must
satisfy the applicable source of income and diversification requirements in
order for the Fund to satisfy them. The Portfolio will allocate at least
annually among its investors, including the Global Fixed Income Fund, each
investor's distributive share of the Portfolio's net investment income, net
realized capital gains, and any other items of income, gain,
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loss, deduction or credit. The Portfolio will make allocations to the Global
Fixed Income 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 Global Fixed Income Fund to satisfy the
tax distribution requirements that apply to the Global Fixed Income Fund and
that must be satisfied in order to avoid Federal income and/or excise tax on the
Global Fixed Income Fund. For purposes of applying the requirements of the Code
regarding qualification as a RIC, the Global Fixed Income Fund will be deemed
(i) to own its proportionate share of each of the assets of the Portfolio and
(ii) to be entitled to the gross income of the Portfolio attributable to such
share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by the
Funds during October, November or December of the year but paid during the
following January. Such distributions will be taxable to taxable shareholders as
if received on December 31 of the year the distributions are declared, rather
than the year in which the distributions are received.
Each Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
Each Fund will not distribute net capital gains realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, a Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. The Global Fixed Income Fund has $[ ] of capital loss
carryforwards, which expire on December 31, 2002, available to offset future net
capital gains. The International Fixed Income Fund has $[ ] of capital loss
carryforwards, which expire on December 31, 2002, available to offset future net
capital gains.
If a Fund or the Portfolio invests in zero coupon securities, certain
increasing rate or deferred interest securities or, in general, other securities
with original issue discount (or with market discount if a Fund elects to
include market discount in income currently), the Fund or 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 Portfolio, in the case of the Global Fixed Income Fund, to
shareholders to qualify as a regulated investment company under the Internal
Revenue Code and avoid federal income and excise taxes. Therefore, a Fund or the
Portfolio may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to enable the Fund to satisfy the distribution requirements.
Limitations imposed by the Code on regulated investment companies like the
Funds may restrict a Fund's or the Portfolio's ability to enter into futures,
options or currency forward transactions.
Certain options, futures or currency forward transactions undertaken by a
Fund or the Portfolio may cause a Fund to recognize gains or losses from marking
to market even though the Fund's or 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 Fund or
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realized by the Portfolio and allocable to the Global Fixed Income Fund. Any net
mark to market gains may also have to be distributed by a Fund to satisfy the
distribution requirements referred to above even though no corresponding cash
amounts may concurrently be received, possibly requiring the disposition of
portfolio securities or borrowing to obtain the necessary cash. Also, certain
losses on transactions involving options, futures or forward contracts and/or
offsetting or successor positions may be deferred rather than being taken into
account currently in calculating the Funds' taxable income or gain. Certain of
the applicable tax rules may be modified if a Fund or the 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 the Funds'
distributions to shareholders. Each Fund will take into account the special tax
rules applicable to options, futures or forward contracts in order to minimize
any potential adverse tax consequences.
The Federal income tax rules applicable to dollar rolls, currency swaps,
and interest rate swaps, caps, floors and collars are unclear in certain
respects, and a Fund or the Portfolio may be required to account for these
instruments under tax rules in a manner that, under certain circumstances, may
limit its transactions in these instruments. Due to possible unfavorable
consequences under present tax law, each Fund and the Portfolio do not currently
intend to acquire "residual" interests in real estate mortgage investment
conduits ("REMICs"), although the Funds may acquire "regular" interests in
REMICs.
Foreign exchange gains and losses realized by the Portfolio and the
International Fixed Income Fund in connection with certain transactions, if any,
involving foreign currency- denominated debt securities certain foreign currency
futures and options, foreign currency forward contracts, foreign currencies, or
payables or receivables denominated in a foreign currency are subject to Section
988 of the Code, which generally causes such gains and losses to be treated as
ordinary income and losses and may affect the amount, timing and character of
Fund distributions to shareholders. In some cases, elections may be available
that would alter this treatment. Any such transactions that are not directly
related to the Portfolio's or the International Fixed Income Fund's investment
in stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain it is deemed to recognize from the sale of certain investments held for
less than three months, which gain (or share of such gain in the case of the
Global Fixed Income Fund plus any such gain the Fund may realize from other
sources) is limited under the Code to less than 30% of each Fund's gross income
for its taxable year, and could under future Treasury regulations produce income
not among the types of "qualifying income" from which each Fund must derive at
least 90% of its gross income for its taxable year.
The Portfolio or the International Fixed Income Fund may be subject to
withholding and other taxes imposed by foreign countries with respect to its
investments in foreign securities. Tax conventions between certain countries and
the U.S. may reduce or eliminate such taxes in some cases. Investors in a Fund
would be entitled to claim U.S. foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code, only if
more than 50% of the value of that Fund's total assets (in the case of the
Global Fixed Income Fund, taking into account its allocable share of the
Portfolio's assets) at the close of any taxable year were to consist of stock or
securities of foreign corporations and the Fund were to file an election with
the Internal Revenue Service. For any taxable year, either Fund may meet the 50%
threshold referred to in the previous paragraph and may therefore file an
election with the Internal Revenue Service pursuant to which shareholders of the
applicable Fund will be required to (i) include in ordinary gross income (in
additional to taxable dividends actually received) their pro rata shares of
foreign income taxes paid by the Fund even though not actually received by them,
and (ii) treat such respective pro rata portions as foreign income taxes paid by
them.
If a Fund makes this election, shareholders may then deduct such pro rata
portions of
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foreign income taxes in computing their taxable incomes, or, alternatively, use
them as foreign tax credits, subject to applicable limitations, against their
U.S. Federal income taxes. Shareholders who do not itemize deductions for
Federal income tax purposes will not, however, be able to deduct their pro rata
portion of foreign income taxes paid by the applicable Fund, although such
shareholders will be required to include their share of such taxes in gross
income. Shareholders who claim a foreign tax credit for such foreign taxes may
be required to treat a portion of dividends received from the applicable 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 a Fund files the election described
above, its shareholders will be notified of the amount of (i) each shareholder's
pro rata share of foreign income taxes paid by the Fund and (ii) the portion of
Fund dividends which represents income from each foreign country.
If the Portfolio or the International Fixed Income Fund acquires stock in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), either Fund could be
subject to Federal income tax and additional interest charges on "excess
distributions" actually or constructively received from such companies or gain
from the actual or deemed sale of stock in such companies, even if all income or
gain actually realized is timely distributed to its shareholders. They would not
be able to pass through to their shareholders any credit or deduction for such a
tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require them to recognize taxable
income or gain without the concurrent receipt of cash. The Portfolio and the
International Fixed Income Fund may limit and/or manage stock holdings, if any,
in passive foreign investment companies to minimize each Fund's tax liability or
maximize its return from these investments.
Investment in debt obligations by the International Fixed Income Fund or
the Portfolio that are at risk of or in default presents special tax issues for
that Fund or the Global Fixed Income Fund, respectively. Tax rules are not
entirely clear about issues such as when the International Fixed Income Fund or
the Portfolio may cease to accrue interest, original issue discount, or market
discount, when and to what extent deductions may be taken for bad debts or
worthless securities, how payments received on obligations in default should be
allocated between principal and income, and whether exchanges of debt
obligations in a workout context are taxable. These and other issues will be
addressed by the International Fixed Income Fund or the Portfolio, in the event
that either holds such obligations, in order to reduce the risk of that Fund or
the Global Fixed Income Fund, or any other RIC investing in the Portfolio,
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.
A Fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends received deduction, subject
to certain holding period requirements and limitations on debt financing under
the Code, only to the extent a Fund earned dividend income (or, in the case of
the Global Fixed Income 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
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Funds' investments, no portion of the 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 portfolio (or share of the
Portfolio's portfolio in the case of the Global Fixed Income Fund).
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 (including a repurchase) of shares of a Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will generally be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares,
subject to the rules described below. Any loss realized on a redemption may be
disallowed to the extent the shares disposed of are replaced with other shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
adviser for more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent,
if any, a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Global Fixed Income Fund's indirect ownership (through
the Portfolio) of any such obligations, 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 applicable 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.
- 31 -
<PAGE>
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC, which
may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
EXPERTS AND FINANCIAL STATEMENTS
Except as noted in the next sentence, each Fund's financial statements
contained in the 1996 Annual Reports of the Funds have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated by reference into
and attached to this Statement of Additional Information. Financial highlights
of International Fixed Income Fund for periods from commencement of operations
through December 31, 1992 were audited by Deloitte & Touche, LLP, independent
auditors. The Portfolio's financial statements contained in the Global Fixed
Income Fund's 1996 Annual Report have been audited by Coopers & Lybrand, an
affiliate of Coopers & Lybrand L.L.P.
- 32 -
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Foreign bond markets posted positive returns on average during the year with the
J.P. Morgan Hedged Non-U.S. Government Bond index returning 12.16%. We are
pleased to report that the strategies employed in the Standish International
Fixed Income Fund resulted in a return of 15.28%, 312 basis points more than our
index.
Foreign economies were generally weak during the year, particularly in Europe.
European economic activity weakened, driving unemployment to record levels and
forcing central banks to reduce rates. The pursuit of monetary union in Europe
had a profound impact on policy decisions, resulting in tighter fiscal policies
than would normally be the case during a period of economic weakness. European
markets produced the best returns during the year, particularly Scandinavian and
Southern European markets. The Japanese economy grew modestly in the year and
Japanese bonds produced meager returns. The dollar appreciated during the year
and by year-end had returned to levels last seen in 1993.
The fund has benefited during the year from our successful country weightings,
longer duration than the index, corporate and mortgage outperformance, and our
use of currency options to increase exposure to high yielding European
currencies relative to the German Mark, Swiss Franc, and Japanese Yen.
Overweight positions in European bonds, particularly in Italy, Spain, and Sweden
and an underweight in Japan added significantly to our outperformance. Our
duration was modestly longer than the index particularly in Europe due to
economic conditions that were generally favorable for bonds.
In 1996, we emphasized alternatives to government bonds such as corporates and
mortgages when we identified attractive opportunities. These bonds in our
portfolio have generally outperformed during the year. We purchased currency
options based on our belief that high yielding European currencies were
attractive relative to the German Mark, Swiss Franc, and Japanese Yen. This was
another source of value added during the year.
Thank you for your support during 1996. We will be working hard in the new year
to produce superior risk adjusted returns. As always, we appreciate your
comments and suggestions and look forward to serving you in 1997.
Richard S. Wood
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish International Fixed Income Fund, the J.P. Morgan Hedged Non-U.S.
Government Bond Index and the Lehman Aggregate Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish International
Fixed Income Fund compared with the J.P. Morgan Hedged Non-U.S. Government Bond
Index and the Lehman Aggregate Index for the period January 2, 1991 to December
31, 1996, based upon a $100,000 investment. Also included are the average annual
total returns for one year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund Series
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
BONDS and NOTES - 86.7%
Argentina - 1.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Govt. of Argentina FBR 6.63 % 3/31/2005 18,620,000 $ 16,199,400
---------------------
Australia - 5.6%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Australia 10.00 10/15/2007 21,800,000 20,485,368
Govt. of Australia 12.00 11/15/2001 6,000,000 5,736,839
New South Wales Treasury 0.00 9/03/2010 15,600,000 4,399,387
South Australia Government Finance 0.00 12/21/2015 5,550,000 1,036,096
Treasury Corp. of Victoria 0.00 8/31/2011 5,500,000 1,419,990
-----
----------------
33,077,680
---------------------
Other
- -------------------------------------------------------
News America Holdings 8.63 2/07/2014 19,000,000 14,081,876
---------------------
Total Australia 47,159,556
---------------------
Canada - 1.6%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Canada 7.50 3/01/2001 12,000,000 9,450,241
Govt. of Canada 7.75 9/01/1999 5,400,000 4,235,357
-----
----------------
13,685,598
---------------------
Denmark - 7.7%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Kingdom of Denmark 8.00 11/15/2001 39,000,000 7,345,476
Kingdom of Denmark 9.00 11/15/1998 48,000,000 8,859,708
-----
----------------
16,205,184
---------------------
Other
- -------------------------------------------------------
Byggeriets Real Kredit 11.00 10/01/2017 124,000 23,574
Byggeriets Real Kredit 11.00 10/01/2020 80,000 15,141
Denmark Nykredit 7.00 10/01/2026 226,594,000 36,058,574
Denmark Nykredit 8.00 10/01/2026 57,466,000 9,817,787
Denmark Nykredit 11.00 10/01/2017 89,000 16,920
Denmark Realkredit 7.00 10/01/2026 14,864,000 2,365,352
Kreditforningen Ser 22A 11.00 10/01/2017 283,000 53,801
-----
----------------
48,351,149
---------------------
Total Denmark 64,556,333
----------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Europe - 0.8%
- -------------------------------------------------------
Other
- -------------------------------------------------------
Govt. of Italy (Strip) 0.00 % 3/07/1999 5,920,000 $ 6,761,620
---------------------
Finland - 3.1%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Finland 7.25 4/18/2006 111,000,000 25,845,957
---------------------
Germany - 12.3%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Baden Nurttemberg 6.20 11/22/2013 16,000,000 10,760,766
Bundesobligation 5.13 11/21/2000 12,750,000 8,500,000
Deutschland Republic 6.00 1/05/2006 12,650,000 8,325,761
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 40,700,000 30,216,547
Federal Republic of Germany 6.25 1/04/2024 8,100,000 4,976,728
Federal Republic of Germany 8.00 7/22/2002 10,100,000 7,486,654
Federal Republic of Germany 8.38 5/21/2001 22,530,000 16,735,527
Federal Republic of Germany 9.00 10/20/2000 8,480,000 6,370,597
Province of Buenos Aires 10.00 3/05/2001 8,250,000 5,730,282
-----
----------------
99,102,862
---------------------
Other
- -------------------------------------------------------
LKB Global 6.00 1/25/2006 6,900,000 4,488,470
---------------------
Total Germany 103,591,332
---------------------
Ireland - 4.4%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Irish Gilts 6.25 4/01/1999 4,520,000 7,696,720
Irish Gilts 6.50 10/18/2001 16,850,000 29,006,310
-----
----------------
36,703,030
---------------------
Italy - 7.8%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Italy 8.50 1/01/1999 7,350,000,000 5,035,162
Govt. of Italy 8.50 1/01/1999 6,850,000,000 4,692,634
Govt. of Italy 9.50 5/01/2001 9,040,000,000 6,579,740
Govt. of Italy 9.50 5/01/2001 2,660,000,000 1,936,074
Govt. of Italy 10.50 11/01/2000 2,766,666,667 2,053,963
Govt. of Italy 10.50 11/01/2000 8,166,666,667 6,062,903
Govt. of Italy 10.50 11/01/2000 8,166,666,667 6,062,903
Govt. of Italy 10.50 11/01/2000 6,750,000,000 5,011,175
Govt. of Italy 10.50 11/01/2000 4,550,000,000 3,377,903
Govt. of Italy 12.00 9/01/2001 8,666,666,667 6,850,603
Govt. of Italy 12.00 9/01/2001 7,766,666,667 6,139,194
Govt. of Italy 12.00 9/01/2001 8,666,666,667 6,850,603
-----
----------------
60,652,857
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Other
- -------------------------------------------------------
Bank Nederlandse 10.50 % 6/18/2003 6,400,000,000 $ 4,910,599
---------------------
Total Italy 65,563,456
---------------------
Japan - 7.1%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Finland 6.00 1/29/2002 950,000,000 9,777,891
Govt. of Italy 5.13 7/29/2003 920,000,000 9,217,033
Kingdom of Spain 5.75 3/23/2002 915,000,000 9,339,020
-----
----------------
28,333,944
---------------------
Other
- -------------------------------------------------------
Interamer Development Bank 6.00 10/30/2001 770,000,000 7,901,832
KFW International Finance 6.00 11/29/1999 798,000,000 7,819,548
Kingdom of Belgium 5.00 12/17/1999 1,610,000,000 15,388,095
-----
----------------
31,109,475
---------------------
Total Japan 59,443,419
---------------------
New Zealand - 5.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Government Property Services 7.25 3/15/1999 1,500,000 1,046,416
Housing New Zealand 8.00 11/15/2006 11,950,000 8,467,119
-----
----------------
9,513,535
---------------------
Other
- -------------------------------------------------------
Fernz Capital + 9.80 4/15/2002 19,000,000 13,589,360
Fletcher Challenge 10.00 4/30/2005 7,000,000 5,272,974
Fletcher Challenge 14.50 9/30/2000 8,500,000 7,143,187
Fletcher Challenge Cvt 11.25 12/15/2002 13,000,000 10,260,997
Lion Nathan Ltd. 0.00 9/01/1997 5,793,293 3,862,029
-----
----------------
40,128,547
---------------------
Total New Zealand 49,642,082
---------------------
Norway - 4.7%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Norway 7.00 5/31/2001 117,600,000 19,719,366
Govt. of Norway 9.00 1/31/1999 48,000,000 8,182,828
Govt. of Norway 9.50 10/31/2002 37,360,000 7,000,529
-----
----------------
34,902,723
---------------------
Other
- -------------------------------------------------------
Union Bank of Norway 12.75 10/26/2002 2,500,000 410,552
Vital Forsikring 7.85 9/22/2003 25,600,000 4,229,163
-----
----------------
4,639,715
---------------------
Total Norway 39,542,438
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Spain - 6.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Castilla Junta 8.30 % 11/29/2001 473,000,000 $ 3,929,230
Junta de Andalucia 11.10 12/02/2005 1,350,000,000 13,103,155
Kingdom of Spain 10.10 2/28/2001 2,160,000,000 19,121,693
Kingdom of Spain 10.30 6/15/2002 1,248,500,000 11,401,269
Kingdom of Spain 12.25 3/25/2000 1,153,000,000 10,519,406
-----
----------------
58,074,753
---------------------
Sweden - 3.5%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Kingdom of Sweden 13.00 6/15/2001 71,800,000 13,518,816
Kingdom of Sweden #1036 10.25 5/05/2000 83,200,000 14,038,943
-----
----------------
27,557,759
---------------------
Other
- -------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 11,270,745 1,648,903
---------------------
Total Sweden 29,206,662
---------------------
United Kingdom - 12.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
UK Treasury 6.75 11/26/2004 8,700,000 14,303,279
UK Treasury 7.50 12/07/2006 4,540,000 7,765,193
UK Treasury 8.00 12/07/2000 14,720,000 25,901,533
UK Treasury 8.50 12/07/2005 6,400,000 11,668,992
-----
----------------
59,638,997
---------------------
Other
- -------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75 12/07/2006 7,100,000 12,398,304
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 3,900,000 6,883,364
Inco Ltd. 15.75 7/15/2006 996,000 2,471,618
Lond & Scot Marine Oil Cvt 7.75 10/04/2005 250,000 406,497
Mepc Plc 12.00 6/30/2006 2,250,000 4,786,110
Northern Rock Building Soc. 9.38 10/17/2021 5,080,000 9,062,232
Royal Bank of Scotland 9.63 6/22/2015 380,000 699,352
Smithkline Beecham Corp. 8.13 11/25/1998 3,730,000 6,473,564
Woolwich Building Society 11.63 12/18/2001 2,800,000 5,469,198
-----
----------------
48,650,239
---------------------
Total United Kingdom 108,289,236
---------------------
United States - 0.5%
- -------------------------------------------------------
Other
- -------------------------------------------------------
Irsa Parcks Cvt 144A 4.50 8/02/2003 4,200,000 4,158,000
---------------------
TOTAL BONDS and NOTES (Cost $693,180,133) 728,422,872
---------------------
Principal
<PAGE>
Amount of Value
Security Contracts (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Purchased Options - 0.9%
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration
- -------------------------------------------------------
BGB 7% Put/ Str 106.29, 4/24/97 510,000,000 $ 167,280
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.5% Put/ Str 107.44, 1/8/97 8,966,666,667 0
BTPS 9.5% Put/ Str 107.44, 1/08/97 17,933,333,333 0
CAN 7% Call, Str 105.71, 1/16/97 23,900,000 149,925
CHF Put/AUD Call, Str .9725, 9/10/97 10,200,000 601,341
CHF Put/GBP Call, Str 2.26, 9/25/97 25,100,000 507,622
CHF Put/USD Call, Str 1.30, 1/31/97 18,000,000 534,600
DBR 6.25% Call, Str 101.92, 10/20/97 27,400,000 308,332
DBR 6.25% Call, Str 102.33, 5/9/97 33,000,000 263,472
DBR 6.25% Call, Str 94.13, 2/6/97 25,700,000 201,874
DBR 6.25% Call, Str 96.00, 2/28/97 29,100,000 120,881
DEM 8.375% Call, Str 114.62, 1/09/97 32,260,000 20,937
DEM Put/ITL Call, Str 40.00, 09/08/97 24,800,000 544,137
DEM Put/USD Call, Str 1.502, 09/05/97 19,900,000 597,000
DEM Put/USD Call, Str 1.55, 4/22/97 14,800,000 187,960
DGB 8% Call, Str 108.84, 3/17/97 99,000,000 223,542
FRF 6.5% Put/ Str 103.65, 4/16/97 92,400,000 181,566
FRF Put/USD Call, Str 5.265, 3/20/97 16,900,000 126,750
FRF Put/USD Call, Str 5.30, 12/01/97 16,900,000 229,840
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Put/ Str 102.07, 1/10/97 22,119,999,999 0
JGB 6.4% Call, Str 120.603, 2/5/97 4,200,000,000 12,600
JPY 4.8% Call, Str 115.912, 2/03/97 4,100,000,000 41,000
JPY Put/AUD Call, Str 86.00, 9/10/97 900,000,000 426,600
JPY Put/ITL Call, Str 14.50, 09/08/97 1,850,000,000 1,087,800
JPY Put/USD Call, Str 120.00, 1/5/98 16,900,000 218,010
SPGB 8.40% Call, Str 107.910, 2/19/97 2,100,000,000 241,500
SPGB 8.40% Put/ Str 105.65, 4/30/97 2,000,000,000 30,000
UKT 7.5% Call, Str 99.0625, 2/14/97 10,200,000 240,108
USD Put/MXP Call, Str 9.12, 9/30/97 7,100,000 299,620
---------------------
Total Purchased Options (Premium Paid $7,120,927) 7,852,297
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Short-Term Investments - 12.6%
- -------------------------------------------------------
Repurchase Agreements - 2.5%
- -------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $21,268,997(Collateralized by
FMAC FGPC's with rates ranging from 6.5% to 9.5% and
maturity dates ranging from 12/01/10 to 4/01/24 with an
aggregate market value of $21,687,485. 21,262,241 $ 21,262,241
---------------------
U.S. Government Agency - 10.1%
- -------------------------------------------------------
FHLB 5.20 % 1/09/1997 11,970,000 11,881,821
FHLMC 5.22 1/03/1997 8,000,000 7,950,120
FHLMC 5.28 1/07/1997 17,863,000 17,792,263
FHLMC 5.70 1/07/1997 4,030,000 4,025,533
FNMA 5.30 1/08/1997 7,200,000 7,170,320
FNMA 5.50 1/15/1997 20,000,000 19,932,778
FNMA 5.70 1/09/1997 5,480,000 5,472,191
FNMA 6.50 1/02/1997 10,000,000 9,996,388
-----
----------------
84,221,414
---------------------
Total Short-Term Investments (Cost $105,483,655) 105,483,655
---------------------
TOTAL INVESTMENTS (Cost $805,784,715) - 100.2% 841,758,824
---------------------
Principal
Written Options - (0.2%) Amount of
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- ------------------------------------------------------- -------------------
USD Put/JPY Call, Str 1.05, 1/05/98 16,900,000 (218,010)
AUD Put/CHF Call, Str .9060, 9/10/97 10,200,000 (42,626)
AUD Put/JPY Call, Str 79.0000, 9/10/97 900,000,000 (54,900)
DBR 6.25% Call, Str 101.92, 4/18/97 27,400,000 (282,823)
DBR 6.25% Put/ Str 101.60, 4/16/97 27,300,000 (173,683)
DBR 6.25% Put/ Str 101.650, 4/24/97 24,700,000 (166,750)
DBR 8.25% Put/ Str 112.420, 2/19/97 25,000,000 (27,600)
DBR 8.25% Put/ Str 113.57, 4/30/97 23,750,000 (201,970)
DBR 8.25% Put/ Str 113.58, 4/30/97 24,000,000 (243,048)
DEM 6.25% Put/ Str 101.95, 1/08/97 27,000,000 (3,510)
DGB 8% Call, Str 111.84, 3/17/97 99,000,000 (58,806)
DGB 8% Put/ Str 105.84, 3/17/97 99,000,000 (45,342)
GBP Put/CHF Call, Str 1.835, 9/25/97 21,000,000 (18,816)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 (9,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 (9,000)
<PAGE>
Principal
Amount of Value
Security Contracts (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Written Options - (continued)
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration
- -------------------------------------------------------
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 $ (9,000)
ITL Put/DEM Call, Str 80.0000, 09/08/97 24,800,000 (48,286)
ITL Put/JPY Call, Str 15.1000, 09/08/97 1,850,000,000 (120,250)
UKT 7.5% Call, Str 102.0625, 2/14/97 10,200,000 (49,122)
USD Put/CHF Call, Str 1.22, 1/31/97 18,000,000 (9,000)
USD Put/CHF Call, Str 1.42, 3/20/97 16,900,000 (50,700)
USD Put/DEM Call, Str 1.3800, 09/05/97 19,900,000 (83,580)
USD Put/DEM Call, Str 1.425, 4/22/97 14,800,000 (35,520)
---------------------
Total Written Options (Premium Received $4,732,745) (2,015,342)
---------------------
Other Assets less Liabilities - 0.0% 389,336
---------------------
NET ASSETS - 100.0% $ 840,132,818
================
* This security is restricted, but eligible for resale under 144A.
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
(a) The principal amounts of these bonds are stated in the currency of the classification
CAN - Canadian Dollar USD United States Dollar
CHF - Swiss Franc DEM German Deutschemark
AUD - Australian Dollar FRF French Franc
GBP - British Pound Sterling ITL Italian Lira
FHLMC - Federal Home Loan Mortgage Corporation JPY Japanese Yen
FNMA - Federal National Mortgage Association
FHLB - Federal Home Loan Bank
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $805,784,715) $841,758,824
Receivable for investments sold 5,711,998
Interest receivable 19,659,599
Net unrealized appreciation on forward foreign currency
exchange contracts (Note 6) 6,273,366
Interest rate swap contracts at value (Note 6) 24,001
----------------
Total assets $873,427,788
Liabilities
Distribution payable $20,615,202
Payable for investments purchased 6,048,938
Unrealized depreciation on forward foreign exchange contracts (Note 6) 4,481,724
Written options outstanding, at value (premiums received, $4,732,745) (Note 6) 2,015,342
Accrued custodian fees 66,737
Accrued expenses and other liabilities 60,292
Accrued trustee fees (Note 2) 6,735
------------------
Total liabilities 33,294,970
----------------
Net Assets $840,132,818
================
Net assets consist of
Paid-in capital $787,273,190
Undistributed net investment income 7,509,300
Accumulated undistributed net realized gain 6,107,628
Net unrealized appreciation 39,242,700
----------------
Total net assets $840,132,818
================
Shares of beneficial interest outstanding 36,136,500
================
Net asset value, offering price, and redemption price per share $23.25
================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of these financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Interest income (net of withholding taxes of $56,974) $62,030,870
Expenses
Investment advisory fee (Note 2) $3,234,397
Accounting, custody and transfer agent fees 771,266
Legal fees 116,190
Audit services 46,275
Insurance expense 34,944
Trustees fees (Note 2) 34,923
Miscellaneous 4,995
-----------------
Total expenses 4,242,990
----------------
Net investment income 57,787,880
----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities (including gain from purchased options of $8,565,457) $35,914,375
Written options 8,494,142
Financial futures contracts (703,509)
Foreign currency and foreign exchange contracts 13,626,884
-----------------
Net realized gain (loss) 57,331,892
Change in net unrealized appreciation (depreciation)
Investment securities $5,099,934
Written options 2,186,730
Financial futures contracts 940
Interest rate swap contracts 24,001
Foreign currency and foreign exchange contracts (5,678,286)
-----------------
Change in net unrealized appreciation (depreciation) 1,633,319
----------------
Net realized and unrealized gain (loss) 58,965,211
----------------
Net increase (decrease) in net assets from operations $116,753,091
================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statements of Changes in Net Assets
Year Ended December 31,
-------------------------------------------
1996 1995
------------------- ---------------------
Increase (decrease) in Net Assets
From operations
Net investment income $57,635,263 $79,260,556
Net realized gain (loss) 57,382,433 18,355,655
Change in net unrealized appreciation (depreciation) 1,735,395 62,727,279
------------------- ---------------------
Net increase (decrease) in net assets from operations 116,753,091 160,343,490
------------------- ---------------------
Distributions to shareholders
From net investment income (88,136,980) (69,501,890)
From net realized gains on investments (24,989,660)
------------------- ---------------------
Total distributions to shareholders (113,126,640) (69,501,890)
------------------- ---------------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 202,993,713 79,384,197
Net asset value of shares issued to shareholders in
payment of distributions declared 86,471,969 47,953,848
Cost of shares redeemed (256,496,190) (484,059,233)
------------------- ---------------------
Increase (decrease) in net assets from Fund share transactions 32,969,492 (356,721,188)
------------------- ---------------------
Net increase (decrease) in net assets 36,595,943 (265,879,588)
Net assets:
At beginning of period 803,536,875 1,069,416,463
------------------- ---------------------
At end of period (including undistributed net investment
income of $7,509,300 and distributions in excess of net investment $840,132,818 $803,536,875
=================== =====================
income of $2,477,089 at December 31, 1996 and 1995, respectively)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1996 (1) 1995 1994 1993 1992*
------------- ------------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.21 $21.30 $24.22 $21.20 $22.05
------------- ------------- ------------- ------------- ------
Income from investment operations
Net investment income 1.72 1.96 1.71 2.03 2.01
Net realized and unrealized gain (loss) 1.73 1.84 (3.93) 2.90 (0.25)
------------- ------------- ------------- ------------- ------
Total from investment operations 3.45 3.80 (2.22) 4.93 1.76
------------- ------------- ------------- ------------- ------
Less distributions declared to shareholders
From net investment income (2.64) (1.89) (0.20) (1.53) (2.03)
From net realized gains on investments (0.77) --- --- (0.26) (0.54)
In excess of net realized gains on investments --- --- --- --- (0.04)
In excess of net investment income --- --- --- (0.12) ---
Tax return of capital --- --- (0.50) --- ---
------------- ------------- ------------- ------------- ------
Total distributions declared to shareholders (3.41) (1.89) (0.70) (1.91) (2.61)
------------- ------------- ------------- ------------- ------
Net asset value - end of period $23.25 $23.21 $21.30 $24.22 $21.20
============= ============= ============= ============= ======
Total return 15.28% 18.13% (9.22%) 23.77% 8.07%
Net assets at end of period (000 omitted) $840,133 $803,537 $1,069,416 $1,131,201 $384,660
Ratios (to average daily net assets)/Supplemental Data:
Expenses 0.53% 0.51% 0.51% 0.51% 0.59%
Net investment income 7.17% 8.09% 7.69% 7.53% 8.37%
Portfolio turnover 226% 165% 158% 98% 175%
* Audited by other auditors.
(1) The per share data was calculated based upon
average shares outstanding during the year.
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Notes to Financial Statements
1) .....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish International Fixed Income Fund (the "Fund") is a
separate non-diversified investment series of the Trust. The following
is a summary of significant accounting policies consistently followed
by the Fund in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the Fund are
valued at amortized cost. If the Fund acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. .Repurchase agreements--
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. .Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis. The
Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
D. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
E. .Foreign currency transactions--
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
<PAGE>
F. .Distributions to shareholders-
Distributions to shareholders are recorded on the ex-dividend date.
Distributions in excess of net realized gain on investments, written
options, and foreign currency arise because of certain timing
differences. Dividends from net investment income and distributions
from capital gains, if any, are reinvested in additional shares of the
Fund unless the shareholder elects to receive them in cash. Income and
capital gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments
for options, futures and foreign currency transactions. Permanent book
and tax basis differences relating to shareholder distributions will
result in reclassifications between paid-in-capital, undistributed net
investment income and accumulated net realized gain (loss).
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company, L.P. (SIMCO) for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.40% of the Fund's average daily net assets.
SIMCO has voluntarily agreed to limitthe total annual operating
expenses of the Fund (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.80% of the Fund's average daily net
assets. The Fund pays no compensation directly to its trustees who are
affiliated with SIMCO or to its officers, all of whom receive
remuneration for their services to the Fund from SIMCO. Certain of the
trustees and officers of the Trust are directors or officers of SIMCO.
(3) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
Purchases Sales
Non-U.S. Government securities $1,628,614,838 $1,721,147,921
====================== ======================
U.S. Government securities $20,444,584 $20,694,000
====================== ======================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
Year Ended December 31,
1996 1995
---------------- --------------------
Shares sold 8,454,273 3,493,337
Shares issued to shareholders in
payment of distributions declared 3,702,434 2,095,788
Shares redeemed (10,643,614) (21,174,451)
---------------- --------------------
Net increase (decrease) 1,513,093 (15,585,326)
================ ====================
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate cost $806,190,863
==================
Gross unrealized appreciation $44,312,256
Gross unrealized depreciation (8,744,295)
------------------
Net unrealized appreciation $35,567,961
==================
<PAGE>
(6) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, the instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following instruments with off-balance sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Assets and Liabilities at market value. Premiums received from writing
options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option written by the
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as writer of an option, has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the security underlying the written option. A summary of
such transactions for the twelve months ended December 31, 1996 is as
follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 4 $972,358
Options written 44 6,591,423
Options exercised (1) (204,079)
Options expired (17) (2,515,411)
Options closed (19) (2,629,324)
Outstanding, end of period 11 $2,214,967
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 2 $451,202
Options written 30 3,576,577
Options exercised (4) (342,177)
Options expired (10) (1,904,139)
Options closed (9) (635,768)
Outstanding, end of period 9 $1,145,695
Written Cros Currency Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 3 $799,386
Options written 16 3,709,052
Options exercised --- ---
Options expired (2) (116,185)
Options closed (12) (3,020,170)
Outstanding, end of period 5 $1,372,083
<PAGE>
.........Forward currency exchange contracts--
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar and
other foreign currencies. The forward foreign currency and cross
currency exchange contracts are marked to market using the forward
foreign currency rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date. Forward currency exchange contracts
are used by the Fund primarily to protect the value of the Fund's
foreign securities from adverse currency movements. At December 31,
1996, the Fund held the following forward foreign currency and cross
currency exchange contracts:
Forward Foreign Currency Contracts
<TABLE>
<CAPTION>
Local U.S. $ U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
- -------------------------- -------------------- --------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Australian 21,012,110 2/6/97 $16,682,634 $16,899,267 ($216,633)
Swiss Franc 16,750,000 8/4/97 12,782,943 14,546,244 (1,763,301)
CCzech Koruna 411,601,050 08/27/97 14,516,416 14,779,213 (262,797)
Deutsche Mark 57,811,899 4/22-8/01/97 38,009,286 38,575,906 (566,620)
Danish Krone 93,265,433 2/18-8/4/97 15,921,943 15,785,870 136,073
Spanish Peseta 415,334,142 1/29/97 3,193,565 3,244,925 (51,360)
Finnish Markka 32,600,000 1/8/97 7,089,628 7,239,686 (150,058)
British Pound Sterling 135,000 12/31/96 231,120 205,756 25,364
Greek Drachma 2,372,150 8/1/97 9,302 9,266 36
Irish Punt 4,489,135 1/17/97 7,601,435 7,332,553 268,882
Italian Lira 108,938,194,766 12/30/96-8/1/97 71,588,366 71,031,511 556,855
Japanese Yen 2,083,123,069 2/24/97 18,076,128 18,937,482 (861,354)
Norwegian Krone 35,040,954 1/13-7/21/97 5,503,478 5,407,555 95,923
Swedish Krona 58,638,560 1/8-5/19/97 8,630,919 8,641,490 (10,571)
==================== ================ ================ ==============
Total 112,170,368,268 219,837,163 222,636,724 (2,799,561)
==================== ================ ================ ==============
Local U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
- -------------------------- -------------------- --------------- ---------------- ---------------- --------------
Australian Dollar 80,482,590 2/6 -3/27/97 63,894,638 63,421,787 (472,851)
British Pound Sterling 62,531,147 1/7 -3/27/97 106,951,352 101,750,777 (5,200,575)
Canadian Dollar 19,428,924 2/10 - 3/24/97 14,235,735 14,339,213 103,478
Danish Krone 548,649,325 1/10 - 8/4/97 93,685,667 94,796,299 1,110,632
Deutsche Mark 207,171,996 1/9 -8/1/97 135,386,986 136,440,415 1,053,429
European Currency Unit 3,530,046 2/7/97 4,430,297 4,476,275 45,978
Finnish Markka 119,539,839 1/8 -6/3/97 26,237,840 26,389,975 152,135
French Franc 73,800,000 8/27/97 14,428,770 14,779,213 350,443
Greek Drachma 3,781,422,750 8/1/97 14,827,752 14,463,447 (364,305)
Irish Punt 25,765,453 1/17 -2/24/97 43,618,784 42,608,375 (1,010,409)
Italian Lira 208,420,088,715 1/2 -7/21/97 136,872,183 135,659,389 (1,212,794)
Japanese Yen 9,192,962,553 2/5 -3/13/97 79,736,092 86,287,155 6,551,063
New Zealand 70,095,867 1/13 -2/18/97 49,414,147 49,093,888 (320,259)
Norwegian Krone 301,942,107 1/13 -7/21/97 47,572,025 47,189,262 (382,763)
Spanish Peseta 7,912,337,278 1/29 -6/20/97 60,795,480 61,940,222 1,144,742
Swedish Krona 307,935,039 1/8 - 6/05/97 45,282,186 45,621,717 339,531
-------------------- ---------------- ---------------- --------------
Total 231,127,683,629 937,369,934 939,257,409 1,887,475
==================== ================ ================ ==============
Forward Foreign Cross Currency Contracts
U.S. $ U.S. $ Contract U.S. $ Unrealized
Contracts to Deliver Market Value In Exchange For Market Value Value Date Gain/ (Loss)
- -------------------------- -------------------- --------------------------------- ---------------- --------------
Swiss Franc 13,106,811 Norwegian Krone 14,722,470 7/21/97 1,615,659
Swiss Franc 12,782,943 Danish Krone 13,872,500 8/4/97 1,089,557
Deutsche Mark 14,202,558 Greek Drachma 14,818,450 8/1/97 615,892
Finnish Markka 7,089,628 Swedish Krona 7,476,571 1/8/97 386,943
Norwegian Krone 14,111,384 Swiss Franc 13,106,811 7/21/97 (1,004,573)
-------------------- ---------------- --------------
Total 61,293,324 63,996,802 3,321,108
==================== ================ ==============
</TABLE>
<PAGE>
.........Futures contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not
correlate with changes in the value of hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in security prices and foreign
currencies. At December 31, 1996, the Fund held no open futures
contracts.
.........Interest rate swap contracts--
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. Credit and market risk exist with
respect to these instruments. The Fund expects to enter into these
transactions primarily for hedging purposes including, but not limited
to, preserving a return or spread on a particular investment or portion
of its portfolio, protecting against currency fluctuations, as a
duration management technique or protecting against an increase in the
price of securities the Fund anticipates purchasing at a later date. At
December 31, 1996, the Fund held the following interest rate swap
contracts:
<TABLE>
<CAPTION>
Unrealized
Expiration Notional Amount Appreciation/
Contract Date Local (Depreciation)
- ------------------------ ----------------- --------------------- --------------
<S> <C> <C> <C>
Deutsche Mark 12/16/2000 12,750,000 $8,300,536
Deutsche Mark 12/16/2000 (12,750,000) (8,276,535)
--------------
$24,001
==============
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish International Fixed Income Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish International Fixed Income Fund (the "Fund"), including the portfolio
of investments, as of December 31, 1996, and the related statement of operations
for the year then ended, changes in net assets for each of the two years in the
period then ended and financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 1992, were
audited by other auditors whose report, dated February 12, 1993, expressed an
unqualified opinion on such financial highlights. We conducted our audits in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish International Fixed Income Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Global bond markets posted positive returns on average during the year with the
J.P. Morgan Hedged Global Government Bond index returning 8.60%. We are pleased
to report that the strategies employed in the Standish Global Fixed Income Fund
resulted in a return of 13.03%, 443 basis point more than our index.
There was a wide disparity of returns among the major bond markets in 1996 as
prospects for economic growth and inflation diverged. In the U.S., relatively
strong economic growth, a tight labor market, modestly rising wages and the
surging equity market raised the risk that the Federal Reserve would be forced
to raise rates in order to restrain prospective inflation. Yields rose on U.S.
bonds for most of the year but recovered modestly in the fourth quarter as the
pace of growth slowed and inflation failed to materialize. Yields also rose in
the U.K. as that economy strengthened during the year and the Bank of England
raised interest rates.
In other economies, the economic outlook was not as bright. European economic
activity weakened, driving unemployment to record levels and forcing central
banks to reduce rates. The pursuit of monetary union in Europe had a profound
impact on policy decisions, resulting in tighter fiscal policies than would
normally be the ease during a period of economic weakness. European markets
produced the best returns during the year particularly Scandinavian and Southern
European markets. The Japanese economy grew modestly in the year and Japanese
bonds produced meager returns. The dollar continued to appreciate and by
year-end had returned to levels last seen in 1993.
The fund has benefited during the year from our successful country weightings,
longer duration than the index, corporate and mortgages outperformance, and our
use of currency options to increase exposure to high yielding European
currencies relative to the German mark, Swiss franc, and Japanese yen.
Overweight positions in European bonds, particularly in Italy, Spain and Sweden,
an underweight in Japan, and a small underweight in the U.S. added significantly
to our outperformance. Our duration was modestly longer than the index
particularly in Europe due to economic conditions that were generally favorable
for bonds.
In 1996 we emphasized alternatives to government bonds, such as corporates and
mortgages, when we identified attractive opportunities. These bonds in our
portfolio have generally outperformed during the year.
We purchased currency options due to our belief that high yielding European
currencies were attractive relative to the German mark, Swiss franc and Japanese
yen. This was another source of value added during the year.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Global
Fixed Income Fund have been invested in a "Portfolio" entity, having
substantially the same investment objective, policies and restrictions as the
corresponding fund. The fund in which you are invested is now considered a
"Spoke," sharing in the activities of the Portfolio proportionately according to
its relative size.
Thank you for your support during 1996. We will be working faithfully in the New
Year to produce superior risk adjusted returns. As always, we appreciate your
comments and suggestions and look forward to serving you in 1997.
Richard S. Wood
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Global Fixed Income Fund
and
the J.P. Morgan Global Hedged Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Global Fixed
Income Fund compared with the J.P. Morgan Global Hedged Index for the period
January 3, 1994 to December 31, 1996, based upon a $100,000 investment. Also
included are the average annual total returns for one year and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statement of Assets and Liabilities
December 31, 1996
Assets
Investment in Standish Global Fixed Income Portfolio,
<S> <C> <C>
(Portfolio) at value (Note 1A) $ 159,814,385
Receivable for Fund shares sold 43,750
Deferred organization expenses (Note 1D) 4,515
Other assets 3,784
----------------
Total assets 159,866,434
Liabilities
Distribution payable $ 4,046,538
Payable for Fund shares redeemed 60,000
Accrued trustee fees 714
Accrued expenses and other liabilities 28,619
--------------
Total liabilities 4,135,871
----------------
Net Assets $ 155,730,563
================
Net Assets consist of
Paid-in capital $ 149,753,799
Undistributed net investment income (loss) 364,160
Accumulated net realized gain (loss) (493,895)
Net unrealized appreciation (depreciation) 6,106,499
================
Total $ 155,730,563
================
Shares of beneficial interest outstanding 7,752,638
================
Net asset value, offering price and redemption price per share $ 20.09
================
(Net Assets/Shares Outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B)
Interest income $ 3,750,059
Dividend income (net of withholding tax of $3,425) 12,258
Interest income allocated from Portfolio 7,969,911
Dividend income allocated from Portfolio (net of withholding tax of $3,845) 59,537
Expenses allocated from Portfolio (639,252)
--------------
Total income 11,152,513
Expenses
Investment Advisory Fee (Note 3) $ 198,747
Trustees fees 3,224
Accounting, custody and transfer agent fees 102,790
Legal and audit services 30,698
Registration fees 2,779
Insurance expense 1,672
Amortization of organization expenses (Note 1D) 2,274
Miscellaneous 6,373
--------------
Total expenses 348,557
--------------
Net investment income (loss) 10,803,956
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investment security transactions 271,414
Financial futures (79,108)
Written option transactions 421,947
Foreign currency and forward foreign currency contracts 1,847,799
Net realized gain (loss) from Portfolio on:
Investment security transactions 4,568,887
Financial futures 58,443
Written option transactions 1,036,044
Foreign currency and forward foreign currency contracts (791,430)
--------------
Net realized gain (loss) 7,333,996
Change in unrealized appreciation (depreciation) from:
Investment securities (6,161,680)
Financial futures 2,296
Written option transactions 189,117
Foreign currency and forward foreign currency contracts 423,157
From Portfolio 6,373,075
--------------
Change in net unrealized appreciation (depreciation) 825,965
--------------
--------------
Net realized and unrealized gain (loss) 8,159,961
--------------
Net increase (decrease) in net assets resulting from operations $ 18,963,917
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- -----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 10,803,956 $ 10,692,949
Net realized gain (loss) 7,333,996 1,595,141
Change in net unrealized appreciation (depreciation) 825,965 10,169,602
----------------------
-----------------------
Net increase (decrease) in net assets from operations 18,963,917 22,457,692
---------------------- -----------------------
Distributions to shareholders
From net investment income (14,538,791) (10,692,948)
In excess of net investment income ----- (736,162)
---------------------- -----------------------
Total distributions to shareholders (14,538,791) (11,429,110)
---------------------- -----------------------
Fund share (principal) transactions (Note 6)
Net proceeds from sale of shares 20,121,710 10,989,037
Net asset value of shares issued to shareholders
in payment of distributions declared 7,659,510 6,104,310
Cost of shares redeemed (14,374,805) (25,454,420)
----------------------
-----------------------
Increase (decrease) in net assets from Fund share transactions 13,406,415 (8,361,073)
----------------------
-----------------------
Net increase (decrease) in net assets 17,831,541 2,667,509
Net Assets:
At beginning of period 137,899,022 135,231,513
----------------------
-----------------------
At end of period (including undistributed net investment income
of $364,160 and $424,310 at December 31, 1996 and December 31,
1995, respectively) $ 155,730,563 $ 137,899,022
====================== =======================
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 (3) 1995 1994 +
--------------- -------------- --------------
<S> <C> <C> <C>
Net asset value - Beginning of period $ 19.53 $ 17.99 $ 20.00
--------------- -------------- --------------
Income from investment operations:
Net investment income $1.42 $1.59 $1.29
Net realized and unrealized gain
(loss) on investments 1.05 1.60 (2.70)
--------------- -------------- --------------
Total from investment operations $2.47 $3.19 ($1.41)
--------------- -------------- --------------
Less distributions to shareholders:
Tax return of capital - - ($0.60)
From net investment income ($1.91) ($1.65) -
--------------- -------------- --------------
Total distributions declared to shareholders ($1.91) ($1.65) ($0.60)
-------------- --------------
---------------
Net asset value - end of period $ 20.09 $ 19.53 $ 17.99
=============== ============== ==============
Total Return 13.03% 18.13% (7.06%)
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.65% 0.62% 0.65%t,*
Net investment income 7.11% 7.69% 7.73%t,*
Portfolio Turnover (2) 73% 163% 140%
Net assets, end of year (000 omitted) $ 155,731 $ 137,889 $ 135,232
* The investment adviser voluntarily waived a portion of its investment advisory fee for
the year ended December 31, 1994. Had these actions not been taken, the net
investment income per share and the ratios would have been:
Net investment income per share $1.27
Ratios (to average daily net assets):
Expenses 0.73% t
Net Investment Income 7.65% t
+ For the period from January 3, 1994 (start of business) to December 31, 1994.
t Annualized
(1) Includes the Fund's share of Standish Global Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
(3) Calculated based on average shares outstanding.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Global Fixed Income Fund (the "Fund") is a separate
non-diversified investment series of the Trust. On May 3, 1996, the
Fund contributed substantially all of its investable assets to the
Standish Global Fixed Income Portfolio (the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust, in exchange for an interest in the
Portfolio. The Fund invests all of its investable assets in the
interests in the Portfolio, which has the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects
the Fund's proportionate interest in the net assets of the Portfolio
(approximately 100% at December 31, 1996). The performance of the Fund
is directly affected by the performance of the Portfolio. The financial
statements of the Portfolio are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements. The
following is a summary of significant accounting policies followed by
the Fund in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
The Fund records its investment in Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
C. Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. At December 31, 1996, the Fund, for federal income tax purposes,
had a capital loss carryover which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code and thus will reduce
the amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryover is $402,973, which expires on December 31,
2002.
D. Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight-line basis
through December, 1998.
E...Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the respective
investors in the Portfolio.
<PAGE>
(2) Distribution to Shareholders
Dividends from net investment income will be declared and distributed
quarterly. The Fund's dividends from short-term and long-term capital
gains, if any, after reduction of capital losses will be declared and
distributed at least annually. In determining the amounts of its
dividends, the Fund will take into account its share of the income,
gains or losses, expenses, and any other tax items of the Portfolio.
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Income and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences are primarily due to differing treatments for foreign
currency and option and futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish International Management
Company, L.P. (SIMCO) as its investment adviser. The investment
advisory fee paid to SIMCO for overall investment advisory and
administrative services, and general office facilities, was paid
quarterly at the annual rate of 0.40% of the Fund's average daily net
assets. Standish, Ayer & Wood, Inc. has voluntarily agreed to limit
total annual operating expenses of the Fund and Portfolio (excluding
brokerage commissions, taxes and extraordinary expenses) to 0.66% of
the Fund's average daily net assets for the year ended December 31,
1996. Currently, the Fund pays no compensation directly to SIMCO for
such services now performed for the Portfolio, but indirectly bears its
pro rata share of the compensation paid by the Portfolio to SIMCO for
such services. See Note 2 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report. The Fund pays
no compensation directly to its trustees who are affiliated with SIMCO
or to its officers, all of whom receive remuneration for their services
to the Fund from the SIMCO. Certain of the trustees and officers of the
Trust are limited partners or officers of SIMCO.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
U.S. Government Securities $19,228,296 $13,447,972
================== ==================
Non-U.S. government securities $99,130,363 $87,126,072
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$152,810,268 and $11,630,993, respectively.
(6) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------- -------------------
<S> <C> <C>
Shares sold 1,015,265 558,609
Shares issued to shareholders in payment of distributions declared 384,287 317,125
Shares redeemed (706,939) (1,332,915)
=================== ===================
Net increase (decrease) 692,613 (457,181)
=================== ===================
</TABLE>
<PAGE>
(7).....Financial Instruments:
Prior to the Fund's contribution of investable assets to the Portfolio
on May 3, 1996, the following instruments were used for hedging
purposes and were used to enhance potential gain in circumstances where
hedging was not involved. The nature, risks and objectives of these
investments are set forth more fully in the Fund's Prospectus and
Statement of Additional Information. The Fund traded the following
financial instruments with off-balance sheet risk:
.........Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund used options to seek to hedge against risks of
market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Premiums received from writing
options which expire are treated as realized gains. Premiums received
from writing options which are exercised or are closed are added to or
offset against the proceeds or amount paid on the transaction to
determine the realized gain or loss. If a put option written by the
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as a writer of an option, has no
control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. A
summary of such transactions for the period January 1, 1996 through May
3, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 4 $ 153,696
Options written 11 242,400
Options exercised (2) (34,728)
Options expired (5) (162,292)
Options closed (1) (29,088)
------------------- ------------------
Outstanding, prior to conversion 7 169,988
Options contributed to Portfolio (7) (169,988)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
Written Call Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 2 $ 70,915
Options written 13 377,197
Options exercised 0 0
Options expired (4) (125,990)
Options closed (2) (43,878)
------------------- ------------------
Outstanding, prior to conversion 9 278,244
Options contributed to Portfolio (9) (278,244)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
Written Cross Currency Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 3 $ 119,867
Options written 4 160,728
Options exercised 0 0
Options expired 0 0
Options closed (2) (66,180)
------------------- ------------------
Outstanding, prior to conversion 5 214,415
Options contributed to Portfolio (5) (214,415)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
</TABLE>
<PAGE>
.........Forward currency exchange contracts--
Prior to May 3, 1996, the Fund could enter into forward foreign
currency and cross currency exchange contracts for the purchase or sale
of a specific foreign currency at a fixed price on a future date. Risks
may arise upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts were used by the fund primarily to protect the value
of the Fund's foreign securities from adverse currency movements.
.........Futures contracts--
Prior to May 3, 1996, the Fund could enter into financial futures
contracts for the delayed sale or delivery of securities or contracts
based on financial indices at a fixed price on a future date. The Fund
was required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments were
made or received by the Fund each day, dependent on the daily
fluctuations in the value of the underlying security, and were recorded
for financial statement purposes as unrealized gains or losses by the
Fund. There are several risks in connection with the use of futures
contracts as a hedging device. The change in value of futures contracts
primarily corresponds with the value of their underlying instruments or
indices, which may not correlate with changes in the value of hedged
investments. The Fund entered into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
security prices and foreign currencies.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Global Fixed Income Fund: We have audited the accompanying statement
of assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Global Fixed Income Fund (the "Fund"), as of December 31, 1996, the related
statement of operations for the year then ended, the statement of changes in net
assets for the two years then ended and financial highlights for the two years
ended December 31, 1996 and the period January 3, 1994 (start of business) to
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements and
financial highlights referred to above present fairly, in all material respects,
the financial position of Standish, Ayer & Wood Investment Trust: Standish
Global Fixed Income Fund as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for the two years then
ended, and the financial highlights for the two years then ended and the period
January 3, 1994 (start of business) to December 31, 1994, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
BONDS and NOTES - 91.0%
Asset Backed - 1.0%
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank Credit Card Master Trust 0.00% 2/07/2003 150,000 $ 115,688
GMAC Mortgage Corp. 96-C1 7.86 11/15/2006 500,000 432,891
The Money Store Home Equity 1995-C A3 6.55 9/15/2021 500,000 491,563
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 525,000 531,234
--
----------------
1,571,376
------------------
Collateralized Mortgage Obligations - 0.3%
- --------------------------------------------------------
UCFC Home Equity Loan Trust 1996 BA-1 6.50 4/15/2016 500,000 495,938
------------------
Corporate - 17.0%
- --------------------------------------------------------
Basic Industry - 1.0%
- --------------------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 500,000 543,750
Brascan Ltd. 7.38 10/01/2002 500,000 500,965
Time Warner Entertainment 7.25 9/01/2008 500,000 484,680
--
----------------
1,529,395
------------------
Capital Goods - 0.8%
- --------------------------------------------------------
American Standard Sr Notes 10.88 5/15/1999 500,000 529,375
Conseco Finance Trust 8.70 11/15/2026 250,000 252,918
Trizec Finance 10.88 10/15/2005 500,000 551,250
--
----------------
1,333,543
------------------
Consumer Cyclical - 1.1%
- --------------------------------------------------------
Building Materials 144A 8.63 12/15/2006 250,000 247,813
Exide Corp. 10.00 4/15/2005 500,000 516,250
General Motors Acceptance Corp. 6.70 4/30/2001 1,000,000 1,002,790
--
----------------
1,766,853
------------------
Consumer Stable - 0.6%
- --------------------------------------------------------
Southland Corp. 5.00 12/15/2003 500,000 408,125
Stop & Shop Companies 9.75 2/01/2002 500,000 560,000
--
----------------
968,125
------------------
Energy - 1.0%
- --------------------------------------------------------
Clark Oil 10.50 12/01/2001 1,000,000 1,040,000
Safeway Inc 9.65 1/15/2004 500,000 562,790
--
----------------
1,602,790
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Financial - 8.5%
- --------------------------------------------------------
Aames Financial Corp. 9.13% 11/01/2003 250,000 $ 253,750
Advanta Corp. 7.00 5/01/2001 450,000 450,954
Anchor Bancorp 8.94 7/09/2003 1,000,000 1,025,000
Bank America Corp. Capital Securities 144A 7.70 12/31/2026 300,000 291,801
Barnett Banks Capital Securities 144A 8.06 12/01/2026 250,000 252,513
Capital One Bank Co. 5.95 2/15/2001 500,000 482,917
Corestates Capital CFL 144A 8.00 12/15/2026 600,000 598,614
Enterprise Corp. 7.00 6/15/2000 500,000 506,050
First Chicago Corp Notes 144A 7.75 12/01/2026 300,000 296,922
First Nationwide 9.13 1/15/2003 500,000 508,125
First Nationwide Escrow 144A 10.63 10/01/2003 500,000 537,500
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 1,000,000 983,966
Homeside Inc 144A 11.25 5/15/2003 500,000 550,625
Irsa Parcks Cvt 144A 4.50 8/02/2003 840,000 831,600
ISP Holdings Inc. 144A 9.00 10/15/2003 500,000 505,000
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 1,000,000 1,069,720
Morgan Stanley Group Inc. 6.70 5/01/2001 900,000 901,215
Reliance Group Holdings Corp. 9.00 11/15/2000 1,500,000 1,537,500
Riggs Capital Trust 144A 8.63 12/31/2026 125,000 123,714
Salomon Brothers Inc. 7.25 5/01/2001 500,000 504,730
Transamerica Capital 144A 7.80 12/01/2026 250,000 242,500
United Companies Financial 9.35 11/01/1999 1,000,000 1,063,570
--
----------------
13,518,286
------------------
Health Care - 0.3%
- --------------------------------------------------------
Healthsouth Rehabilitation 9.50 4/01/2001 500,000 528,750
------------------
Real Estate - 2.0%
- --------------------------------------------------------
Corporate Property 144A 7.88 3/15/2016 500,000 509,110
Equity Residential Property Operating LP 144A 8.50 5/15/1999 500,000 517,795
Taubman Realty Group 8.00 6/15/1999 1,000,000 1,021,560
Wellsford REIT 9.38 2/01/2002 1,000,000 1,090,000
--
----------------
3,138,465
------------------
Services - 1.4%
- --------------------------------------------------------
Century Communications 9.50 8/15/2000 500,000 513,750
Comcast Corp. 10.63 7/15/2012 500,000 544,375
Time Warner Inc. 9.13 1/15/2013 250,000 272,288
Time Warner Inc. 9.15 2/01/2023 150,000 163,160
Viacom Inc. 7.63 1/15/2016 225,000 203,265
Viacom Inc. 7.75 6/01/2005 575,000 566,185
--
----------------
2,263,023
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Technology - 0.3%
- --------------------------------------------------------
Jones Intercable 9.63% 3/15/2002 500,000 $ 525,000
------------------
TOTAL Corporate 27,174,230
------------------
Australia - 2.1%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Australia 10.00 10/15/2007 800,000 751,757
New South Wales Treasury 0.00 9/03/2010 1,300,000 366,616
South Australia Government Finance 0.00 12/21/2015 1,400,000 261,358
Treasury Corp. of Victoria 0.00 8/31/2011 2,000,000 516,360
------------------
1,896,091
------------------
Other
- --------------------------------------------------------
News America Holdings 8.63 2/07/2014 2,000,000 1,482,303
------------------
TOTAL Australia 3,378,394
------------------
Canada - 0.4%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Canada 7.75 9/01/1999 800,000 627,460
------------------
Denmark - 5.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Denmark 8.00 11/15/2001 5,400,000 1,017,066
Kingdom of Denmark 8.00 3/15/2006 8,000,000 1,491,284
Kingdom of Denmark 9.00 11/15/1998 8,000,000 1,476,618
------------------
3,984,968
------------------
Other
- --------------------------------------------------------
Denmark Nykredit 7.00 10/01/2026 19,284,000 3,068,720
Denmark Nykredit 8.00 10/01/2026 9,323,000 1,592,789
Denmark Nykredit 11.00 10/01/2017 12,000 2,281
Denmark Realkredit 7.00 10/01/2026 2,492,000 396,559
------------------
5,060,349
------------------
TOTAL Denmark 9,045,317
------------------
European Currency Unit - 1.0%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Italy (Strip) 0.00 3/07/2005 351,500 263,033
Govt. of Italy (Strip) 0.00 3/07/2010 222,000 111,911
------------------
374,944
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Other
- --------------------------------------------------------
Govt. of Italy (Strip) 0.00% 3/07/1999 1,017,500 $ 1,162,153
------------------
TOTAL European Currency Unit 1,537,097
------------------
Finland - 2.9%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Finland 7.25 4/18/2006 20,000,000 4,656,929
------------------
Germany - 6.3%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Baden Nurttemberg 6.20 11/22/2013 2,000,000 1,345,096
Bundesobligation 5.13 11/21/2000 2,250,000 1,500,000
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 3,900,000 2,895,443
Federal Republic of Germany 8.38 5/21/2001 2,000,000 1,485,622
Federal Republic of Germany 9.00 10/20/2000 1,630,000 1,224,537
Province of Buenos Aires 10.00 3/05/2001 2,000,000 1,389,159
------------------
9,839,857
------------------
Other
- --------------------------------------------------------
LKB Global 6.00 1/25/2006 400,000 260,201
------------------
TOTAL Germany 10,100,058
------------------
Ireland - 4.5%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Irish Gilts 6.25 4/01/1999 640,000 1,089,801
Irish Gilts 6.50 10/18/2001 1,270,000 2,186,232
Irish Gilts 8.00 10/18/2000 1,550,000 2,799,483
Irish Gilts 9.25 7/11/2003 608,000 1,193,877
------------------
7,269,393
------------------
Italy - 6.2%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Italy 9.50 5/01/2001 3,300,000,000 2,401,896
Govt. of Italy 10.50 11/01/2000 2,860,000,000 2,123,253
------------------
4,525,149
------------------
Other
- --------------------------------------------------------
Bank Nederlandse 10.50 6/18/2003 800,000,000 613,825
Govt. of Italy 12.00 9/01/2001 6,200,000,000 4,900,816
------------------
5,514,641
------------------
TOTAL Italy 10,039,790
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Japan - 3.1%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Spain 5.75% 3/23/2002 155,000,000 $ 1,582,020
------------------
Other
- --------------------------------------------------------
Glaxo Holdings 4.30 9/28/1998 50,000,000 473,607
Interamer Development Bank 6.00 10/30/2001 80,000,000 820,970
KFW International Finance 6.00 11/29/1999 133,000,000 1,303,258
Kingdom of Belgium 5.00 12/17/1999 80,000,000 764,626
------------------
3,362,461
------------------
TOTAL Japan 4,944,481
------------------
New Zealand - 5.3%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Government Property Services 7.25 3/15/1999 2,000,000 1,395,221
Housing New Zealand 8.00 11/15/2006 2,000,000 1,417,091
------------------
2,812,312
------------------
Other
- --------------------------------------------------------
Fernz Capital 9.80 4/15/2002 4,100,000 2,932,441
Fletcher Challenge 10.00 4/30/2005 1,000,000 753,282
Fletcher Challenge 14.50 9/30/2000 500,000 420,187
Fletcher Challenge Cvt 11.25 12/15/2002 1,900,000 1,499,684
------------------
5,605,594
------------------
TOTAL New Zealand 8,417,906
------------------
Norway - 2.9%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Norway 7.00 5/31/2001 5,500,000 922,249
Govt. of Norway 9.00 1/31/1999 8,000,000 1,363,805
Govt. of Norway 9.50 10/31/2002 7,400,000 1,386,614
------------------
3,672,668
------------------
Other
- --------------------------------------------------------
Vital Forsikring 7.85 9/22/2003 6,000,000 991,210
------------------
TOTAL Norway 4,663,878
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Spain - 5.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Castilla Junta 8.30% 11/29/2001 28,000,000 $ 232,597
Junta de Andalucia 11.10 12/02/2005 248,000,000 2,407,098
Kingdom of Spain 10.10 2/28/2001 330,000,000 2,921,370
Kingdom of Spain 10.30 6/15/2002 270,000,000 2,465,633
Kingdom of Spain 12.25 3/25/2000 111,000,000 1,012,709
------------------
9,039,407
------------------
Sweden - 3.8%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Sweden 13.00 6/15/2001 22,400,000 4,217,569
Kingdom of Sweden #1036 10.25 5/05/2000 9,700,000 1,636,752
------------------
5,854,321
------------------
Other
- --------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 1,473,300 215,543
------------------
TOTAL Sweden 6,069,864
------------------
United Kingdom - 9.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
UK Gilt Treasury 9.00 3/03/2000 296,000 533,040
UK Treasury 7.50 12/07/2006 660,000 1,128,861
UK Treasury 8.00 12/07/2000 2,100,000 3,695,192
UK Treasury 8.50 12/07/2005 800,000 1,458,624
------------------
6,815,717
------------------
Other
- --------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75 12/07/2006 1,200,000 2,095,488
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 750,000 1,323,724
Inco Ltd. 15.75 7/15/2006 200,000 496,302
Mepc Plc 12.00 6/30/2006 750,000 1,595,370
Northern Rock Building Soc. 9.38 10/17/2021 950,000 1,694,709
Royal Bank of Scotland 9.63 6/22/2015 350,000 644,140
Woolwich Building Society 11.63 12/18/2001 400,000 781,314
------------------
8,631,047
------------------
TOTAL United Kingdom 15,446,764
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Yankee Bonds - 3.6%
- --------------------------------------------------------
Cominco Ltd. 6.88% 2/15/2006 525,000 $ 501,170
Falconbridge Case Limited 7.35 11/01/2006 550,000 555,649
Govt. of Argentina 6.63 3/31/2005 2,891,000 2,515,170
Methanex Corp. 7.40 8/15/2002 250,000 255,008
Methanex Corp. 7.75 8/15/2005 450,000 462,375
Se Banken Perp 10Yr Step Up 8.13 9/06/2049 500,000 515,240
Tembec Finance Corp. 9.88 9/30/2005 1,000,000 945,000
--
----------------
TOTAL Yankee Bonds 5,749,612
------------------
U.S. Government Agency - 3.6%
- --------------------------------------------------------
Pass Thru Securities - 3.6%
- --------------------------------------------------------
FHLMC 6.50 3/01/2026 - 3/01/2026 420,350 402,355
FHLMC 7.00 3/01/2026 - 6/01/2026 3,083,048 3,023,917
FNMA 7.00 5/01/2024 - 9/01/2025 1,224,900 1,200,251
GNMA 9.00 6/15/2016 - 2/25/2027 195,263 209,279
Resolution Trust Corp. 1995 C1 Cl C 6.90 2/25/2027 500,000 488,594
RFC Ser 96 Hs2 Al 7.60 9/15/2012 350,000 355,797
--
----------------
TOTAL U.S. Government Agency 5,680,193
------------------
U.S. Treasury Obligations - 6.0%
- --------------------------------------------------------
Treasury Bonds - 1.4%
- --------------------------------------------------------
U.S. Treasury Bond 6.50 8/15/2005 1,500,000 1,509,615
U.S. Treasury Bond 8.13 8/15/2019 605,000 699,816
--
----------------
2,209,431
------------------
Treasury Notes - 4.6%
- --------------------------------------------------------
U.S. Treasury Note 5.63 1/31/1998 1,000,000 999,530
U.S. Treasury Note 5.63 11/30/2000 2,150,000 2,111,021
U.S. Treasury Note 5.75 8/15/2003 700,000 679,000
U.S. Treasury Note 6.25 2/15/2003 250,000 249,688
U.S. Treasury Note 6.38 3/31/2001 1,075,000 1,082,224
U.S. Treasury Note 6.63 6/30/2001 250,000 254,023
U.S. Treasury Note 6.88 5/15/2006 1,350,000 1,391,135
U.S. Treasury Note 7.13 50,000 51,477
U.S. Treasury Note 6.13 7/31/2000 500,000 500,000
--
----------------
7,318,098
------------------
TOTAL U.S. Treasury Obligations 9,527,529
------------------
TOTAL BONDS and NOTES (Cost $139,643,662) 145,435,616
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Preferred Stock - 0.8%
- --------------------------------------------------------
Fresenius Medical Care 250 $ 254,375
Newscorp Overseas Ltd. Ser B 20,000 457,500
Texaco Capital Llc 14,000 302,750
Time Warner 210 224,253
Wellsford Residential Property 3,000 76,500
--
----------------
TOTAL Preferred Stock (Cost $1,370,251) 1,315,378
------------------
Principal
Purchased Options - 0.8% Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -----------------
BGB 7% Put/ Str 106.29, 4/24/97 90,000,000 29,520
BTPS 9.50% Put/ Str 108.47, 4/30/97 4,500,000,000 13,500
BTPS 9.5% Put/ Str 107.44, 10/08/97 4,600,000,000 0
CAN 7% Call, Str 105.71, 1/16/97 1,000,000 6,273
CHF Put/AUD Call, Str .9725, 9/10/97 1,900,000 112,015
CHF Put/GBP Call, Str 2.26, 9/25/97 4,400,000 88,986
CHF Put/USD Call, Str 1.30, 1/31/97 2,200,000 65,340
DBR 6.25% Call, Str 101.92, 10/20/97 4,800,000 54,014
DBR 6.25% Call, Str 102.33, 5/9/97 4,700,000 37,525
DBR 6.25% Call, Str 94.13, 2/6/97 3,700,000 29,064
DBR 6.25% Call, Str 96.00, 2/28/97 5,100,000 21,185
DEM 8.375% Call, Str 114.62, 1/09/97 6,600,000 4,283
DEM Put/ITL Call, Str 40.0000, 09/08/97 4,500,000 98,735
DEM Put/USD Call, Str 1.5020, 09/05/97 3,800,000 114,000
DEM Put/USD Call, Str 1.550, 4/22/97 3,000,000 38,100
DGB 8% Call, Str 108.84, 3/17/97 13,700,000 30,935
FRF 6.5% Put/ Str 103.65, 4/16/97 16,200,000 31,833
FRF Put/USD Call, Str 5.265, 3/20/97 3,000,000 22,500
FRF Put/USD Call, Str 5.3000, 12/01/97 3,000,000 40,800
ITL 9.5% Call, Str 109.68, 3/6/97 3,700,000,000 29,600
ITL 9.5% Put/ Str 102.07, 1/10/97 4,454,000,000 0
JGB 6.4% Call, Str 120.603, 2/5/97 800,000,000 2,400
JPY 4.8% Call, Str 115.912, 2/03/97 860,000,000 8,600
JPY Put/AUD Call, Str 86.0000, 9/10/97 200,000,000 94,800
JPY Put/ITL Call, Str 14.5000, 09/08/97 300,000,000 176,400
JPY Put/USD Call, Str 120.00, 1/05/98 3,000,000 38,700
SPGB 8.40% Call, Str 107.910, 2/19/97 280,000,000 32,200
SPGB 8.40% Put/ Str 105.65, 4/30/97 370,000,000 5,550
UKT 7.5% Call, Str 99.0625, 2/14/97 1,500,000 35,310
USD Put/MXP Call, Str 9.12, 9/30/97 1,300,000 54,860
--
----------------
Total Purchased Options (Premium Paid $1,249,755) 1,317,028
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Short-Term Investments - 5.4%
- --------------------------------------------------------
U.S. Government Agency - 1.9%
- --------------------------------------------------------
FNMA 5.50% 1/15/1997 3,000,000 $ 2,989,917
------------------
Repurchase Agreements - 3.6%
- --------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $5,675,519 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $5,787,191. 5,673,716 5,673,716
------------------
TOTAL Short-Term Investments (Cost $8,663,633) 8,663,633
------------------
TOTAL INVESTMENTS (Cost $150,927,301) - 98.1% 156,731,655
Principal
Written Options - (0.2%) Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -----------------
AUD Put/CHF Call, Str .9060, 9/10/97 1,900,000 (7,940)
AUD Put/JPY Call, Str 79.0000, 9/10/97 200,000,000 (12,200)
DBR 6.25% Call, Str 101.92, 4/18/97 4,800,000 (49,546)
DBR 6.25% Put/ Str 101.60, 4/16/97 4,800,000 (30,538)
DBR 6.25% Put/ Str 101.650, 4/24/97 4,400,000 (29,704)
DBR 8.25% Put/ Str 112.420, 2/19/97 3,400,000 (3,754)
DBR 8.25% Put/ Str 113.57, 4/30/97 4,400,000 (37,418)
DBR 8.25% Put/ Str 113.58, 4/30/97 4,500,000 (45,572)
DEM 6.25% Put/ Str 101.95, 1/08/97 4,700,000 (611)
DGB 8% Call, Str 111.84, 3/17/97 13,700,000 (8,138)
DGB 8% Put/ Str 105.84, 3/17/97 13,700,000 (6,275)
GBP Put/CHF Call, Str 1.835, 9/25/97 3,700,000 (3,315)
ITL 9.5% Call, Str 111.68, 3/6/97 3,700,000,000 (7,400)
ITL 9.5% Put/ Str 107.68, 3/6/97 3,700,000,000 (3,700)
ITL Put/DEM Call, Str 1080.00, 09/08/97 4,500,000 (8,762)
ITL Put/JPY Call, Str 15.1000, 09/08/97 300,000,000 (19,500)
JPY Put/USD Call, Str 105.00, 1/05/98 3,000,000 (38,700)
Principal
Amount of Value
Security Rate Maturity Contracts (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Written Options - (0.2%)
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- -------------------------------------------------------- -----------------
UKT 7.5% Call, Str 102.0625, 2/14/97 1,500,000 (7,224)
USD Put/CHF Call, Str 1.22, 1/31/97 2,200,000 (1,100)
USD Put/CHF Call, Str 1.42, 3/20/97 3,000,000 (9,000)
USD Put/DEM Call, Str 1.3800, 09/05/97 3,800,000 (15,960)
USD Put/DEM Call, Str 1.425, 4/22/97 3,000,000 (7,200)
--
----------------
Total Written Options (Premium Received $846,428) (353,557)
------------------
Other Assets less Liabilities - 2.2% 3,436,400
------------------
NET ASSETS - 100.0% $ 159,814,498
==================
Notes to the Schedule of Investments:
* Non-income producing security.
144A - Securities exempt from registration under Rule 144A of the AUD Australian Dollar
Securities Act of 1933. These securities may be resold in DEM German Mark
transactions exempt from registration. GBP British Pound Sterling
ITL Italian Lira
FNMA Federal National Mortgage Association JPY Japanese Yen
GNMA Government National Mortgage Association USD United States Dollar
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $150,927,301) $ 156,731,655
Foreign currency, at value (cost, $110,460) 123,265
Unrealized appreciation on interest rate swap contracts (Note 5) 4,236
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 1,949,833
Receivable for investments sold 1,556,512
Interest and dividends receivable 3,649,745
Deferred organization expenses (Note 1F) 85,593
---------------
Total assets 164,100,839
Liabilities
Payable for investments purchased $ 1,729,890
Unrealized depreciation on forward foreign currency
exchange contracts (Note 5) 2,056,631
Options written, at value (premiums received $848,428) (Note 5) 353,554
Accrued trustee fees 460
Payable to Investment Adviser (Note 1F) 98,922
Accrued expenses and other liabilities 46,884
--------------
Total liabilities 4,286,341
---------------
Net Assets (applicable to investors' beneficial interests) $ 159,814,498
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income (Note 1C)
Interest Income $ 7,969,915
Dividend income (net of withholding tax of $1,890) 59,537
--------------
Total income 8,029,452
Expenses
Investment advisory fee (Note 2) $ 412,216
Custodian and accounting fees 188,499
Legal and audit services 21,197
Amortization of organization expenses (Note 1F) 10,067
Insurance expense 3,957
Trustee fees 3,288
Miscellaneous 28
--------------
Total expenses 639,252
--------------
Net investment income (loss) 7,390,200
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities 4,568,890
Financial futures 58,443
Written options 1,036,045
Foreign currency and forward foreign
currency exchange contracts (791,430)
--------------
Net realized gain (loss) 4,871,948
Change in unrealized appreciation (depreciation)
Investment securities 7,230,451
Financial futures (2,911)
Written options 218,147
Foreign currency transactions and forward foreign
currency contracts (1,072,612)
--------------
Change in net unrealized appreciation (depreciation) 6,373,075
--------------
Net realized and unrealized gain (loss) 11,245,023
--------------
Net increase (decrease) in net assets from operations $ 18,635,223
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets:
From operations
Net investment income (loss) $ 7,390,200
Net realized gain (loss) 4,871,948
Change in net unrealized appreciation (depreciation) 6,373,075
----------------
Net increase (decrease) in net assets from operations 18,635,223
----------------
Capital transactions -
Assets contributed by Standish Global Fixed Income Fund at
commencement (including unrealized depreciation of $266,576) 149,438,650
Contributions 3,371,618
Withdrawals (11,630,993)
----------------
Increase in net assets resulting from capital transactions 141,179,275
----------------
Total increase (decrease) in net assets 159,814,498
Net Assets:
At beginning of period -
----------------
At end of period $ 159,814,498
================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.62% *
Net investment income 7.17% *
Portfolio Turnover 111 %
* Annualized
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as master trust fund under the laws of the state of New York
on January 18, 1996 and is registered under the Investment Company Act
of 1940, as amended, as an open-end, management investment company.
Standish Global Fixed Income Portfolio (the "Portfolio") is a separate
non-diversified investment series of the Portfolio Trust. The following
is a summary of significant accounting policies consistently followed
by the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued at amortized cost. If the Portfolio acquires a
short term instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon
the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreements' underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis. The
Portfolio does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
<PAGE>
E. Foreign currency transactions--
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
F. Deferred organization expense--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001. These costs were paid for by the Investment
Adviser and will be reimbursed by the Portfolio.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company, L.P. (SIMCO) for overall investment advisory and
administrative services is paid monthly at the annual rate of 0.40% of
the Portfolio's average daily net assets. The advisory agreement
provides that if the total annual operating expenses of the Portfolio
(excluding brokerage commissions, taxes and extraordinary expenses) in
any fiscal year exceed 0.65% of the Portfolio's average daily net
assets, the compensation due the adviser shall be reduced by the amount
of the excess. The Portfolio pays no compensation directly to its
trustees who are affiliated with SIMCO or to its officers, all of whom
receive remuneration for their services to the Portfolio from SIMCO.
Certain of the trustees and officers of the Portfolio Trust are limited
partners or officers of SIMCO.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
Purchases Sales
U.S. Government Securities $21,783,105 $18,434,880
================== ==================
Non-U.S. government securities $135,364,765 $142,691,893
================== ==================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $151,018,224
Gross unrealized appreciation $7,158,802
Gross unrealized depreciation (1,445,371)
===================
Net unrealized appreciation $5,713,431
===================
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
<PAGE>
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in security prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. A summary of such transactions for the
period May 3, 1996 through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
<S> <C> <C>
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 7 169,988
Options written 29 973,706
Options exercised 0 0
Options expired (11) (259,153)
Options closed (16) (465,951)
------------------ -------------------
Outstanding, end of period 9 $ 418,590
================== ===================
Written Call Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 9 278,244
Options written 13 230,699
Options exercised (4) (40,198)
Options expired (6) (215,150)
Options closed (4) (74,936)
------------------ -------------------
Outstanding, end of period 8 $ 178,659
================== ===================
Written Cross Currency Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 5 214,415
Options written 12 538,734
Options exercised 0 0
Options expired (2) (22,296)
Options closed (10) (479,674)
------------------ -------------------
Outstanding, end of period 5 $ 251,179
================== ===================
</TABLE>
<PAGE>
Forward currency exchange contracts--
The Portfolio may enter into forward foreign currency and cross
currency exchange contracts for the purchase or sale of a specific
foreign currency at a fixed price on a future date. Risks may arise
upon entering these contracts from the potential inability of
counterparties to meet the terms of their contracts and from
unanticipated movements in the value of a foreign currency relative to
the U.S. dollar and other foreign currencies. The forward foreign
currency and cross currency exchange contracts are marked to market
using the forward foreign currency rate of the underlying currency and
any gains or losses are recorded for financial statement purposes as
unrealized until the contract settlement date. Forward currency
exchange contracts are used by the fund primarily to protect the value
of the Portfolio's foreign securities from adverse currency movements.
At December 31, 1996, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Local Principal Contract Aggregate Market Unrealized
Contracts to Receive Amount Value Date Face Amount Value Gain/(Loss)
- ------------------------------------- -------------- --------------------------- ----------
<S> <C> <C> <C> <C> <C>
Australian Dollar 1,968,624 02/06/97 $1,606,397 $1,562,995 ($43,402)
Canadian Dollar 973,071 02/10/97 727,911 711,637 (16,274)
Deutsche Mark 76,106 08/01/97 51,869 50,123 (1,746)
Danish Krone 26,994,372 1/24-8/04/97 4,584,586 4,602,239 17,653
Finnish Markka 3,000,000 01/08/97 666,229 652,420 (13,809)
British Pound Sterling 170,640 01/21/97 272,301 292,004 19,703
Greek Drachma 330,000 08/01/97 1,289 1,294 5
Italian Lira 8,550,157,352 1/2-08/01/97 5,563,438 5,616,580 53,142
Japanese Yen 357,520,493 03/13/97 3,255,514 3,109,820 (145,694)
Norwegian Krone 4,198,318 01/13/97 647,889 659,381 11,492
Swedish Krona 9,773,094 01/08-5/19/97 1,440,248 1,438,487 (1,761)
============ ============ ==========
Total $18,817,671 $18,696,980 ($120,691)
============ ============ ==========
U.S. $ U.S. $
Local Principal Contract Aggregate Market Unrealized
Contracts to Deliver Amount Value Date Face Amount Value Gain/(Loss)
- ------------------------------------- -------------- --------------------------- ----------
Australian Dollar 5,564,895 2/6 -3/27/97 $4,387,888 $4,418,117 ($30,229)
Canadian Dollar 1,858,940 2/10-2/28/97 1,371,612 1,359,885 11,727
Deutsche Mark 19,221,344 1/9 -8/1/97 12,647,773 12,559,870 87,903
Danish Krone 79,261,348 1/10 -6/16/97 13,696,987 13,515,797 181,190
Spanish Peseta 1,116,304,341 1/29 -6/20/97 9,113,425 8,963,643 149,782
Finnish Markka 21,848,005 1/8 -5/27/97 4,867,736 4,793,148 74,588
British Pound Sterling 8,995,340 1/7 -3/27/97 14,521,450 15,384,265 (862,815)
Irish Punt 4,299,602 1/17 - 2/24/97 7,079,388 7,279,007 (199,619)
Italian Lira 22,211,312,715 1/2 -4/2/97 14,489,880 14,587,898 (98,018)
Japanese Yen 911,375,320 2/5 - 3/13/97 8,530,342 7,911,191 619,151
Norwegian Krone 37,922,644 1/13 - 7/21/97 5,966,992 6,012,291 (45,299)
New Zealand Dollar 11,420,989 1/13 -2/18/97 7,995,744 8,052,466 (56,722)
Swedish Krona 55,515,560 1/8- 6/5/97 8,318,178 8,150,674 167,504
European Currency Unit 1,040,508 1/7 -2/12/97 1,311,016 1,305,547 5,469
------------ ------------ ----------
Total $114,298,414 $114,293,800 $4,612
============ ============ ==========
Forward Foreign Cross Currency Contracts U.S. $ Contract U.S. $
U.S. $ In Exchange Market Value Unrealized
Contracts to Deliver Market Value For Value Date Gain/(Loss)
- ------------------------------------------------------ ------------ ------------ ----------
Swiss Franc $1,712,323 Norwegian Krone $1,923,399 07/21/97 $211,076
Swiss Franc 1,831,586 Danish Krone 1,987,701 08/04/97 156,116
Deutsche Mark 1,017,606 Italian Lira 1,061,541 08/01/97 43,935
Deutsche Mark 1,975,779 Greek Drachma 2,061,458 08/01/97 85,679
Danish Krone 2,007,313 Swiss Franc 1,831,586 08/04/97 (175,727)
French Franc 2,981,555 Czech Koruna 2,999,666 08/27/97 18,111
Greek Drachma 2,062,752 Deutsche Mark 1,975,779 08/01/97 (86,973)
Italian Lira 2,123,083 Deutsche Mark 1,975,779 08/01/97 (147,304)
Norgewian Krone 1,843,564 Swiss Franc 1,712,325 07/21/97 (131,239)
Finnish Markka 652,420 Swedish Krona 688,028 01/08/97 35,608
-------------- ------------ ----------
Total $18,207,981 $18,217,262 $9,282
============== ============ ==========
</TABLE>
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies. At December 31,
1996, the Portfolio held no following futures contracts.
Interest rate swap contracts--
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. Credit and market risk exist
with respect to these instruments. The Portfolio expects to enter into
these transactions primarily for hedging purposes including, but not
limited to, preserving a return or spread on a particular investment or
portion of its portfolio, protecting against currency fluctuations, as
a duration management technique or protecting against an increase in
the price of securities the Portfolio anticipates purchasing at a later
date. At December 31, 1996, the Portfolio held an interest rate swap
contract with a notional amount of 2,250,000 Deutsche Marks and an
expiration date of 12/16/2000, which had unrealized appreciation of
$4,236.
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Global Fixed Income Portfolio: We have audited the accompanying
statement of assets and liabilities of Standish Global Fixed Income Portfolio,
including the portfolio of investments, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets and the
supplementary data for the period from May 3, 1996 (commencement of operations)
to December 31, 1996. These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Global Fixed Income Portfolio as of December 31, 1996, and
the results of its operations, changes in its net assets and supplementary data
for the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
[ ], 1997
STANDISH GROUP OF EQUITY FUNDS
STANDISH EQUITY FUND
STANDISH INTERNATIONAL EQUITY FUND
STANDISH SMALL CAPITALIZATION EQUITY FUND
STANDISH SMALL CAPITALIZATION EQUITY FUND II
One Financial Center
Boston, Massachusetts 02111
(800) 221-4795
STATEMENT OF ADDITIONAL INFORMATION
This combined Statement of Additional Information is not a prospectus,
but expands upon and supplements the information contained in the combined
Prospectus dated April 30, 1997, as amended and/or supplemented from time to
time (the "Prospectus"), of the Standish Equity Fund ("Equity Fund"), the
Standish Small Capitalization Equity Fund ("Small Cap Fund"), the Standish Small
Capitalization Equity Fund II ("Small Cap II Fund") and the Standish
International Equity Fund ("International Equity Fund"), each a separate
investment series of Standish, Ayer & Wood Investment Trust (the "Trust"). This
Statement of Additional Information should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by writing or calling
the Trust's principal underwriter, Standish Fund Distributors, L.P. (the
"Principal Underwriter"), at the address and phone number set forth above.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
AUTHORIZED FOR DISTRIBUTION TO PROSPECTIVE INVESTORS ONLY IF PRECEDED OR
ACCOMPANIED BY AN EFFECTIVE PROSPECTUS.
-------------------------------------------------------------------------------
CONTENTS
Investment Objective and Policies....................................1
Investment Restrictions.............................................11
Calculation of Performance Data.....................................16
Management .........................................................19
Redemption of Shares................................................30
Portfolio Transactions..............................................31
Brokerage Commissions...............................................32
Determination of Net Asset Value....................................32
The Funds and Their Shares..........................................33
The Portfolio and its Investors.....................................34
Taxation............................................................34
Additional Information..............................................38
Experts and Financial Statements....................................38
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
The Prospectus describes the investment objectives and policies of each
Fund. The following discussion supplements the description of the Funds'
investment policies in the Prospectus.
The Equity Fund invests all of its investible assets in the Standish Equity
Portfolio (the "Equity Portfolio"). The Small Cap Equity Fund invests all of its
investible assets in the Standish Small Capitalization Equity Portfolio (the
"Small Cap Portfolio"). The Small Cap Equity Fund II invests all of its
investible assets in the Standish Small Capitalization Equity Portfolio II (the
"Small Cap II Portfolio"). These three Funds are sometimes referred to in this
Statement of Additional Information as Standish Feeder Funds.
Each Portfolio is a series of the Standish, Ayer and Wood Master Portfolio
(the "Portfolio Trust"), an open-end management investment company, and each
Portfolio has the same investment objective and restrictions as its
corresponding Fund. Standish, Ayer and Wood, Inc. ("Standish") is the investment
adviser to the Portfolios. Standish International Management Company, L.P.
("SIMCO") is the investment adviser to the International Equity Fund. Both
Standish and SIMCO are sometimes referred to herein as the "Adviser" or
collectively as the "Advisers".
The Prospectus describes the investment objective of the Standish Feeder
Funds and the Portfolios and summarizes the investment policies they will
follow. Since the investment characteristics of the Standish Feeder Funds
correspond directly to those of their respective Portfolios, the following
discusses the various investment techniques employed by the Portfolios. See the
Prospectus for a more complete description of each Fund's and each Portfolio's
investment objective, policies and restrictions. For purposes of the discussion
in this section of this Statement of Additional Information, the use of the term
"Fund" or "Funds" refers to each of the Equity Portfolio, the Small Cap
Portfolio, the Small Cap II Portfolio and the International Equity Fund, unless
otherwise noted.
Suitability and Risk Factors. An investor should not expect, and the Funds do
not intend, that each Fund will provide an investment program which meets all of
the requirements of that investor. The companies in which the Small Cap and
Small Cap II Portfolios invest generally reinvest their earnings, and dividend
income should not be expected. Also, notwithstanding the Funds' ability to
spread risk by holding securities of a number of companies, shareholders should
be able and be prepared to bear the risk of investment losses which may
accompany the investments contemplated by each Fund.
Common Stocks. The common stocks of small growth companies in which the Small
Cap Portfolio invests typically have market capitalizations up to $700 million.
The common stocks of the companies in which the Small Cap II Portfolio invests
typically have market capitalizations up to $1 billion. Morningstar Mutual
Funds, a leading mutual fund monitoring service, includes in the small- cap
category all funds with median portfolio market capitalizations of less than $ 1
billion. Their investments are expected to emphasize companies involved with
value added products or services in expanding industries. At times, particularly
when Standish believes that the securities of small companies are overvalued,
their portfolios may include securities of larger, more mature companies,
provided that the value of the securities of such larger, more mature companies
shall not exceed 20% of each Portfolio's net assets. Both Portfolios will
attempt to reduce risk by diversifying their investments within the investment
policies set forth in the Prospectus and will invest in publicly traded equity
securities and, excluding equity securities received as distributions on
portfolio securities, will not normally hold equity securities which are
restricted as to disposition under federal securities laws or are otherwise
illiquid or not readily marketable.
Foreign Securities. Foreign securities may be purchased and sold on foreign
stock exchanges or in over-the-counter markets (but persons
-1-
<PAGE>
affiliated with a Fund will not act as principal in such purchases and sales).
Foreign stock markets are generally not as developed or efficient as those in
the United States. While growing in volume, they usually have substantially less
volume than the New York Stock Exchange, and securities of some foreign
companies are less liquid and more volatile than securities of comparable United
States companies. Fixed commissions on foreign stock exchanges are generally
higher than negotiated commissions on United States exchanges, although each
Fund will endeavor to achieve the most favorable net results on its portfolio
transactions. There is generally less government supervision and regulation of
stock exchanges, brokers and listed companies abroad than in the United States.
The dividends and interest payable on certain foreign securities may be
subject to foreign withholding taxes and in some cases capital gains from such
securities may also be subject to foreign tax, thus reducing the net amount of
income or gain available for distribution to a Fund's shareholders.
Investors should understand that the expense ratio of each Fund may be
higher than that of investment companies investing exclusively in domestic
securities because of the cost of maintaining the custody of foreign securities.
The Funds may invest in foreign securities which take the form of
sponsored and unsponsored American Depository Receipts and Shares ("ADRs" and
"ADSs"), Global Depository Receipts and Shares ("GDRs" and "GDSs") and European
Depository Receipts and Shares ("EDRs" and "EDSs") or other similar instruments
representing securities of foreign issuers (together, "Depository Receipts" and
"Depository Shares"). ADRs and ADSs represent the right to receive securities of
foreign issuers deposited in a domestic bank or a correspondent bank. Prices of
ADRs and ADSs are quoted in U.S. dollars and are traded in the United States on
exchanges or over-the-counter and are sponsored and issued by domestic banks.
EDRs and EDSs and GDRs and GDSs are receipts evidencing an arrangement with a
non-U.S. bank. EDRs and EDSs and GDRs and GDSs are not necessarily quoted in the
same currency as the underlying security. To the extent that a Fund acquires
Depository Receipts or Shares through banks which do not have a contractual
relationship with the foreign issuer of the security underlying the Depository
Receipts or Shares to issue and service such Depository Receipts or Shares
(unsponsored Depository Receipts or Shares), there may be an increased
possibility that the Fund would not become aware of and be able to respond to
corporate actions, such as stock splits or rights offerings involving the
foreign issuer, in a timely manner. In addition, certain benefits which may be
associated with the security underlying the Depository Receipt or Share may not
inure to the benefit of the holder of such Depository Receipt or Share. Further,
the lack of information may result in inefficiencies in the valuation of such
instruments. Investment in Depository Receipts or Shares does not eliminate all
the risks inherent in investing in securities of non- U.S. issuers. The market
value of Depository Receipts or Shares is dependent upon the market value of the
underlying securities and fluctuations in the relative value of the currencies
in which the Depository Receipt or Share and the underlying securities are
quoted. However, by investing in Depository Receipts or Shares, such as ADRs or
ADSs, that are quoted in U.S. dollars, a Fund will avoid currency risks during
the settlement period for purchases and sales.
Strategic Transactions. Each Fund may, but is not required to, utilize various
other investment strategies as described below to seek to hedge various market
risks (such as interest rates, currency exchange rates, and broad or specific
equity market movements), or to enhance potential gain. Such strategies are
generally accepted as part of modern portfolio management and are regularly
utilized by many mutual funds and other institutional investors. Techniques and
instruments used by the Funds may change over time as new instruments and
strategies are developed or regulatory changes occur.
-2-
<PAGE>
In the course of pursuing its investment objective, a Fund may purchase
and sell (write) exchange-listed and over-the-counter put and call options on
securities, equity, indices and other financial instruments; purchase and sell
financial futures contracts and options thereon; enter into various interest
rate transactions such as swaps, caps, floors or collars; and enter into various
currency transactions such as currency forward contracts, currency futures
contracts, currency swaps or options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used in an attempt to protect against possible changes in
the market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities market or currency exchange rate fluctuations, to
protect a Fund's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, or to establish
a position in the derivatives markets as a temporary substitute for purchasing
or selling particular securities. In addition to the hedging transactions
referred to in the preceding sentence, Strategic Transactions may also be used
to enhance potential gain in circumstances where hedging is not involved
although each Fund will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for such purposes to not more than 3% of its
net assets at any one time and, to the extent necessary, each Fund will close
out transactions in order to comply with this limitation. (Transactions such as
writing covered call options are considered to involve hedging for the purposes
of this limitation.). In calculating each Fund's net loss exposure from such
Strategic Transactions, an unrealized gain from a particular Strategic
Transaction position would be netted against an unrealized loss from a related
Strategic Transaction position. For example, if the Adviser believes that a Fund
is underweighted in cyclical stocks and overweighted in consumer stocks, the
Fund may buy a cyclical index call option and sell a cyclical index put option
and sell a consumer index call option and buy a consumer index put option. Under
such circumstances, any unrealized loss in the cyclical position would be netted
against any unrealized gain in the consumer position (and vice versa) for
purposes of calculating the Fund's net loss exposure. The ability of a Fund to
utilize these Strategic Transactions successfully will depend on the Adviser's
ability to predict pertinent market movements, which cannot be assured. Each
Fund will comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. A Fund's activities involving Strategic
Transactions may be limited by the requirements of Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code") for qualification as a regulated
investment company
Risks of Strategic Transactions. Strategic Transactions have risks associated
with them including possible default by the other party to the transaction,
illiquidity and, to the extent the Adviser's view as to certain market movements
is incorrect, the risk that the use of such Strategic Transactions could result
in losses greater than if they had not been used. The writing of put and call
options may result in losses to a Fund, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation a Fund can realize on its investments
or cause a Fund to hold a security it might otherwise sell. The use of currency
transactions can result in a Fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
Fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the Fund's position. The writing of options
could significantly increase the Fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads. In
-3-
<PAGE>
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
markets, a Fund might not be able to close out a transaction without incurring
substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit any potential gain which might result from an
increase in value of such position. The loss incurred by a Fund in writing
options on futures and entering into futures transactions is potentially
unlimited; however, as described above, each Fund will attempt to limit its net
loss exposure resulting from Strategic Transactions entered into for non-hedging
purposes to not more than 3% of its net assets at any one time. Futures markets
are highly volatile and the use of futures may increase the volatility of a
Fund's net asset value. Finally, entering into futures contracts would create a
greater ongoing potential financial risk than would purchases of options where
the exposure is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.
General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of a Fund's assets in special accounts, as described
below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for
the payment of a premium, the right to sell, and the writer the obligation to
buy (if the option is exercised) the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, a Fund's
purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the Fund the right to sell
such instrument at the option exercise price. A call option, in consideration
for the payment of a premium, gives the purchaser of the option the right to
buy, and the seller the obligation to sell (if the option is exercised), the
underlying instrument at the exercise price. A Fund may purchase a call option
on a security, futures contract, index, currency or other instrument to seek to
protect the Fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may be exercised
at any time during the option period while a European style put or call option
may be exercised only upon expiration or during a fixed period prior thereto.
Each Fund is authorized to purchase and sell exchange listed options and
over-the counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"), which
guarantees the performance of the obligations of the parties to such options.
The discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
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A Fund's ability to close out its position as a purchaser or seller of
an exchange listed put or call option is dependent, in part, upon the liquidity
of the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A Fund will
generally sell (write) OTC options that are subject to a buy- back provision
permitting the Fund to require the Counterparty to sell the option back to the
Fund at a formula price within seven days. OTC options purchased by a Fund, and
portfolio securities covering the amount of a Fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any), are subject to each Fund's restriction on illiquid securities, unless
determined to be liquid in accordance with procedures adopted by the Boards of
Trustees. For OTC options written with "primary dealers" pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price. Each Fund expects generally to enter into OTC options that have
cash settlement provisions, although it is not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with a Fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the Fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the Adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. A Fund will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poor's Ratings Group
("S&P") or Moody's Investors Service, Inc. ("Moody's") or an equivalent rating
from any other nationally recognized statistical rating organization ("NRSRO")
or which issue debt that is determined to be of equivalent credit quality by the
Adviser.
If a Fund sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the Fund's income. The sale (writing) of put options
can also provide income.
Each Fund may purchase and sell (write) call options on securities,
equity securities (including convertible securities) and Eurodollar instruments
that are traded on U.S. and foreign securities exchanges and in the
over-the-counter markets, and on securities indices, currencies and futures
contracts. All calls sold by a Fund must be "covered" (i.e., the Fund must own
the securities or futures contract subject to the call) or must meet the asset
segregation requirements described below as long as the call is outstanding. In
addition,
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each Fund may cover a written call option or put option by entering into an
offsetting forward contract and/or by purchasing an offsetting option or any
other option which, by virtue of its exercise price or otherwise, reduces the
Fund's net exposure on its written option position. Even though the Fund will
receive the option premium to help offset any loss, the Fund may incur a loss if
the exercise price is below the market price for the security subject to the
call at the time of exercise. A call sold by a Fund also exposes the Fund during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the
Fund to hold a security or instrument which it might otherwise have sold.
Each Fund may purchase and sell (write) put options on securities
including equity securities (including convertible securities) and Eurodollar
instruments (whether or not it holds the above securities in its portfolio), and
on securities indices, currencies and futures contracts. A Fund will not sell
put options if, as a result, more than 50% of the Fund's assets would be
required to be segregated to cover its potential obligations under such put
options other than those with respect to futures and options thereon. In selling
put options, there is a risk that a Fund may be required to buy the underlying
security at a price above the market price.
Options on Securities Indices and Other Financial Indices. Each Fund may also
purchase and sell (write) call and put options on securities indices and other
financial indices. Options on securities indices and other financial indices are
similar to options on a security or other instrument except that, rather than
settling by physical delivery of the underlying instrument, they settle by cash
settlement. For example, an option on an index gives the holder the right to
receive, upon exercise of the option, an amount of cash if the closing level of
the index upon which the option is based exceeds, in the case of a call, or is
less than, in the case of a put, the exercise price of the option (except if, in
the case of an OTC option, physical delivery is specified). This amount of cash
is equal to the differential between the closing price of the index and the
exercise price of the option, which also may be multiplied by a formula value.
The seller of the option is obligated, in return for the premium received, to
make delivery of this amount upon exercise of the option. In addition to the
methods described above, each Fund may cover call options on a securities index
by owning securities whose price changes are expected to be similar to those of
the underlying index, or by having an absolute and immediate right to acquire
such securities without additional cash consideration (or for additional cash
consideration held in a segregated account by its custodian) upon conversion or
exchange of other securities in its portfolio.
General Characteristics of Futures. Each Fund may enter into financial futures
contracts or purchase or sell put and call options on such futures. Futures are
generally bought and sold on the commodities exchanges where they are listed and
involve payment of initial and variation margin as described below. All futures
contracts entered into by a Fund are traded on U.S. exchanges or boards of trade
that are licensed and regulated by the Commodity Futures Trading Commission
("CFTC") or on certain foreign exchanges. The sale of futures contracts creates
a firm obligation by a Fund, as seller, to deliver to the buyer the specific
type of financial instrument called for in the contract at a specific future
time for a specified price (or, with respect to index futures and Eurodollar
instruments, the net cash amount). The purchase of futures contracts creates a
corresponding obligation by a Fund, as purchaser to purchase a financial
instrument at a specific time and price. Options on futures contracts are
similar to options on securities except that an option on a futures contract
gives the purchaser the right in return for the premium paid to assume a
position in a futures contract and obligates the seller to deliver such position
upon exercise of the option.
Each Fund's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from
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regulation as a commodity pool operator. Those regulations currently provide
that a Fund may use commodity futures and option positions (i) for bona fide
hedging purposes without regard to the percentage of assets committed to margin
and option premiums, or (ii) for other purposes permitted by the CFTC to the
extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions (net of the amount the positions were "in
the money" at the time of purchase) do not exceed 5% of the net asset value of
the Fund, after taking into account unrealized profits and losses on such
positions. Typically, maintaining a futures contract or selling an option
thereon requires a Fund to deposit with its custodian for the benefit of a
futures commission merchant, or directly with the futures commission merchant,
as security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract (but may be higher in some circumstances). Additional cash or
assets (variation margin) may be required to be deposited directly with the
futures commission merchant thereafter on a daily basis as the value of the
contract fluctuates. The purchase of an option on financial futures involves
payment of a premium for the option without any further obligation on the part
of the Fund. If a Fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.
Currency Transactions. Each Fund may engage in currency transactions with
Counterparties in order to seek to hedge the value of portfolio holdings
denominated in particular currencies against fluctuations in relative value or
to enhance potential gain. Currency transactions include currency contracts,
exchange listed currency futures, exchange listed and OTC options on currencies,
and currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed-upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. A Fund may enter
into over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) whose obligations are determined to be of
equivalent credit quality by the Adviser.
Each Fund's transactions in forward currency contracts and other
currency transactions such as futures, options, options on futures and swaps
will generally be limited to hedging involving either specific transactions or
portfolio positions. See, "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a Fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.
A Fund will not enter into a transaction to hedge currency exposure to
an extent greater, after netting all transactions intended wholly or partially
to offset other transactions, than the aggregate market value (at the time of
entering into the transaction) of the securities held in its portfolio that are
denominated or generally quoted in or currently convertible into such currency,
other than with respect to proxy hedging as described below.
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Each Fund may also cross-hedge currencies by entering into transactions
to purchase or sell one or more currencies that are expected to decline in value
in relation to other currencies to which the Fund has or in which the Fund
expects to have portfolio exposure. For example, a Fund may hold a French
security and the Adviser may believe that French francs will deteriorate against
German marks. The Fund would sell French francs to reduce its exposure to that
currency and buy German marks. This strategy would be a hedge against a decline
in the value of French francs, although it would expose the Fund to declines in
the value of the German mark relative to the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, a Fund may also engage
in proxy hedging. Proxy hedging is often used when the currency to which a
Fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a Fund's portfolio securities are or
are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the portfolio securities denominated in
linked currencies. For example, if the Adviser considers that the Austrian
schilling is linked to the German Deutsche mark (the "D-mark"), and a portfolio
contains securities denominated in schillings and the Adviser believes that the
value of schillings will decline against the U.S. dollar, the Adviser may enter
into a contract to sell D- marks and buy dollars. Proxy hedging involves some of
the same risks and considerations as other transactions with similar
instruments. Currency transactions can result in losses to a Fund if the
currency being hedged fluctuates in value to a degree or in a direction that is
not anticipated. Further, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the
particular time that the Fund is engaging in proxy hedging. If a Fund enters
into a currency hedging transaction, the Fund will comply with the asset
segregation requirements described below.
Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a Fund if it is unable to deliver or receive currency or funds in
settlement of obligations and could also cause hedges it has entered into to be
rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.
Combined Transactions. Each Fund may enter into multiple transactions, including
multiple options transactions, multiple futures transactions, multiple currency
transactions (including forward currency contracts) and multiple interest rate
transactions, structured notes and any combination of futures, options, currency
and interest rate transactions ("component transactions"), instead of a single
Strategic Transaction, as part of a single or combined strategy when, in the
opinion of the Adviser, it is in the best interests of each Fund to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the Adviser's judgment that the combined strategies will
reduce risk or
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otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which
each Fund may enter are interest rate, currency and index swaps and the purchase
or sale of related caps, floors and collars. Each Fund expects to enter into
these transactions primarily for hedging purposes, including, but not limited
to, preserving a return or spread on a particular investment or portion of its
portfolio, protecting against currency fluctuations, or protecting against an
increase in the price of securities a Fund anticipates purchasing at a later
date. Swaps, caps, floors and collars may also be used to enhance potential gain
in circumstances where hedging is not involved although, as described above,
each Fund will attempt to limit its net loss exposure resulting from swaps,
caps, floors and collars and other Strategic Transactions entered into for such
purposes to not more than 3% of its net assets at any one time. A Fund will not
sell interest rate caps or floors where it does not own securities or other
instruments providing the income stream the Fund may be obligated to pay.
Interest rate swaps involve the exchange by the Fund with another party of their
respective commitments to pay or receive interest, e.g., an exchange of floating
rate payments for fixed rate payments with respect to a notional amount of
principal. A currency swap is an agreement to exchange cash flows on a notional
amount of two or more currencies based on the relative value differential among
them and an index swap is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap
entitles the purchaser to receive payments on a notional principal amount from
the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
A Fund will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Fund receiving or paying, as the case may
be, only the net amount of the two payments. A Fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by S&P or Moody's or has an equivalent
rating from an NRSRO or which issue debt that is determined to be of equivalent
credit quality by the Adviser. If there is a default by the Counterparty, the
Fund may have contractual remedies pursuant to the agreements related to the
transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of each Fund's policy regarding illiquid securities, unless it is determined,
based upon continuing review of the trading markets for the specific security,
that such security is liquid. The Boards of Trustees of the Trust and the
Portfolio Trust have adopted guidelines and delegated to the Adviser the daily
function of determining and monitoring the liquidity of swaps, caps, floors and
collars. The Boards of Trustees, however, retain oversight focusing on factors
such as valuation, liquidity and availability of information and are ultimately
responsible for such determinations. The staff of the SEC currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
each Fund's limitation on investing in illiquid securities.
Eurodollar Contracts. Each Fund may make investments in Eurodollar contracts.
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Eurodollar contracts are U.S. dollar-denominated futures contracts or options
thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. A Fund
might use Eurodollar futures contracts and options thereon to hedge against
changes in LIBOR, to which many interest rate swaps and fixed income instruments
are linked.
Risks of Strategic Transactions Outside the United States. When conducted
outside the United States, Strategic Transactions may not be regulated as
rigorously as in the United States, may not involve a clearing mechanism and
related guarantees, and are subject to the risk of governmental actions
affecting trading in, or the prices of, foreign securities, currencies and other
instruments. The value of such positions also could be adversely affected by:
(i) lesser availability than in the United States of data on which to make
trading decisions, (ii) delays in a Fund's ability to act upon economic events
occurring in foreign markets during non-business hours in the United States,
(iii) the imposition of different exercise and settlement terms and procedures
and margin requirements than in the United States, (iv) lower trading volume and
liquidity, and (v) other complex foreign political, legal and economic factors.
At the same time, Strategic Transactions may offer advantages such as trading in
instruments that are not currently traded in the United States or arbitrage
possibilities not available in the United States.
Use of Segregated Accounts. Each Fund will hold securities or other instruments
whose values are expected to offset its obligations under the Strategic
Transactions. A Fund will cover Strategic Transactions as required by
interpretive positions of the SEC. A Fund will not enter into Strategic
Transactions that expose the Fund to an obligation to another party unless it
owns either (i) an offsetting position in securities or other options, futures
contracts or other instruments or (ii) cash, receivables or liquid securities
with a value sufficient to cover its potential obligations. A Fund may have to
comply with any applicable regulatory requirements for Strategic Transactions,
and if required, will set aside cash and other assets in a segregated account
with its custodian bank in the amount prescribed. In that case, the Funds'
custodian would maintain the value of such segregated account equal to the
prescribed amount by adding or removing additional cash or other assets to
account for fluctuations in the value of the account and the Fund's obligations
on the underlying Strategic Transactions. Assets held in a segregated account
would not be sold while the Strategic Transaction is outstanding, unless they
are replaced with similar assets. As a result, there is a possibility that
segregation of a large percentage of a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Money Market Instruments and Repurchase Agreements. When the Adviser considers
investments in equity securities to present excessive risks and to maintain
liquidity for redemptions, each Fund may invest all or a portion of its assets
in money market instruments or short-term interest-bearing securities. They may
also invest uncommitted cash in such instruments and securities.
Money market instruments include short-term U.S. government securities,
U.S. and foreign commercial paper (promissory notes issued by corporations to
finance their short term credit needs), negotiable certificates of deposit,
nonnegotiable fixed time deposits, bankers' acceptances and repurchase
agreements.
U.S. government securities include securities which are direct obligations
of the U.S. government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the Treasury or may be backed by the credit of the federal agency
or instrumentality itself. Agencies and instrumentalities of the U.S. government
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include, but are not limited to, Federal Land Banks, the Federal Farm Credit
Bank, the Central Bank for Cooperatives, Federal Intermediate Credit Banks,
Federal Home Loan Banks and the Federal National Mortgage Association.
A repurchase agreement is an agreement under which a Fund acquires
money market instruments (generally U.S. government securities, bankers'
acceptances or certificates of deposit) from a commercial bank,
broker or dealer, subject to resale to the seller at an agreed-upon price and
date (normally the next business day). The resale price reflects an agreed-upon
interest rate effective for the period the instruments are held by a Fund and is
unrelated to the interest rate on the instruments. The instruments acquired by
the Funds (including accrued interest) must have an aggregate market value in
excess of the resale price and will be held by the Funds' custodian bank until
they are repurchased. The Trustees will monitor the standards which the Adviser
will use in reviewing the creditworthiness of any party to a repurchase
agreement with the Funds.
The use of repurchase agreements involves certain risks. For example,
if the seller defaults on its obligation to repurchase the instruments acquired
by a Fund at a time when their market value has declined, the Fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Fund are collateral for a loan by the Fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Fund may not be able to substantiate its interest in the
instruments it acquires. While the Trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.
Short-Term Debt Securities. For defensive or temporary purposes, each Fund may
invest in investment grade money market instruments and short-term
interest-bearing securities. Such securities may be used to invest uncommitted
cash balances, to maintain liquidity to meet shareholder redemptions, or to take
a defensive position against potential stock market declines. These investments
will include U.S. Government obligations and obligations issued or guaranteed by
any U.S. Government agencies or instrumentalities, instruments of U.S. and
foreign banks (including negotiable certificates of deposit, nonnegotiable fixed
time deposits and bankers' acceptances), repurchase agreements, prime commercial
paper of U.S. and foreign companies, and debt securities that make periodic
interest payments at variable or floating rates.
Yields on debt securities depend on a variety of factors, such as
general conditions in the money and bond markets, and the size, maturity and
rating of a particular issue. Debt securities with longer maturities tend to
produce higher yields and are generally subject to greater potential capital
appreciation and depreciation. The market prices of debt securities usually vary
depending upon available yields, rising when interest rates decline and
declining when interest rates rise.
Portfolio Turnover. Each Fund places no restrictions on portfolio turnover and
it may sell any portfolio security without regard to the period of time it has
been held, except as may be necessary to enable the Fund to maintain its status
as a regulated investment company under the Internal Revenue Code. A Fund may
therefore generally change its investments at any time in accordance with the
Adviser's appraisal of factors affecting any particular issuer or market, or the
economy in general.
INVESTMENT RESTRICTIONS
The Funds and the Portfolios have adopted the following fundamental
policies. Each Fund's and Portfolio's fundamental policies cannot be changed
unless the change is approved by a "vote of the outstanding voting securities"
of the Fund or the Portfolio, as the case may be, which phrase as used herein
means the lesser of (i) 67% or more of the voting securities of the Fund or the
Portfolio present at a meeting, if the holders of more than 50% of the
outstanding voting securities of the Fund or the Portfolio are present or
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represented by proxy, or (ii) more than 50% of the outstanding voting securities
of the Fund or the Portfolio.
Standish Equity Fund and Equity Portfolio
As a matter of fundamental policy, the Equity Portfolio (Fund) may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
government securities.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts (except futures
contracts and options on such futures contracts and foreign currency
exchange transactions).
6. With respect to at least 75% of its total assets, invest more than 5%
in the securities of any one issuer (other than the U.S. Government,
its agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio
(Fund) may borrow from banks in an amount up to 15% of the current
value of its total assets as a temporary measure for extraordinary or
emergency purposes (but not investment purposes), and pledge its assets
to an extent not greater than 15% of the current value of its total
assets to secure such borrowings; however, the Fund may not make any
additional investments while its outstanding borrowings exceed 5% of
the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio (Fund)
may enter into repurchase agreements and except that the Fund may enter
into repurchase agreements with respect to 10% of the value of its net
assets.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor
approval, in accordance with applicable laws, regulations or regulatory policy.
The Portfolio (Fund) may not:
a. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.
b. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.
c. Invest more than 15% of its net assets in securities which are
illiquid.
d. Purchase additional securities if the Fund's borrowings exceed 5% of
its net assets (this restriction is fundamental with respect to the
Fund, but not the Portfolio).
Notwithstanding any fundamental or non-fundamental policy, the Equity
Fund may invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an
open-end management investment company
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with substantially the same investment objective as the Equity Fund.
International Equity Fund
As a matter of fundamental policy, the International Equity Fund may
not:
1. With respect to at least 75% of its total assets, invest more than 5%
in the securities of any one issuer (other than the U.S. Government,
its agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer.
2. Issue senior securities, borrow money or pledge or mortgage its assets,
except that the Fund may borrow from banks as a temporary measure for
extraordinary or emergency purposes (but not investment purposes) in an
amount up to 15% of the current value of its total assets, and pledge
its assets to an extent not greater than 15% of the current value of
its total assets to secure such borrowings; however, the Fund may not
make any additional investments while its outstanding borrowings exceed
5% of the current value of its total assets.
3. Make loans, except that the Fund may purchase or hold a portion of an
issue of publicly distributed debt instru ments, purchase negotiable
certificates of deposit and bankers' acceptances, and enter into
repurchase agreements.
4. Invest more than 25% of the current value of its total assets in any
single industry (not including obligations of the U.S. Government or
its agencies and instrumentalities).
5. Underwrite the securities of other issuers, except to the extent that
in connection with the disposition of portfolio securities the Fund may
be deemed to be an underwriter under the Securities Act of 1933.
6. Purchase real estate or real estate mortgage loans, although the Fund
may purchase marketable securities of companies which deal in real
estate, real estate mortgage loans or interests therein.
7. Purchase securities on margin (except that the Fund may obtain such
short-term credits as may be necessary for the clearance of purchases
and sales of securities).
8. Purchase or sell commodities or commodity contracts, except that the
Fund may purchase and sell financial futures contracts and options on
financial futures contracts and engage in foreign currency exchange
transactions.
The following restrictions are not fundamental policies and may be
changed by the Trustees without shareholder approval, in accordance with
applicable laws, regulations or regulatory policy. The Fund may not:
a. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.
b. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.
c. Invest more than 15% of its assets in securities which are illiquid.
Small Capitalization Equity Fund and Small
Capitalization Equity Portfolio
As a matter of fundamental policy, the Small Cap Portfolio (Fund) may
not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction
-13-
<PAGE>
shall not apply to U.S. Government securities.
2. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
5. Purchase or sell commodities or commodity contracts except that the
Portfolio (Fund) may purchase and sell financial futures contracts and
options on financial futures contracts and engage in foreign currency
exchange transactions.
6. With respect to at least 75% of its total assets, invest more than 5%
in the securities of any one issuer (other than the U.S. Government,
its agencies or instrumentalities) or acquire more than 10% of the
outstanding voting securities of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio
(Fund) may borrow from banks in an amount up to 15% of the current
value of its total assets as a temporary measure for extraordinary or
emergency purposes (but not investment purposes), and pledge its assets
to an extent not greater than 15% of the current value of its total
assets to secure such borrowings; however, the Fund may not make any
additional investments while its outstanding borrowings exceed 5% of
the current value of its total assets.
8. Make loans of portfolio securities, except that the Portfolio (Fund)
may enter into repurchase agreements with respect to 10% of the value
of its net assets.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor
approval, in accordance with applicable laws, regulations or regulatory policy.
The Portfolio (Fund) may not:
a. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.
b. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.
c. Invest more than 15% of its net assets in securities which are
illiquid.
d. Purchase additional securities if the Fund's borrowings exceed 5% of
its net assets (this restriction is fundamental with respect to the
Fund, but not the Portfolio).
Notwithstanding any fundamental or non-fundamental policy, the Small
Cap Fund may invest all of its assets (other than assets which are not
"investment securities" (as defined in the 1940 Act) or are excepted by the SEC)
in an open-end management investment company with substantially the same
investment objective as the Small Cap Fund.
Small Capitalization Equity Fund II and Small
Capitalization Equity Portfolio II
As a matter of fundamental policy, the Small Cap Portfolio II (Fund)
may not:
1. Invest more than 25% of the current value of its total assets in any
single industry, provided that this restriction shall not apply to U.S.
Government
-14-
<PAGE>
securities or mortgage-backed securities issued or guaranteed as to
principal or interest by the U.S. Government, its agencies or
instrumentalities.
2. Issue senior securities. For purposes of this restriction, borrowing
money in accordance with paragraph 3 below, making loans in accordance
with paragraph 8 below, the issuance of shares of beneficial interest
in multiple classes or series, the deferral of trustees' fees, the
purchase or sale of options, futures contracts, forward commitments and
repurchase agreements entered into in accordance with the Portfolio's
(Fund's) investment policies or within the meaning of paragraph 6
below, are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed 33 1/3% of the value of
the Portfolio's (Fund's) total assets (including the amount borrowed)
taken at market value (i) from banks for temporary or short-term
purposes or for the clearance of transactions, (ii) in connection with
the redemption of portfolio shares or to finance failed settlements of
portfolio trades without immediately liquidating portfolio securities
or other assets, (iii) in order to fulfill commitments or plans to
purchase additional securities pending the anticipated sale of other
portfolio securities or assets and (iv) the Portfolio (Fund) may enter
into reverse repurchase agreements and forward roll transactions. For
purposes of this investment restriction, investments in short sales,
futures contracts, options on futures contracts, securities or indices
and forward commitments shall not constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that,
in connection with the disposition of portfolio securities, the
Portfolio (Fund) may be deemed to be an underwriter under the
Securities Act of 1933.
5. Purchase or sell real estate except that the Portfolio (Fund) may (i)
acquire or lease office space for its own use, (ii) invest in
securities of issuers that invest in real estate or interests therein,
(iii) invest in securities that are secured by real estate or interests
therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Portfolio (Fund) as a result
of the ownership of securities.
6. Purchase securities on margin (except that the Portfolio (Fund) may
obtain such short-term credits as may be necessary for the clearance of
purchases and sales of securities).
7. Purchase or sell commodities or commodity contracts, except the
Portfolio (Fund) may purchase and sell options on securities,
securities indices and currency, futures contracts on securities,
securities indices and currency and options on such futures, forward
foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in
accordance with the Portfolio's (Fund's) investment policies.
8. Make loans, except that the Portfolio (Fund) (1) may lend portfolio
securities in accordance with the Portfolio's (Fund's) investment
policies up to 33 1/3% of the Portfolio's (Fund's) total assets taken
at market value, (2) enter into repurchase agreements, and (3) purchase
all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
9. With respect to 75% of its total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities
or authorities or
-15-
<PAGE>
repurchase agreements collateralized by U.S. Government securities and
other investment companies), if: (a) such purchase would cause more
than 5% of the Portfolio's (Fund's) total assets taken at market value
to be invested in the securities of such issuer; or (b) such purchase
would at the time result in more than 10% of the outstanding voting
securities of such issuer being held by the Portfolio (Fund).
For purposes of the fundamental investment restriction (1) regarding
industry concentration, the adviser generally classifies issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission. In the absence of
such classification or if the Adviser determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Adviser may classify an issuer according to its own sources. For instance,
personal credit finance companies and business credit finance companies are
deemed to be separate industries and wholly-owned finance companies are
considered to be in the industry of their parents if their activities are
primarily related to financing the activities of their parents.
The following restrictions are not fundamental policies and may be
changed by the Trustees of the Portfolio Trust (Trust) without investor approval
in accordance with applicable laws, regulations or regulatory policy. The
Portfolio (Fund) may not:
a. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.
b. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act. c. Invest more than 15% of its net
assets in securities which are illiquid.
d. Purchase additional securities if the Fund's borrowings exceed 5% of
the its net assets.
Notwithstanding any fundamental or non-fundamental policy, the Small
Cap Fund II may invest all of its assets (other than assets which are not
"investment securities" (as defined in the 1940 Act) or are excepted by the SEC)
in an open-end investment company with substantially the same investment
objective as the Fund.
--------------------------------------------
If any percentage restriction described above is adhered to at the time
of investment, a subsequent increase or decrease in the percentage resulting
from a change in the value of a Fund's or a Portfolio's assets will not
constitute a violation of the restriction.
CALCULATION OF PERFORMANCE DATA
As indicated in the Prospectus, each Fund may, from time to time,
advertise certain total return and yield information. The average annual total
return of a Fund for a period is computed by subtracting the net asset value per
share at the beginning of the period from the net asset value per share at the
end of the period (after adjusting for the reinvestment of any income dividends
and capital gain distributions), and dividing the result by the net asset value
per share at the beginning of the period. In particular, the Funds' average
annual total return ("T") is computed by using the redeemable value at the end
of a specified period of time ("ERV") of a hypothetical initial investment of
$1,000 ("P") over a period of time ("n") according to the formula P(1+T)n=ERV.
-16-
<PAGE>
The Funds' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended December 31, 1996 and average
annualized yield for the 30-day period ended December 31, 1996 were as follows:
<TABLE>
<CAPTION>
Average Annual Total Return
--------------------------------------------------
Fund 1-Year 5-Year 10-Year
- ---- ------ ------ -------
<S> <C> <C> <C>
Equity Fund 26.84% 17.31% 19.84%1
----- ----- -----
Small Capitalization Equity Fund 17.36% 15.61% 22.28%2
----- ----- -----
Small Capitalization Equity Fund II 1.90%3 N/A N/A
----
International Equity Fund 7.44% 4.91% 5.42%4
---- ---- ----
- ---------------------------
1 Equity Fund commenced operations on June 2, 1991.
2 Small Capitalization Equity Fund commenced operations on September 1, 1990.
3 Small Capitalization Equity Fund II commenced operations on December 23, 1996.
4 International Equity Fund commenced operations on December 8, 1988.
</TABLE>
These performance quotations should not be considered as representative
of any Fund's performance for any specified period in the future.
In addition to average annual return quotations, the Funds may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis as follows:
Equity Fund
Quarter/Year Net Gross
- ---------------- ------------ -------------
1Q91 16.30% 16.50%
2Q91 (2.76) (2.53)
3Q91 6.15 6.42
4Q91 11.09 11.34
1991 36.36 34.62
1Q92 (2.77) (2.52)
2Q92 (2.63) (2.38)
3Q92 4.03 4.28
4Q92 11.20 10.74
1992 9.52 9.52
1Q93 7.71 7.91
2Q93 2.76 2.96
3Q93 6.64 6.84
4Q93 2.34 2.54
1993 20.79 21.72
1Q94 (2.30) (2.13)
2Q94 (3.14) (2.96)
3Q94 3.22 3.40
4Q94 (1.50) (1.33)
1994 (3.78) (3.10)
1Q95 8.76 8.93
2Q95 11.10 11.28
3Q95 9.56 9.74
4Q95 3.90 4.09
1995 37.55 38.46
1Q96 6.84 6.99
2Q96 2.69 2.87
3Q96 4.96 5.17
4Q96 10.16 10.33
1996 26.84 27.71
-17-
<PAGE>
Small Capitalization Equity Fund
Quarter/Year Net Gross
- ----------------- ------------- -------------
1Q91 28.41% 28.68%
2Q91 2.87 3.12
3Q91 12.58 12.73
4Q91 10.74 10.94
1991 64.71 65.95
1Q92 3.16 3.38
2Q92 (12.15) (11.92)
3Q92 7.23 7.52
4Q92 12.91 13.20
1992 9.74 10.83
1Q93 0.62 0.84
2Q93 3.45 3.70
3Q93 14.45 14.67
4Q93 7.63 7.83
1993 28.21 29.30
1Q94 (3.48) (3.29)
2Q94 (4.39) (4.19)
3Q94 5.90 6.11
4Q94 (1.42) (1.22)
1994 (3.66) (2.88)
1Q95 6.03 6.22
2Q95 2.55 2.73
3Q95 16.17 16.36
4Q95 2.80 2.98
1995 29.83 30.77
1Q96 6.60 6.80
2Q96 10.27 10.47
3Q96 (2.98) (2.80)
4Q96 (2.91) (3.11)
1996 17.36 18.24
Small Capitalization Equity Fund II
Quarter/Year Net Gross
- ----------------- ------------ -------------
4Q96 1.90% 1.90%
International Equity Fund
Quarter/Year Net Gross
- ----------------- ------------ -------------
1Q89 (0.75)% (0.05)%
2Q89 1.16 1.25
3Q89 11.97 12.37
4Q89 5.67 5.70
1989 18.79 20.20
1Q90 (0.10) 0.29
2Q90 5.81 6.21
3Q90 (18.32) (17.92)
4Q90 4.90 5.31
1990 (9.44) (7.93)
1Q91 6.65 6.96
2Q91 (3.03) (2.70)
3Q91 6.77 7.12
4Q91 1.18 1.64
1991 11.73 13.31
1Q92 (5.09) (4.75)
2Q92 0.62 1.05
3Q92 (5.20) (4.03)
4Q92 (0.55) (0.16)
1992 0.95 0.55
1Q93 7.23 7.57
2Q93 3.11 3.48
3Q93 8.45 8.77
4Q93 15.32 15.64
1993 38.27 40.01
1Q94 (5.87) (5.57)
2Q94 (0.06) 0.22
3Q94 2.84 3.17
4Q94 (3.87) (3.59)
1994 (6.99) (5.83)
1Q95 (5.07) (4.78)
2Q95 2.57 2.86
3Q95 2.41 2.68
4Q95 2.31 2.68
1995 2.01 3.26
1Q96 2.38 2.51
-18-
<PAGE>
2Q96 4.89 5.02
3Q96 (1.15) (1.03)
4Q96 1.22 1.34
1996 7.44 7.97
These performance quotations should not be considered as representative
of a Fund's performance for any specified period in the future. Each Fund's
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the Equity Fund may compare
its performance to the S&P 500 Index, which is generally considered to be
representative of the performance of unmanaged common stocks that are publicly
traded in the United States securities markets. The Small Cap Fund and Small Cap
II Fund may compare their performances to the Russell 2000 Index, which is
generally considered to be representative of unmanaged small capitalization
stocks in the United States markets, the Russell 2000 Growth Index, which is
generally considered to be representative of those Russell 2000 companies with
higher price-to-book ratios and forecasted growth, and the S&P 500 Index. The
International Equity Fund may compare its performance to Morgan Stanley Capital
International Index ("MSCI") and the Europe, Australia, Far East Index ("EAFE").
The EAFE- Index is generally considered to be representative of the performance
of unmanaged common stocks that are publicly traded in European, Australian and
Far Eastern securities markets and is based on month-end market capitalization.
Comparative performance may also be expressed by reference to a ranking prepared
by a mutual fund monitoring service or by one or more newspapers, newsletters or
financial periodicals. Performance comparisons may be useful to investors who
wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
MANAGEMENT
Trustees and Officers of the Trust and Portfolio Trust
The Trustees and executive officers of the Trust are listed below. The
Trustees of the Portfolio Trust are identical to the Trustees of the Trust. The
officers of the Portfolio Trust are Messrs. Clayson, Ladd, Wood, Hollis and
Martin, and Ms. Banfield, Chase, Herrmann and Kneeland, who hold the same office
with the Portfolio Trust as with the Trust. All executive officers of the Trust
and the Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc., the
Portfolio and the Fund's investment adviser.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Vice President and Trustee Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 through 1989, Senior V.P.
Arthur D. Little
-19-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer &
One Financial Center Wood, Inc. since 1990;
Boston, MA 02111 formerly President of Standish,
Ayer & Wood, Inc.
Director of
Standish International
Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
P.O. Box 5600 Director, Holyoke Mutual Insurance Company
Beverly Farms, MA 01915
*Richard S. Wood, 5/21/54 President and Trustee Vice President, Secretary,
c/o Standish, Ayer & Wood, Inc. and Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management Company,
L.P.
Richard C. Doll, 7/8/48 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President and Secretary Mutual Fund Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since October 1996; formerly Senior Vice
One Financial Center President, Treasurer and Chief Financial
Boston, MA 02111 Officer of Liberty Financial Bank Group (1993-
95); prior to 1993, Corporate Controller, The
Berkeley Financial Group
-20-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Caleb F. Aldrich, 9/20/57 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Beverly E. Banfield, 7/6/56 Vice President Vice President and Compliance Officer,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Assistant Vice President and
Boston, MA 02111 Compliance Officer,
Freedom Capital Management
Corp. (1989-1992)
Nicholas S. Battelle, 6/24/42 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Remi Browne, 10/15/53 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. Vice President and Chief Investment Officer of
One Financial Center Standish International Management Company,
Boston, MA 02111 L.P., prior to August 1996, Managing Director
Ark Asset Management Company
Walter M. Cabot, 1/16/33 Vice President Senior Adviser and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center prior to 1991, President,
Boston, MA 02111 Harvard Management Company
Senior Adviser and Director of
Standish International Management Company,
L.P.
David H. Cameron, 11/2/55 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management Company,
L.P.
Karen K. Chandor, 2/13/50 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Lavinia B. Chase, 6/4/46 Vice President Vice President, Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Susan B. Coan, 5/1/52 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-21-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
W. Charles Cook II, 7/16/63 Vice President Vice President, Associate Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President,
Boston, MA 02111 Standish International Management Company,
L.P.
Joseph M. Corrado, 5/13/55 Vice President Vice President, Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll, 2/17/48 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director, Standish International
Boston, MA 02111 Management Company, L.P.
Mark A. Flaherty, 4/24/59 Vice President Vice President, Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President
Boston, MA 02111 Standish International Management Company,
L.P.
Maria D. Furman, 2/3/54 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
Ann S. Higgins, 4/8/35 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Denise B. Kneeland, 8/19/51 Vice President Senior Operations, Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995 formerly
Boston, MA 02111 Vice President Scudder, Stevens and Clark
Raymond J. Kubiak, 9/3/57 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Phillip D. Leonardi, 4/24/62 Vice President Vice President, Standish, Ayer & Wood, Inc.
c/o Standish, Ayer & Wood, Inc. since November 1993; formerly,
One Financial Center Investment Sales,
Boston, MA 02111 Cigna Corporation (1993) and
Travelers Corporation (1984-1993)
-22-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
Laurence A. Manchester, 5/24/43 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes, 11/12/44 Vice President President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Director of
Boston, MA 02111 Standish International Management Company,
L.P.
Arthur H. Parker, 8/12/35 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Jennifer A. Pline, 3/8/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Howard B. Rubin, 10/29/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director
Boston, MA 02111 Standish International Management Company,
L.P.
Michael C. Schoeck, 10/24/55 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since August, 1993;
Boston, MA 02111 formerly, Vice President,
Commerzbank, Frankfurt,
Germany Vice President,
Standish International Management Company,
L.P.
Austin C. Smith, 7/25/52 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Stephen A. Smith, 3/13/49 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since November 2, 1993;
Boston, MA 02111 formerly, Consultant
Cambridge Associates
David C. Stuehr, 3/1/58 Vice President Vice President and Director
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-23-
<PAGE>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- -------------------------------------------- ----------------------------------- -------------------------------------------------
James W. Sweeney, 5/15/59 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center Executive Vice President and Director,
Boston, MA 02111 Standish International Management Company,
L.P.
Ralph S. Tate, 4/2/47 Vice President Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center April, 1990; formerly Vice
Boston, MA 02111 President, Aetna Life & Casualty
President and Director,
Standish International Management Company,
L.P.
Michael W. Thompson, 3/31/56 Vice President Vice President and Associate Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christopher W. Van Alstyne, 3/24/60 Vice President Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Formerly Regional Marketing Director,
Boston, MA 02111 Gabelli-O'Connor Fixed Income Management
* Indicates that Trustee is an interested person of the Trust for purposes of the 1940 Act.
</TABLE>
Compensation of Trustees and Officers
Neither the Trust nor the Portfolio Trust pays compensation to the
Trustees of the Trust or the Portfolio Trust that are affiliated with Standish
or to the Trust's and Portfolio Trust's officers. None of the Trustees or
officers have engaged in any financial transactions (other than the purchase or
redemption of the Funds' shares) with the Trust, the Portfolio Trust or the
Adviser during the year ended December 31, 1996.
The following table sets forth all compensation paid to the Trust's and
the Portfolio Trust's Trustees as of the Funds' fiscal years ended December 31,
1996:
<TABLE>
<CAPTION>
Aggregate Compensation from the Funds
Pension or
Retirement
Benefits
Accrued as Total Compensation
Small Small Part of from Funds and
Equity Capitalization Capitalization International Funds' Portfolio and Other
Name of Trustee Fund** Equity Fund** Equity Fund II** Equity Fund Expenses Funds in Complex*
--------------- ---- ----------- -------------- ----------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C>
D. Barr Clayson $0 $0 $0 $0 $0 $0
Samuel C. Fleming $851 $1,887 $2 $624 $0 $49,250
Benjamin M. Friedman $787 $1,743 $2 $576 $0 $45,500
-24-
<PAGE>
John H. Hewitt $787 $1,743 $2 $576 $0 $45,500
Edward H. Ladd $0 $0 $0 $0 $0 $0
Caleb Loring, III $787 $1,743 $2 $576 $0 $45,500
Richard S. Wood $0 $0 $0 $0 $0 $0
* As of the date of this Statement of Additional Information there were
20 funds in the fund complex. Total compensation is presented for the
calendar year ended December 31, 1996.
** The Fund bears its pro rata allocation of Trustees' fees paid by its
corresponding Portfolio to the Trustees of the Portfolio Trust.
</TABLE>
Certain Shareholders
Except as noted below for the Small Cap II Fund, at February 1, 1997,
Trustees and officers of the Trust and the Portfolio Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of each Fund. The Trustees and Officers of the Trust
as a group beneficially owned approximately 95% of the then outstanding shares
of the Small Cap II Fund at that date. At February 1, 1997, the Equity Fund,
Small Cap Fund and Small Cap II Fund, each beneficially owned approximately 100%
of the then outstanding interests of the Equity Portfolio, Small Cap Portfolio
and Small Cap II Portfolio, respectively, and therefore controlled their
corresponding Portfolios. Also at that date, no person beneficially owned 5% or
more of the then outstanding shares of any Fund except:
Equity Fund
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- ------------------------
Saturn & Co. 14%
FBO The Boston Home
P.O. Box 1537
Boston, MA 02205
Shipley Company, Inc. 8%
455 Forest Street
Marlborough, MA 01752
Teamsters Local Union 918 5%
Pension Fund
2137-47 Utica Avenue
Brooklyn, NY 11234
Small Capitalization Equity Fund
Percentage of
Name and Address Outstanding Shares
- -------------------------------- --------------------------
Bingham, Dana & Gould 8%
Trust Department
150 Federal Street
Boston, MA 02110
Rosemount Aerospace Profit 6%
Sharing Plan
Norwest Bank Minnesota, N.A.
Trustee
733 Marquette Avenue MS 0036
Minneapolis, MN 55479
Citibank, FSB as Trustee for 6%
Lutheran Health Systems
Employee's Pension Plan
c/o Citibank
111 Wall Street, 20th Floor
New York, NY 10043
Small Capitalization Equity Fund II
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- -----------------------
Edward H. Ladd 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Christina D. Wood* 20%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dolores S. Driscoll 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
-25-
<PAGE>
Richard C. Doll 10%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Maria D. Furman 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Arthur H. Parker 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
James E. Hollis 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Walter M. Cabot 6%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
George W. Noyes 5%
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Dorothy G. Battelle+
c/o Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
*Christina D. Wood is the wife of Richard S. Wood, President
and Trustee of the Trust
+Dorothy G. Battelle is the wife of Nicholas S. Battelle, a Vice
President of the Trust
International Equity Fund
Percentage of
Name and Address Outstanding Shares
- ---------------------------------- ------------------------
Allendale Mutual Insurance Co. 8%
P. O. Box 7500
Johnston, RI 02919
NationsBank of Texas, NA 7%
TTEE FBO
Keystone Thermometrics Master
Trust
P.O. BOX 831575
Dallas, TX 75283
Lumber Mutual Insurance 7%
One Speen Street
Framingham, MA 01701
First Union National Bank 7%
Cannon Foundation
a/c# 1028851439
401 S. Tryon St. CMG 1151
Charlotte, NC 28288
Fletcher Allen Health Care 7%
Depreciation Fund
One Burlington Square
Burlington, VT 05401
Trustees of Reservations 6%
572 Essex STreet
Beverly, MA 01915
OLSEN & Co. 6%
P.O. Box 92800
Rochester, NY 14692
Bingham Dana & Gould 5%
Trust Department
150 Federal Street
Boston, MA 02110
*Because the shareholder beneficially owned more than 25% of the then
outstanding shares of the indicated Fund, the shareholder was considered to
control such Fund. As a controlling person, the shareholder may be able to
determine whether a proposal submitted to the shareholders of such Fund will be
approved or disapproved.
Investment Adviser
Standish serves as the adviser to the Equity Portfolio, Small Cap
Portfolio and Small Cap II Portfolio pursuant to written investment advisory
agreements. Prior to the close of business on May 3, 1996, Standish managed
directly the assets of the Equity and Small Cap Funds pursuant to investment
advisory agreements. These agreements were terminated by Equity and Small Cap
Funds on such date subsequent to the approval by the Funds' shareholders on
March 29, 1996 to implement certain changes in the Funds' investment
restrictions which enable the Funds to invest all of their investable assets in
the Equity Portfolio and Small Cap Portfolio, respectively. Standish is a
Massachusetts corporation organized in 1933 and is registered under the
Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of Standish, are the Standish controlling persons: Caleb F.
Aldrich, Nicholas S. Battelle, Walter M. Cabot, Sr., David H. Cameron, Karen K.
Chandor, D. Barr
-26-
<PAGE>
Clayson, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria D.
Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd, Laurence A.
Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin, Austin C. Smith,
David C. Stuehr, James J. Sweeney, Ralph S. Tate, and Richard S. Wood.
SIMCO serves as investment adviser to the International Equity Fund
pursuant to an investment advisory agreement. SIMCO is a Delaware limited
partnership which was organized in 1991 and is a registered investment adviser
under the Investment Advisers Act of 1940. The general partner of SIMCO is
Standish, which holds a 99.98% partnership interest. The limited partners, who
each hold a 0.01% interest in SIMCO, are Walter M. Cabot, Sr., a Director and
Adviser to SIMCO and a Director and Senior Adviser to Standish, and D. Barr
Clayson, Chairman of the Board of SIMCO and a Managing Director of Standish.
Ralph S. Tate, a Managing Director of Standish, is President and a Director of
SIMCO. Richard S. Wood, a Vice President and director of Standish and the
President of the Trust, is the Executive Vice President of SIMCO.
Certain services provided by the Adviser under the advisory agreements
are described in the Prospectus. These services are provided without
reimbursement by the Portfolios or the International Equity Fund for any costs
incurred. In addition to those services, the Adviser provides the Intermittent
Equity Fund (but not the Portfolios) with office space for managing their
affairs, with the services of required executive personnel, and with certain
clerical services and facilities. Under the investment advisory agreements, the
Adviser is paid a fee based upon a percentage of the Intermittent Equity Fund's
or the applicable Portfolio's average daily net asset value computed as set
forth below. The advisory fees are payable monthly.
Fund Contractual Advisory Fee Rate
(as a percentage of average daily net assets)
Equity Portfolio 0.50%
Small Capitalization Equity Portfolio 0.60%
Small Capitalization Equity Portfolio II 0.60%
International Equity Fund 0.80%
During the last three fiscal years ended December 31, the Funds and the
Portfolios paid advisory fees in the following amounts:
-27-
<PAGE>
<TABLE>
<CAPTION>
Fund 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Fund 422,731 555,164 163,5301
Equity Portfolio N/A N/A 345,3012
Small Capitalization Equity Fund 557,359 871,879 396,7961
Small Capitalization Equity Portfolio N/A N/A 920,7422
Small Capitalization Equity Fund II N/A N/A 03
Small Capitalization Equity Portfolio II N/A N/A 62
International Equity Fund 841,166 704,283 7,841
- ------------------------
1 Equity Fund and Small Capitalization Fund were converted to the master/feeder
fund structure on May 3, 1996 and do not pay directly advisory fees after that
date. Each such Fund bears its pro rata allocation of its corresponding
Portfolio's expenses, including advisory fees.
2 The Equity Portfolio and Small Capitalization Portfolio commenced operations
on April 26, 1996.
3 The Small Capitalization Equity II commenced operations on December 23, 1996.
The Adviser voluntarily agreed not to impose its advisory fee for the period
through December 31, 1996.
</TABLE>
Pursuant to the investment advisory agreements, each Portfolio and the
International Equity Fund bears expenses of its operations other than those
incurred by the Adviser pursuant to the investment advisory agreement. Among
other expenses, and the International Equity Fund and the Portfolios will pay
share pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and Trustees' fees and expenses.
The Adviser has voluntarily agreed to limit certain "Total Fund
Operating Expenses" (excluding brokerage commissions, taxes, litigation,
indemnification and other extraordinary expenses) to 1.60% per annum of the
International Equity Fund's average daily net assets. This agreement is
voluntary and temporary and may be discontinued or revised by the Adviser at any
time.
Unless terminated as provided below, the investment advisory agreements
continue in full force and effect from year to year but only so long as each
such continuance is approved annually (i) by either the Trustees of the Trust or
the Portfolio Trust (as applicable) or by the "vote of a majority of the
outstanding voting securities" of the International Equity Fund or the
applicable Portfolio, and, in either event (ii) by vote of a majority of the
Trustees of the Trust or the Portfolio Trust (as applicable) who are not parties
to the investment advisory agreement or "interested persons" (as defined in the
1940 Act) of any such party, cast in person at a meeting called for the purpose
of voting on such approval. Each investment advisory agreement may be terminated
at any time without the payment of any penalty by vote of the Trustees of the
Trust or the Portfolio Trust or by the "vote of a majority of the outstanding
voting securities" of the International Equity Fund or the applicable Portfolio
or by the Adviser, on sixty days' written notice to the other parties. The
investment advisory agreements terminate in the event of their assignment as
defined in the 1940 Act.
In an attempt to avoid any potential conflict with portfolio
transactions for the International Equity Fund and the Portfolios, the Adviser,
the Principal Underwriter, the Trust and the Portfolio Trust have each adopted
extensive restrictions on personal securities trading by
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<PAGE>
personnel of the Adviser and its affiliates. These restrictions include:
pre-clearance of all personal securities transactions and a prohibition of
purchasing initial public offerings of securities. These restrictions are a
continuation of the basic principle that the interests of the International
Equity Fund and its shareholders, and the Portfolios and their investors, come
before those of the Adviser and its employees.
Administrator of the Fund
Standish also serves as the administrator ("Fund Administrator") to the Equity
Fund, Small Cap Fund and Small Cap II Fund pursuant to written administration
agreements with the Trust on behalf of these Funds. Certain services provided by
the Fund Administrator under the administration agreements are described in the
Prospectus. For these services, the Fund Administrator currently does not
receive any additional compensation. The Trustees of the Trust may, however,
determine in the future to compensate the Fund Administrator for its
administrative services. Each of the Equity Fund, Small Cap Fund and Small Cap
II Fund's administration agreements can be terminated by either party on not
more than sixty days' written notice.
Administrator of the Portfolio
IBT Trust Company (Cayman) Ltd., P.O. Box 501, Grand Cayman, Cayman
Islands, BWI, serves as the administrator to each of the Portfolios (the
"Portfolio Administrator") pursuant to written administration agreements with
the Portfolio Trust on behalf of each Portfolio. The Portfolio Administrator
provides the Portfolio Trust with office space for managing its affairs, and
with certain clerical services and facilities. For its services to the Portfolio
Trust, the Portfolio Administrator currently receives a fee from each Portfolio
in the amount of $7,500 annually. The Portfolios' administration agreements can
be terminated by either party on not more than sixty days' written notice.
Distributor of the Funds
Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of the Adviser, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for each Fund's shares. In
that capacity, the Principal Underwriter has been granted the right, as agent of
the Trust, to solicit and accept orders for the purchase of each Fund's shares
in accordance with the terms of the Underwriting Agreement between the Trust and
the Principal Underwriter. Pursuant to the Underwriting Agreement, the Principal
Underwriter has agreed to use its best efforts to obtain orders for the
continuous offering of each Fund's shares. The Principal Underwriter receives no
commissions or other compensation for its services, and has not received any
such amounts in any prior year. The Underwriting Agreement shall continue in
effect with respect to each Fund until two years after its execution and for
successive periods of one year thereafter only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by the Trustees of the Trust or (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Underwriting Agreement, cast in
person at a meeting called for the purpose of voting on such approval. The
Underwriting Agreement will terminate automatically if assigned by either party
thereto and is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or, with respect to a Fund, by a vote of the
holders of a majority of the Fund's outstanding shares, in any case without
payment of any penalty on not more than 60 days' written notice to the other
party. The offices of the Principal Underwriter are located at One Financial
Center, 26th Floor, Boston, Massachusetts 02111.
REDEMPTION OF SHARES
Detailed information on redemption of shares is included in the
Prospectus. The Trust may suspend the right to redeem Fund shares or postpone
the date of payment upon redemption for more than seven days (i) for any period
during which the New York Stock Exchange is closed (other than customary weekend
or holiday closings) or trading on the exchange is restricted; (ii) for any
period during which an emergency exists as a result of which disposal by a Fund
of securities owned by it or determination by a Fund of the value of its net
assets is not reasonably practicable; or (iii) for such other periods as the SEC
may permit for the protection of shareholders of a Fund.
-29-
<PAGE>
The Trust intends to pay redemption proceeds in cash for all Fund
shares redeemed but, under certain conditions, the Trust may make payment wholly
or partly in portfolio securities, in conformity with a rule of the SEC.
Portfolio securities paid upon redemption of Fund shares will be valued at their
then current market value. The Trust, on behalf of each of its series, has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
limits each Fund's obligation to make cash redemption payments to any
shareholder during any 90-day period to the lesser of $250,000 or 1% of the
Fund's net asset value at the beginning of such period. An investor may incur
brokerage costs in converting portfolio securities received upon redemption to
cash. Each Portfolio has advised the Trust that the Portfolio will not redeem
in-kind except in circumstances in which the applicable Fund is permitted to
redeem in-kind or except in the event the applicable Fund completely withdraws
its interest from the Portfolio.
PORTFOLIO TRANSACTIONS
The Adviser is responsible for placing the International Equity Fund's
and each Portfolio's portfolio transactions and will do so in a manner deemed
fair and reasonable to the International Equity Fund and the Portfolios and not
according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, the Adviser will consider the firm's reliability, the quality of
its execution services on a continuing basis and its financial condition. When
more than one firm is believed to meet these criteria, preference may be given
to firms which also sell shares of the Funds. In addition, if the Adviser
determines in good faith that the amount of commissions charged by a broker is
reasonable in relation to the value of the brokerage and research services
provided by such broker, the International Equity Fund and the Portfolios may
pay commissions to such broker in an amount greater than the amount another firm
may charge. Research services may include (i) furnishing advice as to the value
of securities, the advisability of investing in, purchasing or selling
securities, and the availability of securities or purchasers or sellers of
securities, (ii) furnishing analyses and reports concerning issuers, industries,
securities, economic factors and trends, portfolio strategy, and the performance
of accounts, and (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research
services furnished by firms through which the International Equity Fund and the
Portfolios effect their securities transactions may be used by the Adviser in
servicing other accounts; not all of these services may be used by the Adviser
in connection with the Fund or the Portfolio generating the soft dollar credits.
The investment advisory fee paid by the International Equity Fund and the
Portfolios under the investment advisory agreements will not be reduced as a
result of the Adviser's receipt of research services.
The Adviser also places portfolio transactions for other advisory
accounts. The Adviser will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities for the
International Equity Fund or a Portfolio and another advisory account. In some
cases, this procedure could have an adverse effect on the price or the amount of
securities available to the International Equity Fund or a Portfolio. In making
such allocations, the main factors considered by the Adviser will be the
respective investment objectives, the relative size of portfolio holdings of the
same or comparable securities, the availability of cash for investment, the size
of investment commitments generally held, and opinions of the persons
responsible for recommending the investment.
-30-
<PAGE>
<TABLE>
<CAPTION>
BROKERAGE COMMISSIONS
Aggregate Brokerage
Commissions Paid by the Fund
or portfolio transactions
Fund 1994 1995 1996
- ---- ---- ---- ----
<S> <C> <C> <C>
Equity Fund1 $287,545 $416,680 _____
Equity Portfolio2 N/A N/A _____8
Small Capitalization Equity Fund3 $512,334 $859,777 _____
Small Capitalization Equity Portfolio4 N/A N/A _____8
Small Capitalization Equity Fund II5 N/A N/A N/A
Small Capitalization Equity Portfolio II6 N/A N/A _____
International Equity Fund7 $240,006 $439,738 _____
1 At December 31, 1996, the Fund did not hold any securities of its
regular brokers or dealers. The Fund was converted to the master-feeder
structure on May 3, 1996 and does not directly pay brokerage
commissions after that date. The Fund bears its pro rata share of
brokerage commissions paid by its corresponding Portfolio.
2 At December 31, 1996, the Portfolio held the following amounts of securities of its regular brokers or dealers.
3 At December 31, 1996, the Fund did not hold any securities of its regular brokers or dealers. The Fund was converted
to the master-feeder structure on May 3, 1996 and does not directly pay
brokerage commissions after that date. The Fund bears its pro rata
share of brokerage commissions paid by its corresponding Portfolio.
4 At December 31, 1996, the Portfolio held the following amounts of securities of its regular brokers or dealers.
5 At December 31, 1996, the Fund did not hold any securities of its regular brokers or dealers. The Fund is a Feeder
Fund in the master-feeder structure and does not directly pay brokerage
commissions but bears its pro rata share of brokerage commissions paid
by its corresponding Portfolio.
6 At December 31, 1996, the Portfolio held the following amouns of securities of its regular brokers or dealers.
7 At December 31, 1996, the Fund held the following amounts of securities of its regular brokers or dealers.
8 The Portfolio commenced operations on May 3, 1996.
</TABLE>
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated each day on which the New
York Stock Exchange is open (a "Business Day"). Currently, the New York Stock
Exchange is not open on weekends, New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The net asset value of each Fund's shares is determined as of the close of
regular trading on the New York Stock Exchange (normally 4:00 p.m., New York
City time) and is computed by dividing the value of all securities and other
assets of a Fund (substantially all of which, in the case of the Equity Fund,
Small Cap Fund and Small Cap II Fund will be represented by the Fund's interest
in its corresponding Portfolio) less all liabilities by the applicable number of
Fund shares outstanding, and adjusting to the nearest cent per share. Expenses
and fees of each Fund are accrued daily and taken into account for the purpose
of determining net asset value.
The value of a Portfolio's net assets (i.e., the value of its
securities and other assets less its liabilities, including expenses payable or
accrued) is determined at the same time and on the same days as the net asset
value per share of the Equity, Small Cap and Small Cap II Funds is determined.
Each investor in a Portfolio may add to or reduce its investment in the
Portfolio on each Business Day. As of 4:00 p.m. (Eastern time) on each Business
Day, the value of each investor's interest in a Portfolio will be determined by
multiplying the net asset value of the Portfolio by the percentage representing
that investor's share of the aggregate beneficial interests in the Portfolio.
Any additions or reductions which are to be effected on that day will then be
effected. The investor's percentage of the aggregate beneficial interests in a
Portfolio will then be recomputed as the percentage equal to the fraction (i)
the numerator of which is the value of such investor's investment in the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of net additions to or
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<PAGE>
reductions in the investor's investment in the Portfolio effected on such day,
and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of 4:00 p.m. on such day plus or minus, as the case may be, the
amount of the net additions to or reductions in the aggregate investments in the
Portfolio by all investors in the Portfolio. The percentage so determined will
then be applied to determine the value of the investor's interest in a Portfolio
as of 4:00 p.m. on the following Business Day.
Portfolio securities are valued at the last sale prices on the exchange
or national securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for which
there were no reported transactions, are valued at the last quoted bid price.
Securities for which quotation are not readily available and all other assets
are valued at fair value as determined in good faith at the direction of the
Trustees.
Money market instruments with less than sixty days remaining to
maturity when acquired by a Fund or Portfolio are valued on an amortized cost
basis. If a Fund acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the Trustees of the Trust or the Portfolio
Trust determine during such sixty-day period that amortized cost does not
represent fair value.
Generally, trading in securities on foreign exchanges is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. If a security's primary exchange is outside the U.S.,
the value of such security used in computing the net asset value of a Fund's
shares is determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of regular trading on the New York Stock Exchange and will therefore
not be reflected in the computation of the Funds' net asset value. If events
materially affecting the value of such securities occur during such period, then
these securities are valued at their fair value as determined in good faith by
the Trustees of the Trust or the Portfolio Trust.
THE FUNDS AND THEIR SHARES
Each Fund is an investment series of the Trust, an unincorporated
business trust organized under the laws of The Commonwealth of Massachusetts
pursuant to an Agreement and Declaration of Trust dated August 13, 1986. Under
the Agreement and Declaration of Trust, the Trustees of the Trust have authority
to issue an unlimited number of shares of beneficial interest, par value $.01
per share, of each Fund. Each share of a Fund represents an equal proportionate
interest in the Fund with each other share and is entitled to such dividends and
distributions as are declared by the Trustees. Shareholders are not entitled to
any preemptive, conversion or subscription rights. All shares, when issued, will
be fully paid and non-assessable by the Trust. Upon any liquidation of a Fund,
shareholders of that Fund are entitled to share pro rata in the net assets
available for distribution.
Pursuant to the Declaration, the Trustees may create additional funds
by establishing additional series of shares in the Trust. The establishment of
additional series would not affect the interests of current shareholders in any
Fund. The Trustees have established other series of the Trust. Pursuant to the
Declaration, the Board may establish and issue multiple classes of shares for
each series of the Trust. As of the date of this Statement of Additional
Information, the Trustees do not have any plan to establish multiple classes of
shares for the Funds. Pursuant to the Declaration of Trust and subject to
shareholder approval (if then required by applicable law), the Trustees may
authorize each Fund to invest all of its investable assets in a single open-end
investment company that has substantially the same investment objectives,
policies and restrictions as the Fund. As of the date of this Statement of
Additional Information, the Equity, Small Cap and Small Cap II Funds invest all
of their investible assets in other open-end investment companies.
All Fund shares have equal rights with regard to voting, and
shareholders of a Fund have the right to vote as a separate class with respect
to matters as to which their interests are not
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<PAGE>
identical to those of shareholders of other classes of the Trust, including the
approval of an investment advisory contract and any change of investment policy
requiring the approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of his or its liability as a shareholder of the Trust
is limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Declaration also provides that no series of the Trust is liable for
the obligations of any other series. The Trustees intend to conduct the
operations of the Trust to avoid, to the extent possible, ultimate liability of
shareholders for liabilities of the Trust.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to a Portfolio, the Trust will hold
a meeting of the associated Fund's shareholders and will cast its vote
proportionately as instructed by the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Subject to applicable statutory and
regulatory requirements, a Fund would not request a vote of its shareholders
with respect to (a) any proposal relating to the Portfolio, which proposal, if
made with respect to the Fund, would not require the vote of the shareholders of
the Fund, or (b) any proposal with respect to the Portfolio that is identical in
all material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in a Portfolio, and
that is not required to be voted on by shareholders of the Fund, would
nonetheless be voted on by the Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a
newly formed trust and, like their corresponding Fund, is an open-end management
investment company under the Investment Company Act of 1940, as amended. The
Portfolio Trust was organized as a master trust fund under the laws of the State
of New York on January 18, 1996.
Interests in a Portfolio have no preemptive or conversion rights, and
are fully paid and non-assessable, except as set forth in the Prospectus. A
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. A Portfolio would be required to hold a meeting of
holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of a Portfolio continue
to hold office until their successors are elected and have qualified. Holders
holding a specified percentage of interests in a Portfolio may call a meeting of
holders in the Portfolio for the purpose of removing any Trustee. A Trustee of
the Portfolio may be removed upon a majority vote of the interests held by
holders in the Portfolio qualified to vote in the election. The 1940 Act
requires a Portfolio to assist its holders in calling such a meeting. Upon
liquidation of a Portfolio, holders in a Portfolio would be entitled to share
pro rata in the net assets of a Portfolio available for distribution to holders.
Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each Funds, is treated as a
separate entity for accounting and tax purposes. Each Fund has qualified and
elected or intends to elect to be treated as a "regulated investment company"
("RIC") under Subchapter M of the Code, and intends to continue to so qualify in
the future. As such and by complying with the applicable provisions of the Code
regarding the sources of its income, the timing of its distributions, and the
diversification of its assets, each Fund will not be
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<PAGE>
subject to Federal income tax on its investment company taxable income (i.e.,
all taxable income, after reduction by deductible expenses, other than its "net
capital gain," which is the excess, if any, of its net long-term capital gain
over its net short-term capital loss) and net capital gain which are distributed
to shareholders in accordance with the timing requirements of the Code.
Each Portfolio is treated as a partnership for federal income tax
purposes. As such, a Portfolio is not subject to federal income taxation.
Instead, the corresponding Fund must take into account, in computing its federal
income tax liability (if any), its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items, without regard to whether
it has received any cash distributions from the Portfolio. Because the Equity
Fund, Small Cap Fund and Small Cap II Fund invest their assets in the Equity,
Small Cap and Small Cap II Portfolios, respectively, each Portfolio normally
must satisfy the applicable source of income and diversification requirements in
order for the corresponding Fund to satisfy them. Each Portfolio will allocate
at least annually among its investors, including the corresponding Fund each
investor's distributive share of that Portfolio's net investment income, net
realized capital gains, and any other items of income, gain, loss, deduction or
credit. Each Portfolio will make allocations to the corresponding Fund in a
manner intended to comply with the Code and applicable regulations and will make
moneys available for withdrawal at appropriate times and in sufficient amounts
to enable the corresponding Fund to satisfy the tax distribution requirements
that apply to it and that must be satisfied in order for the Fund to avoid
Federal income and/or excise tax. For purposes of applying the requirements of
the Code regarding qualification as a RIC, the Equity Fund, Small Cap Fund and
Small Cap II Fund each will be deemed (i) to own its proportionate share of each
of the assets of the corresponding Portfolio and (ii) to be entitled to the
gross income of the corresponding Portfolio attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on
certain amounts not distributed (and not treated as having been distributed) on
a timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by the
Funds during October, November or December of the year but paid during the
following January. Such distributions will be taxable to taxable shareholders as
if received on December 31 of the year the distributions are declared, rather
than the year in which the distributions are received.
Each Fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the Funds qualify as regulated investment companies under
the Code, they will also not be required to pay any Massachusetts income tax.
Each Fund will not distribute net capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, a Fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the Fund and, as noted above, would not be distributed as such
to shareholders. .
Limitations imposed by the Code on regulated investment companies like
the Funds may restrict a Fund's or a Portfolio's ability to enter into futures,
options or currency forward transactions.
Certain options, futures or currency forward transactions undertaken by
a Fund or a Portfolio may cause the Fund or Portfolio to recognize gains or
losses from marking to market even though the Fund's or Portfolio's positions
have not been sold or terminated and affect the character as long-term or
short-term (or, in the case of certain options, futures or forward contracts
relating to foreign currency, as ordinary income or loss) and timing of some
capital gains and losses realized by the International Equity Fund or realized
by a Portfolio and allocable to the corresponding Fund. Any net mark to market
gains may also have to be distributed by a Fund to satisfy the distribution
requirements referred to above even though no corresponding cash amounts may
concurrently be received, possibly requiring the disposition of portfolio
securities or borrowing to obtain the necessary cash. Also, certain losses on
transactions involving options,
-34-
<PAGE>
futures or forward contracts and/or offsetting or successor positions may be
deferred rather than being taken into account currently in calculating the
Funds' taxable income or gain. Certain of the applicable tax rules may be
modified if a Fund or a Portfolio is eligible and chooses to make one or more of
certain tax elections that may be available. These transactions may affect the
amount, timing and character of a Fund's distributions to shareholders. Each
Fund will take into account the special tax rules applicable to options, futures
or forward contracts in order to minimize any potential adverse tax
consequences.
The Federal income tax rules applicable to currency swaps or interest
rate swaps, caps, floors and collars are unclear in certain respects, and a Fund
or Portfolio may be required to account for these instruments under tax rules in
a manner that, under certain circumstances, may limit its transactions in these
instruments.
Foreign exchange gains and losses realized by a Portfolio and the
International Equity Fund in connection with certain transactions, if any,
involving foreign currency-denominated debt securities, certain foreign currency
futures and options, foreign currency forward contracts, foreign currencies, or
payables or receivables denominated in a foreign currency are subject to Section
988 of the Code, which generally causes such gains and losses to be treated as
ordinary income and losses and may affect the amount, timing and character of
Fund distributions to shareholders. In some cases, elections may be available
that would alter this treatment. Any such transactions that are not directly
related to the Portfolios' or the International Equity Fund's investment in
stock or securities, possibly including speculative currency positions or
currency derivatives not used for hedging purposes, may increase the amount of
gain a Fund is deemed to recognize from the sale of certain investments held for
less than three months, which gain (or share of such gain in the case of the
Equity Fund, Small Cap Fund and Small Cap II Fund plus any such gain the Funds
may realize from other sources) is limited under the Code to less than 30% of
each Fund's gross income for its taxable year, and could under future Treasury
regulations produce income not among the types of "qualifying income" from which
each Fund must derive at least 90% of its gross income for its taxable year.
Each Portfolio and the International Equity Fund may be subject to
withholding and other taxes imposed by foreign countries with respect to
investments in foreign securities. Tax conventions between certain countries and
the U.S. may reduce or eliminate such taxes in some cases. Investors in a Fund
would be entitled to claim U.S. foreign tax credits with respect to such taxes,
subject to certain provisions and limitations contained in the Code, only if
more than 50% of the value of the applicable Fund's total assets (in the case of
a Fund that invests in a Portfolio, taking into account its allocable share of
the Portfolio's assets) at the close of any taxable year were to consist of
stock or securities of foreign corporations and the Fund were to file an
election with the Internal Revenue Service. Because the investments of the
Portfolios are such that each Fund that invests in a Portfolio expects that it
generally will not meet this 50% requirement, shareholders of each such Fund
generally will not directly take into account the foreign taxes, if any, paid by
the corresponding Portfolio and will not be entitled to any related tax
deductions or credits. Such taxes will reduce the amounts these Funds would
otherwise have available to distribute.
The International Equity Fund may meet the 50% threshold referred to in
the previous paragraph and may therefore file an election with the Internal
Revenue Service pursuant to which shareholders of the Fund will be required to
(i) include in ordinary gross income (in addition to taxable dividends actually
received) their pro rata shares of foreign income taxes paid by the Fund even
though not actually received by them, and (ii) treat such respective pro rata
portions as foreign income taxes paid by them.
If the International Equity Fund makes this election, shareholders may
then deduct such pro rata portions of foreign income taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable limitations, against their U.S. Federal income taxes. Shareholders
who do not itemize deductions for Federal income tax purposes will not, however,
be able to deduct their pro rata portion of foreign income taxes paid by the
International Equity Fund, although such shareholders will be required to
include their share of such taxes in gross income. Shareholders who claim a
foreign tax credit for such foreign
-35-
<PAGE>
taxes may be required to treat a portion of dividends received from the
International Equity Fund as a separate category of income for purposes of
computing the limitations on the foreign tax credit. Tax exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that the
International Equity Fund files the election described above, its shareholders
will be notified of the amount of (i) each shareholder's pro rata share of
foreign income taxes paid by the Fund and (ii) the portion of Fund dividends
which represents income from each foreign country.
If a Portfolio or the International Equity Fund acquires stock in
certain foreign corporations that receive at least 75% of their annual gross
income from passive sources (such as interest, dividends, rents, royalties or
capital gain) or hold at least 50% of their assets in investments producing such
passive income ("passive foreign investment companies"), the relevant Fund could
be subject to Federal income tax and additional interest charges on "excess
distributions" actually or constructively received from such companies or gain
from the actual or deemed sale of stock in such companies, even if all income or
gain actually realized is timely distributed to its shareholders. They would not
be able to pass through to their shareholders any credit or deduction for such a
tax. Certain elections may, if available, ameliorate these adverse tax
consequences, but any such election would require them to recognize taxable
income or gain without the concurrent receipt of cash. The Portfolios and the
International Equity Fund may limit and/or manage stock holdings, if any, in
passive foreign investment companies to minimize each Fund's tax liability or
maximize its return from these investments.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Funds' Prospectus whether taken in shares or in cash.
Distributions, if any, in excess of E&P will constitute a return of capital,
which will first reduce an investor's tax basis in Fund shares and thereafter
(after such basis is reduced to zero) will generally give rise to capital gains.
Shareholders electing to receive distributions in the form of additional shares
will have a cost basis for federal income tax purposes in each share so received
equal to the amount of cash they would have received had they elected to receive
the distributions in cash, divided by the number of shares received.
For purposes of the dividends received reduction available to
corporations, dividends received by a Portfolio and allocable to its
corresponding Fund, if any, from U.S. domestic corporations in respect of the
stock of such corporations held by the Portfolio, for U.S. Federal income tax
purposes, for at least a minimum holding period, generally 46 days, and
distributed and designated by the Fund may be treated as qualifying dividends.
The International Equity Fund is unlikely to earn a substantial amount of
qualifying dividends, but the Portfolios' dividend income, if any, probably will
generally qualify for this deduction. Corporate shareholders must meet the
minimum holding period requirements referred to above with respect to their
shares of the applicable Fund in order to qualify for the deduction and, if they
borrow to acquire or otherwise incur debt attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability.
Additionally, any corporate shareholder should consult its tax adviser
regarding the possibility that its basis in its shares may be reduced, for
Federal income tax purposes, by reason of "extraordinary dividends" received
with respect to the shares, for the purpose of computing its gain or loss on
redemption or other disposition of the shares.
At the time of an investor's purchase of Fund shares, a portion of the
purchase price may be attributable to undistributed net investment income and/or
realized or unrealized appreciation in the Fund's portfolio (or share of a
Portfolio's portfolio). Consequently, subsequent distributions by a Fund on such
shares from such income and/or appreciation may be taxable to such investor even
if the net asset value of the investor's shares is, as a result of the
distributions, reduced below the investor's cost for such shares, and the
distributions economically represent a return of a portion of the purchase
price.
-36-
<PAGE>
Upon a redemption (including a repurchase) of shares of a Fund, a
shareholder may realize a taxable gain or loss, depending upon the difference
between the redemption proceeds and the shareholder's tax basis in his shares.
Such gain or loss will generally be treated as capital gain or loss if the
shares are capital assets in the shareholder's hands and will be long-term or
short-term, depending upon the shareholder's tax holding period for the shares,
subject to the rules described below. Any loss realized on a redemption may be
disallowed to the extent the shares disposed of are replaced with other shares
of the same Fund within a period of 61 days beginning 30 days before and ending
30 days after the shares are disposed of, such as pursuant to automatic dividend
reinvestments. In such a case, the basis of the shares acquired will be adjusted
to reflect the disallowed loss. Any loss realized upon the redemption of shares
with a tax holding period of six months or less will be treated as a long-term
capital loss to the extent of any amounts treated as distributions of long-term
capital gain with respect to such shares.
Different tax treatment, including penalties on certain excess
contributions and deferrals, certain pre-retirement and post-retirement
distributions and certain prohibited transactions, is accorded to accounts
maintained as qualified retirement plans. Shareholders should consult their tax
adviser for more information.
The foregoing discussion relates solely to U.S. Federal income tax law
as applicable to U.S. persons (i.e., U.S. citizens or residents and U.S.
domestic corporations, partnerships, trusts or estates) subject to tax under
such law. The discussion does not address special tax rules applicable to
certain classes of investors, such as tax-exempt entities, insurance companies,
and financial institutions. Dividends, capital gain distributions, and ownership
of or gains realized on the redemption (including an exchange) of Fund shares
may also be subject to state and local taxes. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent, if any, a Fund's distributions are derived from interest on (or, in the
case of intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fixed Income Fund's indirect ownership (through the
Portfolio) of any such obligations, as well as the Federal, and any other state
or local, tax consequences of ownership of shares of, and receipt of
distributions from, a Fund in their particular circumstances.
Non-U.S. investors not engaged in a U.S. trade or business with which
their investment in a Fund is effectively connected will be subject to U.S.
Federal income tax treatment that is different from that described above. These
investors may be subject to nonresident alien withholding tax at the rate of 30%
(or a lower rate under an applicable tax treaty) on amounts treated as ordinary
dividends from the Fund and, unless an effective IRS Form W-8 or authorized
substitute is on file, to 31% backup withholding on certain other payments from
the Fund. Non-U.S. investors should consult their tax adviser regarding such
treatment and the application of foreign taxes to an investment in the Funds.
ADDITIONAL INFORMATION
The Prospectus and this Statement of Additional Information omit
certain information contained in the registration statement filed with the SEC,
which may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
EXPERTS AND FINANCIAL STATEMENTS
Except as noted in the next sentence, each Fund's financial statements
contained in the 1996 Annual Reports of the Funds have been audited by Coopers &
Lybrand L.L.P., independent accountants, and are incorporated by reference into
and attached to this Statement of Additional Information. Financial highlights
of Equity Fund, International Equity Fund and Small Cap Fund for periods from
commencement of operations through December 31, 1992 were audited by Deloitte &
Touche, LLP, independent auditors. The Equity Portfolio, Small Cap Portfolio and
Small Cap II Portfolio's financial statements contained in their corresponding
Fund's 1996 Annual Report have been audited by Coopers & Lybrand, an affiliate
of Coopers & Lybrand L.L.P.
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<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Nineteen ninety six was an excellent year for the U.S. equity market with the
S&P 500 enjoying a total return of 22.96% for the full year. For the same
twelve-month period, the Standish Equity Fund enjoyed a total return of 26.84%.
During 1996, there was a marked pattern of performance being differentiated by
capitalization group. Beginning in the late spring of the year, small and medium
capitalization stocks began to trail in terms of relative performance and by
year end a significant performance gap had developed. For the full year, the S&P
Mid-Cap 400 Index showed a total return of 19.20% while the Frank Russell 2000,
an index covering smaller capitalization stocks, showed a gain of only 16.53%.
By industry sector, the best groups within the S&P 500 in 1996 were Financials
and Technology stocks with both groups registering gains of over 30%.
Performance was relatively evenly dispersed, however, with eight of nine sectors
showing a gain of over 15% for the year.
Only the Utility group lagged (with a total return of just over 1%).
Within the Standish Equity Fund, performance was hurt by the fact that our
average capitalization is smaller than that of the S&P 500. Despite this
performance drag arising from our capitalization profile, returns exceeded the
index return due to strong stock selection results. Particularly notable was
performance in Consumer Cyclicals, Technology, and Financials where our results
for the year were ahead of the comparable S&P groups. In addition, we were
helped by modest underweightings in Utilities and Basic Industries - two sectors
where performance lagged that of the broad market.
Our stock selection process is driven by proprietary modeling techniques that
utilize a combination of valuation and earnings growth measures to determine the
relative attractiveness of equity securities. We are committed to the consistent
application of our selection disciplines. In 1996 those disciplines once again
provided us with a very positive starting point for our portfolio construction
process. For the full year, stocks ranked in the top ten percent of our universe
outperformed the universe by over 9.5%. The best performing of our indicators
for the year was the Estimate Trend factor, indicating stocks where estimates
are rising. Our consistent adherence to risk control disciplines and a well
diversified, fully invested fund positioning was also important.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Equity
Fund have been invested in a "Portfolio" entity, having substantially the same
investment objective, policies and restrictions as the corresponding fund. The
fund in which you are invested is now considered a "Spoke," sharing in the
activities of the Portfolio proportionately according to its relative size.
We are very pleased to be able to report another strong year for the Standish
Equity Fund and are grateful to our shareholders for their continuing support.
We remain focused on the Fund's investment success and are pleased to be working
on your behalf.
Ralph S. Tate
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Equity Fund and the S&P 500 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Equity Fund
compared with the S&P 500 Index for the period January 2, 1991 to December 31,
1996, based upon a $100,000 investment. Also included are the average annual
total returns for one year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Equity Portfolio, (Portfolio) at value (Note 1A) $ 106,277,516
Other assets 2,576
----------------
Total assets 106,280,092
Liabilities
Distribution payable $ 285,108
Payable for Fund shares redeemed 125,000
Accrued trustee fees 484
Accrued expenses and other liabilities 14,718
--------------
Total liabilities 425,310
----------------
Net Assets $ 105,854,782
================
Net Assets consist of:
Paid-in capital $ 81,035,794
Undistributed net investment income (loss) 88,950
Accumulated net realized gain (loss) 7,655,446
Net unrealized appreciation (depreciation) 17,074,592
----------------
Total $ 105,854,782
================
Shares of beneficial interest outstanding 2,728,741
================
Net asset value, offering price and redemption price per share $ 38.79
================
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B):
Interest income $ 77,789
Dividend income (net of withholding tax of $3,380) 612,003
Interest income allocated from Portfolio 117,893
Dividend income allocated from Portfolio (net of withholding tax of $1,452) 1,453,073
Expenses allocated from Portfolio (479,297)
--------------
Total income 1,781,461
Expenses
Investment advisory fee (Note 3) $ 163,530
Accounting, custodian, and transfer agency fees 46,088
Trustee fees 1,627
Legal and audit services 32,621
---------------
Total expenses 243,866
Deduct:
Waiver of investment advisory fee (Note 3) (12,085)
---------------
Net expenses 231,781
--------------
Net investment income (loss) 1,549,680
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities 3,307,925
Financial futures 164,221
Net realized gain (loss) from Portfolio on:
Investment securities 12,874,303
Financial futures 428,300
---------------
Net realized gain (loss) 16,774,749
Change in unrealized appreciation (depreciation):
Investment securities 3,350,428
Financial futures (58,213)
From Portfolio 3,404,697
---------------
Net change in unrealized appreciation (depreciation) 6,696,912
--------------
Net realized and unrealized gain (loss) 23,471,661
--------------
Net increase (decrease) in net assets resulting from operations $ 25,021,341
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 1,549,680 $ 2,196,110
Net realized gain (loss) 16,774,749 21,564,705
Change in net unrealized appreciation (depreciation) 6,696,912 10,229,026
----------------- ----------------------
Net increase (decrease) in net assets from operations 25,021,341 33,989,841
----------------- ----------------------
Distributions to shareholders
From net investment income (1,481,454) (2,203,103)
From net realized gains on investments (11,604,448) (8,605,084)
----------------- ----------------------
Total distributions to shareholders (13,085,902) (10,808,187)
----------------- ----------------------
Fund share (principal) transactions (Note 6)
Net proceeds from sale of shares 21,565,418 32,648,683
Net asset value of shares issued to shareholders
in payment of distributions declared 12,463,945 10,246,215
Cost of shares redeemed (28,642,403) (64,134,926)
----------------- ----------------------
Increase (decrease) in net assets from Fund share transactions 5,386,960 (21,240,028)
----------------- ----------------------
Net increase (decrease) in net assets 17,322,399 1,941,626
Net Assets:
At beginning of period 88,532,383 86,590,757
----------------- ----------------------
At end of period (including undistributed net investment income
of $88,950 and distributions in excess of net investment income of
$20,274 at December 31, 1996 and 1995, respectively) $ 105,854,782 $ 88,532,383
================= ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Highlights
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 34.81 $ 28.66 $ 30.89 $ 26.28 $ 25.66
------------ ------------- ------------- ------------- -----------
Income from investment operations:
Net investment income ** 0.60 0.76 0.45 0.50 0.56
Net realized and unrealized gain
(loss) on investments 8.52 9.94 (1.62) 5.57 1.81
------------ ------------- ------------- ------------- -----------
Total from investment operations 9.12 10.70 (1.17) 6.07 2.37
------------ ------------- ------------- ------------- -----------
Less distributions to shareholders:
From net investment income (0.56) (0.78) (0.44) (0.47) (0.54)
From net realized gains on investments (4.58) (3.77) (0.62) (0.99) (1.19)
From paid-in capital --- --- --- --- (0.02)
------------ ------------- ------------- ------------- -----------
Total distributions declared to shareholders (5.14) (4.55) (1.06) (1.46) (1.75)
------------ ------------- ------------- ------------- -----------
Net asset value - end of period $ 38.79 $ 34.81 $ 28.66 $ 30.89 $ 26.28
============ ============= ============= ============= ===========
Total Return 26.84% 37.55% (3.78%) 20.79% 9.52%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) ** 0.71% 0.69% 0.70% 0.80% 0.00%
Net investment income ** 1.53% 2.05% 1.55% 1.29% 2.52%
Portfolio turnover (2) 41% 159% 182% 192% 92%
Average broker commission rate (2) $ 0.0499 $
Net assets, end of period (000's omitted) $ 105,855 $ 88,532 $ 86,591 $ 72,916 $ 14,679
* Audited by other auditors.
** For the year ended December 31, 1996 and the two year period ended December 31, 1993, the investment adviser did not impose
a portion of its advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income per share $ 0.59 $ 0.47 $ 0.34
Ratios (to average daily net assets):
Expenses (1) 0.72% 0.97% 1.00%
Net Investment income 1.52% 1.12% 1.52%
(1Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio are shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Equity Fund (the "Fund") is a separate diversified
investment series of the Trust. On May 3, 1996, the Fund contributed
substantially all of its investable assets to the Standish Equity
Portfolio (the "Portfolio"), a subtrust of Standish, Ayer & Wood Master
Portfolio (the "Portfolio Trust"), which is organized as a New York
trust, in exchange for an interest in the Portfolio. The Fund invests
all of its investable assets in the interests in the Portfolio, which
has the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio (approximately 100% at December 31,
1996). The performance of the Fund is directly affected by the
performance of the Portfolio. The financial statements of the Portfolio
are included elsewhere in this report and should be read in conjunction
with the Fund's financial statements. The following is a summary of
significant accounting policies followed by the Fund in the preparation
of the financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
C. Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all the investors in the
Portfolio.
(2) ....Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
<PAGE>
(3) ....Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.50% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.71% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $12,085 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund pays no compensation directly to its trustees
who are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Fund from SA&W. Certain of the
trustees and officers of the Trust are directors or officers of SA&W.
(4) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
Investments $38,138,153 $37,334,991
================== ==================
(5) ....Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$113,559,410 and $25,080,761, respectively.
(6) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------------------------------
<S> <C> <C>
Shares sold 561,325 932,595
Shares issued to shareholders in payment of distributions declared 325,504 294,939
Shares redeemed (701,269) (1,705,536)
------------------- -----------------------
Net increase (decrease) 185,560 (478,002)
=================== =======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Equity Fund: We have audited the accompanying statement of assets
and liabilities of Standish, Ayer & Wood Investment Trust: Standish Equity Fund
(the "Fund"), as of December 31, 1996, and the related statement of operations
for the year then ended, changes in the net assets for each of the two years in
the period then ended and financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 1992, presented
herein, were audited by other auditors, whose report, dated February 12, 1993,
expressed an unqualified opinion on such financial highlights. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Equities - 97.8%
- -------------------------------------------------------------------------
Basic Industry - 5.7%
- -------------------------------------------------------------------------
<S> <C> <C>
Avery-Dennison Corp. 44,400 1,570,650
Bemis Co 14,800 545,750
Cleveland-Cliffs Inc. 7,700 349,388
Dexter Corp. 15,500 494,063
Morton International Inc. 12,200 497,150
Oakwood Homes Corp. 22,100 505,538
Potash Corp. of Saskatchewan 7,000 595,000
PPG Industries Inc. 18,100 1,015,863
Southdown Inc. 15,600 485,550
----------------
6,058,952
----------------
Capital Goods - 10.6%
- -------------------------------------------------------------------------
Case Corp. 12,300 670,350
Caterpiller Tractor Inc. 9,700 729,925
Crane Company 16,200 469,800
Deere & Co. 28,600 1,161,875
Dover Corp. 9,600 482,400
Duriron Inc. 12,100 328,213
Harnischfeger Industries Inc. 9,700 466,813
Ingersoll Rand Co 21,400 952,300
JLG Industries Inc 30,600 489,600
McDonnell Douglas Corp. 32,400 2,073,600
Timken Co. 15,900 729,413
Trinity Industries 13,200 495,000
United Technologies Corp. 34,000 2,244,000
----------------
11,293,289
----------------
Consumer Cyclical - 13.2%
- -------------------------------------------------------------------------
AMR Corp.* 10,000 881,250
Black & Decker Corp. 32,600 982,075
Carnival Corp. 55,400 1,828,200
Chrysler Corp. 65,700 2,168,100
Claire's Stores Inc. 32,900 427,700
Dayton-Hudson Corp. 27,600 1,083,300
Jones Apparel Group Inc.* 50,800 1,898,650
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Consumer Cyclical - (continued)
- -------------------------------------------------------------------------
Leggett & Platt Inc. 21,500 744,425
Price/Costco Inc.* 21,300 535,163
Ross Stores Inc. 23,200 1,160,000
TJX Companies Inc. 13,100 620,613
UAL Corp.* 27,700 1,731,250
----------------
14,060,726
----------------
Consumer Stable - 14.4%
- -------------------------------------------------------------------------
Alberto Culver Company, Class B 10,700 513,600
American Stores Co 23,500 960,563
Conagra Inc. 29,500 1,467,625
Dean Foods Company 17,500 564,375
Eastman Kodak Company 18,400 1,476,600
First Brands Corp. 27,100 768,963
Food Lion Inc. 86,800 849,008
Great Atlantic & Pacific Tea Co 14,600 465,375
Kingworld Productions Inc.* 33,600 1,239,000
Omnicom Group 21,500 983,625
Philip Morris Companies, Inc. 15,500 1,745,688
Safeway Inc.* 25,200 1,077,300
Universal Foods Corp 16,500 581,625
Wallace Computer Services 60,000 2,070,000
Washington Post Co. 1,400 469,175
----------------
15,232,522
----------------
Energy - 9.4%
- -------------------------------------------------------------------------
Atlantic Richfield Co. 5,700 755,250
British Petroleum Plc 23,684 3,348,395
Camco International Inc. 12,600 581,175
Phillips Petroleum Co. 36,100 1,597,425
Reading & Bates Corp.* 17,000 450,500
Texaco Inc. 24,400 2,394,250
Unocal Corp. 20,500 832,813
----------------
9,959,808
----------------
Financial - 13.4%
- -------------------------------------------------------------------------
American Bankers Insurance Group 21,900 1,119,638
BankAmerica Corp. 10,400 1,037,400
Cigna Corp. 14,800 2,022,050
Comerica Inc. 23,700 1,241,288
Conseco Inc. 18,400 1,173,000
First Chicago NBD Corp 9,200 494,500
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Financial - (continued)
- -------------------------------------------------------------------------
First Union Corp (N.E.) 17,000 1,258,000
Mercantile Bankshares 16,600 531,200
Old Republic International Corp. 17,000 454,750
Regions Financial Corp. 19,000 982,063
Reliastar Financial Corp. 22,200 1,282,050
Southtrust Corp. 28,100 979,988
Travelers Group Inc. 34,700 1,574,513
----------------
14,150,440
----------------
Health Care - 9.7%
- -------------------------------------------------------------------------
Abbott Laboratories 24,100 1,223,075
Amgen Inc.* 12,800 696,000
Beckman Instruments Inc. 11,000 422,125
Bristol-Myers Squibb Co 19,300 2,098,875
Coherent Inc.* 24,300 1,026,675
Lincare Holdings Inc.* 25,700 1,053,700
Merck & Co. Inc. 13,400 1,061,950
Schering-Plough Corp. 23,200 1,502,200
Sybron International Corp* 17,400 574,200
Watson Pharmaceutical Inc.* 14,700 660,581
----------------
10,319,381
----------------
Reits - 2.2%
- -------------------------------------------------------------------------
Beacon Properties Corp. 16,700 611,638
General Growth Properties 15,900 512,775
Patriot American Hospitality 11,700 504,563
Starwood Lodging Trust 13,000 716,625
----------------
2,345,601
----------------
Technology - 11.4%
- -------------------------------------------------------------------------
Advanced Technology Labs Inc.* 17,800 551,800
Belden Inc. 9,700 358,900
Cadence Design Systems Inc* 20,600 818,850
Compaq Computer* 9,700 720,225
Computer Associates Intl Inc. 22,400 1,114,400
Dell Computer Corp.* 21,000 1,115,625
Harris Corp.Inc. 25,600 1,756,800
Intel Corp. 15,400 2,016,438
Raychem Corp. 12,900 1,033,613
Sci Sys Inc.* 17,200 767,550
Storage Technology Corp.* 20,800 990,600
Sun Microsystems Corp.* 35,200 904,200
----------------
12,149,001
----------------
Value
Security Rate Maturity Shares (Note 1A)
- ------------------------------------------------------------------------- ------- --------- --------------- ----------------
Utilities - 7.8%
- -------------------------------------------------------------------------
Ameritech Corp. 32,100 1,946,063
Bellsouth Corp 25,800 1,041,675
CMS Energy Corp. 26,900 904,513
DQE Inc. 20,550 595,950
DTE Energy Company 23,900 773,763
FPL Group Inc. 17,000 782,000
Nynex Corp 22,800 1,097,250
Panenergy Corp. 26,300 1,183,500
----------------
8,324,714
----------------
Total Equities (Cost $86,830,426) 103,894,434
----------------
Short-Term Investments - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $2,108,307 (Collateralized by Par
FNMA FNARM with a rate of 6.084% and a maturity date of Value
-------------
12/01/35 with a market value of $2,149,790. 2,107,637 2,107,637
----------------
U.S. Government Agency - 0.1%
- -------------------------------------------------------------------------
FNMA ** 5.40% 1/17/1997 150,000 149,348
----------------
Total Short-Term Investments (Cost $2,256,985) 2,256,985
----------------
Total INVESTMENTS (Cost $89,087,411) - 99.9% 106,151,419
Other Assets less Liabilities - 0.1% 126,215
----------------
NET ASSETS - 100.0% 106,277,634
================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security is pledged as collateral for margin deposits (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C>
Investments, at value (Note 1A) (identified cost, $89,087,411) $ 106,151,419
Interest and dividends receivable 219,299
Deferred organizational costs (Note 1E) 85,593
----------------
Total assets 106,456,311
Liabilities:
Payable for daily variation margin on open
financial futures contracts (Note 5) $ 99,571
Payable to investment adviser (Note 1E) 40,912
Accrued trustee fees 582
Accrued expenses and other liabilities 37,612
--------------
Total liabilities 178,677
----------------
Net Assets (applicable to investors' beneficial interests) $ 106,277,634
================
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 117,893
Dividend income (net of withholding tax of $1,452) 1,453,074
---------------
Total income 1,570,967
Expenses
Investment advisory fee (Note 2) $ 345,301
Custodian and accounting expenses 81,888
Legal and audit services 23,672
Amortization of organization expense (Note 1E) 10,067
Trustee fees (Note 2) 2,459
Miscellaneous 15,910
---------------
Total expenses 479,297
---------------
Net investment income (loss) 1,091,670
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities 12,874,316
Financial futures 428,300
---------------
Net realized gain (loss) 13,302,616
Change in unrealized appreciation (depreciation)
Investment securities 3,338,425
Financial futures 66,274
---------------
Change in net unrealized appreciation (depreciation) 3,404,699
---------------
Net realized and unrealized gain (loss) 16,707,315
---------------
Net increase (decrease) in net assets from operations $ 17,798,985
===============
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 1,091,670
Net realized gain (loss) 13,302,616
Change in net unrealized appreciation (depreciation) 3,404,699
----------------
Net increase (decrease) in net assets from operations 17,798,985
----------------
Capital transactions
Assets contributed by Standish Equity Fund at commencement
(including unrealized gain of $13,669,897) 97,994,616
Contributions 15,564,794
Withdrawals (25,080,761)
----------------
Increase in net assets resulting from capital transactions 88,478,649
----------------
Total increase (decrease) in net assets 106,277,634
Net Assets
At beginning of period ---
----------------
At end of period $ 106,277,634
================
</TABLE>
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Supplementary Data
Statement of Changes in Net Assets
For the Period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.69 % *
Net investment income 1.58 % *
Portfolio Turnover 78 %
Average broker commission per share $ 0.048(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Equity Portfolio Series (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued on an amortized cost basis. If the Portfolio
acquires a short term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth
day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transaction and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.50% of the Portfolio's average daily
net assets. The Portfolio pays no compensation directly to its trustees
who are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Portfolio from SA&W . Certain of
the trustees and officers of the Portfolio Trust are directors or
officers of SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than purchased
option transactions and short-term obligations, were as follows:
Purchases Sales
Investments $75,936,681 $81,731,354
================== ==================
(4) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $89,104,533
Gross unrealized appreciation $17,849,184
Gross unrealized depreciation (802,298)
-------------------
Net unrealized appreciation $17,046,886
===================
(5) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
<PAGE>
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The Portfolio entered into the following
transactions during the period May 3, 1996 through December 31, 1996:
# of Contracts Premiums
-------------- --------
Written Calls
Outstanding, Beginning of Period 0 $0
Options Written 1 27,974
Options Exercised 0 0
Options Expired 0 0
Options Closed (1) (27,974)
------------------- -------------------
Outstanding, End of Period 0 $0
------------------- -------------------
Futures Contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or index,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio had entered into the following financial futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ----------------------------- ------------------------- ------------------------------------ --------------
<S> <C> <C> <C> <C>
S+P 500 (5 Contracts) Long 03/21/97 $1,861,250 $10,588
==================================== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient cash
and/or securities to cover margin requirements on open futures
contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Equity Portfolio: We have audited the accompanying statement of assets
and liabilities of Standish Equity Portfolio, including the portfolio of
investments as of December 31, 1996, and the related statement of operations,
the statement of changes in net assets and the supplementary data for the period
from May 3, 1996 (commencement of operations) to December 31, 1996. These
financial statements and supplementary data are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and supplementary data based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Equity Portfolio as of December 31, 1996, and the results
of its operations, changes in its net assets and supplementary data for the
respective stated period, in conformity with United States generally accepted
accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
Standish, Ayer & Wood Investment Trust
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Management Discussion
The international equity markets did not provide as exciting returns for US
investors in 1996 as did our domestic market. The return of the MSCI EAFE was
6.04%. The Standish International Equity Fund return was 7.44% while its
benchmark, which changed back from EAFE GDP in December to EAFE, was 7.24%. The
fund was ahead of its benchmark for virtually the entire year but gave up much
of its incremental return in the second half due to negative experience in
emerging markets.
For the year, there were fairly attractive gains in many foreign markets, with
twelve of the twenty EAFE markets providing returns in excess of 20% in local
currencies. In fact, the strong US return placed it below median in local market
returns of countries in the MSCI World Index. Unfortunately, Japan--with the
largest weighting in EAFE--was a notable exception, off 4.9% for the year in
local terms. The dollar strengthened against most currencies, increasing 4.7%
against an EAFE-weighted basket of currencies.
The fund had most of the extremes--best and worst markets--correctly positioned
in 1996, as we were overweight Spain--the strongest market in the index--and
underweight Singapore and Switzerland--two of the weakest markets-- for
virtually the entire year. Our largest overweights for the year were in
Scandinavia, especially Finland (up 33.9% in dollar terms) and Norway (up 28.6%
in dollar terms). Our largest underweights besides Switzerland were in Germany
and the United Kingdom which were up mid-teens in local terms.
Our Japanese weighting during the course of the year averaged out to a very
slight overweight. Even this small overweight hurt performance against our
benchmark and in comparison with other managers, who were generally
underweighted. Most price multiples in Japan are at relatively low historical
levels and earnings are growing. Meanwhile, ten-year bond yields are at 2.6%.
Emerging markets performed relatively well in the first half of 1996, and the
fund benefited from its position in emerging markets, which averaged returns of
approximately 15% in the first half. Performance reversed in the second half of
1996, resulting in a return for the year of only 3.9%, even lower than that of
EAFE. We had reduced our position in emerging markets to less than 5% of the
fund by year end, but the decline in return of this area had an adverse impact
on the fund return in the latter half of the year.
In December we began implementing some exciting enhancements to the fund. We
began using active stock selection techniques which we believe will add value
within markets. These techniques are similar to those used by Standish in our
core equity fund and are based on investment models developed during twelve
years of experience managing international equity portfolios. We will be
focusing on stocks that have attractive valuation (i.e. low price multiples
relative to history) and improving growth prospects. The other significant
change, alluded to in the first paragraph, is the reversion to use of
cap-weighted EAFE as our benchmark. Cap-weighted EAFE rather than GDP EAFE is
the industry standard and was the fund's benchmark from 1988 until 1995. The
discontinuities of the GDP weighted benchmark and its lack of connection to
liquidity considerations make it too cumbersome for continued use.
Finally, we would like to thank all of our shareholders for your continued
support. We are working diligently to earn and reward that support in 1997.
Remi Browne
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Comparison of Change in Value of $100,000 Investments in Standish
International Equity Fund, the EAFE GDP Index and the EAFE Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish International
Equity Fund compared with the EAFE GDP Index and the EAFE Index for the period
December 8, 1988 to December 31, 1996, based upon a $100,000 investment. Also
included are the average annual total returns for one year, five year, and since
inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund Series
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Equities - 96.6%
- ---------------------------------
Austria - 3.4%
- ---------------------------------
<S> <C> <C>
BWT STAMM 2,200 $ 227,439
Creditanstalt-Bankverein 7,800 528,215
Creditanstalt-Bkverein:Vorzug 1,500 69,290
Ea-Generali AG 500 147,820
Oemv AG * 3,300 372,256
Radex-Heraklith Indust. AG 9,200 291,537
---
--------------
1,636,557
-----------------
Belgium - 3.0%
- ---------------------------------
Almanij 800 262,212
Banque Bruxelles Lampert SA * 1,200 254,523
Electrabel SA 1,000 236,685
Groupe Bruxelles Lambert SA * 1,800 231,737
Petrofina SA 800 254,649
Tessenderlo Chemie 400 171,762
---
--------------
1,411,568
-----------------
Denmark - 3.6%
- ---------------------------------
Danisco As 3,569 216,879
Den Danske Bank 4,165 335,813
DFDS A/S 350 258,432
FLS Industries As Cl B 1,559 199,794
Novo-Nordisk As 1,803 339,709
Tele Danmark Cl B 6,566 362,221
---
--------------
1,712,848
-----------------
Finland - 2.0%
- ---------------------------------
Nokia Corp. ADR A 7,000 402,500
Pohjola Insurance Company, Class A 7,400 172,101
Upm-Kymmeme 9,440 198,000
Valmet Cl A 10,000 174,752
---
--------------
947,353
-----------------
France - 3.0%
- ---------------------------------
Banque National De Paris 4,900 189,531
Bertrand Faure 4,800 186,859
Casino French Ord 3,500 162,882
CGIP 500 137,821
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
France - (continued)
- ---------------------------------
Elf Gabon SA 900 $ 229,702
ERAMET SLN 1,900 99,547
Europe 1 Communication 700 148,319
SEITA 6,500 271,694
---
--------------
1,426,355
-----------------
Germany - 5.3%
- ---------------------------------
Commerzbank AG 17,700 449,250
Heidelberger Zement AG * 5,700 460,662
Kolbenschmidt AG * 30,700 422,486
Muenchener Rueckversicherungs-Gesellschaft AG 180 449,270
Puma AG 11,400 386,290
Viag AG 900 352,872
---
--------------
2,520,830
-----------------
Hong Kong - 4.8%
- ---------------------------------
Elec & Eltek International 1,320,000 290,110
Great Eagle Holdings Ltd 157,000 647,485
Guoco Group Ltd 74,000 414,247
Harbour Centre Development 150,000 221,073
Hong Kong Telecom 83,000 133,594
New Asia Realty & Trust Co., Class A 81,000 298,972
Swire Pacific Ltd., Class A 30,000 286,037
---
--------------
2,291,518
-----------------
Ireland - 4.1%
- ---------------------------------
Allied Irish Banks PLC 68,300 458,038
Avonmore Foods PLC, Class A 34,000 100,187
CRH PLC 12,100 122,841
CRH PLC 16,600 172,046
DCC PLC 22,300 97,434
Fii Fyffes PLC 1 197,700 368,285
Hibernian Group PLC 47,000 226,844
Smurfit (Jefferson) Group 142,700 433,784
---
--------------
1,979,459
-----------------
Italy - 4.8%
- ---------------------------------
Banca Popolare Di Milano 58,000 294,162
Danieli & Company 36,000 295,418
ENI SPA 101,000 518,830
Parmalat Finanziaria SPA 76,000 116,076
Telecom Italia SPA 228,000 591,389
Unipol-PTC Pfd 222,000 453,061
---
--------------
2,268,936
-----------------
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - 32.6%
- ---------------------------------
Ajinomoto Co Inc 16,000 $ 162,576
Aoyama Trading Company Ltd 15,000 397,830
Asahi Glass Co Ltd 31,000 290,967
Canon Inc. 17,000 374,752
Chugoku Bank Ltd 27,000 395,247
Credit Saison 24,000 535,262
Daikin Industries Ltd 43,000 381,383
Fanuc Company 9,000 287,523
Fuji Bank 25,000 363,816
Fuji Heavy Industry 90,000 362,697
Fuji Photo Film 10,000 328,942
Furukawa Company Ltd 100,000 335,831
Hokkaido Electric Power 8,000 157,065
Honda Motor Company Ltd 10,000 285,025
Industrial Bank of Japan 23,000 398,088
Japan Energy Corp 88,000 238,698
Japan Radio 37,000 395,074
Joyo Bank 56,000 336,588
Kawasaki Kisen Kaisha Ltd * 200,000 454,663
Komori Corp. 20,000 423,663
Kubota Corp. 52,000 250,306
Kurabo Industries 121,000 343,839
Kyushu Electric Power Company 20,000 387,497
Mitsubishi Gas Chemical Company 106,000 380,625
Mitsui Petrochemical 57,000 294,498
Mochida Pharmaceutical 37,000 356,841
NEC Corp. 13,000 156,721
Nippon Denso Corp. 12,000 288,298
Nissan Fire & Marine Insurance 87,000 479,463
Nitto Boseki Company Ltd * 126,000 341,772
Ono Pharmaceutical 17,000 505,037
Rinnai Corp 13,000 260,828
Seventy Seven Bank * 43,000 351,761
Shionogi & Company 49,000 348,945
Sumitomo Heavy Industries * 54,000 163,679
Sumitomo Warehouse 89,000 448,334
Suzuki Motor Company Ltd 40,000 365,108
Takashimaya Company 39,000 466,804
Takeda Chemical Industries Ltd 13,000 272,023
Takuma Company 25,000 273,400
Teijin Limited 53,000 230,931
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - (continued)
- ---------------------------------
Tokyo Broadcasting 34,000 $ 518,212
Toshiba Tungaloy 59,000 261,138
Toyo Suisan Kaisha Ltd 37,000 369,586
Yamaguchi Bank 25,000 365,969
Yodogawa Steel Works 29,000 176,053
---
--------------
15,563,358
-----------------
Malaysia - 4.3%
- ---------------------------------
Arab Malaysian Finance Berhad 48,000 256,532
Faber Group Berhad * 115,000 109,264
IGB Corporation 140,000 155,740
Landmarks Berhad 100,000 133,017
Malayan Cement Berhad 105,000 241,093
Pan-Malaysian Cement Works 115,000 116,093
Renong Berhad 144,000 255,392
Shell Refining Company Berhad 74,000 216,785
Systems Telekom Malaysia 29,000 258,314
Tan Chong Motor Holdings Berhad 117,000 198,242
UMW Holdings Berhad 27,000 126,128
---
--------------
2,066,600
-----------------
Norway - 5.2%
- ---------------------------------
Den Norske Bank 87,200 335,332
Elkem A/S, Series A * 12,600 207,660
Kvaerner Cl B 6,267 272,478
Leif Hoegh & Company 13,000 265,264
Norsk Hydro 14,379 780,903
Orkla As A-Aksjer * 6,137 430,582
Saga Petroleum As Cl A 12,300 206,577
---
--------------
2,498,796
-----------------
Singapore - 2.0%
- ---------------------------------
Creative Technology Ltd * 16,000 166,857
Development Bank of Singapore 20,000 270,000
Hong Kong Land Holdings Ltd * 37,000 102,860
Mandarin Oriental 93,000 131,130
Robinson & Co. 31,000 125,107
Singapore Airlines Ltd. 3,000 27,214
Singapore Telecom Ltd. 58,000 136,714
---
--------------
959,882
-----------------
<PAGE>
Value
Security Rate + Maturity Shares (Note 1A)
- --------------------------------- -------------- ----------- --------------- -----------------
Spain - 2.1%
- ---------------------------------
Banco de Santander 4,181 $ 267,365
Grupo Anaya SA 7,500 139,958
Iberdrola SA 27,274 386,181
Telefonica Nacional de Espana 9,274 215,168
---
--------------
1,008,672
-----------------
United Kingdom - 16.4%
- ---------------------------------
Arjo Wiggins Appleton PLC 108,000 330,964
Bank of Scotland * 74,000 390,199
British Petroleum Company PLC * 67,000 803,502
British Telecommunications PLC 45,000 304,308
Glaxo Wellcome PLC 25,200 408,990
Great Portland Estates PLC 135,000 481,885
Guinness PLC 47,000 369,330
Hazlewood Foods PLC 192,000 350,070
Hepworth PLC 69,000 299,454
HSBC Holdings PLC 23,000 514,644
Royal & Sun Alliance Insurance Group 60,500 461,949
Scottish Hydro-Electric PLC 55,000 308,845
Scottish Power PLC 51,500 311,233
Scottish Newcastle Breweries * 38,500 452,486
South West Water PLC 47,500 490,360
Storehouse PLC 101,000 446,978
Tesco PLC 72,500 440,626
Tomkins PLC 71,000 328,190
Unigate PLC 50,000 355,668
---
--------------
7,849,681
-----------------
TOTAL Equities (Cost $45,007,533) 46,142,413
-----------------
Short-Term Investments - 2.6%
- ---------------------------------
Par
Federal Agency Discount Notes - 2.6% Value
- ------------------------------------------------ -------------
FHLB + 5.300% 3/12/1997 $ 225,000 222,658
FNMA + 5.220% 1/16/1997 1,000,000 997,830
---
--------------
TOTAL Short-Term Investments (Cost $1,220,506) 1,220,488
-----------------
TOTAL INVESTMENTS (Cost $46,228,039) - 99.2% 47,362,901
Other Assets less Liabilities - 0.8% 375,614
-----------------
NET ASSETS - 100.0% $ 47,738,515
=================
Notes to the Schedule of Investments:
* Non-income producing security.
+ Rate noted is yield to maturity.
** Denotes all or part of security pledged as a margin deposit (see Note 6)
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $46,228,039) $47,362,901
Cash 306,510
Receivable for investments sold 10,701
Interest and dividends receivable 47,153
Net unrealized appreciation on forward foreign currency exchange contracts (Note 6) 382,340
Receivable for foreign dividend tax reclaims 97,316
Receivable from Investment Adviser (Note 2) 3,269
-----------------
Total assets 48,210,190
Liabilities
Distribution payable $252,106
Unrealized depreciation on forward foreign currency exchange contracts (Note 6) 186,398
Payable for daily variation margin on financial futures contracts (Note 6) 2,799
Accrued trustee fees (Note 2) 318
Accrued expenses and other liabilities 30,054
-----------------
Total liabilities 471,675
-----------------
Net Assets $47,738,515
=================
Net Assets consist of
Paid-in capital $43,985,314
Undistributed net investment income 8,961
Accumulated undistributed net realized gain (loss) 2,408,548
Net unrealized appreciation (depreciation) 1,335,692
-----------------
Total Net Assets $47,738,515
=================
Shares of beneficial interest outstanding 2,053,669
=================
Net asset value, offering price, and redemption price per share $23.25
=================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Dividend income (net of foreign withholding taxes of $90,911) $771,708
Interest income 403,047
-----------------
Total income 1,174,755
Expenses
Investment advisory fee (Note 2) $410,099
Accounting and transfer agent fees 98,176
Custody fees 85,628
Audit services 35,184
Legal fees 11,762
Registration costs 8,866
Insurance expense 2,683
Trustee fees (Note 2) 1,955
Miscellaneous 2,819
-----------------
Total expenses 657,172
Deduct:
Waiver of investment advisory fee (Note 2) (402,258)
-----------------
Net expenses 254,914
-----------------
Net investment income 919,841
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities 3,795,947
Financial futures contracts 744,905
Foreign currency and forward foreign exchange contracts (20,322)
-----------------
Net realized gain (loss) 4,520,530
Change in net unrealized appreciation (depreciation)
Investment securities (1,582,054)
Financial futures contracts (195,226)
Translation of assets and liabilities in foreign currencies
and forward foreign exchange contracts 264,316
-----------------
Change in net unrealized appreciation (depreciation) (1,512,964)
-----------------
Net realized and unrealized gain (loss) 3,007,566
-----------------
Net increase (decrease) in net assets from operations $3,927,407
=================
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------ -----------------
Increase (decrease) in Net Assets
From operations
Net investment income $919,841 $1,535,925
Net realized gain (loss) 4,520,530 555,805
Change in net unrealized appreciation (depreciation) (1,512,964) (1,331,247)
------------------ -----------------
Net increase (decrease) in net assets from operations 3,927,407 760,483
------------------ -----------------
Distributions to shareholders
From net investment income (993,584) ---
From net realized gains on investments (2,991,390) (293,380)
------------------ -----------------
Total distributions to shareholders (3,984,974) (293,380)
------------------ -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 3,568,994 12,167,766
Net asset value of shares issued to shareholders in
payment of distributions declared 3,425,523 272,750
Cost of shares redeemed (18,671,701) (57,868,870)
------------------ -----------------
Increase (decrease) in net assets from Fund share transactions (11,677,184) (45,428,354)
------------------ -----------------
Net increase (decrease) in net assets (11,734,751) (44,961,251)
Net assets
At beginning of period 59,473,266 104,434,517
------------------ -----------------
At end of period (including undistributed net investment income
of $8,961 and $103,026, at December 31, 1996 and
1995, respectively) $47,738,515 $59,473,266
================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Highlights
Year ended December 31,
----------------------------------------------------------
1996 1995 1994 1993 1992*
---------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.54 $23.12 $26.74 $19.78 $22.20
---------- ---------- ---------- --------- ----------
Income from investment operations
Net investment income 0.47 0.04 0.21 0.26 0.26
Net realized and unrealized gain (loss) 1.28 0.45 (2.08) 7.29 (2.47)
---------- ---------- ---------- --------- ----------
Total from investment operations 1.75 0.49 (1.87) 7.55 (2.21)
---------- ---------- ---------- --------- ----------
Less distributions declared to shareholders
From net investment income (0.51) --- (0.12) (0.23) (0.21)
In excess of net investment income --- --- --- (0.36) ---
From net realized gains on investments (1.53) (0.07) (1.63) --- ---
---------- ---------- ---------- --------- ----------
Total distributions declared to shareholders (2.04) (0.07) (1.75) (0.59) (0.21)
---------- ---------- ---------- --------- ----------
Net asset value - end of period $23.25 $23.54 $23.12 $26.74 $19.78
========== ========== ========== ========= ==========
Total return 7.44% 2.14% (6.99%) 38.27% (9.95%)
Net assets at end of period (000 omitted) 47,739 59,473 104,435 92,419 56,539
Ratios (to average daily net assets)/Supplemental Data
Expenses 0.50** 1.22% 1.23% 1.34% 1.53%
Net investment income 1.80** 1.76% 1.52% 1.09% 1.18%
Portfolio turnover 163% 108% 75% 98% 98%
Average Broker Commission per share $0.0092(1)
* Audited by other auditors
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
** The investment adviser voluntarily waived a portion of its investment advisory fee.
Had this action not been undertaken, the net investment income per share and the
ratios would have been:
Net investment income per share $0.27
Ratios (to average daily net assets)
Expenses 1.29%
Net investment income 1.01%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (Trust) is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish International Equity Fund ("The Fund") is a separate,
diversified investment series of the Trust. The following is a summary
of significant accounting policies consistently followed by the Fund in
the preparation of its financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. .Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short - term instruments with
less than sixty-one days remaining to maturity when acquired by the
Fund are valued at amortized cost. If the Fund acquires a short - term
instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity
and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B. .Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on debt securities when required
for federal income tax purposes. Dividend income is recorded on the
ex-dividend date. Realized gains and losses from securities sold are
recorded on the identified cost basis. The Fund does not isolate that
portion of the results of operations resulting from changes in foreign
exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are
included with the net realized and unrealized gain or loss from
investments.
C. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. .Foreign currency transactions--
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
E. .Distributions to shareholders--
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatment
of foreign currency transactions. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
<PAGE>
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company L.P. (SIMCO), for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.80% of the Fund's average daily net assets.
SIMCO has voluntarily agreed to limit total Fund operating expenses to
0.50% of the Fund's average daily net assets for the Fund's fiscal year
ended December 31, 1996. For the year ended December 31, 1996, SIMCO
voluntarily waived a portion of its investment advising fee in the
amount of $402,258. The Fund pays no compensation directly to its
trustees who are affiliated with SIMCO or to its officers, all of whom
receive remuneration for their services to the Fund from SIMCO. Certain
of the trustees and officers of the Trust are directors or officers of
SIMCO.
(3) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
Purchases Sales
Non-U.S. Government securities $50,287,925 $58,275,201
===================== ====================
U.S. Government securities $23,042,519 $26,292,529
===================== ====================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1996 1995
--------------------- --------------------
<S> <C> <C>
Shares sold 147,664 535,762
Shares issued to shareholders in
payment of distributions declared 144,612 12,155
Shares redeemed (764,772) (2,539,577)
--------------------- --------------------
Net increase (decrease) (472,496) (1,991,660)
===================== ====================
</TABLE>
(5) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, are as follows:
Aggregate cost $46,247,098
Gross unrealized appreciation $2,608,342
Gross unrealized depreciation (1,492,539)
---------------------
Net unrealized appreciation (depreciation) $1,115,803
=====================
<PAGE>
(6) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Fund, are reflected in the accompanying Statement of
Net Assets and Liabilities at market value. Premiums received from
writing options which expire are treated as realized gains. Premiums
received from writing options which are exercised or are closed are
added to or offset against the proceeds or amount paid on the
transaction to determine the realized gain or loss. If a put option
written by the Fund is exercised, the premium reduces the cost basis of
the securities purchased by the Fund. The Fund, as writer of an option,
has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. During 1996, the Fund had no written option transactions, nor
were there any open written option contracts at December 31, 1996.
.........Forward currency exchange contracts--
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparties
to meet the terms of their contracts and from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar and
other foreign currencies. The forward foreign currency and cross
currency exchange contracts are marked to market using the forward
foreign currency rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date. Forward currency exchange contracts
are used by the fund primarily to protect the value of the Fund's
foreign securities from adverse currency movements.
At December 31, 1996, the Fund held the following forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Receive Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
British Pound Sterling 4,074,592 1/10/97 $6,974,210 $6,635,507 $338,703
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,728,025 37,834
Japanese Yen 26,462,154 1/16/97 228,396 240,128 (11,732)
---------------- ---------------- ------------------
$10,968,465 $10,603,660 $364,805
================ ================ ==================
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Deliver Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
British Pound Sterling 4,070,000 1/10/97 $6,966,348 $6,811,552 ($154,796)
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,745,989 (19,870)
Japanese Yen 26,462,154 1/16/97 228,396 234,199 5,803
---------------- ---------------- ------------------
$10,960,603 $10,791,740 ($168,863)
================ ================ ==================
</TABLE>
<PAGE>
.........Futures contracts--
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. The Fund is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Fund each day, dependent on the daily fluctuations in the value of the
underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Fund. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the
value of their underlying instruments or indices, which may not
correlate with changes in the value of hedged investments. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund enters
into financial futures transactions primarily to manage its exposure to
certain markets and to changes in securities prices and foreign
currencies.
At December 31, 1996, the Fund held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Expiration Underlying Face Appreciation/
Contract Position Date Amount at Value (Depreciation)
- ----------------------------------- --------------- ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Topix Futures (6 contracts) Long 3/19/97 $774,637 ($1,136)
FTSE 100 Futures (2 contracts) Long 3/19/97 342,525 1,189
CAC 40 Index Future (2 contracts) Long 3/19/97 175,054 2,605
DAX Futures (1 contracts) Long 3/19/97 185,546 1,336
---------------- ----------------
$1,477,762 $3,994
================ ================
</TABLE>
At December 31, 1996, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
Interest rate swap contracts--
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. Credit and market risk exist with
respect to these instruments. The Fund expects to enter into these
transactions primarily for hedging purposes including, but not limited
to, preserving a return or spread on a particular investment or portion
of its portfolio, protecting against currency fluctuations, as a
duration management technique or protecting against an increase in the
price of securities the Fund anticipates purchasing at a later date.
During 1996, the Fund had no interest rate swap contract transactions.
At December 31, 1996, the Fund had no open interest rate swap
contracts.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish International Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish International Equity Fund (the
"Fund"), including the portfolio of investments, as of December 31, 1996, and
the related statement of operations for the year then ended, and changes in net
assets for each of the two years in the period then ended and the financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish International Equity Fund as of
December 31, 1996, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 1997
<PAGE>
This Report is submitted for the general information of
shareholders and is not authorized for distribution to
prospective investors unless proceeded or accompanied by an
effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of
the Fund. Such offer is made only by the Fund's prospectus,
which includes details as to the offering and other material
information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Small capitalization stocks finished 1996 with a short, recovery rally, and
small cap stocks enjoyed a successful year on an absolute basis. The Standish
Small Capitalization Equity Fund net asset value (NAV) at December 31, 1996 was
$ 52.96. Total return for the Fund was 17.36%, while the Russell 2000 Index of
Smaller Companies increased 16.53%.
The most notable characteristics of the small cap equity market in 1996 were: 1)
small caps underperformed large cap stocks significantly, a third consecutive
year of underperformance; 2) the cap effect was very dramatic within the small
cap sector, with smaller caps underperforming large small caps; 3) the year saw
a surge in issuance of new stock by small companies, offset by strong mutual
fund inflows for much of the year, although overwhelming investors' capacity
toward the end of the year; 4) sector strength was led by energy and financial
stocks, with health care very weak and technology strengthening only late in the
year; and 5) earnings momentum and earnings quality for small cap stocks were
both weak compared to large cap stocks.
The Standish Small Capitalization Equity Fund is aggressively oriented toward
small high growth companies. In selecting companies in which to invest, the
emphasis is on strong financial and business positioning, moderate earnings
valuations, and high, sustainable earnings growth. This approach leads to above
average weightings in the high growth sectors of the economy, which include
healthcare, technology, and business services. In 1996 the healthcare sector
posted very weak returns, while business services and technology returns were
similar to the Russell 2000. Energy and finance, the two strongest performing
sectors in 1996, as well as capital goods, afford few high growth investment
opportunities; these sectors were underweighted in the fund. Finally, the fund
suffered from being in the low end of capitalization within small caps. We are
pleased that despite these impediments, the fund's return was in excess of its
benchmark for the year.
During the year the fund was always fully invested, which occasionally involved
the use of Russell 2000 or S&P Midcap Futures. Investment in foreign securities
(including American Depository Receipts) did not approach 5% of the fund assets
at any point in 1996, and it is not expected that such investments, which are
limited to 15% of assets, will be used more broadly in the future.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Small
Capitalization Equity Fund have been invested in a "Portfolio," having
substantially the same investment objective, policies and restrictions as the
corresponding fund. The fund in which you are invested is now considered a
"Spoke," sharing in the activities of the Portfolio proportionately according to
its relative size.
The Standish Small Capitalization Equity Fund closed to new investors on
December 20, 1996, although it remains open to additional investments from
existing shareholders. Its discipline had reached over $500 million in assets
managed by Standish, Ayer & Wood. The Standish Small Capitalization Fund II
opened on December 20, 1996. This fund will be buying stocks in the $400 million
to $1 billion market capitalization range.
Management continues to be committed to investing in high quality, high growth
companies with superb business positions, proven managements, and moderate price
earnings ratios. While the target market cap range of $250 million to $350
million has not been a lead area for market returns in the past two years, it is
an excellent area to find companies early in the power growth part of their
lifecycle, and we remain enthusiastic about investing in that part of the
market. We will continue to use this approach to guide the investments made by
the fund in the future. We sincerely appreciate your continued support and
interest in the Standish Small Capitalization Equity Fund.
Nicholas S. Battelle
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Small Capitalization Equity Fund, the S&P 500 Index, and the Russell
2000 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Small
Capitalization Equity Fund compared with the S&P 500 Index and the Russell 2000
Index for the period September 1, 1990 to December 31, 1996, based upon a
$100,000 investment. Also included are the average annual total returns for one
year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio (Portfolio), at value (Note 1A) $ 246,652,321
Receivable for Fund shares sold 43,945
Other assets 5,407
---------------
Total assets 246,701,673
Liabilities:
Distribution payable $ 2,546,692
Accrued expenses and other liabilities 24,143
---------------
Total liabilities 2,570,835
---------------
Net Assets $ 244,130,838
===============
Net Assets consist of:
Paid-in capital $ 207,857,565
Accumulated net realized gain (loss) 3,952,719
Net unrealized appreciation (depreciation) 32,320,554
===============
Total $ 244,130,838
===============
Shares of beneficial interest outstanding 4,609,813
===============
Net asset value, offering price and redemption price per share $ 52.96
===============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Operations
For the Year Ending December 31, 1996
Investment Income (Note 1B):
Interest income $ 108,348
Dividend income 89,921
Interest income allocated from Portfolio 305,276
Dividend income allocated from Portfolio 153,520
Expenses allocated from Portfolio (1,112,861)
--------------
Total income (455,796)
Expenses:
Investment advisory fee (Note 3) $ 396,796
Accounting, custody and transfer agent fees 76,102
Trustee fees 4,679
Legal and audit services 29,409
Registration fees 11,758
Miscellaneous 10,142
---------------
Total expenses 528,886
Deduct:
Waiver of investment advisory fee (Note 2) (13,118)
---------------
Net expenses 515,768
--------------
Net investment income (loss) (971,564)
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities transactions 15,760,827
Financial futures 87,425
Net realized gain (loss) from Portfolio on:
Investment securities transactions 20,794,956
Financial futures 717,750
---------------
Net realized gain (loss) 37,360,958
Change in unrealized appreciation (depreciation):
Investments securities 20,543,632
Financial futures 82,425
From Portfolio (23,038,475)
---------------
Net change in unrealized appreciation (depreciation) (2,412,418)
--------------
--------------
Net realized and unrealized gain (loss) 34,948,540
--------------
Net increase (decrease) in net assets resulting from operations $ 33,976,976
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statements of Changes in Net Assets
Year Ending Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment loss $ (971,564) $ (436,289)
Net realized gain (loss) 37,360,958 12,833,607
Change in net unrealized appreciation (depreciation) (2,412,418) 27,572,436
----------------------
----------------------
Net increase (decrease) in net assets from operations 33,976,976 39,969,754
---------------------- ----------------------
Distributions to shareholders
From net realized gains on investments (39,018,707) (4,170,634)
---------------------- ----------------------
Total distributions to shareholders (39,018,707) (4,170,634)
---------------------- ----------------------
Fund share (principal) transactions, (Note 6)
Net proceeds from sale of shares 63,681,602 56,591,350
Net asset value of shares issued to shareholders
in payment of distributions declared 36,043,859 3,924,054
Cost of shares redeemed (31,022,858) (23,435,868)
----------------------
----------------------
Increase (decrease) in net assets from Fund share transactions 68,702,603 37,079,536
----------------------
----------------------
Net increase (decrease) in net assets 63,660,872 72,878,656
Net Assets:
At beginning of period 180,469,966 107,591,310
----------------------
----------------------
At end of period $ 244,130,838 $ 180,469,966
====================== ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Financial Highlights
Year Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $53.46 $42.15 $48.97 $39.83 $39.99
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (loss) ** - - - (0.07) (0.11)
Net realized and unrealized gain
(loss) on investments 9.29 12.57 (1.84) 11.31 4.00
------------- ------------- ------------- ------------- -------------
Total from investment operations 9.29 12.57 (1.84) 11.24 3.89
------------- ------------- ------------- ------------- -------------
Less distributions to shareholders:
From net realized gains on investments (9.79) (1.26) (4.98) (2.10) (4.05)
------------- ------------- ------------- ------------- -------------
Total distributions declared to shareholders ($9.79) ($1.26) ($4.98) ($2.10) ($4.05)
------------- ------------- ------------- ------------- -------------
Net asset value - end of period $52.96 $53.46 $42.15 $48.97 $39.83
============= ============= ============= ============= =============
Total Return 17.36% 29.83% (3.66%) 28.21% 9.74%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment income (loss) (0.44%) (0.30%) (0.27%) (0.18%) (0.38%)
Portfolio turnover (2) 28% 112% 130% 144% 101%
Average broker commission rate (2) $0.0450 - - - -
Net assets, end of year (000 omitted) $244,131 $180,470 $107,591 $85,141 $50,950
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996, the investment adviser did not impose a portion of its
advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income (loss) per share $ (0.01)
Ratios (to average daily net assets):
Expenses (1) 0.76%
Net Investment income (loss) (0.45%)
(1) Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2) Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund (the "Fund") is a
separate diversified investment series of the Trust. On May 3, 1996,
the Fund contributed substantially all of its investable assets to the
Standish Small Capitalization Equity Portfolio (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, in exchange for an
interest in the Portfolio. The Fund invests all of its investable
assets in the interests in the Portfolio, which has the same investment
objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets
of the Portfolio (approximately 100% at December 31, 1996). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements. The following is a summary of significant
accounting policies followed by the Fund in the preparation of the
financial statements. The preparation of financial statements in
accordance with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts and disclosures in the financial statements. Actual results
could differ from those estimates.
A. Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. Securities transactions and income--
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
C. Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the investors in
the Portfolio.
(2) Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
<PAGE>
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.60% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.75% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $13,118 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund pays no compensation directly to its trustees
who are affiliated with the SA&W or to its officers, all of whom
receive remuneration for their services to the Fund from SA&W. Certain
of the trustees and officers of the Trust are directors or officers of
SA&W.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
Investments $83,846,246 $54,111,851
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$253,391,982 and $23,335,985, respectively.
(6) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows: Effective December 20, 1996, the Fund was closed to new
investors.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
<S> <C> <C>
Shares sold 1,100,618 1,215,183
Shares issued to shareholders in payment of distributions declared 562,742 73,432
Shares redeemed (531,585) (465,355)
====================== ======================
Net increase (decrease) 1,131,775 823,260
====================== ======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish Small Capitalization Equity Fund (the "Fund"), as of December 31, 1996,
and the related statement of operations for the year then ended, changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights. We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Small Capitalization Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Equities - 98.6%
- -------------------------------------------------------------------------
Basic Industry - 1.8%
- -------------------------------------------------------------------------
<S> <C> <C>
Chirex Inc.* 162,000 $ 1,944,000
OM Group Inc. 90,450 2,442,150
-----------------
4,386,150
-----------------
Capital Goods - 10.1%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 160,900 4,364,407
Innotech Inc.* 174,100 1,349,275
LCC International Inc.* 234,100 4,330,850
Newpark Resources Inc.* 89,600 3,337,600
Nichols Research Corp.* 136,050 3,469,275
SBS Technologies Inc.* 85,800 3,174,600
Superior Services Inc.* 93,500 1,905,063
Triumph Group Inc.* 127,400 3,041,675
-----------------
24,972,745
-----------------
Consumer Cyclical - 3.3%
- -------------------------------------------------------------------------
Atlantic Coast Airlines Inc.* 183,800 2,251,550
Midwest Express Holdings* 58,500 2,106,000
NCI Building Systems Inc.* 110,700 3,819,150
-----------------
8,176,700
-----------------
Consumer Stable - 5.7%
- -------------------------------------------------------------------------
Custom Chrome Inc.* 128,100 2,578,013
Hughes Supply Inc. 91,500 3,945,938
Martek Biosciences* 80,600 1,612,000
Natures Sunshine Products Inc. 96,300 1,733,400
Opta Food Ingredients Inc.* 130,900 752,675
Robert Mondavi Corp. Cl A* 91,100 3,325,150
-----------------
13,947,176
-----------------
Financial - 3.5%
- -------------------------------------------------------------------------
CCC Information Services Group* 100,600 1,609,600
Corvel Corp.* 91,500 2,653,500
Rental Service Corp.* 59,300 1,630,750
Texas Regional Bancshares Cl A 83,900 2,852,600
-----------------
8,746,450
-----------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Growth Cyclical - 6.4%
- -------------------------------------------------------------------------
Anchor Gaming* 22,800 $ 917,700
Apple South Inc 174,600 2,357,100
Cannondale Corp.* 69,900 1,572,750
Cost Plus Inc* 57,700 1,103,513
Golden Bear Golf Inc.* 109,600 1,233,000
Homegate Hospitality Inc.* 183,800 1,539,325
Logan's Roadhouse Inc.* 90,200 2,119,700
Scientific Games Hldgs Corp.* 110,300 2,950,525
Suburban Lodges of America* 130,100 2,081,600
-----------------
15,875,213
-----------------
Health Care - 26.0%
- -------------------------------------------------------------------------
Alternative Living Services* 77,900 1,129,550
Arbor Health Care Company* 109,800 2,854,800
Arris Pharmaceutical Corp.* 163,300 2,204,550
ARV Assisted Living Inc.* 115,900 1,347,338
Atria Communities Inc.* 130,300 1,335,575
Ballard Medical Products 119,600 2,227,550
CN Bioscience Inc* 122,100 2,228,325
Conmed Corp.* 115,600 2,369,800
Emcare Holdings Inc.* 97,800 2,273,850
Fuisz Technologies Ltd.* 133,800 1,053,675
HCIA Inc.* 94,300 3,253,350
Horizon Mental Health Management* 103,800 2,880,450
Impath Inc.* 105,400 1,976,250
Inphynet Medical Management* 145,500 2,619,000
MDL Information Systems Inc.* 68,700 1,279,538
Medarex Inc.* 188,500 1,319,500
Medcath Inc.* 123,700 1,979,200
Medquist Inc.* 140,000 3,465,000
National Surgery Centers Inc.* 83,450 3,171,100
Neurogen Corp* 51,200 985,600
Oacis Healthcare Holdings* 187,100 1,262,925
Pharmaceutical Product Development* 125,000 3,156,250
Possis Medical, Inc.* 101,700 2,122,988
Protocol Systems Inc.* 121,600 1,580,800
Rochester Medical Corp.* 87,000 1,663,875
Sepracor Inc.* 180,400 2,999,150
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Health Care - (continued)
- -------------------------------------------------------------------------
Sunrise Assisted Living Inc.* 141,300 $ 3,938,738
Superior Consultant Holdings* 42,600 1,054,350
Urologix Inc* 9,800 159,250
Vertex Pharmaceuticals Inc.* 103,400 4,161,850
-----------------
64,054,177
-----------------
Services - 23.9%
- -------------------------------------------------------------------------
Analysts International Corp. 103,200 2,915,400
Barrett Business Services Inc.* 150,700 2,298,175
Bet Holdings Inc. Cl A* 106,600 3,064,750
BTG Inc.* 50,600 1,340,900
Central Parking Corp. 95,300 3,192,550
Coach USA Inc.* 169,600 4,918,400
Computer Horizons Corp.* 69,700 2,683,450
Computer Task Group Inc. 63,200 2,725,500
Cotelligent Group Inc.* 68,900 1,662,213
Data Processing Resources Corp.* 123,800 2,290,300
Emmis Broadcasting Corp. Cl A* 80,600 2,639,650
F.Y.I. Inc* 62,200 1,298,425
Harbinger Corp* 52,500 1,378,125
Healthplan Services Corp.* 107,800 2,277,275
May & Speh Inc.* 184,500 2,260,125
On Assignment Inc.* 64,200 1,893,900
Pacific Gateway Exchange Inc.* 62,600 2,284,900
Personnel Group of America Inc.* 88,200 2,127,825
Remedy Temp Inc.* 81,700 1,409,325
Right Management Consultants* 76,775 1,708,244
Rural/Metro Corp.* 80,000 2,880,000
Scandinavian Broadcast Systems* 146,800 2,550,650
Steiner Leisure Ltd* 115,500 2,324,438
Techforce Corp.* 94,200 706,500
United Dental Care Inc.* 81,500 2,475,563
Viisage Technology Inc.* 109,000 1,580,500
-----------------
58,887,083
-----------------
Technology - 17.9%
- -------------------------------------------------------------------------
Advanced Technology Material* 149,000 2,570,250
Aurum Software Inc.* 21,800 504,125
CFM Technologies Inc* 91,000 1,888,250
Computational Systems Inc.* 78,500 1,511,125
Datastream Systems Inc.* 133,900 2,410,200
Gensym Corp.* 148,400 1,771,525
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Technology -(continued)
- -------------------------------------------------------------------------
Hadco Corporation* 64,900 $ 3,180,100
Indus Group Inc.* 156,000 4,017,000
Lecroy Corp.* 78,200 2,932,500
Natural Microsystems Corp.* 65,600 2,066,400
P-Com Inc.* 53,800 1,593,825
Perceptron Inc.* 81,500 2,791,375
Photronics Inc.* 44,200 1,204,450
PRI Automation Inc.* 26,800 1,219,400
Project Software & Development* 66,200 2,805,225
Quickturn Design Systems Inc.* 131,800 2,701,900
Speedfam International Inc.* 36,000 1,026,000
Stanford Telecommunications* 53,600 1,849,200
TCSI Corp.* 86,800 542,500
Triquint Semiconductor Inc* 58,000 1,529,750
Ultrak Inc.* 91,500 2,790,750
Videoserver Inc.* 26,400 1,122,000
-----------------
44,027,850
-----------------
Total Equities (Cost $210,820,515) 243,073,544
-----------------
Short-Term Obligations - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $5,051,027 (Collateralized by
FNMA FNARM with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $5,150,412. 5,049,423 5,049,423
-----------------
U.S. Government - 0.1% Rate Maturity
- ------------------------------------------------------------------------- ------- ----------
Federal Farm Credit Bank ** 5.46% 1/17/1997 10,000 9,968
FNMA ** 5.40 1/17/1997 200,000 199,130
-----------------
209,098
-----------------
Total Short-Term Obligations (Cost $5,258,521) 5,258,521
-----------------
Total INVESTMENTS (Cost $216,079,036) - 100.7% 248,332,065
Other Assets less Liabilities - -0.7% (1,679,645)
-----------------
NET ASSETS - 100.0% $ 246,652,420
=================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security pledged as a margin deposit (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $216,079,036) $ 248,332,065
Cash 6
Receivable for investments sold 7,800
Interest and dividends receivable 9,105
Deferred organization costs (Note 1E) 85,593
--------------------
Total assets 248,434,569
Liabilities:
Payable for investments purchased $ 1,611,865
Payable for daily variation margin on open
financial futures contracts (Note 5) 20,062
Accrued investment advisory fee (Note 2) 35
Accrued trustee fees 646
Payable to investment adviser (Note 1E) 97,618
Accrued expenses and other liabilities 51,923
-----------------
Total liabilities 1,782,149
--------------------
Net Assets (applicable to investors' beneficial interests) $ 246,652,420
====================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 305,276
Dividend income 153,520
-----------------
Total income 458,796
Expenses
Investment advisory fee (Note 2) $ 920,742
Custody and accounting 125,602
Legal and audit services 32,620
Registration costs 10,067
Insurance 4,839
Miscellaneous 18,991
----------------
Total expenses 1,112,861
Net investment income (loss) (654,065)
-----------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss)
Investment securities 20,794,956
Financial futures 717,750
----------------
Net realized gain (loss) 21,512,706
Change in unrealized appreciation (depreciation)
Investment securities (22,995,625)
Financial futures (42,850)
----------------
Change in net unrealized appreciation (depreciation) (23,038,475)
-----------------
Net realized and unrealized gain (loss) (1,525,769)
-----------------
Net increase (decrease) in net assets from operations $ (2,179,834)
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ (654,065)
Net realized gain (loss) 21,512,706
Change in net unrealized appreciation (depreciation) (23,038,475)
--------------------
Net increase (decrease) in net assets from operations (2,179,834)
--------------------
Capital transactions
Assets contributed by Standish Small Capitalization Equity Fund at
commencement (including unrealized appreciaiton of $55,359,029) 233,108,124
Contributions 39,060,115
Withdrawals (23,335,985)
--------------------
--------------------
Increase in net assets resulting from capital transactions 248,832,254
--------------------
Total increase (decrease) in net assets 246,652,420
Net Assets:
At beginning of period -
--------------------
At end of period $ 246,652,420
====================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.73% *
Net investment income (loss) (0.43%) *
Portfolio turnover 76%
Average broker commission per share $0.0434(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale or portfolio securities.
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust. The
following is a summary of significant accounting policies followed by
the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued on an amortized cost basis. If the Portfolio
acquires a short term instrument with more than sixty days remaining to
its maturity, it is valued at current market value until the sixtieth
day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through April 2001. These costs were paid for by the Investment Adviser
and will be reimbursed by the Portfolio.
<PAGE>
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. SA&W voluntarily agreed to limit the Portfolio's total
annual operating expenses (excluding brokerage commissions, taxes, and
extraordinary expenses) to 1.50% of the Portfolio's average daily net
assets, for the year ended December 31, 1996. The Portfolio pays no
compensation directly to its trustees who are affiliated with SA&W or
to its officers, all of whom receive remuneration for their services to
the Portfolio from SA&W. Certain of the trustees and officers of the
Portfolio Trust are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations from May 3, 1996 through
December 31, 1996, were as follows:
Purchases Sales
Investments $193,914,188 $171,786,086
================== ==================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $216,266,037
Gross unrealized appreciation $43,840,116
Gross unrealized depreciation (11,774,088)
===================
Net unrealized appreciation $32,066,028
===================
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. Premiums received
from writing options which expire are treated as realized gains.
Premiums received from writing options which are exercised or are
closed are added to or offset against the proceeds or amount paid on
the transaction to determine the realized gain or loss. If a put option
written by the Portfolio is exercised, the premium reduces the cost
basis of the securities purchased by the Portfolio. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. The Portfolio entered into no such
transactions during the period May 3, 1996 through December 31, 1996.
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in value of the hedged
investments. In addition, there is the risk that the Portfolio may not
be able to enter into a closing transaction because of an illiquid
secondary market. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Underlying Unrealized
Contract Position Expiration Face Amount Appreciation
- ------------------------------------------ -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
MIDCAP 400 (28 contracts) Long 03/15/97 $3,592,400 $67,525
=============== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient
securities to cover margin requirements on open future contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer and Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio: We have audited the accompanying
statement of assets and liabilities of Standish Small Capitalization Equity
Portfolio, including the portfolio of investments as of December 31, 1996, and
the related statement of operations, the statement of changes in net assets and
the supplementary data for the period from May 3, 1996 (commencement of
operations) to December 31, 1996. These financial statements and supplementary
data are the responsibility of the Portfolio's management. Our responsibility is
to express an opinion on these financial statements and supplementary data based
on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and supplementary data are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers; where replies were not received from brokers we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the financial
statements and supplementary data present fairly, in all material respects, the
financial position of Standish Small Capitalization Equity Portfolio as of
December 31, 1996, and the results of its operations, changes in its net assets
and supplementary data for the respective stated period, in conformity with
United States generally accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Statements for the Period
from December23, 1996 (Commencement of operations)
to December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Launched in December, 1996, the Standish Small Capitalization Equity Fund II
focuses on stocks of companies with a market capitalization under $1 billion.
The average market capitalization as of 12/31/96 was $525 million.
The Standish Small Capitalization Equity Fund II is oriented toward high
quality, rapidly growing companies. The emphasis is on investing in firms which
are experiencing accelerating revenue growth and expanding profit margins. We
seek companies with very strong business positions, operating in attractive
industries, which have solid balance sheets. We also look for experienced
management teams motivated by meaningful equity incentives. Finally, there is a
sensitivity to the price at which we buy the stock: we prefer to buy a stock
where the price-to-earnings ratio is less than the company's sustainable
earnings growth rate.
The focus on sustainable rapidly growing companies leads to above average
weightings in technology, healthcare and business services--three sectors which
are likely to be growth leaders over the next 5-10 years.
We sincerely appreciate your interest in the Standish Small Capitalization
Equity Fund II.
Nicholas S. Battelle
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio II (Portfolio) at value (Note 1A) $ 484,168
Deferred organization costs (Note 1D) 9,180
Receivable from Investment Adviser (Note 3) 7,588
--------------
Total assets 500,936
Liabilities:
Payable to investment adviser (Note 1D) $ 9,221
Accrued accounting, custody and transfer agent fees 672
Accrued trustees fees 85
Accrued legal and audit fees 6,790
---------------
Total liabilities 16,768
--------------
Net Assets $ 484,168
==============
Net Assets consist of:
Paid-in capital $ 475,000
Undistributed net investment income 198
Net unrealized appreciation 8,970
==============
Total $ 484,168
==============
Shares of beneficial interest outstanding 23,750
==============
Net asset value, offering price and redemption price per share $ 20.39
==============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Operations
For the period December 23, 1996 (commencement of operations) through
December 31, 1996
Investment Income (Note 1B):
Interest income allocated from Portfolio $ 198
Expenses allocated from Portfolio (net of Portfolio level reimbursement of $15,784) 0
---------------
Total income 198
Expenses:
Accounting, custody and transfer agent fees 672
Legal and audit services 6,790
Amortization of deferred organization costs (Note 1D) 41
Trustees fees 85
--------------
Total expenses 7,588
Deduct:
Reimbursement of Fund operating expenses (7,588)
--------------
Net expenses 0
---------------
Net Investment Income (loss) 198
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation from Portfolio 8,970
---------------
Net increase (decrease) in net assets resulting from operations $ 9,168
===============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
For the period December 23, l996 (commencement of operations) through
December 31, l996
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 198
Change in net unrealized appreciation 8,970
---------------
Net increase (decrease) in net assets from operations 9,168
---------------
Fund share transactions, (Note 4)
Net proceeds from sale of shares 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared -
Cost of shares redeemed -
---------------
Increase (decrease) in net assets from Fund share transactions 475,000
---------------
Net increase (decrease) in net assets 484,168
Net Assets:
At beginning of period 0
---------------
At end of period (including undistributed net investment income of $198 at December 31, 1996) $ 484,168
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Fund II
Financial Highlights
For the period December 23, 1996
(commencement of operations)
to December 31, 1996
---------------------------
Net asset value-beginning of period $20.00
-----------------
Income from investment Operations
Net investment income (1) 0.00
Net realized and unrealized gain (loss
on investments 0.39
-----------------
Total from investment operations 0.39
-----------------
Net asset value - end of period $20.39
=================
Net Assets at end of period (000 omitted) $484
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) * N/A (2)
Net Investment income* N/A (2)
* Computed on annualized basis
(1) Includes the Fund's share of Standish Small Capitalization Equity Portfolio II's allocated expenses.
(2) Ratios are not meaningful due to the short period of operations. All expenses were
reimbursed by the investment adviser.
</TABLE>
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund II (the "Fund") is a
separate diversified investment series of the Trust. The Fund invests
all of its investable assets an interest of the Standish Small
Capitalization Equity Portfolio II ( the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio ( the "Portfolio Trust"), which
is organized as a New York trust, and has the same investment objective
as the Fund. The value of the Fund's investment in the Portfolio
reflects the Fund's proportionate interest in the net assets of the
Portfolio (approximately 100% at December 31, 1996). The performance of
the Fund is directly affected by the performance of the Portfolio. The
financial statements of the Portfolio are included elsewhere in this
report and should be read in conjunction with the Fund's financial
statements. The following is a summary of significant accounting
policies followed by the Fund in the preparation of the financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
A. .Investment security valuations--
The Fund records its investment in the Portfolio at value. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. .Securities transactions and income--
Securities transactions are recorded as of the trade date. The Fund's
net investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted
accounting principles.
C. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. .Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight-line basis
through December 2002. These costs were paid for by the investment
adviser and will be reimbursed by the Portfolio.
F. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among the respective investors
in the Portfolio.
<PAGE>
(2).....Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. Permanent book and tax basis
differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
(3).....Investment Advisory Fee:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer & Wood (SA&W) for such services. See Note 2
of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. For the period ended December 31, 1996, the
investment adviser voluntarily agreed to limit the operating expenses
of the Fund and the Portfolio (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.00% of the Fund's average daily net
assets. The investment adviser has voluntarily agreed to reimburse the
Fund for its operating expenses of $7,588 for the period ended December
31, 1996. The Fund pays no compensation directly to its trustees who
are affiliated with the investment adviser or to its officers, all of
whom receive remuneration for their services to the Fund from SA&W.
Certain of the trustees and officers of the Trust are directors or
officers of SA&W.
(4) ....Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from December 23, 1996 to December 31, 1996 aggregated
$475,000 and $0, respectively.
(5) ....Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows: At December 31, 1996, substantially all of the outstanding
shares of the Fund were owned by individuals affiliated with SA&W.
For the Period
December 23, 1996
(commencement of operations) to
December 31, 1996
-----------------------------------
Shares sold 23,750
Shares issued to shareholders
in payment of distribution declared -
Shares redeemed -
====================
Net increase (decrease) 23,750
====================
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund II: We have audited the
accompanying statement of assets and liabilities of Standish, Ayer & Wood
Investment Trust: Standish Small Capitalization Equity Fund II (the "Fund"), as
of December 31, 1996 and the related statement of operations, the statement of
changes in net assets and financial highlights for the period from December 23,
1996 (commencement of operations) to December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. We conducted our audit
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Small Capitalization Equity Fund II as of
December 31, 1996, the results of its operations, changes in its net assets and
financial highlights for the period from December 23, 1996 (commencement of
operations) to December 31, 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization II Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Equities - 96.1%
- -------------------------------------------------------------------------
Basic Industry - 1.1%
- -------------------------------------------------------------------------
<S> <C> <C>
OM Group Inc. 200 5,400
--------------
Capital Goods - 5.7%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 300 8,138
Littelfuse Inc.* 100 4,850
Newpark Resources Inc.* 200 7,450
Philip Environmental Inc.* 500 7,250
--
------------
27,688
--------------
Consumer Stable - 4.9%
- -------------------------------------------------------------------------
Arbor Drugs Inc. 300 5,213
Hughes Supply Inc. 200 8,625
Martek Biosciences* 300 6,000
Robert Mondavi Corp. Cl A* 100 3,650
--
------------
23,488
--------------
Growth Cyclical - 4.9%
- -------------------------------------------------------------------------
Abercrombie & Fitch Co. * 300 4,950
Apple South Inc. 300 4,050
Eagle Hardware & Garden Inc.* 200 4,150
Scientific Games Holdings Corp.* 400 10,700
--
------------
23,850
--------------
Health Care - 24.3%
- -------------------------------------------------------------------------
Access Health, Inc.* 200 8,950
Agouron Pharmaceuticals Inc.* 100 6,775
American Homepatient Inc.* 200 5,450
American Medical Response Inc.* 200 6,500
Curative Health Services, Inc.* 400 11,075
Genesis Health Ventures Inc.* 200 6,225
HCIA Inc.* 300 10,350
Neurogen Corp* 400 7,700
Orthodontic Centers of America * 600 9,600
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Health Care - (continued)
- -------------------------------------------------------------------------
Physician Sales & Service* 500 $ 7,188
Rotech Medical Corp.* 400 8,400
Sepracor Inc.* 400 6,650
Sofamor/Danek Group, Inc.* 200 6,100
Sunrise Assisted Living Inc.* 300 8,363
Vertex Pharmaceuticals Inc.* 200 8,050
--
------------
117,376
--------------
Services - 33.4%
- -------------------------------------------------------------------------
Affiliated Computer Services Cl A* 200 5,950
American Management Systems Inc.* 400 9,800
American Radio Systems Corp.* 200 5,450
Bet Holdings Inc. Cl A* 200 5,750
Coach USA Inc.* 300 8,700
Central Parking Corp. 300 10,050
Compdent Corporation* 300 10,575
Computer Horizons Corp.* 300 11,550
Computer Task Group Inc. 200 8,625
CRA Managed Care Inc.* 100 4,500
Devry Inc.* 300 7,048
Emmis Broadcasting Corp. Cl A* 200 6,550
Evergreen Media Corporation* 200 5,000
Fair Issac & Company Inc. 200 7,825
Globalstar Telecommunications* 200 12,600
Healthplan Services Corp.* 300 6,338
Norrell Corp. 400 10,900
Quickresponse Services Inc.* 200 5,700
Scandinavian Broadcast Systems* 600 10,425
Technology Solutions Company* 200 8,300
--
------------
161,636
--------------
Technology - 21.8%
- -------------------------------------------------------------------------
Comverse Technology Inc.* 100 3,781
Credence Systems Corp.* 200 4,025
Dallas Semiconductor Corp. 200 4,600
Fusion Systems Corp.* 300 6,375
Gasonics Intl Corp.* 400 4,100
Geoworks* 300 7,350
Hadco Corporation* 200 9,800
Industry Group Inc.* 300 7,725
JDA Software Group Inc.* 300 8,550
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Technology - (continued)
- -------------------------------------------------------------------------
Natural Microsystems Corp.* 300 $ 9,450
Photronics Inc.* 300 8,175
PRI Automation Inc.* 100 4,550
Sanmina Corp.* 100 5,650
Systemsoft Corp.* 600 8,925
Vanstar Corporation* 300 7,350
Zygo Corp.* 100 5,200
--
------------
105,606
--------------
Total Equities (Cost $456,074) 465,044
--------------
Total INVESTMENTS (Cost $456,074) - 96.1% 465,044
Other Assets less Liabilities - 3.9% 19,124
--------------
NET ASSETS - 100.0% $ 484,168
==============
Notes to the Schedule of Investments:
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $456,074) $ 465,044
Cash 18,917
Interest receivable 198
Receivable from Investment Adviser 15,722
Deferred organization costs (Note 1C) 30,602
--------------
Total assets 530,483
Liabilities:
Payable to investment adviser (Note 1E) $ 30,737
Accrued investment advisory fee (Note 2) 62
Accrued expenses and other liabilities 15,516
--------------
Total liabilities 46,315
--------------
Net Assets (applicable to investors' beneficial interest) $ 484,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Operations
For the period December 23, 1996 (commencement of operations)
through December 31, l996
Investment Income
Interest income $ 198
Expenses
Investment advisory fee (Note 2) $ 62
Trustees fees 100
Amortization of organization costs (note 1F) 94
Legal and audit services 14,500
Custody fees 1,002
Miscellaneous 26
---------------
Total expenses 15,784
Waiver of investment advisory fee $ (62)
Reimbursement of operating expenses (15,722)
---------------
Total waiver of investment advisory fee and reimbursement of operating expenses (15,784)
Net expenses 0
--------------
Net investment income (loss) 198
--------------
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation (depreciation) on investments 8,970
--------------
Net increase (decrease) in net assets from operations $ 9,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Changes in Net Assets
For the period December 23, 1996 (commencement of operations) thorugh
December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 198
Change in net unrealized appreciation (depreciation) 8,970
--------------
Increase in net assets from operations 9,168
Capital transactions
Contributions 475,000
Withdrawals -
--------------
Increase (Decrease) in net assets resulting from capital transactions 475,000
Total increase (decrease) in net assets 484,168
Net Assets:
At beginning of period -
--------------
At end of period $ 484,168
==============
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Supplementary Data
For the period December 23, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses N/A *
Net investment income N/A *
Average broker commission per share $0.2000(1)
Portfolio turnover 0.00%
* Ratios are not meaningful due to the short period of operations.
All expenses were reimbursed by the Investment Adviser.
(1) Amount represents the average commission paid per share to
brokers on the purchase and sale of portfolio securities.
<PAGE>
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York and is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company. Standish Small
Capitalization Equity Portfolio II (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued on an
amortized cost basis. If the Portfolio acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Code) in order for its investors to satisfy them.
The Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
E...Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through December 2001. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. For the period ended December 31, 1996, the investment
adviser voluntarily agreed to limit the Portfolio's operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.00% of the Portfolio's average daily net assets. Such expenses for
the period ended December 31, 1996 were $15,784 and were reimbursed by
the investment adviser. The Portfolio pays no compensation directly to
its trustees who are affiliated with the investment adviser or to its
officers, all of whom receive remuneration for their services to the
Portfolio from the investment adviser. Certain of the trustees and
officers of the Portfolio Trust are directors or officers of SA&W.
(3).....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, were as follows:
Purchases Sales
Investments $456,074 $0
=================== ===================
(4).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $456,074
Gross unrealized appreciation $16,214
Gross unrealized depreciation (7,244)
==================
Net unrealized appreciation (depreciation) $8,970
==================
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio II: We have audited the
accompanying statement of assets and liabilities of Standish Small
Capitalization Equity Portfolio II, including the portfolio of investments, as
of December 31, 1996, and the related statement of operations, the statement of
changes in net assets and the supplementary data for the period from December
23, 1996 (commencement of operations) to December 31, 1996. These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. In our opinion, the financial statements and supplementary data
data present fairly, in all material respects, the financial position of
Standish Small Capitalization Equity Portfolio II as of December 31, 1996, and
the results of its operations, changes in its net assets and supplementary data
for the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Financial Highlights of the following series of Standish, Ayer & Wood
Investment Trust (the "Registrant") are included in the related Prospectuses:
Standish Fixed Income Fund, Standish Fixed Income Fund II, Standish Short-Term
Asset Reserve Fund, Standish Controlled Maturity Fund, Standish Securitized
Fund, Standish International Fixed Income Fund, Standish Global Fixed Income
Fund, Standish Equity Fund, Standish Small Capitalization Equity Fund and
Standish Small Capitalization Equity Fund II.
The financial statements of Standish Equity Portfolio, Standish Small
Capitalization Equity Portfolio, Standish Small Capitalization Equity Portfolio
II, Standish Fixed Income Portfolio and Standish Global Fixed Income Portfolio,
each a series of Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"),
are included in the Statements of Additional Information of Standish Equity
Fund, Standish Small Capitalization Equity Fund, Standish Small Capitalization
Equity Fund II, Standish Fixed Income Fund and Standish Global Fixed Income
Fund, each a series of the Registrant.
The following financial statements are included in the Statements of
Additional Information of the above-referenced series of the Registrant:
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
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**
C-1
<PAGE>
(1C) Certificate of Designation of Standish Securitized Fund**
(1D) Certificate of Designation of Standish Short-Term Asset Reserve Fund**
(1E) Certificate of Designation of Standish Marathon Fund*
(1F) Certificate of Amendment dated November 21, 1989*
(1G) Certificate of Amendment dated November 29, 1989*
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International Fixed Income
Fund**
(1K) Certificate of Designation of Standish Intermediate Tax Exempt Bond
Fund*
(1L) Certificate of Designation of Standish Massachusetts Intermediate Tax
Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed Income Fund*
(1N) Certificate of Designation of Standish Controlled Maturity Fund and
Standish Fixed Income Fund II**
(1O) Certificate of Designation of Standish Tax-Sensitive Small Cap Equity
Fund and Standish Tax-Sensitive Equity Fund**
(1P) Form of Certificate of Designation of Standish Equity Asset Fund,
Standish Small Capitalization Equity Asset Fund, Standish Fixed Income
Asset Fund and Standish Global Fixed Income Asset Fund**
(1Q) Form of Certificate of Designation of Standish Small Capitalization
Equity Fund II**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
C-2
<PAGE>
(5A) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Securitized Fund**
(5B) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Short-Term Asset
Reserve Fund**
(5C) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Fixed Income
Fund**
(5D) Assignment of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund**
(5E) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Intermediate Tax
Exempt Bond Fund**
(5F) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Massachusetts Intermediate Tax
Exempt Bond Fund**
(5G) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Controlled Maturity Fund**
(5H) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Fixed Income Fund II**
(5I) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Small Cap Tax-Sensitive Equity
Fund**
(5J) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Tax-Sensitive Equity Fund**
(6A) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.**
(6B) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with respect to
Standish Equity Asset Fund, Standish Small Capitalization Equity Asset
Fund, Standish Fixed Income Asset Fund and Standish Global Fixed Income
Asset Fund**
C-3
<PAGE>
(6C) Revised Appendix A to Underwriting Agreement between the
Registrant and Standish Fund Distributors, L.P. with respect to
Standish Small Capitalization Equity Fund II**
(7) Not applicable
(8A) Master Custody Agreement between the Registrant and Investors Bank
& Trust Company**
(8B) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Equity Asset Fund, Standish Small Capitalization
Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund**
(8C) Revised Appendix A to Master Custody Agreement between the
Registrant and Investors Bank & Trust with respect to Standish Small
Capitalization Equity Fund II**
(9A) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company**
(9B) Revised Exhibit A to Transfer Agency and Service Agreement
between the Registrant and Investors Bank & Trust Company with
respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income Asset
Fund and Standish Global Fixed
Income Asset Fund**
(9C) Revised Exhibit A to Transfer Agency and Service Agreement between
the Registrant and Investors Bank & Trust Company with respect to
Standish Small Capitalization Equity Fund II**
(9D) Master Administration Agreement between the Registrant and Investors
Bank & Trust Company**
(9E) Revised Exhibit A to Master Administration Agreement between
the Registrant and Investors Bank & Trust Company with respect
to Standish Equity Asset Fund, Standish Small Capitalization
Equity Asset Fund, Standish Fixed Income Asset Fund and
Standish Global Fixed Income Asset Fund**
(9F) Revised Exhibit A to Master Administration Agreement between the
Registrant and Investors Bank & Trust Company with respect to
Standish Small Capitalization Equity Fund II**
C-4
<PAGE>
(9G) Form of Administrative Services Agreement between Standish, Ayer &
Wood, Inc. and the Registrant on behalf of Standish Fixed Income Fund,
Standish Equity Fund, Standish Small Cap Equity Fund and Standish
Global Fixed Income Fund**
(9H) Revised Exhibit A to Administrative Services Agreement between
Standish, Ayer & Wood, Inc. and the Registrant with respect to Standish
Equity Asset Fund, Standish Small Capitalization Equity Asset Fund,
Standish Fixed Income Asset Fund and Standish Global Fixed Income
Asset Fund**
(9I) Revised Exhibit A to Administrative Services Agreement between
Standish, Ayer & Wood, Inc. and the Registrant on behalf of Standish
Small Capitalization Equity Fund II**
(10A) Opinion and Consent of Counsel for Standish Fixed Income Fund**
(10B) Opinion and Consent of Counsel for Standish Securitized Fund**
(10C) Opinion and Consent of Counsel for Standish Short-Term Asset Reserve
Fund**
(10D) Opinion and Consent of Counsel for Standish Small Capitalization
Equity Fund (formerly Standish Marathon Fund)**
(10E) Opinion and Consent of Counsel for Standish Equity Fund**
(10F) Opinion and Consent of Counsel for Standish International Fixed
Income Fund**
(10G) Opinion and Consent of Counsel for Standish Intermediate Tax Exempt
Bond Fund**
(10H) Opinion and Consent of Counsel for Standish Massachusetts
Intermediate Tax Exempt Bond Fund**
(10I) Opinion and Consent of Counsel for Standish Global Fixed Income
Fund**
(10J) Opinion and Consent of Counsel for the Registrant**
(11A) Opinion and Consent of Independent Public Accountants***
(11B) Consent of Independent Public Accountants***
(11C) Consent of Independent Public Accountants***
C-5
<PAGE>
(12) Not applicable
(13) Form of Initial Capital Agreement between the Registrant and Standish,
Ayer & Wood, Inc.**
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17A) Financial Data Schedule of Standish Fixed Income Fund***
(17B) Financial Data Schedule of Standish Fixed Income Fund II***
(17C) Financial Data Schedule of Standish Short-Term Asset Reserve Fund***
(17D) Financial Data Schedule of Standish Controlled Maturity Fund***
(17E) Financial Data Schedule of Standish Securitized Fund***
(17F) Financial Data Schedule of Standish International Fixed Income Fund***
(17G) Financial Data Schedule of Standish Global Fixed Income Fund***
(17H) Financial Data Schedule of Standish Equity Fund***
(17I) Financial Data Schedule of Standish Small Capitalization Equity Fund***
(17J) Financial Data Schedule of Standish Small Capitalization Equity Fund
II***
(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)**
(19E) Power of Attorney for Registrant (John H. Hewitt)**
C-6
<PAGE>
(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 Portfolio Trust (Richard S. Wood)**
(19J) 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)**
- --------------------
* Filed as an exhibit to Registration Statement No. 33-10615 and
incorporated herein by reference thereto.
** Filed as an exhibit to Registration Statement No. 33-8214 and
incorporated herein by reference thereto.
*** Filed herewith.
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of February 1,
1997, of the shares of each series of the Registrant.
Number of Record
Title of Class Holders
-------------- -------
Shares of beneficial interest, par value $.01, of:
Standish Fixed Income Fund 481
Standish Securitized Fund 12
Standish Short-Term Asset
Reserve Fund 91
Standish International Fixed
Income Fund 200
Standish Global Fixed Income Fund 47
C-7
<PAGE>
Standish Equity Fund 142
Standish Small Capitalization
Equity Fund 418
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 90
Standish Intermediate Tax Exempt
Bond Fund 113
Standish International Equity Fund 188
Standish Controlled Maturity Fund 17
Standish Fixed Income Fund II 4
Standish Small Cap Tax-Sensitive
Equity Fund 123
Standish Tax-Sensitive Equity Fund 62
Standish Equity Asset Fund 0
Standish Small Capitalization
Equity Asset Fund 0
Standish Fixed Income Asset Fund 0
Standish Global Fixed Income Asset Fund 0
Standish Small Capitalization Equity Fund II 23
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
C-8
<PAGE>
proceeding) is asserted by any such Trustee, officer or controlling person
against the Registrant in connection with the securities being registered, and
the Commission is still of the same opinion, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
certain series of the Registrant, are listed on the Form ADV of Standish, Ayer &
Wood as currently on file with the Commission (File No. 801-584), the text of
which is hereby incorporated by reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("SIMCO"), the investment
adviser to certain other series of the Registrant, are listed on the Form ADV of
SIMCO as currently on file with the Commission (File No. 801-639338), the text
of which is hereby incorporated by reference.
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.
(b)Directors and Officers of Standish Fund Distributors, L.P.:
<TABLE>
<CAPTION>
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- ---------------- ---------------
<S> <C> <C>
James E. Hollis, III Chief Executive Officer Vice President
C-9
<PAGE>
Beverly E. Banfield Chief Operating Officer Vice President
</TABLE>
The General Partner of Standish Fund Distributors, L.P. is Standish,
Ayer & Wood, Inc.
(c) Not applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of the
Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive thereunder at
its principal office, located at One Financial Center, Boston, Massachusetts
02111. Certain records, including records relating to the Registrant's
shareholders and the physical possession of its securities, may be maintained
pursuant to Rule 31a-3 at the main offices of the Registrant's transfer and
dividend disbursing agent and custodian.
Item 31. Management Services
Not applicable
Item 32. Undertakings
(a) Not applicable.
(b) With respect to Standish Equity Asset Fund, Standish Small
Capitalization Equity Asset Fund, Standish Fixed Income Asset
Fund and Standish Global Fixed Income Asset Fund, the
Registrant undertakes to file a post-effective amendment, using
financial statements which need not be certified, within four to
six months from the effective date of the applicable Post-Effective
Amendment to its Registration Statement registering shares of
such Funds.
(c) The Registrant undertakes to furnish each person to
whom a Prospectus is delivered a copy of Registrant's
latest annual report to shareholders, upon request
and without charge.
C-10
<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 has duly caused this
Post-Effective Amendment to its Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Boston and
The Commonwealth of Massachusetts on the 27th day of February, 1997.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ James E. Hollis, III
James E. Hollis, III, Treasurer
The term "Standish, Ayer & Wood Investment Trust" means and refers to
the Trustees from time to time serving under the Agreement and Declaration of
Trust of the Registrant dated August 13, 1986, a copy of which is on file with
the Secretary of State of The Commonwealth of Massachusetts. The obligations of
the Registrant hereunder are not binding personally upon any of the Trustees,
shareholders, nominees, officers, agents or employees of the Registrant, but
bind only the trust property of the Registrant, as provided in the Agreement and
Declaration of Trust of the Registrant. The execution of this Registration
Statement has been authorized by the Trustees of the Registrant and this
Registration Statement has been signed by an authorized officer of the
Registrant, acting as such, and neither such authorization by such Trustees nor
such execution by such officer shall be deemed to have been made by any of them,
but shall bind only the trust property of the Registrant as provided in its
Declaration of Trust.
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the date indicated.
C-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Signature Title Date
Richard S. Wood* Trustee and President February 27, 1997
- ------------------------
Richard S. Wood (principal executive officer)
James E. Hollis, III* Treasurer (principal February 27, 1997
- -----------------------------
James E. Hollis, III financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee February 27, 1997
D. Barr Clayson
Samuel C. Fleming* Trustee February 27, 1997
Samuel C. Fleming
Benjamin M. Friedman* Trustee February 27, 1997
Benjamin M. Friedman
John H. Hewitt* Trustee February 27, 1997
John H. Hewitt
Edward H. Ladd* Trustee February 27, 1997
Edward H. Ladd
Caleb Loring III* Trustee February 27, 1997
Caleb Loring III
*By: /s/ James E. Hollis, III
James E. Hollis, III
Attorney-In-Fact
</TABLE>
C-12
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio has duly
caused this Post-Effective Amendment to the Registration Statement of Standish,
Ayer & Wood Investment Trust to be signed on its behalf by the undersigned,
thereunto duly authorized, outside the United States on the 28th day of
February, 1997.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
Richard S. Wood*
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of Standish, Ayer & Wood
Investment Trust has been signed outside the United States by the following
persons in their capacities with Standish, Ayer & Wood Master Portfolio and on
the date indicated.
<TABLE>
<CAPTION>
<S> <C> <C>
Signature Title Date
Richard S. Wood* Trustee and President February 28, 1997
- ----------------------
Richard S. Wood (principal executive
officer)
James E. Hollis, III* Treasurer (principal February 27, 1997
- -----------------------
James E. Hollis, III financial and accounting
officer) and Secretary
D. Barr Clayson* Trustee February 28, 1997
D. Barr Clayson
Samuel C. Fleming* Trustee February 28, 1997
Samuel C. Fleming
Benjamin M. Friedman* Trustee February 28, 1997
Benjamin M. Friedman
C-13
<PAGE>
John H. Hewitt* Trustee February 28, 1997
John H. Hewitt
Edward H. Ladd* Trustee February 28, 1997
Edward H. Ladd
Caleb Loring III* Trustee February 28, 1997
Caleb Loring III
*By: /s/ James E. Hollis, III
James E. Hollis, III
Attorney-In-Fact
</TABLE>
C-14
<PAGE>
EXHIBIT INDEX
Exhibit
(11A) Opinion and Consent of Independent Public Accountants
(11B) Consent of Independent Public Accountants
(11C) Consent of Independent Public Accountants
(17A) Financial Data Schedule of Standish Fixed Income Fund
(17B) Financial Data Schedule of Standish Fixed Income Fund II
(17C) Financial Data Schedule of Standish Short-Term Asset Reserve Fund
(17D) Financial Data Schedule of Standish Controlled Maturity Fund
(17E) Financial Data Schedule of Standish Securitized Fund
(17F) Financial Data Schedule of Standish International Fixed Income Fund
(17G) Financial Data Schedule of Standish Global Fixed Income Fund
(17H) Financial Data Schedule of Standish Equity Fund
(17I) Financial Data Schedule of Standish Small Capitalization Equity Fund
(17J) Financial Data Schedule of Standish Small Capitalization Equity Fund II
C-12
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 80 to the
Registration Statement on Form N-1A (1933 Act File Number 33-8214) and Post
effective Amendment No. 13 to the Registration Statement on Form N-1A (1933 Act
File Number 10615) of Standish, Ayer & Wood Investment Trust: Standish Fixed
Income Fund, Standish Fixed Income Fund II, Standish Short-Term Asset Reserve
Fund, Standish Controlled Maturity Fund and Standish Securitized Fund of our
reports dated February 20, 1997 and Standish Global Fixed Income Fund, Standish
International Fixed Income Fund, Standish Equity Fund, Standish Small
Capitalization Equity Fund and Standish Small Capitalization Fund II (the
"Funds") of our reports dated February 25, 1997, on our audit of the financial
statements and financial highlights of the Funds, which reports are included in
the Annual Reports to Shareholders for the year ended December 31, 1996, which
are also included in the Registration Statements.
We also consent to the references to our Firm under the caption "Financial
Highlights" and "Independent Accountants" in the Prospectuses and under the
caption "Experts and Financial Statements" in the Statements of Additional
Information of the Registration Statements.
/s/Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
Coopers & Lybrand
145 King Street West
Tornonto, Ontario
Canada M5H 1VS
February 25, 1997
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 80 to the
Registration Statement of Standish, Ayer & Wood Investment Trust (1933 Act File
No. 33-8214) and Post-Effective Amendment No.13 to the Registration Statement of
Standish, Ayer & Wood Investment Trust (1933 Act File No. 33-10615) on behalf of
Standish Small Capitalization Equity Fund, Standish Small Capitalization Equity
Fund II, Standish Equity Fund, Standish Fixed Income Fund, Standish Global Fixed
Income Fund, of our reports relating to Standish Small Capitalization Equity
Portfolio, Standish Small Capitalization Equity Portfolio II, Standish Equity
Portf olio, Standish Fixed Income Portfolio, Standish Global Fixed Income
Portfolio dated February 25, 1997, in the Statements of Additional Information,
which are part of such Registration Statements.
We also consent to the reference to our Firm under the caption "Independent
Accountants" in the Prospectuses and under the caption "Experts and Financial
Statements in the Statements of Additional Information which are part of the
Registration Statements.
/s/ Coopers & Lybrand
Chartered Accountants
Toronto, Ontario
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent in this Post-Effective Amendment No. 80 to Registration Statement No.
33-8214 of Standish, Ayer & Wood Investment Trust (including Standish Fixed
Income Fund, Standish Fixed Income Fund II, Standish Securitized Fund, Standish
Short-Term Asset Reserve Fund, Standish Controlled Maturity Fund, Standish Small
Capitalization Equity Fund, Standish Small Capitalization Equity Fund II,
Standish International Fixed Income Fund, Standish Global Fixed Income Fund,
Standish International Equity Fund and Standish Equity Fund) to the references
to us under the heading "Experts and Financial Statements" appearing in the
Statements of Additional Information, which are a part of such Registration
Statement.
/S/ Deloitte & Touche LLP
Boston, Massachusetts
February 26, 1997
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Standish Fixed Income Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 2,616,111,481
<RECEIVABLES> 11,189,329
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 65,572
<TOTAL-ASSETS> 2,627,366,382
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 23,738,113
<TOTAL-LIABILITIES> 23,738,113
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,567,721,565
<SHARES-COMMON-STOCK> 126,807,250
<SHARES-COMMON-PRIOR> 108,347,706
<ACCUMULATED-NII-CURRENT> 5,299,151
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (1,219,259)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 31,826,812
<NET-ASSETS> 2,603,628,269
<DIVIDEND-INCOME> 4,118,221
<INTEREST-INCOME> 176,069,782
<OTHER-INCOME> (5,959,995)
<EXPENSES-NET> 3,092,201
<NET-INVESTMENT-INCOME> 171,135,807
<REALIZED-GAINS-CURRENT> 21,284,879
<APPREC-INCREASE-CURRENT> (57,299,336)
<NET-CHANGE-FROM-OPS> 135,121,350
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (176,422,831)
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 20,679,081
<NUMBER-OF-SHARES-REDEEMED> 8,638,095
<SHARES-REINVESTED> 6,418,558
<NET-CHANGE-IN-ASSETS> 336,521,382
<ACCUMULATED-NII-PRIOR> 3,798,973
<ACCUMULATED-GAINS-PRIOR> (15,716,937)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 2,493,743
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 3,092,201
<AVERAGE-NET-ASSETS> 2,400,243,906
<PER-SHARE-NAV-BEGIN> 20.92
<PER-SHARE-NII> 1.46
<PER-SHARE-GAIN-APPREC> (0.37)
<PER-SHARE-DIVIDEND> (1.48)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.53
<EXPENSE-RATIO> 0.38
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Standish Small Capitalization Equity Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 246,652,321
<RECEIVABLES> 43,945
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 5,407
<TOTAL-ASSETS> 246,701,673
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 2,570,835
<TOTAL-LIABILITIES> 2,570,835
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 207,857,565
<SHARES-COMMON-STOCK> 4,609,813
<SHARES-COMMON-PRIOR> 3,375,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,952,719
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 32,320,554
<NET-ASSETS> 244,130,838
<DIVIDEND-INCOME> 243,441
<INTEREST-INCOME> 413,624
<OTHER-INCOME> (1,112,861)
<EXPENSES-NET> 515,768
<NET-INVESTMENT-INCOME> (971,564)
<REALIZED-GAINS-CURRENT> 37,360,958
<APPREC-INCREASE-CURRENT> (2,412,418)
<NET-CHANGE-FROM-OPS> 33,976,976
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> (39,018,707)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,100,618
<NUMBER-OF-SHARES-REDEEMED> 531,585
<SHARES-REINVESTED> 562,742
<NET-CHANGE-IN-ASSETS> 63,660,872
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 6,582,032
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 396,796
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 528,886
<AVERAGE-NET-ASSETS> 218,548,363
<PER-SHARE-NAV-BEGIN> 53.46
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 9.29
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> (9.79)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 52.96
<EXPENSE-RATIO> 0.75
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Standish Equity Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 106,277,516
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 2,576
<TOTAL-ASSETS> 106,280,092
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 425,310
<TOTAL-LIABILITIES> 425,310
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 81,035,794
<SHARES-COMMON-STOCK> 2,728,741
<SHARES-COMMON-PRIOR> 2,543,181
<ACCUMULATED-NII-CURRENT> 88,950
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 7,655,446
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 17,074,592
<NET-ASSETS> 105,854,782
<DIVIDEND-INCOME> 2,065,076
<INTEREST-INCOME> 195,682
<OTHER-INCOME> (479,297)
<EXPENSES-NET> 231,781
<NET-INVESTMENT-INCOME> 1,549,680
<REALIZED-GAINS-CURRENT> 16,774,749
<APPREC-INCREASE-CURRENT> 6,696,912
<NET-CHANGE-FROM-OPS> 25,021,341
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,481,454
<DISTRIBUTIONS-OF-GAINS> 11,604,448
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 561,325
<NUMBER-OF-SHARES-REDEEMED> 701,269
<SHARES-REINVESTED> 325,504
<NET-CHANGE-IN-ASSETS> 17,322,399
<ACCUMULATED-NII-PRIOR> (20,724)
<ACCUMULATED-GAINS-PRIOR> 2,485,145
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 163,530
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 231,781
<AVERAGE-NET-ASSETS> 101,289,914
<PER-SHARE-NAV-BEGIN> 34.81
<PER-SHARE-NII> 0.58
<PER-SHARE-GAIN-APPREC> 8.54
<PER-SHARE-DIVIDEND> (0.56)
<PER-SHARE-DISTRIBUTIONS> (4.58)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 38.79
<EXPENSE-RATIO> 0.70
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 10
<NAME> Standish Global Fixed Income Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 159,814,385
<RECEIVABLES> 43,750
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 8,299
<TOTAL-ASSETS> 159,866,434
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 4,135,871
<TOTAL-LIABILITIES> 4,135,871
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 149,753,799
<SHARES-COMMON-STOCK> 7,752,638
<SHARES-COMMON-PRIOR> 7,060,025
<ACCUMULATED-NII-CURRENT> 364,160
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (493,895)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 6,106,499
<NET-ASSETS> 155,730,563
<DIVIDEND-INCOME> 71,795
<INTEREST-INCOME> 11,719,970
<OTHER-INCOME> (639,252)
<EXPENSES-NET> 348,557
<NET-INVESTMENT-INCOME> 10,803,956
<REALIZED-GAINS-CURRENT> 7,333,996
<APPREC-INCREASE-CURRENT> 825,965
<NET-CHANGE-FROM-OPS> 18,963,917
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,538,791
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,015,265
<NUMBER-OF-SHARES-REDEEMED> 706,939
<SHARES-REINVESTED> 384,287
<NET-CHANGE-IN-ASSETS> 17,831,541
<ACCUMULATED-NII-PRIOR> (424,310)
<ACCUMULATED-GAINS-PRIOR> (3,304,586)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 198,747
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 348,557
<AVERAGE-NET-ASSETS> 151,941,833
<PER-SHARE-NAV-BEGIN> 19.53
<PER-SHARE-NII> 1.42
<PER-SHARE-GAIN-APPREC> 1.05
<PER-SHARE-DIVIDEND> (1.91)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 20.09
<EXPENSE-RATIO> 0.65
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> Standish Short Term Asset Reserve Fund
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 192,433,110
<INVESTMENTS-AT-VALUE> 192,191,441
<RECEIVABLES> 2,291,124
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 194,482,565
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 408,960
<TOTAL-LIABILITIES> 408,960
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 205,255,771
<SHARES-COMMON-STOCK> 9,953,704
<SHARES-COMMON-PRIOR> 12,455,005
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (131,817)
<ACCUMULATED-NET-GAINS> (10,808,680)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (241,669)
<NET-ASSETS> 194,073,605
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 15,608,502
<OTHER-INCOME> 0
<EXPENSES-NET> 884,920
<NET-INVESTMENT-INCOME> 14,723,582
<REALIZED-GAINS-CURRENT> (378,935)
<APPREC-INCREASE-CURRENT> (495,240)
<NET-CHANGE-FROM-OPS> 13,849,407
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 14,723,192
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 9,748,426
<NUMBER-OF-SHARES-REDEEMED> 12,798,043
<SHARES-REINVESTED> 548,316
<NET-CHANGE-IN-ASSETS> (49,425,915)
<ACCUMULATED-NII-PRIOR> (72,090)
<ACCUMULATED-GAINS-PRIOR> (10,489,862)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 643,488
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 884,920
<AVERAGE-NET-ASSETS> 256,073,048
<PER-SHARE-NAV-BEGIN> 19.55
<PER-SHARE-NII> 1.11
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (1.12)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.50
<EXPENSE-RATIO> 0.35
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Standish Securitized Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 58,186,030
<INVESTMENTS-AT-VALUE> 58,137,917
<RECEIVABLES> 366,836
<ASSETS-OTHER> 27,790
<OTHER-ITEMS-ASSETS> 2,488
<TOTAL-ASSETS> 58,535,031
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 7,917,775
<TOTAL-LIABILITIES> 7,917,775
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,745,999
<SHARES-COMMON-STOCK> 2,569,380
<SHARES-COMMON-PRIOR> 2,725,447
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (97,839)
<ACCUMULATED-NET-GAINS> (2,053,795)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 22,891
<NET-ASSETS> 50,617,256
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 3,921,909
<OTHER-INCOME> 0
<EXPENSES-NET> 237,256
<NET-INVESTMENT-INCOME> 3,684,653
<REALIZED-GAINS-CURRENT> (333,340)
<APPREC-INCREASE-CURRENT> (1,153,682)
<NET-CHANGE-FROM-OPS> 2,197,631
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 3,663,175
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,450
<NUMBER-OF-SHARES-REDEEMED> 179,930
<SHARES-REINVESTED> 20,413
<NET-CHANGE-IN-ASSETS> (4,583,443)
<ACCUMULATED-NII-PRIOR> (163,094)
<ACCUMULATED-GAINS-PRIOR> (1,676,678)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 132,516
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 266,791
<AVERAGE-NET-ASSETS> 52,720,638
<PER-SHARE-NAV-BEGIN> 20.25
<PER-SHARE-NII> 1.43
<PER-SHARE-GAIN-APPREC> (0.57)
<PER-SHARE-DIVIDEND> (1.41)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.70
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 6
<NAME> Standish International Fixed Income Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 805,784,715
<INVESTMENTS-AT-VALUE> 841,758,824
<RECEIVABLES> 25,371,596
<ASSETS-OTHER> 1,815,644
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 868,946,064
<PAYABLE-FOR-SECURITIES> 6,048,938
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,764,308
<TOTAL-LIABILITIES> 28,813,246
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 787,273,190
<SHARES-COMMON-STOCK> 36,136,500
<SHARES-COMMON-PRIOR> 34,623,407
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 7,407,224
<ACCUMULATED-NET-GAINS> 6,107,628
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 39,344,776
<NET-ASSETS> 840,132,818
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 61,878,253
<OTHER-INCOME> 0
<EXPENSES-NET> 4,242,990
<NET-INVESTMENT-INCOME> 57,635,263
<REALIZED-GAINS-CURRENT> 57,382,433
<APPREC-INCREASE-CURRENT> 1,735,395
<NET-CHANGE-FROM-OPS> 116,753,091
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 88,136,980
<DISTRIBUTIONS-OF-GAINS> 24,989,660
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,454,273
<NUMBER-OF-SHARES-REDEEMED> 10,643,614
<SHARES-REINVESTED> 3,702,434
<NET-CHANGE-IN-ASSETS> 36,595,943
<ACCUMULATED-NII-PRIOR> 2,477,089
<ACCUMULATED-GAINS-PRIOR> 9,146,707
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 3,234,397
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 4,242,990
<AVERAGE-NET-ASSETS> 804,353,284
<PER-SHARE-NAV-BEGIN> 23.21
<PER-SHARE-NII> 1.72
<PER-SHARE-GAIN-APPREC> 1.73
<PER-SHARE-DIVIDEND> (3.41)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.25
<EXPENSE-RATIO> 0.53
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 12
<NAME> Standish Fixed Income Fund Series II Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 35,203,789
<INVESTMENTS-AT-VALUE> 35,194,915
<RECEIVABLES> 712,807
<ASSETS-OTHER> 8,692
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 35,916,414
<PAYABLE-FOR-SECURITIES> 357,069
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 74,041
<TOTAL-LIABILITIES> 431,110
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 35,425,262
<SHARES-COMMON-STOCK> 1,894,219
<SHARES-COMMON-PRIOR> 392,216
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 11,552
<ACCUMULATED-NET-GAINS> 56,763
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (8,273)
<NET-ASSETS> 35,485,304
<DIVIDEND-INCOME> 3,360
<INTEREST-INCOME> 1,051,457
<OTHER-INCOME> 0
<EXPENSES-NET> 60,575
<NET-INVESTMENT-INCOME> 994,242
<REALIZED-GAINS-CURRENT> 58,954
<APPREC-INCREASE-CURRENT> (236,747)
<NET-CHANGE-FROM-OPS> 816,449
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 938,752
<DISTRIBUTIONS-OF-GAINS> 678,707
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,494,596
<NUMBER-OF-SHARES-REDEEMED> 77,808
<SHARES-REINVESTED> 85,215
<NET-CHANGE-IN-ASSETS> 27,438,820
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 632,578
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 61,291
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 160,555
<AVERAGE-NET-ASSETS> 15,143,150
<PER-SHARE-NAV-BEGIN> 20.52
<PER-SHARE-NII> 1.18
<PER-SHARE-GAIN-APPREC> (0.54)
<PER-SHARE-DIVIDEND> (2.43)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 18.73
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> Standish Controlled Maturity Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 12,648,225
<INVESTMENTS-AT-VALUE> 12,589,498
<RECEIVABLES> 160,541
<ASSETS-OTHER> 8,205
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 12,758,244
<PAYABLE-FOR-SECURITIES> 79,240
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 154,129
<TOTAL-LIABILITIES> 233,369
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 12,585,485
<SHARES-COMMON-STOCK> 626,464
<SHARES-COMMON-PRIOR> 438,093
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 14,419
<ACCUMULATED-NET-GAINS> (16,302)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (58,727)
<NET-ASSETS> 12,524,875
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 714,652
<OTHER-INCOME> 0
<EXPENSES-NET> 40,816
<NET-INVESTMENT-INCOME> 673,836
<REALIZED-GAINS-CURRENT> (22,349)
<APPREC-INCREASE-CURRENT> (124,788)
<NET-CHANGE-FROM-OPS> 526,699
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 653,352
<DISTRIBUTIONS-OF-GAINS> 5,114
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 241,487
<NUMBER-OF-SHARES-REDEEMED> 64,441
<SHARES-REINVESTED> 11,325
<NET-CHANGE-IN-ASSETS> 3,657,028
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 5,096
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 35,907
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 127,333
<AVERAGE-NET-ASSETS> 10,204,221
<PER-SHARE-NAV-BEGIN> 20.24
<PER-SHARE-NII> 1.27
<PER-SHARE-GAIN-APPREC> (0.27)
<PER-SHARE-DIVIDEND> (1.25)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.99
<EXPENSE-RATIO> 0.40
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1996
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> Standish Small Capitalization Equity II Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 484,168
<RECEIVABLES> 7,588
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 9,180
<TOTAL-ASSETS> 500,936
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 16,768
<TOTAL-LIABILITIES> 16,768
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 475,000
<SHARES-COMMON-STOCK> 23,750
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 198
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 8,970
<NET-ASSETS> 484,168
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 198
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 198
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 8,970
<NET-CHANGE-FROM-OPS> 9,168
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 23,750
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 484,168
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 7,588
<AVERAGE-NET-ASSETS> 472,510
<PER-SHARE-NAV-BEGIN> 20.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.39
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<PER-SHARE-NAV-END> 20.39
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
