As filed with the Securities and Exchange Commission on January 28, 1998
Registration Nos. 33-8214
811-4813
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. |_|
Post-Effective Amendment No. 87 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 91 |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:
|X| Immediately upon filing pursuant to Rule 485(b)
|_| On [Date] pursuant to Rule 485(b)
|_| 60 days after filing pursuant to Rule 485(a)(1)
|_| On [Date] pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to Rule 485(a)(2)
|_| On [Date] pursuant to Rule 485(a)(2)
----------------------
This Post-Effective Amendment has been executed by Standish, Ayer & Wood
Master Portfolio.
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST*
Cross-Reference Sheet Pursuant to Rule 495(a)
Part A Prospectus
Form Item Cross-Reference
- --------- ---------------
Item 1. Cover Page Cover Page
Item 2. Synopsis "Expense Information"
Item 3. Condensed Financial Not Applicable
Item 4. General Description Cover Page, "The Funds and Their
of Registrant Shares", "Investment Objective and
Policies", "Description of Securities
and Related Risks", "Investment
Techniques and Related Risks" and
"Information about the Master-Feeder
Structure"
Item 5. Management of the Fund "Management" and "Custodian, Transfer
Agent and Dividend Disbursing Agent"
Item 6. Capital Stock and "The Funds and Their Shares", "Purchase
Other Securities 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 Statement is being
filed with respect to the following series of the Registrant: Standish
Equity fund, Standish Small Capitalization Equity Fund, Standish Small
Capitalization Equity Fund II and Standish International Equity Fund. The
Prospectuses and Statements of Additional Information for the other series
of the Registrant are not effected hereby and, therefore, are not included
herewith.
<PAGE>
Statement of Additional
Part B Information Cross-
Form Item Reference
- --------- -----------------------
Item 10. Cover Page Cover Page
Item 11. Table of Contents "Contents"
Item 12. General Information
and History Not Applicable
Item 13. Investment Objectives "Investment Objective and
and Policies and Policies" and "Investment
Restrictions"
Item 14. Management of the Fund "Management"
Item 15. Control Persons and "Management"
Principal Holders
of Securities
Item 16. Investment Advisory and "Management"
Other Services
Item 17. Brokerage Allocation "Portfolio Transactions"
Item 18. Capital Stock and "The Funds and Their Shares"
Other Securities
Item 19. Purchase, Redemption "Redemption of Shares" and
and Pricing of Securities "Determination of Net Asset
Being Offered Value"
Item 20. Tax Status "Taxation"
Item 21. Underwriters Not Applicable
Item 22. Calculation of "Calculation of Performance
Performance Data Data"
Item 23. Financial Statements "Experts and Financial Statements"
<PAGE>
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) Financial Statements:
Included in Part A of Standish Equity Fund, Standish Small
Capitalization Equity Fund, Standish Small Capitalization Equity Fund II
and Standish International Equity Fund:
Financial Highlights
Included in Part B of Standish Equity Fund, Standish Small
Capitalization Equity Fund, Standish Small Capitalization Equity Fund II
and Standish International Equity Fund: each a series of Standish, Ayer &
Wood Investment Trust (the "Registrant").+
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
(b) Exhibits:
(1) Agreement and Declaration of Trust dated
August 13, 1986*
(1A) Certificate of Designation of Standish Fixed Income Fund**
(1B) Certificate of Designation of Standish International Fund**
(1C) Certificate of Designation of Standish Securitized Fund**
(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*
C-1
<PAGE>
(1G) Certificate of Amendment dated November 29, 1989*
(1H) Certificate of Amendment dated April 24, 1990*
(1I) Certificate of Designation of Standish Equity Fund**
(1J) Certificate of Designation of Standish International Fixed Income
Fund**
(1K) Certificate of Designation of Standish Intermediate Tax Exempt
Bond Fund*
(1L) Certificate of Designation of Standish Massachusetts Intermediate
Tax Exempt Bond Fund*
(1M) Certificate of Designation of Standish Global Fixed Income Fund*
(1N) Certificate of Designation of Standish Controlled Maturity Fund
and Standish Fixed Income Fund II**
(1O) 15 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**
(1R) Certificate of Designation of Standish Small Capitalization
Equity Asset Fund II, Standish Diversified Income Fund,
Standish Diversified Income Asset Fund**
(2) Bylaws of the Registrant*
(3) Not applicable
(4) Not applicable
(5A) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Securitized
Fund**
C-2
<PAGE>
(5B) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish
International Fixed Income Fund**
(5C) Assignment of Investment Advisory Agreement between the
Registrant and Standish, Ayer & Wood, Inc. relating to
Standish International Fixed Income Fund**
(5D) Form of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish
Intermediate Tax Exempt Bond Fund**
(5E) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish
Massachusetts Intermediate Tax Exempt Bond Fund**
(5F) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Controlled
Maturity Fund**
(5G) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Fixed
Income Fund II**
(5H) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund**
(5I) Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish
Tax-Sensitive Equity Fund**
(6A) Underwriting Agreement between the Registrant and Standish
Fund Distributors, L.P.**
(6B) Most recently dated/filed revised Appendix A to Underwriting
Agreement between the Registrant and Standish Fund
Distributors, L.P.**
(7) Not applicable
(8A) Master Custody Agreement between the Registrant and
Investors Bank & Trust Company**
(8B) Most recently dated/filed revised Appendix A to Master
Custody Agreement between the Registrant and Investors Bank
& Trust Company**
C-3
<PAGE>
(9A) Transfer Agency and Service Agreement between the Registrant
and Investors Bank & Trust Company**
(9B) Most recently dated/filed revised Exhibit A to Transfer
Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company**
(9C) Master Administration Agreement between the Registrant and
Investors Bank & Trust Company**
(9D) Most recently dated/filed revised Exhibit A to Master
Administration Agreement between the Registrant and
Investors Bank & Trust Company**
(9E) Form of Administrative Services Agreement between Standish,
Ayer & Wood, Inc. and the Registrant**
(9F) Most recently dated/filed revised Exhibit A to
Administrative Services Agreement between Standish, Ayer &
Wood, Inc. and the Registrant**
(10) Opinion and Consent of Counsel for the Registrant**
(11A) Consent of Independent Public Accountants***
(11B) Consent of Independent Public Accountants***
(11C) Consent of Independent Public Accountants***
(12) Not applicable
(13) Not applicable
(14) Not applicable
(15) Not applicable
(16) Performance Calculations**
(17A) Financial Data Schedule of Standish Equity Fund ***
(17B) Financial Data Schedule of Standish Small Capitalization
Equity Fund ***
(17C) Financial Data Schedule of Standish Small Capitalization
Equity Fund II***
C-4
<PAGE>
(17D) Financial Data Schedule of Standish International Equity Fund***
(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)**
(19F) Power of Attorney for Registrant (Edward H. Ladd)**
(19G) Power of Attorney for Registrant (Caleb Loring III)**
(19H) Power of Attorney for Registrant (D. Barr Clayson)**
(19I) Power of Attorney for Registrant (Paul G. Martins)**
(19J) Power of Attorney for Portfolio Trust (Richard S. Wood)**
(19K) Power of Attorney for Portfolio Trust (Samuel C. Fleming,
Benjamin M. Friedman, John H. Hewitt, Edward H. Ladd, Caleb
Loring III, Richard S. Wood and D. Barr Clayson)**
(19L) Power of Attorney for Portfolio Trust (Paul G. Martins)**
--------------------
+ The December 31, 1996 financial statements were filed as an
exhibit to Registration Statement No. 33-8214. The June 30,
1997 financial statements were filed on Form N-30D, File No.
811-4813, on September 8, 1997.
* Filed as an exhibit to Registration Statement No. 33-10615 and
incorporated herein by reference thereto.
** Filed as an exhibit to Registration Statement No. 33-8214 and
incorporated herein by reference thereto.
*** Filed herewith.
C-5
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
No person is directly or indirectly controlled by or under common
control with the Registrant.
Item 26. Number of Holders of Securities
Set forth below is the number of record holders, as of December 31,
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 499
Standish Securitized Fund 9
Standish Short-Term Asset
Reserve Fund 88
Standish International Fixed
Income Fund 219
Standish Global Fixed Income Fund 67
Standish Equity Fund 171
Standish Small Capitalization
Equity Fund 320
Standish Massachusetts Intermediate
Tax Exempt Bond Fund 101
Standish Intermediate Tax Exempt
Bond Fund 155
Standish International Equity Fund 136
Standish Controlled Maturity Fund 18
Standish Fixed Income Fund II 12
Standish Small Cap Tax-Sensitive
Equity Fund 120
Standish Tax-Sensitive Equity Fund 103
Standish Equity Asset Fund 1
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 53
Standish Diversified Income Fund 13
C-6
<PAGE>
Item 27. Indemnification
Under the Registrant's Agreement and Declaration of Trust, any past
or present Trustee or officer of the Registrant is indemnified to the
fullest extent permitted by law against liability and all expenses
reasonably incurred by him in connection with any action, suit or
proceeding to which he may be a party or is otherwise involved by reason of
his being or having been a Trustee or officer of the Registrant. The
Agreement and Declaration of Trust of the Registrant does not authorize
indemnification where it is determined, in the manner specified in the
Declaration, that such Trustee or officer has not acted in good faith in
the reasonable belief that his actions were in the best interest of the
Registrant. Moreover, the Declaration does not authorize indemnification
where such Trustee or officer is liable to the Registrant or its
shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of his or her duties.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a Trustee,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by any such Trustee, officer
or controlling person against the Registrant in connection with the
securities being registered, and the Commission is still of the same
opinion, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification is
against public policy as expressed in the Act and will be governed by the
final adjudication of such issue.
Item 28. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment
adviser to certain series of the Registrant, are listed on the Form ADV of
Standish, Ayer & Wood as currently on file with the Commission (File No.
801-584), the text of which is hereby incorporated by reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("SIMCO"), the investment
adviser to certain other series of the Registrant, are listed on the Form
ADV of SIMCO as
C-7
<PAGE>
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.:
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
- ---- --------------------- ---------------------
James E. Hollis, III Chief Executive Officer Vice President
Beverly E. Banfield Chief Operating Officer Vice President
The General Partner of Standish Fund Distributors, L.P. is Standish,
Ayer & Wood, Inc.
(c) Not applicable.
Item 30. Location of Accounts and Records
The Registrant maintains the records required by Section 31(a) of
the Investment Company Act of 1940 and Rules 31a-1 to 31a-3 inclusive
thereunder at its principal office, located at One Financial Center,
Boston, Massachusetts 02111. Certain records, including records relating to
the Registrant's shareholders and the physical possession of its
securities, may be maintained pursuant to Rule 31a-3 at the main offices of
the Registrant's transfer and dividend disbursing agent and custodian.
Item 31. Management Services
C-8
<PAGE>
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-9
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all
of the requirements for effectiveness of this Registration Statement
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly
caused this Post-Effective Amendment to its Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston and The Commonwealth of Massachusetts on the 23rd day of
January, 1998.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ Paul G. Martins
-------------------------------
Paul G. Martins, Treasurer
The term "Standish, Ayer & Wood Investment Trust" means and refers
to the Trustees from time to time serving under the Agreement and
Declaration of Trust of the Registrant dated August 13, 1986, a copy of
which is on file with the Secretary of State of The Commonwealth of
Massachusetts. The obligations of the Registrant hereunder are not binding
personally upon any of the Trustees, shareholders, nominees, officers,
agents or employees of the Registrant, but bind only the trust property of
the Registrant, as provided in the Agreement and Declaration of Trust of
the Registrant. The execution of this Registration Statement has been
authorized by the Trustees of the Registrant and this Registration
Statement has been signed by an authorized officer of the Registrant,
acting as such, and neither such authorization by such 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-10
<PAGE>
Signature Title Date
/s/ Richard S. Wood* Trustee and President January 23, 1998
- ------------------------ (principal executive officer)
Richard S. Wood
/s/ Paul G. Martins* Treasurer (principal January 23, 1998
- ------------------------ financial and accounting
Paul G. Martins officer)
/s/ D. Barr Clayson* Trustee January 23, 1998
- ------------------------
D. Barr Clayson
/s/ Samuel C. Fleming* Trustee January 23, 1998
- ------------------------
Samuel C. Fleming
/s/ Benjamin M. Friedman* Trustee January 23, 1998
- ------------------------
Benjamin M. Friedman
/s/ John H. Hewitt* Trustee January 23, 1998
- ------------------------
John H. Hewitt
/s/ Edward H. Ladd* Trustee January 23, 1998
- ------------------------
Edward H. Ladd
/s/ Caleb Loring III* Trustee January 23, 1998
- ------------------------
Caleb Loring III
*By: /s/ James E. Hollis III
-----------------------
James E. Hollis, III
Attorney-In-Fact
C-11
<PAGE>
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio has
duly caused this Post-Effective Amendment to the Registration Statement of
Standish, Ayer & Wood Investment Trust to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 23rd day of January, 1998.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Richard S. Wood
----------------------------
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment to the Registration Statement of Standish, Ayer &
Wood Investment Trust has been signed by the following persons in their
capacities with Standish, Ayer & Wood Master Portfolio and on the date
indicated.
Signature Title Date
/s/ Richard S. Wood* Trustee and President January 23, 1998
- ---------------------- (principal executive
officer)
/s/ Richard S. Wood
/s/ Paul G. Martins* Treasurer (principal January 23, 1998
- ------------------------ financial and accounting
Paul G. Martins officer)
/s/ D. Barr Clayson* Trustee January 23, 1998
- ------------------------
D. Barr Clayson
/s/ Samuel C. Fleming* Trustee January 23, 1998
- ------------------------
Samuel C. Fleming
/s/ Benjamin M. Friedman* Trustee January 23, 1998
- ------------------------
Benjamin M. Friedman
/s/ John H. Hewitt* Trustee January 23, 1998
- ------------------------
John H. Hewitt
/s/ Edward H. Ladd* Trustee January 23, 1998
- ------------------------
Edward H. Ladd
/s/ Caleb Loring III* Trustee January 23, 1998
- ------------------------
Caleb Loring III
*By: /s/ James E. Hollis III
--------------------------
James E. Hollis, III
Attorney-In-Fact
C-13
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
(11A) Consent of Independent Public Accountants
(11B) Consent of Independent Public Accountants
(11C) Consent of Independent Public Accountants
(17A) Financial Data Schedule of Standish Equity Fund
(17B) Financial Data Schedule of Standish Small Capitalization
Equity Fund
(17C) Financial Data Schedule of Standish Small Capitalization
Equity Fund II
(17D) Financial Data Schedule of Standish International Equity Fund
<PAGE>
[STANDISH LOGO] STANDISH FUNDS(SM)
- ---------------------------
The Standish Group of
Equity Funds
Prospectus
..........
Standish Equity Fund
Standish International
Equity Fund
Standish Small
Capitalization
Equity Fund
Standish Small
Capitalization
Equity Fund II
- ---------------------------
January 28, 1998
<PAGE>
Standish Group of Equity Funds
- --------------------------------------------------------------------------------
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 "Trust"). 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."
Prospective investors can obtain more information about the Funds, including
an application and Investor Guide, by calling Standish Fund Distributors, L.P.
at (800) 729-0066.
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-three 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 January 28,
1998, 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)729-0066.
Shares of the Funds are not deposits or obligations of, or guaranteed or
endorsed by, any bank or other insured depository institution, and are not
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board
or any other government agency. An investment in shares of the Funds involves
investment risks, including possible loss of principal.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Shares of the Funds 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.
Standish Group of Equity Funds January 28, 1998
<PAGE>
Table of Contents
- --------------------------------------------------------------------------------
Fund Comparison Highlights.............................2
Expense Information....................................3
Financial Highlights...................................4
Investment Objectives and Policies.....................8
The Equity Fund.....................................8
The Small Capitalization Equity Fund................9
The Small Capitalization Equity Fund II.............9
The International Equity Fund......................10
Description of Securities and Related Risks...........10
Investment Techniques and Related Risks...............13
Information about the Master-Feeder Structure.........14
Calculation of Performance Data.......................15
Dividends and Distributions...........................15
Purchase of Shares....................................15
Net Asset Value.......................................16
Exchange of Shares....................................16
Redemption of Shares..................................17
Management............................................18
Federal Income Taxes..................................19
The Funds and Their Shares............................20
Custodians............................................20
Transfer Agent and Dividend Disbursing Agent..........20
Independent Accountants...............................20
Legal Counsel.........................................20
Tax Certification Instructions........................20
Standish Group of Equity Funds January 28, 1998
<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 Sbjective 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>
- -----------------------------------------------------------------------------------------------------------------------
Small Capitalization Small Capitalization International Equity
Equity Fund 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. Seeks to growth through
investment primarily investment primarily achieve that objective investment in a
in a diversified in a diversified through investment diversified portfolio
portfolio of equity portfolio of equity primarily in a of foreign equity
and equity-related and equity-related diversified portfolio securities
securities of securities of small of equity and equity
companies which appear capitalization related securities of
to be undervalued companies small capitalization
companies.
Key Strategy Emphasize stocks Emphasize rapidly Emphasize rapidly Emphasize stocks and
believed to offer growing, high quality growing, high quality markets believed to
above average companies with market companies with market offer above average
potential for capital capitalizations less capitalizations less potential for capital
growth through the use than $700 million that than $1 billion that growth through the
of statistical are involved with are involved with use of statistical
modeling techniques value added products value added products modeling techniques
and fundamental or services or services
analysis
Market Capitalization No limit; general $700 million or less $1 billion or less No limit; general
of Companies Focused on range is medium to range is medium to
by the Fund large 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 of total assets in
traded in the U.S. securities of issuers
over-the-counter located in emerging
("OTC") market but 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 Russell 2000, Russell EAFE Index
2000 Growth and S&P 2000 Growth and S&P
500 500
</TABLE>
Standish Group of Equity Funds 2 January 28, 1998
<PAGE>
Expense Information
- --------------------------------------------------------------------------------
Total operating expenses are based on expenses for each Fund's fiscal year
ended September 30, 1997. 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 corresponding Portfolios.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Small Small
Equity Fund Capitalization Capitalization International
Equity Fund Equity Fund II Equity Fund
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Shareholder Transaction Expenses
Maximum Sales Load Imposed on Purchases None None None None
Maximum Sales Load Imposed on Reinvested Dividends None None None None
Deferred Sales Load None None None None
Redemption Fees None None None None
Annual Operating Expenses
(as a percentage of average net assets)
Management Fees (after applicable limitation) 0.50%* 0.60%* 0.00%* 0.23%*
12b-1 Fees None None None None
Other Expenses (after applicable expense limitation)+ 0.20%* 0.14%* 0.00%* 0.61%
------------- ------------------ ----------------- ---------------
Total Operating Expenses (after applicable expense
limitation) 0.70% 0.74% 0.00%* 0.84%*
============= ================== ================= ===============
</TABLE>
* The Advisers have voluntarily and temporarily agreed to limit certain expenses
of the Equity Fund, Small Cap Fund, Small Cap II Fund and International Equity
Fund to 0.70%, 0.74%, 0.00%, and 1.00%, respectively. 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 September
30, 1997 would have been: Equity Fund -- 0.50%, 0.22% and 0.72%; Small Cap Fund
- -- 0.60%, 0.14%, and 0.74%; Small Cap II Fund -- 0.60%, 2.96% and 3.56%; and
International Equity Fund -- 0.80%, 0.62% and 1.42%. The Advisers may revise or
discontinue these agreements at any time although they have no current
intentions to do so.
+ 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>
- ----------------------------------------------------------------------------------------------
Small Small
Capitalization Capitalization International
Equity Fund Equity Fund Equity Fund II Equity Fund
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
After 1 Year $7 $8 $0 $10
After 3 Years 23 24 0 32
After 5 Years 40 41 0 55
After 10 Years 88 92 0 123
</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. On July 12, 1997, the funds changed
their fiscal year end from December 31 to September 30.
Standish Group of Equity Funds 3 January 28, 1998
<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 Nine Months
Ended Year Ended December 31,
September 30, 1997 1996 1995 1994 1993 1992* 1991*+
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net asset value -- beginning of period $38.79 $34.81 $28.66 $30.89 $26.28 $25.66 $20.00
----------------- --------- -------- -------- -------- -------- --------
Income from investment operations
Net investment income** 0.39 0.60 0.76 0.45 0.50 0.56 0.46
Net realized and unrealized gain (loss)
on investments 12.79 8.52 9.94 (1.62) 5.57 1.81 6.17
----------------- --------- -------- -------- -------- -------- --------
Total from investment operations 13.18 9.12 10.70 (1.17) 6.07 2.37 6.63
----------------- --------- -------- -------- -------- -------- --------
Less distributions declared to shareholders
From net investment income (0.43) (0.56) (0.78) (0.44) (0.47) (0.54) (0.35)
From net realized gain on investments (2.73) (4.58) (3.77) (0.62) (0.99) (1.19) (0.62)
From paid-in capital -- -- -- -- -- (0.02) --
----------------- --------- -------- -------- -------- -------- --------
Total distributions declared to shareholders (3.16) (5.14) (4.55) (1.06) (1.46) (1.75) (0.97)
----------------- --------- -------- -------- -------- -------- --------
Net asset value - end of period $48.81 $38.79 $34.81 $28.66 $30.89 $26.28 $25.66
================= ========= ======== ======== ======== ======== ========
Total return(4) 35.13% 26.84% 37.55% (3.78%) 20.79% 9.52% 33.45%t
Ratios (to average daily net assets)/
Supplemental Data
Net assets at end of period (000 omitted) $170,170 $105,855 $88,532 $86,591 $72,916 $14,679 $7,498
Expenses**(1) 0.70%t 0.71% 0.69% 0.70% 0.80% 0.00% 1.00%t
Net investment income** 0.95%t 1.53% 2.05% 1.55% 1.29% 2.52% 1.92%t
Portfolio turnover 75%(3) 41%(2) 159%(2) 182%(2) 192%(2) 92%(2) 86%(2)
Average Broker Commission Rate $0.0465(3) $0.0499(2)
</TABLE>
- ----------
** For the nine months ended September 30, 1997 and for the years ended December
31, 1996, 1993, 1992 and 1991, Standish did not impose a portion of its
advisory fee and/or reimbursed a portion of the Fund's operating expenses. If
this voluntary reduction had not been undertaken, the net investment income
per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Net Investment Income per share $0.38 $0.59 -- -- $0.47 $0.34 $0.23#
Ratios (to average daily net assets):
Expenses(1) 0.72%t 0.72% -- -- 0.97% 1.00% 1.99%#
Net Investment Income 0.93%t 1.52% -- -- 1.12% 1.52% 0.93%#
</TABLE>
# Unaudited
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 the Standish Equity Portfolio's allocated
expenses for the nine months ended September 30, 1997 and for the period
from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities.
(3) The portfolio turnover and average commission rate figures listed are for
the Standish Equity Portfolio. Because the Fund no longer makes investments
directly in securities, the Fund does not have any portfolio turnover or
average brokerage commission rate activity during this period. For the
period from May 3, 1996 to December 31, 1996, the portfolio turnover rate
and average brokerage commission rate for the Standish Equity Portfolio were
78% and $0.0483, respectively.
(4) 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. The average annual
total return of the S&P 500 Index for each year since the Fund's inception
was as follows (this total return information is not audited):
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Total Return: 1997 1996 1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
S&P 500 33.36% 22.96% 37.58% 1.32% 10.08% 7.63% 30.47%
</TABLE>
Standish Group of Equity Funds 4 January 28, 1998
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
International Equity Fund Nine Months Ended Year Ended December 31,
September 30, 1997 1996 1995 1994 1993 1992* 1991* 1990* 1989* 1988*+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value $23.25 $23.54 $23.12 $26.74 $19.78 $22.20 $20.16 $23.10 $20.07 $20.00
- --beginning of period ----------------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Income from
investment operations
Net investment income** 0.39 0.47 0.04 0.21 0.26 0.26 (0.33) 0.55 0.49 0.06
Net realized and unrealized
gain (loss) on investments 1.44 1.28 0.45 (2.08) 7.29 (2.47) 2.02 (2.67) 3.23 0.01
----------------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total from investment
operations 1.83 1.75 0.49 (1.87) 7.55 (2.21) 2.35 (2.12) 3.72 0.07
----------------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Less distributions declared
to shareholders
From net investment income (0.30) (0.51) -- (0.12) (0.23) (0.21) (0.30) (0.41) (0.50) --
In excess of net
investment income -- -- -- -- (0.36) -- -- -- -- --
From net realized gains
on investments (1.21) (1.53) (0.07) (1.63) -- -- (0.01) (0.41) (0.19) --
----------------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Total distributions
declared to shareholders (1.51) (2.04) (0.07) (1.75) (0.59) (0.21) (0.31) (0.82) (0.69) 0.00
----------------- -------- ------- -------- ------- ------- ------- ------- ------- -------
Net asset value $23.57 $23.25 $23.54 $23.12 $26.74 $19.78 $22.20 $20.16 $23.10 $20.07
--end of period ================= ======== ======= ======== ======= ======= ======= ======= ======= =======
Total return(2) 7.65% 7.44% 2.14% (6.99%) 38.27% (9.95%) 11.73% (9.44%) 18.79% .35%t
Net assets at end of
period (000 omitted) $49,497 $47,739 $59,473 $104,435 $92,419 $56,539 $47,077 $24,872 $19,141 $10,158
Ratios (to average
daily net assets)/
Supplemental Data
Expenses** 0.84%t 0.50% 1.22% 1.23% 1.34% 1.53% 1.54% 1.60% 1.60% 1.60%t
Net investment income** 1.78%t 1.80% 1.76% 1.52% 1.09% 1.18% 1.30% 2.19% 2.29% 3.90%t
Portfolio turnover 155% 163% 108% 75% 98% 98% 27% 48% 38% 0%
Average Broker Commission
Rate(1) $0.0137 $0.0092
</TABLE>
- ----------
t Computed on an annualized basis.
* Audited by other auditors.
** For the nine months ended September 30, 1997 and for the year ended December
31, 1996, Standish voluntarily agreed not to impose a portion of its
investment advisory fee. In the absense of this agreement, the net
investment income per share and the ratios would have been:
Net investment income per share $0.29 $0.27
Ratios (to average net assets):
Expenses 1.42%t 1.29%
Net investment income 1.20%t 1.01%
+ For the period from December 8, 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):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return: 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
EAFE 1.77% 6.04% 11.22% 7.79% 32.57% (12.19%) (12.12%) (23.43%) 10.61% 0.60%
</TABLE>
Standish Group of Equity Funds 5 January 28, 1998
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Equity Fund Nine Months
Ended
September 30, Year Ended December 31,
1997 1996 1995 1994 1993 1992* 1991* 1990*+
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value - beginning of
period $52.96 $53.46 $42.15 $48.97 $39.83 $39.99 $27.57 $26.24
-------------- -------- -------- -------- -------- ------- ------- ---------
Income from investment operations
Net investment income (loss)** (0.23) -- -- -- (0.07) (0.11) (0.04) 0.01
Net realized and unrealized gain (loss) on
investments 14.80 9.29 12.57 (1.84) 11.31 4.00 17.87 1.33
-------------- -------- -------- -------- -------- ------- ------- ---------
Total from investment operations 14.57 9.29 12.57 (1.84) 11.24 3.89 17.83 1.34
-------------- -------- -------- -------- -------- ------- ------- ---------
Less distributions declared to
shareholders
From net investment income -- -- -- -- -- -- (0.01)
From realized gains on investments (1.03) (9.79) (1.26) (4.98) (2.10) (4.05) (5.35) --
From paid-in capital -- -- -- -- -- -- (0.06) --
-------------- -------- -------- -------- -------- ------- ------- ---------
--
Total distributions declared to shareholders (1.03) (9.79) (1.26) (4.98) (2.10) (4.05) (5.41) (0.01)
-------------- -------- -------- -------- -------- ------- ------- ---------
Net asset value - end of period $66.50 $52.96 $53.46 $42.15 $48.97 $39.83 $39.99 $27.57
============== ======== ======== ======== ======== ======= ======= =========
Total return(4) 27.92% 17.36% 29.83% (3.66%) 28.21% 9.74% 64.71% 15.35%t
Ratios (to average daily net
assets)/Supplemental Data
Net assets at end of period (000 omitted) $274,368 $244,131 $180,470 $107,591 $85,141 $50,950 $35,418 $13,273
Expenses**(1) 0.74%t 0.75% 0.75% 0.79% 0.88% 1.04% 0.87% 1.48%t
Net investment income** (0.57%)t (0.44%) (0.30%) (0.27%) (0.18%) (0.38%) (0.15%) 0.17%t
Portfolio turnover 70%(3) 28%(2) 112%(2) 130%(2) 144%(2) 101%(2) 96%(2) 13%(2)
Average Broker Commission Rate $0.04033 $0.04502 -- -- -- -- -- --
</TABLE>
- ----------
t Computed on an annualized basis.
* Audited by other auditors.
** For the nine months ended September 30, 1997 and the year ended December 31,
1996, Standish did not impose a portion of its advisory fee and/or
reimbursed the Fund for a portion of its operating expenses. 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 ($0.23) ($0.01)
Ratios (to average daily net assets):
Expenses(1) 0.74%t 0.76%
Net investment income (0.57%)t (0.45%)
+ For the period from August 31, 1990 (start of business) to December 31,
1990.
(1) Includes the Fund's share of Standish Small Capitalization Equity
Portfolio's allocated expenses for the nine months ended September 30, 1997
and for the period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover and average broker commission rate represents activity
while the Fund was making investments directly in securities.
(3) The portfolio turnover and average commission rate figures listed are for
the Standish Small Cap Equity Portfolio. Because the Fund no longer makes
investments directly in securities, the Fund does not have any portfolio
turnover or average brokerage commission rate activity during this period.
For the period from May 3, 1996 to December 31, 1996, the portfolio turnover
rate and average brokerage commission rate for the Standish Small Cap Equity
Portfolio were 76% and $0.0434, respectively.
(4) 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):
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total Return: 1997 1996 1995 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
S&P 500 33.36% 22.96% 37.58% 1.32% 10.08% 7.63% 39.47% (3.16%)
Russell 2000 22.37% 16.53% 28.44% (1.83%) 10.89% 18.42% 41.64% (19.52%)
Russell 2000 Growth 12.94% 11.26% 31.04% (2.43%) 13.36% 7.77% 51.19% (17.41%)
</TABLE>
Standish Group of Equity Funds 6 January 28, 1998
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
Small Capitalization Equity Fund II September 30, 1997 December 31, 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value - beginning of period $20.39 $20.00
------------------ -------------------
Income from investment operations
Net investment income (1) 0.03 0.00
Net realized and unrealized gain on investments 8.71 0.39
------------------ -------------------
Total from investment operations 8.74 0.39
------------------ -------------------
Less distributions declared to shareholders
From net investment income (0.01) --
From realized gains on investments -- --
From paid-in capital -- --
------------------ -------------------
Total distributions declared to shareholders (0.01) --
Net asset value - end of period $29.12 $20.39
================== ===================
Total return(4) 42.94% --
Ratios (to average daily net assets)/Supplemental Data
Net assets at end of period (000 omitted) $6,314 $484
Expenses(1)** 0.00%* N/A(2)*
Net investment income** 0.49%* N/A(2)
Portfolio turnover 122%(3) 0.00%
Average Broker Commission Rate $0.07683 $0.2000
</TABLE>
- ----------
** For the nine months ended September 30, 1997 and for the period December 23,
1996 (commencement of operations) to December 31, 1996, Standish waived its
investment advisory fee and reimbursed the Small Cap II Portfolio and the
Small Cap II Fund for all of its operating expenses. If this voluntary
action had not been taken, the net investment income per share and the
ratios would have been:
<TABLE>
<S> <C> <C>
Net investment income (loss) per share ($0.25) N/A(2)
Ratios (to average daily net assets):
Expenses(1) 3.56%* N/A(2)
Net investment income (3.07%)* N/A(2)
</TABLE>
t Computed on an annualized basis.
(1) Includes the Fund's share of Portfolio allocated expenses for the nine
months ended September 30, 1997 and for the period December 23, 1996
(commencement of operations) to December 31, 1996.
(2) Amounts are not meaningful due to the short period of operations.
(3) The portfolio turnover and average broker commission rate figures listed are
for the Standish Small Cap II Portfolio. Because the Fund does not make
investments directly in securities, the Fund does not have any portfolio
turnover or average brokerage commission rate activity during this period.
(4) 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 Funds' inception was as follows (this
total return information is not audited):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Total Return: 1997 1996
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
S&P 500 33.36% 22.96%
Russell 2000 22.37% 16.53%
Russell 2000 Growth 12.94% 11.26%
</TABLE>
Standish Group of Equity Funds 7 January 28, 1998
<PAGE>
Investment Objectives and Policies
- --------------------------------------------------------------------------------
Investment Strategy
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 ("OTC") common and preferred stocks but may
also include warrants, rights, convertible securities, depositary receipts,
depositary shares, trust certificates, shares of other investment companies and
real estate investment trusts ("REITs"), limited partnership interests and
equity participations. These equity securities may be issued by U.S. or foreign
companies, although 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 a
diversified portfolio of equity and equity-related securities of companies which
appear to be undervalued.
Principal Investments. Under normal circumstances, at least 80% of the Equity
Portfolio's total assets are invested in equity and equity-related securities.
Investment Strategies. The Equity Portfolio follows a disciplined investment
strategy, emphasizing stocks which Standish believes offer above average
potential for capital growth. Although the precise application of the discipline
varies 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. 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.
The Equity Portfolio may to a limited extent invest in debt securities and
preferred stocks which are convertible into, or exchangeable for, common stocks.
Generally, these securities will be rated, at the time of investment, Aaa, Aa or
A by Moody's Investors 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 or, if unrated, determined by Standish to be of comparable credit
quality. As a temporary matter and for defensive purposes, the Equity Portfolio
may purchase investment grade short-term debt securities, the amount of which
will depend on market conditions and the needs of the Equity Portfolio.
Standish Group of Equity Funds 8 January 28, 1998
<PAGE>
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, 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 a
diversified portfolio of equity and equity-related securities of small
capitalization companies.
Principal Investments. Under normal circumstances, at least 80% of the Small
Cap Portfolio's total assets are invested in equity and equity-related
securities of small capitalization companies. The Small Cap Portfolio focuses
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 pursues investments in rapidly
growing, high quality companies that are involved with value added products or
services. These companies 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 investments in such companies may pose additional
risks.
Other Investments. The Small Cap Portfolio may invest up to 15% of its total
assets in equity and equity-related securities of foreign issuers, including
issuers located in emerging markets. As a temporary matter and for defensive
purposes, the Small Cap Portfolio may purchase investment grade short-term debt
securities, the amount of which will depend on market conditions and the needs
of the Small Cap Portfolio.
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. The Portfolio seeks to achieve its
objective through investment primarily in a diversified portfolio of equity and
equity-related securities of small capitalization companies.
Principal Investments. Under normal circumstances, at least 80% of the Small
Cap II Portfolio's total assets are invested in equity and equity-related
securities of small capitalization companies. The Small Cap II Portfolio focuses
its investments in small capitalization companies on those with market values
are 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 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 pursues investments in
rapidly growing, high quality companies that are involved with value added
products or services. These companies 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 investments in such companies may pose additional
risks.
Other Investments. 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. As a temporary matter and for
defensive purposes, the Small Cap II Portfolio may purchase investment grade
short-term debt securities, the amount of which will depend on market conditions
and the needs of the Small Cap II Portfolio.
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.
Standish Group of Equity Funds 9 January 28, 1998
<PAGE>
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 are invested in equity and
equity-related securities of companies located in the foreign countries
represented in the Morgan Stanley Capital International 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 these
Indices. 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. As
a temporary matter and for defensive purposes, the International Equity Fund may
purchase investment grade short-term debt securities, the amount of which will
depend on market conditions and the needs of the International Equity Fund.
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 describe 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 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 invest
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 OTC market or on a regional securities exchange and may not be traded daily
or in the volume typical of trading on a national securities exchange. As a
result, the disposition by a Portfolio of securities in order to meet
redemptions or otherwise may require the Portfolio to sell securities at a
discount from market prices, over a longer period of time or during periods when
disposition is not desirable.
Convertible Securities 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.
Standish Group of Equity Funds 10 January 28, 1998
<PAGE>
REITs. Each Fund may invest in shares of real estate investment trusts, which
are pooled investment vehicles that invest in real estate or real estate loans
or interests. Investing in REITs involves risks similar to those associated with
investing in equity securities of small capitalization companies. REITs are
dependent upon management skills, are not diversified, and are subject to risks
of project financing, default by borrowers, self-liquidation, and the
possibility of failing to qualify for the exemption from taxation under the
Internal Revenue Code of 1986, as amended (the "Code").
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, U.S.
Treasury inflation-indexed 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.
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 Portfolio may invest without limit in foreign
securities which trade on a U.S. exchange or in the U.S. OTC market, but may not
invest more than 10% of its total assets in foreign securities which are not so
listed or traded.
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 and foreign custodial costs are
higher than domestic custodial costs. 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 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 emerging market countries
also may have managed currencies which are not free floating against the U.S.
dollar. In addition, emerging markets are subject to the risk of restrictions
upon the free conversion of their currencies into other currencies. Any
devaluations relative to the U.S. dollar in the currencies in which a 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 foreign 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. The other Funds
may invest a smaller portion of their assets in securities donominated in
Foreign currencies.
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 seek 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.
Standish Group of Equity Funds 11 January 28, 1998
<PAGE>
Investing in Emerging Markets. Although each Fund invests primarily in
securities of established issuers based in the U.S. and, particularly in the
case of the International Equity Fund, in other developed markets, each Fund may
also invest in securities of issuers in emerging markets, including issuers in
Asia (including Russia), Eastern Europe, Latin and South America, the
Mediterranean and Africa. The International Equity Fund may 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. The Funds may also
invest in currencies of such countries and may engage in strategic transactions
in the markets of such countries. Investing in securities of issuers in emerging
markets involves exposure to significantly higher risk than investing in foreign
countries with developed markets and may be considered speculative. 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 and 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; (iv) the absence of developed legal
structures governing private or foreign investment in private property which may
adversely effect the Fund's ability to retain ownership of its securities during
periods of economic, social or political turmoil; and (v) high rates of
inflation and rapid fluctuations in interest rates that have had and may
continue to have negative effects on the economies and securities markets of
certain emerging market countries.
The economies of emerging market countries may be predominantly based on only
a small number of industries or dependent on revenues from the sale of
particular commodities or on international aid or development assistance. As a
result, these economies may be significantly more vulnerable to changes in local
or global trade conditions, and may suffer from volatile or extreme fluctuations
in currency exchange rates, inflation and deflation rates as well as debt
burdens. Many emerging market countries have experienced and will continue to
experience periods of rapid inflation, resulting in significant market
uncertainty and sharp drops in the U.S. dollar value of the country's assets.
The currencies of emerging market countries may also be devalued as a result of
governmental action in addition to market factors. Recently, the economies of
certain emerging market countries have experienced deflation which has
diminished the demand for goods and services resulting in excess capacity in
factories that were built upon the forecast of continuing strong demand for such
goods and services. All of these risks may adversely affect the Funds'
investments in emerging market countries. See "Investing in Foreign Securities"
and "Currency Risks" above and the Statement of Additional Information for a
further description of the risks associated with investing in emerging market
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 remain 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 invest 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 measure or for defenses purposes. For example,
during periods of rapid in-flows of new money by investors into the Small Cap II
Portfolio, the Portfolio may temporarily have more than 20% of its total assets
invested in money market instruments and Short-Term Obligations pending the
investment of such amounts in equity and equity-related securities of small
capitalization companies. During such periods, the Small Cap II Portfolio will
temporarily have less than 80% of its total assets invested in equity and
equity-related securities of small capitalization companies.
Money market instruments and Short-Term Obligations include obligations issued
or guaranteed by the U.S. Government or any of its agencies and
instrumentalities, U.S. and foreign commercial paper, bank obligations,
repurchase agreements and other debt obligations of U.S. and foreign issuers.
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. 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.
Standish Group of Equity Funds 12 January 28, 1998
<PAGE>
Securities rated within the top three investment grade ratings (i.e., Aaa,
Aa, A or P-1 by Moody's or AAA, AA, A 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 OTC 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, enter into currency transactions such as forward foreign
currency exchange contracts, cross-currency forward contracts, currency futures
contracts, currency swaps and options on currencies or currency futures
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used to seek to protect against possible changes in the
market value of securities held in or to be purchased for a Fund's portfolio
resulting from securities markets, currency exchange 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, 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, currency 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 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
OTC 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 a Fund's
net asset value and the net result may be less favorable than if the Strategic
Transactions had not been utilized. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the position, at the same time, such transactions can
limit any potential gain which might result from an increase in value of such
position. The loss incurred by a Fund in writing options 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
instru-
Standish Group of Equity Funds 13 January 28, 1998
<PAGE>
ments 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 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 OTC
options and certain restricted securities. Based upon continuing review of the
trading markets for a specific restricted security, the security may be
determined to be eligible for resale to qualified institutional buyers pursuant
to Rule 144A under the Securities Act of 1933 and, therefore, to be liquid.
Also, certain illiquid securities may be determined to be liquid if they are
found to satisfy relevant liquidity requirements.
The Boards of Trustees have adopted guidelines and delegated to the Advisers
the daily function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Boards of
Trustees, however, retain oversight and are ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.
Investments in Other Investment Companies. Each 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.
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 objective, 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 applicable Fund's shareholders. See "Investment Restrictions" in
the Statement of Additional Information. If any percentage restriction is
adhered to at the time of investment, a subsequent increase or decrease in the
percentage resulting from a change in the value of a 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.
Standish Group of Equity Funds 14 January 28, 1998
<PAGE>
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment adviser or find a substitute master fund. Withdrawal of a Fund's
interest in its Portfolio, which may be required by the Trust's Board of
Trustees without shareholder approval might cause the Fund to incur expenses it
would not otherwise be required to pay.
If a Fund is requested to vote on a matter affecting the Portfolio in which
it invests, the Fund will call a meeting of its shareholders to vote on the
matter. The Fund will then vote on the matter at the meeting of the Portfolio's
investors in the same proportion that the Fund's shareholders voted on the
matter. The Fund will vote those shares held by its shareholders who did not
vote in the same proportion as those Fund shareholders who did vote on the
matter.
A majority of the Trustees who are not "interested persons" (as defined in
the Investment Company Act of 1940, as amended (the "1940 Act")) of the Trust or
the Portfolio Trust, as the case may be, have adopted procedures reasonably
appropriate to deal with potential conflicts of interest arising from the fact
that the same individuals are trustees of the Trust and of the Portfolio Trust.
Calculation of Performance Data
From time to time, each Fund may advertise its annual total return which 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 21 countries: Australia, Austria,
Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Malaysia, The Netherlands, New Zealand, Norway, Portugal, 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 OTC 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. The Small Cap, Small Cap II and International Equity Fund's dividends
from net investment income will also be declared and distributed annually. The
Equity Fund's dividends from net investment income will be declared and
distributed quarterly. 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 Fund shares. 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 not issued. Shares
of the Funds may also be purchased through securities dealers. Orders for the
purchase of Fund shares received by broker-dealers by the close of regular
trading on the New York Stock Exchange ("NYSE") on any business day and
transmitted to
Standish Group of Equity Funds 15 January 28, 1998
<PAGE>
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 broker-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 broker-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 Fund shares by a transfer of 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. Equity securities are valued at the last sale prices on
the exchange or national securities market on which they are primarily traded.
Equity securities not listed on an exchange or national securities market, or
securities for which there were no reported transactions, are valued at the last
quoted bid prices. 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 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 OTC 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 may 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, P.O. Box 1407, Boston, Massachusetts 02205-1407. A
written exchange request must (a) state the name of the current Fund, (b) state
the name of the fund into which the current Fund shares will be exchanged, (c)
state the number of shares or the dollar amount to be exchanged, (d) identify
the shareholder's account numbers in both funds and (e) be signed by each
registered owner exactly as the shares are registered. Signature(s) must be
guaranteed as described under "Written Redemption" below.
Standish Group of Equity Funds 16 January 28, 1998
<PAGE>
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, P.O. Box 1407, Boston, Massachusetts 02205-1407. A
written redemption request must (a) state the name of the Fund and the number of
shares or the dollar amount to be redeemed, (b) identify the 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. 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 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 telephonic and 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
telephonic 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
Standish Group of Equity Funds 17 January 28, 1998
<PAGE>
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 $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 at least equal to 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, 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.
SIMCO, One Financial Center, Boston, Massachusetts 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. Barr Clayson, Chairman of
the Board and Vice President of SIMCO and a Managing Director and Vice President
of Standish. Ralph S. Tate, a Managing Director of Standish, is President and a
Director of SIMCO. Richard S. Wood, Vice President and a Managing Director 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 December 31, 1997, Standish and SIMCO managed
approximately $39 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 (since 1995) and President of SIMCO
(since 1996) and both Messrs. Tate and Cameron have served as a Director and
Vice President of Standish and a Director of SIMCO (since 1995 for Mr. Cameron).
The 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 manages 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:
Standish Group of Equity Funds 18 January 28, 1998
<PAGE>
Actual Rate
Contractual Paid for the
Advisory Fee Year Ended
Annual Rate September 30, 1997
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% 0.23%*
*The applicable Adviser has voluntarily and temporarily agreed to limit total
expenses (excluding brokerage commissions, taxes and extraordinary expenses) of
the Equity Fund, Small Cap Fund, Small Cap II Fund and International Equity Fund
to 0.70%, 0.74%. 0.00% and 0.84%, respectively, 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. 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
September 30, 1997 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.
Year 2000 Issue. The Funds' and the Portfolios' operations depend on the
seamless functioning of computer systems in the financial service industry,
including those of the Adviser, the Custodian and the Transfer Agent. Many
computer software systems in use today cannot properly process date-related
information after December 31, 1999 because of the method by which dates are
encoded and calculated. This failure, commonly referred to as the "Year 2000
Issue," could adversely affect the handling of securities trades, pricing and
account servicing for the Funds and Portfolios. The Adviser has made compliance
with the Year 2000 Issue a high priority and is taking steps that it believes
are reasonably designed to address the Year 2000 Issue with respect to its
computer systems. The Adviser has also been informed that comparable steps are
being taken by the Funds' and Portfolios' other major service providers. The
Adviser does not currently anticipate that the Year 2000 Issue will have a
material impact on its ability to continue to fulfill its duties as investment
adviser.
Federal Income Taxes
Each Fund is a separate entity for federal tax purposes and intends to
qualify for each taxable year for taxation as a "regulated investment company"
under the Code. If it qualifies as a regulated investment company, each Fund
will not be subject to federal income tax on income (including capital gains)
distributed to shareholders in accordance with certain timing and other
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 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 gains distributions are taxable for noncorporate shareholders at
maximum federal rates of 28% or 20%, or in unusual cases 25%, depending upon the
source. Capital gain distributions do not qualify for the corporate dividends
received deduction. Dividends and capital gain distributions may also be subject
to state and local or foreign taxes. Redemptions (including exchanges) and
repurchases of shares are taxable events for shareholders that are subject to
tax.
Standish Group of Equity Funds 19 January 28, 1998
<PAGE>
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 tax at the rate of 30% (or a lower rate provided
by an applicable tax treaty) on amounts treated as ordinary dividends from the
Funds and, unless a current IRS Form W-8 or an acceptable substitute is
furnished to the applicable Fund, to backup withholding on certain payments from
that Fund.
After the close of each calendar year, the Funds will send a notice to
shareholders that provides information about the federal tax status of
distributions to shareholders for such calendar year.
The Funds and Their Shares
The Trust was organized on August 13, 1986 as a Massachusetts business trust.
In addition to the Funds offered in this Prospectus, the Trust offers other
series to the public. Shareholders of each Fund are entitled to one full or
fractional vote for each share of that Fund. There is no cumulative voting and
shares have no preemption or conversion rights. All series of the Trust vote
together except as provided in the 1940 Act or the Declaration of Trust. The
Trust does not intend to hold annual meetings of shareholders. The Trustees will
call special meetings of shareholders to the extent required by the Trust's
Declaration of Trust or the 1940 Act. The 1940 Act requires the Trustees, under
certain circumstances, to call a meeting to allow shareholders to vote on the
removal of a Trustee and to assist shareholders in communicating with each
other. Certificates for Fund shares are not issued.
The Portfolio Trust was organized on January 18, 1996 as a New York trust. In
addition to the Portfolios, the Portfolio Trust offers interests in other series
to certain qualified investors. See "Information about the Master-Feeder
Structure" above for additional information about the Portfolio Trust.
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.
Custodians
Investors Bank & Trust Company, 200 Clarendon Street, Boston, Massachusetts
02116, 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, 200 Clarendon Street, Boston, Massachusetts
02116, serves as the Funds' transfer agent, dividend disbursing agent and
Investors Bank & Trust, Boston and Toronto, Canada, 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.
Standish Group of Equity Funds 20 January 28, 1998
<PAGE>
Standish 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)
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
200 Clarendon Street One Pierrepont Plaza
Boston, Massachusetts 02116 Brooklyn, New York 11201
(Equity Fund, Small Capitalization Equity Fund (Standish International
and Small Capitalization Equity Fund II) Equity Fund)
Legal Counsel
Hale and Dorr LLP
60 State Street
Boston, Massachusetts 02109
================================================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations other than those contained in this Prospectus or
in the Statement of Additional Information, and, if given or made, such other
information or representations must not be relied upon as having been authorized
by the Trust. This Prospectus does not constitute an offering in any
jurisdiction in which such offering may not be lawfully made.
Standish Group of Equity Funds 21 January 28, 1998
<PAGE>
[STANDISH LOGO] STANDISH FUNDS(SM)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
97-350
<PAGE>
January 28, 1998
[STANDISH LOGO]
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) 729-0066
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 January 28, 1998, as amended and/or supplemented from time to
time (the "Prospectus"), of the Standish Equity Fund ("Equity Fund"), the
Standish Small Cap 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...... 2
Investment Restrictions................ 10
Calculation of Performance Data........ 13
Management ............................ 15
Redemption of Shares................... 20
Portfolio Transactions................. 21
Brokerage Commissions.................. 21
Determination of Net Asset Value....... 21
The Funds and Their Shares............. 22
The Portfolio and its Investors........ 23
Taxation............................... 23
Additional Information................. 26
Experts and Financial Statements....... 26
<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 Fund invests all of its
investible assets in the Standish Small Capitalization Equity Portfolio (the
"Small Cap Portfolio"). The Small Cap II Fund 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 total 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 invest in equity securities which are restricted as to
disposition under federal securities laws or are otherwise illiquid or not
readily marketable only on an occasional basis.
Foreign Securities
Foreign securities may be purchased and sold on foreign stock exchanges or in
over-the-counter ("OTC") markets (but persons 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 ("NYSE"), and securities of some foreign companies are less
liquid and more volatile than securities of comparable United States companies.
Fixed commissions on foreign stock exchanges are generally higher than
negotiated commissions on United States exchanges, although 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.
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
unsponsored Depository Receipts or Shares, (i.e., Depository Receipts or Shares
acquired from banks which do not have a contractual relationship with the
foreign issuer of the security underlying the Depository Receipts or Shares to
issue and
2
<PAGE>
service such 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.
Investing in Securities of Emerging Market Countries
Investing in the securities of emerging market countries involves
considerations and potential risks not typically associated with investing in
the securities of U.S. issuers whose securities are principally traded in the
United States. These risks may be related to (i) restrictions on foreign
investment and repatriation of capital; (ii) differences in size, liquidity and
volatility of, and the degree and manner of regulation of, the securities
markets of the Asian countries compared to the U.S. securities markets; (iii)
economic, political and social factors; and (iv) foreign exchange matters such
as fluctuations in exchange rates between the U.S. dollar and the currencies in
which a Fund's portfolio securities are quoted or denominated, exchange control
regulations and costs associated with currency exchange. A Fund's purchase and
sale of portfolio securities in certain emerging market countries may be
constrained by limitations as to daily changes in the prices of listed
securities, periodic trading or settlement volume and/or limitations on
aggregate holdings of foreign investors. In certain cases, such limitations may
be computed based upon the aggregate trading by or holdings of the Funds, the
Adviser and its affiliates and their respective clients and other service
providers. The Funds may not be able to sell securities in circumstances where
price, trading or settlement volume limitations have been reached. These
limitations may have a negative impact on each Fund's performance and may
adversely affect the liquidity of each Fund's investments to the extent that it
invests in emerging market countries.
Investment and Repatriation Restrictions. Foreign investment in the
securities markets of several emerging market countries is restricted or
controlled to varying degrees. These restrictions may limit a Fund's investment
in certain emerging market countries, require governmental approval prior to
investments by foreign persons or limit investment by foreign persons to only a
specified percentage of an issuer's outstanding securities or a specific class
of securities which may have less advantageous terms (including price) than
securities of such company available for purchase by nationals. In certain
countries, the Funds may be limited by government regulation or a company's
charter to a maximum percentage of equity ownership in any one company. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by the Funds. From time to time, the Adviser may determine
that investment and repatriation restrictions in certain emerging market
countries negate the advantages of investing in such countries and no Fund is
required to invest in any emerging market country.
In addition, certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
The Adviser may determine from time to time to invest in the securities of
emerging market countries which may impose restrictions on foreign investment
and repatriation that cannot currently be predicted. Due to restrictions on
direct investment in equity securities in certain emerging market countries,
such as Taiwan, the Funds may invest only through investment funds in such
emerging market countries.
The repatriation of both investment income and capital from several emerging
market countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the Funds to the extent that they invest in emerging
market countries.
Market Characteristics. All of the securities markets of emerging market
countries have substantially less volume than the New York Stock Exchange.
Equity securities of most emerging market Companies are generally less liquid
and subject to greater price volatility than equity securities of U.S. companies
of comparable size. Some of the stock exchanges in the emerging market countries
are in the earliest stages of their development.
Certain of the securities markets of emerging market countries are marked by
high concentrations of market capitalization and trading volume in a small
number of issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
Even the market for relatively widely traded securities in the emerging markets
may not be able to absorb, without price disruptions, a significant increase in
trading volume or trades of a size customarily undertaken by institutional
investors in volume or trades of a size customarily undertaken by institutional
investors in the United States. Additionally, market making and arbitrage
activities are generally less extensive in such markets, which may contribute to
increased volatility and reduced liquidity of such markets. Accordingly, each of
these markets may be subject to greater influence by adverse events generally
affecting the market, and by large investors trading significant blocks of
securities, than is usual in the United States. The less liquid the market, the
more difficult it may be for a Fund to accurately price its portfolio securities
or to dispose of such securities at the times determined by the Adviser to be
appropriate. The risks associated with the liquidity of a market may be
particularly acute in situations in which a Fund's operations require cash, such
as the need to meet redemption requests for its shares, to pay dividends and
other distributions and to pay its expenses. To the extent that any emerging
market country experiences rapid increases in its money supply and investment in
equity securities is made for speculative purposes, the equity securities traded
in any such country may trade at price-earnings ratios higher than those of
3
<PAGE>
comparable companies trading on securities markets in the United States. Such
price-earnings ratios may not be sustainable.
Settlement procedures in emerging market countries are less developed and
reliable than those in the United States and in other developed markets, and a
Fund may experience settlement delays or other material difficulties. In
addition, significant delays are common in registering transfers of securities,
and a Fund may be unable to sell such securities until the registration process
is completed and may experience delays in receipt of dividends and other
entitlements.
Brokerage commissions and other transactions costs on securities exchanges in
emerging market countries are generally higher than in the United States. There
is also less government supervision and regulation of foreign securities
exchanges, brokers and listed companies in emerging market countries than exists
in the United States. Brokers in emerging market countries may not be as well
capitalized as those in the United States, so that they are more susceptible to
financial failure in times of market, political or economic stress. In addition,
existing laws and regulations are often inconsistently applied. As legal systems
in emerging market countries develop, foreign investors may be adversely
affected by new or amended laws and regulations. In circumstances where adequate
laws exist, it may not be possible to obtain swift and equitable enforcement of
the law.
Financial Information and Standards. Issuers in emerging market countries
generally are subject to accounting, auditing and financial standards and
requirements that differ, in some cases significantly, from those applicable to
U.S. issuers. In particular, the assets and profits appearing on the financial
statements of an emerging market company may not reflect its financial position
or results of operations in the same manner as financial statements for U.S.
companies. Substantially less information may be publicly available about
issuers in emerging market countries than is available about issuers in the
United States.
Economic, Political and Social Factors. Many emerging market countries may be
subject to a greater degree of economic, political and social instability than
is the case in the United States and Western European countries. Such
instability may result from, among other things: (i) authoritarian governments
or military involvement in political and economic decision-making, including
changes or attempted changes in government through extra-constitutional means;
(ii) popular unrest associated with demands for improved economic, political and
social conditions; (iii) internal insurgencies; (iv) hostile relations with
neighboring countries; and (v) ethnic, religious and racial disaffection and
conflict. Such economic, political and social instability could significantly
disrupt financial markets of emerging market countries and adversely affect the
value of a Fund's assets so invested.
Few emerging market countries have fully democratic governments. Some
governments in the region are authoritarian in nature or are influenced by armed
forces which have been used to control civil unrest. During the course of the
last 25 years, governments of certain emerging market countries have been
installed or removed as a result of military coups, while governments in other
emerging market countries have periodically used force to suppress civil
dissent. Disparities of wealth, the pace and success of democratization, and
ethnic, religions and racial disaffection, among other factors, have also led to
social unrest, violence and/or labor unrest in some emerging market countries.
Several emerging market countries have or in the past have had hostile
relationships with neighboring nations or have experienced internal
insurrections.
The economies of most emerging market countries are heavily dependent upon
international trade and are accordingly affected by protective trade barriers
and the economic conditions of their trading partners, principally, the United
States, Japan, China and the European Union. The enactment by the United States
or other principal trading partners of protectionist trade legislation,
reduction of foreign investment in the local economies and general declines in
the international securities markets could have a significant adverse effect
upon the emerging securities markets. In addition, the economies of some
emerging market countries are vulnerable to weakness in world prices for their
commodity exports.
There may be the possibility of expropriations, confiscatory taxation,
political, economic or social instability or diplomatic developments which would
adversely affect assets of a Fund held in emerging market or other foreign
countries. Governments in certain emerging market countries participate to a
significant degree, through ownership interests or regulation, in their
respective economies. Actions by these governments could have a significant
adverse effect on market prices of securities and payment of dividends.
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.
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, cross-currency forward
contracts, currency futures contracts, currency swaps or options on currencies
or currency futures (collectively, all the above are called "Strategic
Transactions"). Strategic Transactions may be used to seek to protect against
possible changes in the market value of securities held in or to be purchased
for a Fund's portfolio resulting from securities market or currency exchange
rate fluctuations, to seek 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
4
<PAGE>
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 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 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 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
5
<PAGE>
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 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 OTC 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, 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
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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 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 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 OTC 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.
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
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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 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 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 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
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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. 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 in the amount prescribed. In that case,
the Fund 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
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 the Fund and is unrelated to the
interest rate on the instruments. The instruments acquired by a Fund (including
accrued interest) must have an aggregate market value in excess of the resale
price and will be held by the Fund's custodian bank until they are repurchased.
The Trustees will monitor the standards which the Adviser will use in reviewing
the creditworthiness of any party to a repurchase agreement with the Funds.
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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. 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 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 (Equity 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 Equity
Portfolio (Equity 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 with substantially the same investment
objective as the Equity Fund.
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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 instruments, 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 International Equity 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 Cap Equity Fund and Small Cap Equity Portfolio
As a matter of fundamental policy, the Small Cap Portfolio (Small Cap 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 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 Small Cap
Portfolio (Small Cap 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
11
<PAGE>
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 Cap II Fund and Small Cap II Portfolio
As a matter of fundamental policy, the Small Cap II Portfolio (Small Cap 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
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 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).
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 Small Cap
II Portfolio (Small Cap II 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 II
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 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.
12
<PAGE>
For purposes of each Fund's fundamental investment restriction 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.
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' average annual total return for the one-, five- and ten-year (or
life-of-the-Fund, if shorter) periods ended September 30, 1997 were as follows:
Average Annual Total Return
Fund 1-Year 5-Year 10-Year
- ----------------------------------------------------------------
Equity Fund 48.85% 24.97%(1) N/A
Small Cap Equity Fund 31.65% 24.33%(2) N/A
Small Cap II Fund 45.65%(3) N/A N/A
International Equity Fund 8.95% 8.60%(4) N/A
(1) Equity Fund commenced operations on June 2, 1991.
(2) Small Cap Fund commenced operations on September 1, 1990.
(3) Small Cap II Fund commenced operations on December 23, 1996.
(4) International Equity Fund commenced operations on December 8, 1988.
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
1Q97 1.17 1.36
2Q97 17.62 17.81
3Q97 13.55 13.74
1997(1) 35.13 35.81
(1) Information is presented for the first nine months of the calendar year.
13
<PAGE>
Small Cap 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
1Q97 (12.33) (12.16)
2Q97 20.87 21.08
3Q97 20.72 20.92
1997(1) 27.92 28.60
(1) Information is presented for the first nine months of the calendar year.
Small Cap II Fund
Quarter/Year Net Gross
- ------------------------------------------
4Q96 1.90% 1.90%
1Q97 (8.73) (8.73)
2Q97 27.80 27.80
3Q97 22.55 22.55
1997(1) 42.94 42.94
(1) Information is presented for the first nine months of the calendar year.
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
2Q96 4.89 5.02
3Q96 (1.15) (1.03)
4Q96 1.22 1.34
1996 7.44 7.97
1Q97 (1.72) (1.60)
2Q97 11.85 12.12
3Q97 (2.08) (1.83)
1997(1) 7.65 8.37
(1) Information is presented for the first nine months of the calendar year.
14
<PAGE>
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 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, Hanlon,
Stuehr and Martin, and Mdmes. Banfield, Herrmann, Broccoli, Walcott-Abramson 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 Portfolios and the Fund's investment advisers.
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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, Standish International;
Boston, MA 02111 Management Company, L.P.; Director,
CareGroup, Inc.
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.; Trustee, Cornell
University; Director, CareGroup, Inc.
Waltham, MA 02154
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University
John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 307 Visiting Nurse Alliance of Vermont
So. Woodstock, VT 05071 and New Hampshire
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and Managing
c/o Standish, Ayer & Wood, Inc. Director, Standish, Ayer & Wood, Inc.
One Financial Center Director of Standish International
Boston, MA 02111 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
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*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.
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 Senior Fund Administration Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President Vice President of Finance, Standish,
c/o Standish, Ayer & Wood, Inc. and Treasurer Ayer & Wood, Inc. since October 1996; formerly Senior
One Financial Center Vice President, Treasurer and Chief Financial Officer
Boston, MA 02111 of Liberty Financial Bank Group (1993-95);
prior to 1993, Corporate Controller,
The Berkeley Financial Group
Beverly E. Banfield, 7/6/56 Vice President Vice President, Associate Director
c/o Standish, Ayer & Wood, Inc. and Compliance Officer,
One Financial Center Standish, Ayer & Wood, Inc.;
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
Denise B. Kneeland, 8/19/51 Vice President Vice President and Manager,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since December 1995; formerly
Boston, MA 02111 Vice President, Scudder, Stevens and Clark
David C. Stuehr, 3/1/58 Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Sarah Walcott-Abramson, 12/9/65 Vice President Compliance Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since October 1993; Compliance Specialist,
Boston, MA 02111 Scudder, Stevens and Clark
Kathleen M. Broccoli, 4/13/65 Vice President Vice President and Manager,
c/o Standish, Ayer & Wood, Inc. Portfolio Accounting
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held Principal Occupation
With Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Thomas J. Hanlon, 9/25/60 Vice President Vice President and Manager,
c/o Standish, Ayer & Wood, Inc. Trade Settlement and Pricing
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
Rosalind J. Lillo, 2/6/38 Vice President Broker/Dealer Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center October 1995; Compliance Administrator,
Boston, MA 02111 New England Securities Corp.
Gigi K. Szekely, 5/8/67 Vice President Manager, Client Communications,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
</TABLE>
* Indicates that Trustee is an interested person of the Trust for purposes of
the 1940 Act.
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
fiscal year ended September 30, 1997, except that certain Trustees and officers
who are directors and shareholders of Standish, may from time to time, purchase
additional shares of common stock of Standish.
The following table sets forth all compensation paid to the Trust's and the
Portfolio Trust's Trustees as of the Funds' fiscal years ended September 30,
1997:
<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 $2,538 $2,819 $753 $994 $0 $49,375
Benjamin M. Friedman $2,538 $2,819 $753 $994 $0 $49,375
John H. Hewitt $2,634 $3,004 $754 $1,034 $0 $54,375
Edward H. Ladd $0 $0 $0 $0 $0 $0
Caleb Loring, III $2,538 $2,819 $753 $994 $0 $49,375
Richard S. Wood $0 $0 $0 $0 $0 $0
</TABLE>
* As of the date of this Statement of Additional Information there were 22 funds
in the fund complex. Total compensation is presented for the calendar year ended
December 31, 1997.
** The Fund bears its pro rata allocation of Trustees' fees paid by its
corresponding Portfolio to the Trustees of the Portfolio Trust.
17
<PAGE>
Certain Shareholders
Except as noted below for the Small Cap II Fund, at January 1, 1998, 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 4% of the then outstanding shares of the Small
Cap II Fund at that date. 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. 10%
FBO The Boston Home
P.O. Box 1537
Boston, MA 02205
Shipley Company, Inc. 6%
455 Forest Street
Marlborough, MA 01752
Charles Schwab & Co., Inc.-Special Acct. 5%
101 Montgomery Street
San Francisco, CA 94104
National Financial Service 5%
FBO Customers
One World Financial Center
200 Liberty Street
New York, NY 10281
Small Cap Fund
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
Pearl Sea & Co. 10%
State Street Bank & Trust Co.
200 Newport Avenue
N. Quincy, MA 02171
Bingham, Dana & Gould 9%
Trust Department
150 Federal Street
Boston, MA 02110
Rosemount Aerospace Profit Sharing Plan 7%
Norwest Bank Minnesota, N.A. Trustee
733 Marquette Avenue MS 0036
Minneapolis, MN 55479
Hendrix College 5%
1601 Harkrider Street
Conway, AR 72032
Small Cap II Fund
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
Stephen Phillips Memorial 21%
Charitable Trust Scholarship Foundation
P.O. Box 242
Salem, MA 01970
Hewitt Foundation, Inc. 13%
230 Coram Avenue
Shelton, CT 06484
East Orange General Hospital 9%
300 Central Avenue
East Orange, NJ 07019
Franklin Pierce College 8%
P.O. Box 60
Rindge, NH 03461
The 82/84 Charitable Remainder 7%
Trust U/A Saturn & Co.
P.O. Box 1537
Boston, MA 02205
Lowell Observatory 6%
1400 Mars Hill Road
Flagstaff, AZ 86001
The Shipley Family Foundation, Inc. 5%
Nutter, McClennen & Fish
One International place
Boston, MA 02110
Berman & Simmon 401K PSP/MPP 5%
Acadia Trust
511 Congress Street
Portland, ME 04101
International Equity Fund
Percentage of
Name and Address Outstanding Shares
- --------------------------------------------------------------------------------
Town of Wellesley Contributory 11%
Olsen & Co.
P.O. Box 92800
Rochester, NY 14692
Allendale Mutual Insurance Co. 10%
P. O. Box 7500
Johnston, RI 02919
Keystone Powdered Metal Company 9%
Nations Bank of Texas
P.O. Box 831575
Dallas, Tx 75283
Lumber Mutual Insurance 9%
One Speen Street
Framingham, MA 01701
First Union National Bank 8%
Cannon Foundation
a/c# 1028851439
401 S. Tryon St. CMG 1151
Charlotte, NC 28288
Trustees of Reservations 5%
572 Essex Street
Beverly, MA 01915
Bingham Dana & Gould 5%
Trust Department
150 Federal Street
Boston, MA 02110
18
<PAGE>
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 Capitalization Funds pursuant to investment
advisory agreements. These agreements were terminated by Equity and Small
Capitalization 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 Capitalization 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 Standish controlling persons: Caleb F. Aldrich, Nicholas S.
Battelle, David H. Cameron, Karen K. Chandor, D. Barr Clayson, W. Charles Cook,
Joseph M. Corrado, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria
D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd, Laurence A.
Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin, Austin C. Smith,
David C. Stuehr, Ralph S. Tate, Michael W. Thompson 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 partner, who holds a 0.01%
interest in SIMCO, is D. Barr Clayson, Chairman of the Board and a Vice
President of SIMCO and a Managing Director and a Vice President of Standish.
Ralph S. Tate, a Managing Director of Standish, is President and a Director of
SIMCO. Richard S. Wood, a Vice President and Managing Director of Standish and
the President of the Trust, is the Executive Vice President of SIMCO.
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 International 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 International Equity Fund's or the applicable
Portfolio's average daily net asset value computed as set forth below.
The advisory fees are payable monthly.
Contractual Advisory Fee Rate
(as a percentage of
Fund average daily net assets)
- --------------------------------------------------------------------------------
Equity Portfolio 0.50%
Small Cap Portfolio 0.60%
Small Cap II Portfolio 0.60%
International Equity Fund 0.80%
During the last fiscal year ended September 30, 1997 and the previous two
fiscal years ended December 31, 1996 and 1995, the Funds and the Portfolios paid
advisory fees in the following amounts:
Fund 1995 1996 1997
- --------------------------------------------------------------------------------
Equity Fund $555,164 $163,530(1) N/A
Equity Portfolio N/A $345,301(2) $493,202
Small Cap Fund $871,829 $396,796(1) N/A
Small Cap Portfolio N/A $920,742(2) $1,051,872
Small Cap II Fund N/A 0(3) N/A
Small Cap II Portfolio N/A 0(3) 0(3)
International Equity Fund $704,283 $7,841(4) $300,055(4)
- ----------
(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 and for the fiscal year ended September 30,
1997 in the amounts of $62 and $10,209, respectively.
(4) For the fiscal years ended September 30, 1997 and December 31, 1996, the
Adviser voluntarily agreed not to impose a portion of its fees for the
International Equity Fund in the amounts of $215,367 and $402,258,
respectively.
The Adviser has voluntarily and temporarily agreed to limit total expenses
(excluding brokerage commissions, taxes and extraordinary expenses) of the
Equity Fund, Small Cap Fund, Small Cap II Fund and International Equity Fund to
0.70%, 0.74%, 0.00% and 1.00%, respectively, of the applicable Fund's average
daily net assets. The International Equity Fund was subject to a different
voluntary expense limitations prior to April 1, 1997. Standish may revise or
discontinue these agreements at any time although it has no current intention to
do so. If an expense limitation is exceeded, the compensation due to the Adviser
shall be proportionately reduced by the amount of such excess by reduction or
refund thereof, subject to readjustment during the period during which such
limit is in place.
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.
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
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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 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.
In addition to Standish Fund Distributors and other agents of the Trust, each
Fund has authorized one or more brokers and dealers to accept on its behalf
orders for the purchase and redemption of Fund shares. Under certain conditions,
such authorized brokers and dealers may designate other intermediaries to accept
orders for the purchase and redemption of Fund shares. In accordance with a
position taken by the staff of the Securities and Exchange Commission, such
purchase and redemption orders are considered to have been received by a Fund
when accepted by the authorized broker or dealer or, if applicable, the
authorized broker's or dealer's designee. Also in accordance with the position
taken by the staff of the Securities and Exchange Commission, such purchase and
redemption orders will receive the appropriate Fund's net asset value per share
next computed after the purchase or redemption order is accepted by the
authorized broker or dealer or, if applicable, the authorized broker's or
dealer's designee.
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 NYSE 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.
20
<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 seminars, information, analyses and reports
concerning issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic factors and
trends, portfolio strategy, access to research analysts, corporate management
personnel, industry experts and economists, comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analysis, and
computer and electronic access, equipment, software, information and accessories
that deliver, process or otherwise utilize information, including the research
described above) that assist the Adviser in carrying out its responsibilities
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.
BROKERAGE COMMISSIONS
Aggregate Brokerage
Commissions Paid by the Fund or
portfolio transactions
Fund/Portfolio 1995 1996 1997
- --------------------------------------------------------------------------------
Equity Fund(1) $416,680 $80,855 N/A
Equity Portfolio(3, 5) $148,871 $294,686
Small Cap Fund(1) $859,777 $162,096 N/A
Small Cap Portfolio(3) $255,346 $247,090
Small Cap II Fund(2) N/A N/A N/A
Small Cap II Portfolio(4) N/A $3,480 $12,384
International Equity Fund $439,738 $286,838 $608,296
(1) 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) 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.
(3) The Portfolio commenced operations on May 3, 1996.
(4) The Portfolio commenced operations on December 23, 1996.
(5) At September 30, 1997, the Equity Portfolio held the following amounts of
securities of its regular brokers or dealers: Bear Stearns Co., Inc.
$2,138,620.
DETERMINATION OF NET ASSET VALUE
Each Fund's net asset value is calculated each day on which the NYSE is open
(a "Business Day"). Currently, the NYSE is not open on weekends, New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. The net asset value of each
Fund's shares is determined as of the close of regular trading on the NYSE
(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)
21
<PAGE>
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 the close of regular trading on the NYSE 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 the close of regular trading on the NYSE 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 the
close of regular trading on the NYSE 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 the close of regular trading on the NYSE 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
NYSE. 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 NYSE. 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
NYSE 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 may be 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 Capitalization and Small
Capitalization 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 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
22
<PAGE>
the Trust is limited to circumstances in which the Trust would be unable to meet
its obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Declaration also provides that no series of the Trust is liable for
the obligations of any other series. The Trustees intend to conduct the
operations of the Trust to avoid, to the extent possible, ultimate liability of
shareholders for liabilities of the Trust.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to a Portfolio, the Trust will hold
a meeting of the associated Fund's shareholders and will cast its vote
proportionately as instructed by the Fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing Fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the Fund
shareholders who do, in fact, vote. Subject to applicable statutory and
regulatory requirements, a Fund would not request a vote of its shareholders
with respect to (a) any proposal relating to the Portfolio, which proposal, if
made with respect to the Fund, would not require the vote of the shareholders of
the Fund, or (b) any proposal with respect to the Portfolio that is identical in
all material respects to a proposal that has previously been approved by
shareholders of the Fund. Any proposal submitted to holders in a Portfolio, and
that is not required to be voted on by shareholders of the Fund, would
nonetheless be voted on by the Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio, a newly
formed trust, which like the Trust, is an open-end management investment company
registered under the Investment Company Act of 1940, as amended. The Portfolio
Trust was organized as a master trust fund under the laws of the State of New
York on January 18, 1996.
Interests in a Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. A
Portfolio normally will not hold meetings of holders of such interests except as
required under the 1940 Act. A Portfolio would be required to hold a meeting of
holders in the event that at any time less than a majority of its Trustees
holding office had been elected by holders. The Trustees of a Portfolio continue
to hold office until their successors are elected and have qualified. Holders
holding a specified percentage of interests in a Portfolio may call a meeting of
holders in the Portfolio for the purpose of removing any Trustee. A Trustee of
the Portfolio may be removed upon a majority vote of the interests held by
holders in the Portfolio qualified to vote in the election. The 1940 Act
requires a Portfolio to assist its holders in calling such a meeting. Upon
liquidation of a Portfolio, holders in a Portfolio would be entitled to share
pro rata in the net assets of a Portfolio available for distribution to holders.
Each holder in the Portfolio is entitled to a vote in proportion to its
percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each Fund, is treated as a separate
entity for accounting and tax purposes. Each Fund 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 and
other requirements of the Code.
Each Portfolio is treated as a partnership for federal income tax purposes.
As such, a Portfolio is not subject to federal income taxation. Instead, the
corresponding Fund must take into account, in computing its federal income tax
liability (if any), its share of the Portfolio's income, gains, losses,
deductions, credits and tax preference items, without regard to whether it has
received any cash distributions from the Portfolio. Because 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 applicable provisions of federal law incorporated in Massachusetts law, they
will also not be required to pay any Massachusetts income tax.
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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. (Disclose amounts and expiration dates of any existing loss
carry forwards.)
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. Additionally, a Fund or Portfolio may be
required to recognize gain if an option, future, forward contract, short sale,
swap or other strategic transaction that is not subject to the mark to market
rules is treated as a "constructive sale" of an "appreciated financial position"
held by the Fund or Portfolio under Section 1259 of the Code. Any net mark to
market gains and/or gains from constructive sales may also have to be
distributed by a Fund to satisfy the distribution requirements referred to above
even though no corresponding cash amounts may concurrently be received, possibly
requiring the disposition of portfolio securities or borrowing to obtain the
necessary cash. Also, certain losses on transactions involving options, futures
or forward contracts and/or offsetting or successor positions may be deferred
rather than being taken into account currently in calculating the Funds' taxable
income or gain. Certain of the applicable tax rules may be modified if a Fund or
a Portfolio is eligible and chooses to make one or more of certain tax elections
that may be available. These transactions may therefore affect the amount,
timing and character of a Fund's distributions to shareholders. Each Fund will
take into account the special tax rules applicable to options, futures, forward
contracts and constructive sales in order to minimize any potential adverse tax
consequences.
The Federal income tax rules applicable to certain structured or hybrid
securities, currency swaps or interest rate swaps, caps, floors and collars are
unclear in certain respects, and a Fund or Portfolio will account for these
instruments in a manner that is intended to allow the Funds to continue to
qualify as regulated investment companies.
In some countries, restrictions on repatriation may make it difficult or
impossible for a Fund or Portfolio to obtain cash corresponding to its earnings
from such countries which may cause a Fund to have difficulty obtainings cash
necessary to satisfy tax distribution requirements.
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 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 or deductions with respect
to such taxes, subject to certain holding period requirements and other
provisions and limitations contained in the Code, only if more than 50% of the
value of the applicable Fund's total assets (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 qualified foreign taxes paid by the Fund even
though not actually received by them, and (ii) treat such respective pro rata
portions as foreign taxes paid by them.
If the International Equity Fund makes this election, shareholders may then
deduct such pro rata portions of qualified foreign taxes in computing their
taxable incomes, or, alternatively, use them as foreign tax credits, subject to
applicable holding period requirements and other limitations, against their U.S.
Federal income taxes. Shareholders who do not itemize deductions for Federal
income tax purposes will not, however, be able to deduct their pro rata portion
of qualified foreign taxes paid by the 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 taxes may
be required to treat a portion of dividends received from the International
Equity Fund as a separate category of income for
24
<PAGE>
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 qualified foreign 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 (including,
under proposed regulations, an option to acquire stock such as is inherent in a
convertible bond) in certain foreign corporations that receive at least 75% of
their annual gross income from passive sources (such as interest, dividends,
certain rent, royalties or capital gains) or hold at least 50% of their assets
in investments producing such passive income ("passive foreign investment
companies"), the relevant Fund could be subject to Federal income tax and
additional interest charges on "excess distributions" actually or constructively
received from such companies or gain from the actual or deemed sale of stock in
such companies, even if all income or gain actually realized is timely
distributed to its shareholders. They would not be able to pass through to their
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
would require them to recognize taxable income or gain (subject to tax
distribution requirements) without the concurrent receipt of cash. These
investments could also result in the treatment of associated capital gains as
ordinary income. 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. As a result
of the enactment of the Taxpayer Relief Act of 1997 (the "1997 TRA") on August
5, 1997, gain recognized after May 6, 1997 from the sale of a capital asset is
taxable to individual (noncorporate) investors at different maximum federal
income tax rates, depending generally upon the tax holding period for the asset,
the federal income tax bracket of the taxpayer, and the dates the asset was
acquired and/or sold. The Treasury Department has issued guidance under the 1997
TRA that (subject to possible modification by future "technical corrections"
legislation) enables each Fund to pass through to its shareholders the benefits
of the capital gains tax rates enacted in the 1997 TRA. Each Fund will provide
appropriate information to its shareholders about the tax rate(s) applicable to
its distributions from its long-term capital gains in accordance with this and
any future guidance. Shareholders should consult their own tax advisers on the
correct application of these new rules in their particular circumstances.
For purposes of the dividends received reduction available to corporations,
dividends received by 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, extending before and after
each dividend 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, and, to the extent such basis would be reduced below
zero, current recognition of income would be required.
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.
Upon a redemption or other disposition of shares of a Fund, in a transaction
that is treated as a sale for tax purposes a shareholder may realize a taxable
gain or loss, depending upon the difference between the redemption proceeds and
the shareholder's tax basis in his shares. Such gain or loss will generally be
treated as capital gain or loss if the shares are capital assets in the
shareholder's hands. Any loss realized on a redemption may be disallowed to the
extent the shares disposed of are replaced with other shares of the same Fund
within a period of 61 days beginning 30 days before and ending 30 days after the
shares are disposed of, such as pursuant to automatic dividend reinvestments. In
such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss realized upon the redemption of shares with a tax
holding period of six months or less will be treated as a long-term capital loss
to the extent of any amounts treated as distributions of long-term capital gain
with respect to such shares. Shareholders should consult their own tax advisers
regarding their particular circumstances to determine whether a disposition of
Fund shares is properly treated as a sale for tax purposes, as is assumed in the
foregoing discussion. Also, future Treasury Department
25
<PAGE>
regulations, announcements or other guidance issued to implement the 1997 TRA
may contain rules for determining different tax rates applicable to sales of
Fund shares held for more than one year, more than 18 months, and (for certain
sales after the year 2000 or the year 2005) more than five years. These
regulations may also modify some of the provisions described above.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as qualified
retirement plans. Shareholders should consult their tax adviser for more
information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to certain classes
of investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of Fund shares may also be
subject to state and local taxes. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent,
if any, a Fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of a Feeder 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 1997 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 and Small Cap
II Portfolio's financial statements contained in their corresponding Fund's 1997
Annual Report have been audited by Coopers & Lybrand, P.O. Box 219, Grand
Cayman, Grand Cayman Islands, BWI, an affiliate of Coopers & Lybrand L.L.P.
26
<PAGE>
[This page intentionally left blank]
27
<PAGE>
[STANDISH LOGO]
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, Massachusetts 02111
(800) 729-0066
28
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Statements for the Period Ended
September 30, 1997
[LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
October 31, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
Enclosed you will find the annual statement for the Standish Small Cap Fund II.
Please note that it is a nine-month reporting period for the fiscal year ended
September 30, 1997, as the fund has changed its fiscal year end from December to
September in order to streamline our reporting process.
As of September 1997, Standish, Ayer & Wood managed assets for its clients of
approximately $36.7 billion, including the Standish mutual fund assets of $5.3
billion. The principal clients of the firm are corporate pension trusts, state
and local governmental units, insurance companies, endowments and foundations,
and high net worth individuals. the firm remains independent and is owned by
investment professionals active in the operation of the business.
During the nine months ended September 30, 1997, the financial markets have
generally registered very positive rates of return. The U.S. equity markets as
measured by the Standard & Poor's 500 Index or the Russell 2000 Growth Index
have recorded total rates of return of 29.64% and 23.02%, respectively. Foreign
equity markets, as benchmarked by the Morgan Stanley Capital International
Index, have lagged behind these strong domestic returns with a return of 10.42%.
During the year ended September 30, 1997, we at Standish have continued to add
resources to both investment research and shareholder servicing. We remain
confident that we have the resources and the organization to do a superior
investment management job, and we will be working hard to fulfill your
expectations in the years ahead. We appreciate the opportunity to serve you and
hope you will find the attached information helpful.
Sincerely yours,
/s/ Edward H. Ladd
Edward H. Ladd
Chairman
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Management Discussion & Analysis
The strong performance in small cap stocks which began with a bang in May has
continued to date. We are pleased to report that 1997 is turning out to be an
excellent year for small cap stocks after all. For the period from January 1
through September 30, the Standish Small Capitalization Equity Fund II gained
42.94%, compared to a gain of 23.02% for the Russell 2000 Growth Index, and a
gain of 26.61% for the Russell 2000 Index.
Small caps had been performing poorly for the past four years, with some notable
sharp rallies as exceptions. Currently, there is some evidence that the tone of
the market is more favorable for these stocks. The key to this shift apparently
is in earnings and valuation. Small caps have been improving in terms of
earnings growth and propensity to positively surprise analysts' estimates. In
addition, their price/earnings multiples on average compare well to those of
large cap stocks. Large cap stock earnings are more in question now because of
the age of this business cycle and the challenge of repatriating foreign
earnings that must be translated into a very strong U.S. currency. Large cap
valuations appear extended, and it may be that investors are taking some profits
and marginally gravitating to small cap stocks. It would take very little
increased attention from institutional managers to have a noticeable impact on
small cap stocks. In a marketplace which has been very generous to shareholders,
we believe that the best part of this cycle has been experienced, but prospects
for small caps are still good for the longer term.
The first nine months of 1997 has been again a volatile period for small cap
stocks. After a strong January the stocks languished badly through April, with a
very strong rally beginning in May and continuing to date. Our investments are
oriented toward rapidly growing, high quality companies at the smaller end of
the small cap spectrum, and this has presented a performance challenge for the
last two years. In recent months smallness seems to have ceased as a negative.
Also this has been a better year for value investors compared to growth, and we
are decidedly in the higher growth camp. This past trend again has moderated in
recent months. Our most important value-addition this year has been from stock
selection, while our sector emphasis a neutral influence. While we were helped
by growth sector emphasis in technology in particular, it was offset by the
strong performance in financial stocks, and more recently in the traditionally
cyclical industries; areas in which we typically have very few investments. As a
reminder, our high growth orientation leads us to heavier commitments in the
technology, medical, and business services sectors, with comparatively fewer
investments in the slower growth areas of the economy. We generally seek to
invest in the highest quality companies, and we select stocks based on earnings
and margin dynamics, business position analysis, and an evaluation of
management.
We are very pleased to announce the addition of Jonathan Stone to the Standish
Small Cap Team. Jonathan joins Drew Beja, Melissa Dane and me after several
years as an effective and distinguished analyst with a regional research and
brokerage firm where he covered technology stocks. He is an experienced,
seasoned analyst who has already had considerable impact in stock selection as
well as portfolio management. He is clearly an important addition to our
capabilities.
In closing, it is important to remind you of the volatility of small cap
investments, where we do not expect a diminution of this volatility in the
future. We remain, however, optimistic about the outlook for small cap stocks
and view the category as having important potential over the long term. We are
very appreciative of your support and thank you for your interest in the
Standish Small Capitalization Equity Fund II.
Sincerely,
/s/ Nicholas S. Battelle /s/ Andrew L. Beja
Nicholas S. Battelle Andrew L. Beja
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Comparison of Change in Value of $100,000 Investment in
Standish Samll Fund II,
the S&P 500 Index, the Russell 2000 Index, and the Russell 2000 Growth Index
[GRAPHIC OMITTED]
[The following table was represented as a line graph in the printed materials.]
Standish Small
Capitalization Russell S&P 500 Russell 2000
Equity Fund II 2000 Index Index Growth Index
-------------- ---------- ----- ------------
Inception 12/23/96 100000 100000 100000 100000
12/31/96 101900 102020 99170 102396
1/31/97 106850 104061 105369 104954
2/28/97 98950 101538 106195 98616
3/31/97 93000 96746 101831 91656
4/30/97 93900 97016 107901 90593
5/31/97 110800 108814 114472 104209
6/30/97 108850 112439 119600 107742
7/31/97 126500 117668 129120 113258
8/31/97 131550 120362 121890 116656
9/30/97 145651 129173 128569 125965
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Small Capitalization Equity Portfolio II
("Portfolio"), at value (Note 1A) $ 6,296,360
Receivable for Fund shares sold 38,400
Other assets 700
-----------
Total assets 6,335,460
Liabilities
Distribution payable $ 167
Payable to investment advisor (Note 3) 8,285
Accrued accounting, custody and transfer agent fees 5,111
Accrued expenses and other liabilities 8,339
-----------
Total liabilities 21,902
-----------
Net Assets $ 6,313,558
===========
Net Assets consist of:
Paid-in capital $ 5,010,315
Accumulated net realized gain 129,163
Undistributed net investment income 6,541
Net unrealized appreciation 1,167,539
-----------
Total Net Assets $ 6,313,558
===========
Shares of beneficial interest outstanding 216,818
===========
Net Asset Value, Offering and Redemption Price Per Share
(Net assets/Shares outstanding) $ 29.12
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1997
--------------------- ---------------------
<S> <C> <C>
Investment Income (Note 1B)
Dividend income allocated from Portfolio $ 1,471 $ --
Interest income allocated from Portfolio 7,017 198
------------- -------
Net investment income from Portfolio 8,488 198
Expenses
Registration fees 28,950 --
Accounting, custody and transfer agent fees 18,413 672
Legal and audit services 13,463 6,790
Miscellaneous 813 126
----------- --------
Total expenses 61,639 7,588
Deduct:
Reimbursement of Fund operating expenses (61,639) (7,588)
-------
Net expenses -- --
----------- -------
Net investment income 8,488 198
----------- -------
Realized and Unrealized Gain
Net realized gain allocated from Portfolio on:
Investment security transactions 129,163 --
----------- --------
Net realized gain 129,163 --
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investment securities 1,158,569 8,970
----------- -------
Change in net unrealized appreciation (depreciation) 1,158,569 8,970
----------- -------
Net realized and unrealized gain on investments 1,287,732 --
----------- -------
Net increase in net assets resulting from operations $ 1,296,220 $ 9,168
=========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
-------------------------- -------------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 8,488 $ 198
Net realized gain 129,163 --
Change in net unrealized appreciation
(depreciation) 1,158,569 8,970
---------- ---------
Net increase in net assets from operations 1,296,220 9,168
---------- ---------
Distributions to Shareholders
From net investment income (2,145) --
---------- ---------
Fund share (principal) Transactions (Note 5)
Net proceeds from sale of shares 5,177,545 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared 1,978 --
Cost of shares redeemed (644,208) --
---------- ---------
Increase in net assets from Fund share
transactions 4,535,315 475,000
---------- ---------
Net increase in net assets 5,829,390 484,168
Net Assets
At beginning of period 484,168 --
---------- ---------
At end of period (including undistributed net
investment income of $6,541 and $198,
respectively) $6,313,558 484,168
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months For the period
Ended December 23, 1996
September 30, 1997 (commencement of operations)
(Note 1E) to December 31, 1996
-------------------- -------------------------------
<S> <C> <C>
Net asset value, beginning of period $20.39 $20.00
------ -------
Income from operations:
Net investment income * 0.03 --
Net realized and unrealized gain on investments 8.71 0.39
------ -------
Total from investment operations 8.74 0.39
------ -------
Less distributions declared to shareholders
From net investment income (0.01) --
Net asset value, end of period $29.12 $20.39
====== =======
Total return 42.94% --(1)
Ratios (to average daily net assets)/Supplemental Data
Net assets, end of period (000's omitted) $6,314 $ 484
Expenses * (2) 0.00%+ --(1)
Net investment income * (2) 0.49%+ --(1)
</TABLE>
* For the nine months ended September 30, 1997 and for the period December
23, 1996 (commencement of operations) to December 31, 1996, the investment
adviser waived its investment advisory fee for the Portfolio and
reimbursed the Portfolio and Fund for all of its operating expenses. If
this voluntary action had not been taken, the net invesment income per
share and the ratios would have been:
<TABLE>
<S> <C> <C>
Net investment loss per share $(0.25) --(1)
Ratios (to average daily net assets):
Expenses (2) 3.56%+ --(1)
Net investment income (3.07)%+ --(1)
</TABLE>
- ----------
(1)Amounts are not meaningful due to the short period of operations.
(2)Includes the Fund's share of the Portfolio's allocated expenses for the nine
months ended September 30, 1997 and for the period December 23, 1996
(commencement of operations) to December 31, 1996.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
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 in the interests of
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 September 30, 1997). 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. The method
by which the Portfolio values its securities 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.
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.
E. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Fund from December 31 to September 30, effective September
30, 1997.
(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
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
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).
(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, Inc. ("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 nine month period ended
September 30, 1997 and for the period from December 23, 1996
(commencement of operations) to December 31, 1996, SA&W voluntarily
agreed to waive and/or reimburse all operating expenses of the Fund and
Portfolio (excluding commissions, taxes and extraordinary expenses).
This agreement is voluntary and temporary and may be discontinued or
revised by SA&W at any time. Pursuant to this agreement, for the nine
months ended September 30, 1997 and for the period from December 23,
1996 (commencement of operations) to December 31, 1996, SA&W
voluntarily reimbursed the Fund for its operating expenses in the
amount of $61,639 and $7,588, respectively. The Trust 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 Trust 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 nine months ended September 30, 1997 aggregated $5,257,507 and
$741,535, respectively. For the period December 23, 1996 to December
31, 1996, increases and decreases in the Fund's investment in the
Portfolio 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:
<TABLE>
<CAPTION>
For the Period
December 23,
1996
(commencement of
Nine Months Ended operations) to
September 30, 1997 December 31,1996
------------------- -------------------
<S> <C> <C>
Shares sold.......................................... 222,940 23,750
Shares issued to shareholders in payment of
distributions
declared.......................................... 69 0
Shares redeemed...................................... (29,941) 0
------------------- -------------------
Net increase/(decrease).............................. 193,068 23,750
=================== ===================
</TABLE>
At September 30, 1997, the Fund had three shareholders of record
owning approximately 30%, 13% and 12% of the Fund's outstanding voting
shares.
10
<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 September 30, 1997, and the related
statements of operations, the statements of changes in net assets and
financial highlights for the nine months ended September 30, 1997 and
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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
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 II as of September 30, 1997, and the
results of its operations, changes in its net assets and financial
highlights for the nine months ended Sepember 30, 1997, and 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
November 11, 1997
11
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES -- 99.6%
Capital Goods -- 5.9%
BDM International, Inc.* 1,800 $ 45,225
Comfort Systems USA, Inc.* 3,700 70,763
Hagler Bailly* 500 12,688
Power-One, Inc.* 1,300 18,200
Service Experts, Inc.* 2,000 54,125
Tetra Technologies, Inc.* 3,000 69,375
Trailer Bridge, Inc.* 4,000 53,000
Triumph Group, Inc.* 1,400 46,813
------------
370,189
------------
Consumer Stable -- 9.9%
800-Jr Cigar, Inc.* 3,200 111,999
Arbor Drugs, Inc. 2,600 60,450
Aviation Sales Co.* 2,600 78,650
General Cigar Holdings, Inc.* 2,300 66,413
Hughes Supply, Inc. 2,650 79,997
Performance Food Group Co.* 3,800 96,899
Robert Mondavi Corp., Class A* 1,100 60,225
Suiza Foods Corp.* 1,300 66,950
------------
621,583
------------
Early Cyclical -- 1.8%
Aftermarket Technology, Inc.* 3,000 71,250
Hospitality Worldwide Services* 3,000 39,375
------------
110,625
------------
Energy -- 11.0%
Cal Dive International, Inc.* 3,900 145,274
Friede Goldman Intl, Inc.* 2,100 125,999
Global Industries Ltd.* 2,300 91,712
Halter Marine Group, Inc.* 2,100 101,587
Hvide Marine, Inc.* 2,600 83,200
Newpark Resources, Inc.* 1,200 47,175
Patterson Energy, Inc.* 1,900 99,512
------------
694,459
------------
Financial -- 3.1%
American Capital Strategies* 300 6,000
E Trade Group, Inc.* 2,000 93,999
Greater Bay Bancorp. 2,300 98,612
------------
198,611
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Cyclical -- 12.3%
Alliance Gaming Corp.* 12,600 $ 83,475
Apple South, Inc. 4,400 84,700
Atria Communities, Inc.* 3,700 66,600
Central Garden & Pet Co.* 2,000 61,500
Coach USA, Inc.* 2,900 87,181
Gadzooks, Inc.* 3,500 73,500
North Face, Inc.* 700 18,813
Rainforest Cafe, Inc.* 1,300 41,925
Regal Cinemas* 2,000 53,750
Scientific Games Holdings Corp.* 2,700 58,725
Sonic Corp.* 600 16,800
Sunrise Assisted Living, Inc.* 700 25,288
Travel Services, Inc.* 1,700 35,275
Vans, Inc.* 4,200 67,200
------------
774,732
------------
Health Care -- 14.3%
Affymetrix, Inc.* 1,100 50,600
Agouron Pharmaceuticals, Inc.* 600 28,875
Genesis Health Ventures, Inc.* 600 23,363
Guilford Pharmaceuticals, Inc.* 1,800 53,100
Gulf South Medical Supply, Inc.* 1,900 50,825
HCIA, Inc.* 2,700 36,450
Imnet Systems, Inc.* 2,300 61,813
Inhale Therapeutic Systems* 2,400 75,300
Medic Computer Systems, Inc.* 1,700 58,225
Neurogen Corp.* 2,900 78,300
Orthodontic Centers of America* 2,400 48,000
Parexel International Corp.* 300 11,850
Pharmaceutical Product Development* 3,400 69,275
Physician Sales & Service* 3,900 76,050
Sepracor, Inc.* 1,900 62,463
Specialty Care Network, Inc.* 4,500 55,688
Vertex Pharmaceuticals, Inc.* 1,600 60,400
------------
900,577
------------
Services -- 17.1%
Abacus Direct Corp.* 1,400 44,975
American Radio Systems Corp.* 700 33,338
Barrett Business Services, Inc.* 3,600 60,300
BET Holdings, Inc.* 1,500 79,313
Central Parking Corp. 1,000 47,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Services (continued)
Compdent Corporation* 1,300 $ 32,500
Computer Task Group, Inc. 1,200 50,325
Corporate Family Solutions* 200 3,375
Devry, Inc.* 1,600 47,800
Gray Communications Systems, Class B 2,400 60,000
Harbinger Corp.* 1,500 54,563
Heftel Broadcasting Corp.* 800 60,600
Inspire Insurance Solutions* 3,600 65,250
LCC International, Inc.* 2,300 50,313
Learning Tree International* 1,500 42,938
M A R C, Inc. 3,000 71,250
Metzler Group, Inc.* 2,200 88,274
Pierce Leahy Corp.* 1,100 29,838
Scandinavian Broadcast Systems Corp.* 2,400 57,600
Scholastic Corp.* 1,500 59,250
Wackenhut Corrections Corp.* 1,200 37,200
------------
1,076,002
------------
Technology -- 24.2%
Advanced Technology Material* 2,700 99,224
Aehr Test Systems* 4,500 79,594
Asyst Technologies, Inc.* 1,000 44,406
Benchmark Electronics, Inc.* 2,400 67,650
C. P. Clare Corp.* 4,200 82,950
CFM Technologies, Inc.* 300 11,756
Dallas Semiconductor Corp. 1,300 58,175
Dupont Photomasks, Inc.* 700 50,838
Exar Corp.* 1,900 50,350
Galileo Technology* 1,000 33,000
Gasonics Intl Corp.* 3,500 72,844
Hadco Corp.* 1,100 59,572
Helix Technology Corp. 1,300 80,478
HNC Software, Inc.* 2,200 87,450
Hyperion Software Corp.* 1,500 46,781
Kulicke & Soffa Industries* 1,400 64,838
Lecroy Corp.* 900 39,825
Level One Communications, Inc.* 1,800 72,450
P-Com, Inc.* 2,800 67,025
PCD, Inc.* 1,300 32,175
Periphonics Corp.* 1,900 20,306
Photronics, Inc.* 600 36,338
PRI Automation, Inc.* 1,100 64,350
Radiant Systems, Inc.* 3,600 75,600
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology (continued)
Semtech Corp.* 800 $ 55,300
Star Telecommunications, Inc.* 3,200 73,600
------------
1,526,875
------------
TOTAL EQUITIES (COST $5,106,088) 6,273,653
------------
TOTAL INVESTMENTS-- 99.6% (COST $5,106,088) $ 6,273,653
Other Assets, Less Liabilities-- 0.4% 22,837
============
NET ASSETS-- 100% $ 6,296,490
============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $5,106,088) $ 6,273,653
Cash 178,391
Interest and dividends receivable 2,179
Deferred organization costs (Note 1E) 26,005
-----------
Total assets 6,480,228
Liabilities
Payable for investments purchased $ 142,575
Payable to investment advisor (Note 2) 15,692
Accrued accounting and custody fees 9,115
Accrued expenses and other liabilities 16,356
-----------
Total liabilities 183,738
-----------
Net Assets (applicable to investors' beneficial interests) $ 6,296,490
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
=================== ==================
<S> <C> <C>
Investment Income (Note 1C)
Dividend income $ 1,471 $ --
Interest income 7,017 198
----------- ----------
Total income 8,488 198
Expenses
Investment advisory fee (Note 2) 10,209 62
Accounting and custody fees 29,683 1,002
Legal and audit services 28,934 14,500
Amortization of organization cost (Note 1E) 4,597 94
Miscellaneous 323 126
----------- ---------
Total expenses 73,746 15,784
----------- ---------
Deduct:
Waiver of investment advisory fee (Note 2) (10,209) (62)
Reimbursement of Portfolio operating expenses (63,537) (15,722)
----------- ---------
Total waiver of investment advisory fee and
reimbursement of operating expenses (73,746) (15,784)
----------- ---------
Net expenses -- --
----------- ---------
Net investment income 8,488 198
Realized and Unrealized Gain
Net realized gain
Investment security transactions 129,166 --
----------- ---------
Net realized gain 129,166 --
Change in unrealized appreciation (depreciation)
Investment securities 1,158,595 8,970
----------- ---------
Change in net unrealized appreciation (depreciation) 1,158,595 8,970
----------- ---------
Net realized and unrealized gain 1,287,761 --
----------- ---------
Net increase in net assets from operations $ 1,296,249 $ 9,168
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
(commencement of
Nine Months Ended operations) to
September 30, 1997 December 31, 1996
--------------------- ---------------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 8,488 $ 198
Net realized gain 129,166 --
Change in net unrealized appreciation
(depreciation) 1,158,595 8,970
---------- ---------
Net increase in net assets from operations 1,296,249 9,168
---------- ---------
Capital transactions
Contributions 5,257,608 475,000
Withdrawals (741,535) --
---------- ---------
Increase in net assets resulting from
capital transactions 4,516,073 475,000
---------- ---------
Total increase in net assets 5,812,322 484,168
Net Assets
At beginning of period 484,168 --
---------- ---------
At end of period $6,296,490 $484,168
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of operations)
Ended to
September 30, 1997 December 31, 1996
---------------------- -------------------------------
<S> <C> <C>
Ratios (to average daily net assets)
Expenses * 0.00%+ --(1)
Net investment income 0.50%+ --(1)
Portfolio turnover 122% 0
Average broker commission per share (2) $0.0768 $0.2000
Net assets, end of period (000's omitted) $ 6,296 $ 484
* The investment adviser did not impose any of its investment advisory fee and reimbursed the Portfolio for
all of its operating expenses for the nine months ended September 30, 1997 and for the period December 23,
1996 (commencement of operations) to December 31, 1996. If these voluntary actions had not been taken, the
ratios would have been:
Ratios (to average daily net assets):
Expenses 4.33%+ --(1)
Net investment income (loss) (3.84)%+ --(1)
</TABLE>
- --------------------------
+ Computed on an annualized basis.
(1) Amounts are not meaningful due to the short period of operations.
(2) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
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 II (the "Portfolio") is
a separate diversified investment series of the Portfolio Trust. As of
September 30, 1997, the Standish Small Capitalization Equity Fund II's
proportionate interest in the net assets of the Portfolio was
approximately 100%.
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 Internal Revenue 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.
20
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
F. Change in fiscal year end--
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Portfolio from December 31 to September 30, effective
September 30, 1997.
(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 nine month period ended September 30, 1997
and for the period from December 23, 1996 (commencement of operations)
to December 31, 1996, SA&W voluntarily agreed to waive and/or reimburse
all of the Portfolio's total annual operating expenses (excluding
brokerage commissions, taxes, and extraordinary expenses). This
agreement is voluntary and temporary and may be discontinued or revised
by SA&W at any time. For the nine months ended September 30, 1997 and
for the period from December 23, 1996 (commencement of operations) to
December 31, 1996, SA&W voluntarily waived its investment advisory fee
of $10,209 and $62, respectively, and reimbursed the Portfolio for its
operating expenses of $63,537 and $15,722, respectively. The Portfolio
Trust 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 Trust 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 were as follows:
<TABLE>
<CAPTION>
For the Period
December 23, 1996
Nine Months Ended (commencement of operations)
September 30, 1997 to December 31, 1996
----------------------------- --------------------------------
<S> <C> <C> <C> <C>
Purchases Sales Purchases Sales
-------------- ------------- --------------- ---------------
U.S. Government Securities.............. $ 0 $ 0 $ 0 $ 0
============== ============= =============== ===============
Investments (non-U.S. Government
Securities)... $ 7,131,297 $ 2,725,584 $ 456,074 $ 0
============== ============= =============== ===============
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 1997, as computed on a
federal income tax basis, were as follows:
<TABLE>
<S> <C>
Aggregate Cost....................................................... $ 5,119,573
===========
Gross unrealized appreciation........................................ $ 1,202,913
Gross unrealized depreciation........................................ $ (48,833)
-----------
Net unrealized appreciation (depreciation)........................... $ 1,154,080
===========
</TABLE>
21
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek 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 Parts A and B of the Master Portfolio registration
statement.
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. Writing puts and
buying calls tend to increase the Portfolio's exposure to the
underlying instrument. Buying puts and writing calls tend to decrease
the Portfolio's exposure to the underlying instrument, or hedge other
portfolio investments. Options, both held and written by the Portfolio,
are reflected in the accompanying Statement of Assets and Liabilities
at market value. The underlying face amount at value of any open
purchased options is shown in the schedule of investments. This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparties do not perform under the
contract's terms.
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.
Realized gains and losses on purchased options are included in realized
gains and losses on investment securities, except purchased options on
foreign currency which are included in realized gains and losses on
foreign currency transactions. 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 nine
months ended September 30, 1997.
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. Buying futures tends to increase the Portfolio's exposure
to the underlying instrument, while selling futures tends to decrease
the Portfolio's exposure to the underlying instrument or hedge other
portfolio 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. Losses may arise if there is an
illiquid secondary market or if the counterparties do not perform under
the contract's terms. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. Gains and losses
are realized upon the expiration or closing of the futures contracts.
The Portfolio had no open financial futures contracts at September 30,
1997.
22
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and the
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
schedule of investments as of September 30, 1997, and the related
statements of operations, the statements of changes in net assets and
the supplementary data for the nine months ended September 30, 1997 and
for the period from December 23, 1996 (commencement of operations)
through 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits 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 September 30, 1997, 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 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 supplementary data present
fairly, in all material respects, the financial position of Standish
Small Capitalization Equity Portfolio II as of September 30, 1997, and
the results of its operations, changes in its net assets and
supplementary data for the respective stated periods, in conformity
with United States generally accepted accounting principles.
Coopers & Lybrand
Toronto, Canada
November 11, 1997
23
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Statements for the Period Ended
September 30, 1997
[STANDISH LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
October 31, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
Enclosed you will find the annual statement for the Standish International
Equity Fund. Please note that it is a nine-month reporting period for the fiscal
year ending September 30, 1997, as the fund has changed its fiscal year end from
December to September in order to streamline our reporting process.
As of September 1997, Standish, Ayer & Wood managed assets for its clients of
approximately $36.7 billion, including the Standish mutual fund assets of $5.3
billion. The principal clients of the firm are corporate pension trusts, state
and local governmental units, insurance companies, endowments and foundations,
and high net worth individuals. The firm remains independent and is owned by
investment professionals active in the operation of the business.
During the last nine months, the financial markets have generally registered
very positive rates of return. The U.S. equity markets as measured by the
Standard & Poor's 500 Index or the Russell 2000 Growth Index have recorded total
rates of return of 29.64% and 23.02%, respectively. Foreign equity markets, as
benchmarked by the Morgan Stanley Capital International Index, have lagged
behind these strong domestic returns with a return of 10.42%.
During the last year, we at Standish have continued to add resources to both
investment research and shareholder servicing. We remain confident that we have
the resources and the organization to do a superior investment management job,
and we will be working hard to fulfill your expectations in the years ahead. We
appreciate the opportunity to serve you and hope you will find the attached
information helpful.
Sincerely yours,
/s/ Edward H. Ladd
Edward H. Ladd
Chairman
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Management Discussion & Analysis
Attractive returns in international equity markets during the first nine months
of 1997 were once again overshadowed by the continuing surge in U.S. equity
prices. The return of the MSCI EAFE index was 10.37%, while the Standish
International Equity Fund achieved a return of 7.65%.
So far in 1997, Europe has provided an attractive investment environment, while
the Pacific markets have been weak. All fourteen European markets in the EAFE
index rose at least 18% in local currency terms, with eight rising more than
40%. The strong dollar reduced the value of those returns to U.S. investors by
about 12% on average. In the Pacific, Hong Kong provided the best return, 5.4%
in both local and dollar terms, while Japan was virtually flat in local terms,
and down 5.3% in dollar terms. Emerging markets also provided starkly different
returns by region, with the MSCI EM Latin America Index up 44.5% in dollars, and
the MSCI EM Asia Index off 17.8%, in dollars. Altogether, emerging markets
trailed developed markets, as the MSCI Emerging Markets Index was up only 5.4%.
The year was one of considerable change for the Fund, as the portfolio was
extensively repositioned to focus on stock selection for the first time, after
eight years of relying solely on country weightings to add value. The good news
is that these new stock selection processes have worked well, adding value
across the total portfolio and in ten of the thirteen markets in which we were
invested. Unfortunately, our experience in country weighting was not as
positive. Our process of favoring markets with low relative price multiples
while avoiding markets with high relative price multiples did not work well in
the first nine months of 1997, as valuations continued to widen the divergence
between cheap and dear markets. During 1997, we have greatly reduced our
reliance upon our country weighting process, bringing country weightings closer
to those of the benchmark, while increasing the focus on our stock selection
process.
The Fund started the year significantly underweight in the core European markets
of Germany, Switzerland, and the Netherlands, holding overweights in many
smaller European markets such as Austria and Belgium, where price multiples were
relatively cheap. This strategy did not work well, as the core European markets
provided higher returns. We increased our exposure to core Europe during the
course of 1997 to a level similar to the benchmark. During the summer our small
overweight positions in Singapore and Malaysia performed poorly as a currency
crisis was exacerbated by government over-reaction in restricting trading.
Stock selection was particularly strong in Germany and Singapore where we
outperformed the index by 12%, and the U.K., Belgium and France, where we
outperformed the index by 7% each. These returns were achieved using a
disciplined process similar in philosophy to the security selection processes
followed by our domestic equity management at Standish. This process focuses on
companies with improving business momentum and reasonable valuation. Stock
selection will continue to be an increasingly important element in the Standish
International Equity Fund in the coming year.
We thank you for your continued support and will work diligently to earn and
reward that support in the coming year.
/s/ Remi J. Browne
Remi Browne
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Comparison of Change in Value of $100,000 Investment in
Standish International Equity Fund and the EAFE Index
[GRAPHIC OMITTED]
[The following table was represented as a line graph in the printed materials.]
Standish
International
Equity Fund EAFE
----------- ----
Inception 12/8/88 100000 100000
12/31/88 100350 100600
1/31/89 101450 102411
2/28/89 99900 102923
3/30/89 99600 100864
4/30/89 103400 101772
5/31/89 100300 96276
6/30/89 100750 94640
7/31/89 110384 106564
8/31/89 110485 101769
9/30/89 112818 106450
10/31/89 106835 102192
11/30/89 110942 107302
12/31/89 119206 111272
1/31/90 118948 107155
2/28/90 117194 99654
3/30/90 119103 89290
4/30/90 116420 88576
5/31/90 123438 98674
6/30/90 126018 97785
7/31/90 132212 99154
8/31/90 117358 89536
9/30/90 102925 77091
10/31/90 110640 89117
11/30/90 109065 83859
12/31/90 107963 85201
1/31/91 110801 87927
2/28/91 120173 97380
3/31/91 115139 91537
4/30/91 116639 92434
5/31/91 118352 93358
6/30/91 111658 86543
7/31/91 116950 90792
8/31/91 115384 88976
9/30/91 119217 93995
10/31/91 121269 95320
11/30/91 115654 90840
12/31/91 120621 95527
1/31/92 120567 93493
2/29/92 119643 90146
3/31/92 114482 84196
4/30/92 115786 84592
5/31/92 120241 90251
6/30/92 115188 85973
7/31/92 112137 83772
8/31/92 111483 89025
9/30/92 109194 87244
10/31/92 107342 82672
11/30/92 107941 83450
12/31/92 108595 83884
1/31/93 108595 83884
2/28/93 111559 86417
3/31/93 116446 93952
4/30/93 119410 102868
5/31/93 120948 105039
6/30/93 120069 103400
7/31/93 123818 107019
8/31/93 132418 112798
9/30/93 130213 110204
10/31/93 139309 113598
11/30/93 135064 103715
12/31/93 150169 111204
1/31/94 159323 120611
2/28/94 152359 120274
3/31/94 141352 115090
4/30/94 145789 119970
5/31/94 146856 119286
6/30/94 141268 120968
7/31/94 146131 122141
8/31/94 150766 125036
9/30/94 145273 121097
10/31/94 147104 125130
11/30/94 142012 119111
12/31/94 139645 119861
1/31/95 132457 115259
2/28/95 129860 114936
3/31/95 132578 122097
4/30/95 137893 126687
5/31/95 138135 125180
6/30/95 135974 122989
7/31/95 142943 130646
8/31/95 138095 125662
9/30/95 139246 128116
10/31/95 134884 124672
11/30/95 138034 128141
12/31/95 142640 133304
1/31/96 145972 133851
2/29/96 145124 134303
3/31/96 146033 137150
4/30/96 153789 141138
5/31/96 152153 138541
6/30/96 153168 139321
7/31/96 147904 135249
8/31/96 146964 135545
9/30/96 151413 139146
10/31/96 148092 137722
11/30/96 155362 143202
12/31/96 153255 141360
1/31/97 149696 136412
2/28/97 152398 138643
3/31/97 150619 139143
4/30/97 150355 139881
5/31/97 160968 148987
6/30/97 168472 157196
7/31/97 170851 159743
8/31/97 157695 147810
9/30/97 114482 84196
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Assets and Liabilities
September 30, 1997
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments at value (Note 1A) (identified cost, $48,159,981) $48,697,402
Cash 319,680
Receivable for investments sold 2,526,237
Interest and dividends receivable 127,911
Receivable for variation margin on open financial futures
contracts (Note 6) 2,205
Unrealized appreciation on forward foreign currency exchange
contracts (Note 6) 2,905
Receivable for foreign dividend tax reclaims 69,227
Prepaid expenses 2,648
-----------
Total assets 51,748,215
Liabilities
Payable for investments purchased $ 1,816,611
Payable for Fund shares redeemed 375,615
Unrealized depreciation on forward foreign currency
exchange contracts (Note 6) 4,912
Accrued accounting, custody and transfer agent fees 25,155
Accrued expenses and other liabilities 28,585
-----------
Total liabilities 2,250,878
-----------
Net Assets $49,497,337
===========
Net Assets consist of:
Paid-in capital $44,624,008
Undistributed net investment income 203,249
Accumulated net realized gain 4,140,985
Net unrealized appreciation 529,095
===========
Total Net Assets $49,497,337
===========
Shares of beneficial interest outstanding 2,100,374
===========
Net asset value, offering price and redemption price per share
(Net assets/Shares outstanding) $ 23.57
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statements of Operations
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, 1997 December 31, 1996
-------------------- -------------------
<S> <C> <C>
Investment Income
Dividend income (net of foreign withholding
taxes of $136,256 and $90,911, respectively) $ 934,913 $ 771,708
Interest income 49,228 403,047
---------- -----------
Total investment income 984,141 1,174,755
Expenses
Investment advisory fee (Note 2) 300,055 410,099
Accounting, custody and transfer agent fees 157,669 183,804
Audit services 40,828 35,184
Legal fees 17,081 11,762
Registration fees 8,724 8,866
Insurance expense 3,346 2,683
Trustees fees (Note 2) 1,640 1,955
Miscellaneous 2,058 2,819
---------- -----------
Total expenses 531,401 657,172
Deduct --
Waiver of investment advisory fee (Note 2) (215,367) (402,258)
---------- -----------
Net expenses 316,034 254,914
---------- -----------
Net investment income 668,107 919,841
---------- -----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss)
Investment security transactions 3,967,938 3,795,947
Financial futures contracts 192,113 744,905
Foreign currency transactions and forward
foreign currency exchange contracts 128,043 (20,322)
---------- -----------
Net realized gain 4,288,094 4,520,530
Change in unrealized appreciation (depreciation)
Investment securities (597,441) (1,582,054)
Financial futures contracts 1,602 (195,226)
Foreign currency and forward foreign
currency exchange contracts (210,758) 264,316
---------- -----------
Net change in unrealized appreciation
(depreciation) (806,597) (1,512,964)
---------- -----------
Net realized and unrealized gain 3,481,497 3,007,566
---------- -----------
Net increase in net assets from operations $4,149,604 $ 3,927,407
========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Year Ended
September 30, December 31, December 31,
1997 1996 1995
--------------- -------------- ---------------
<S> <C> <C> <C>
Increase (decrease) in net assets
From operations
Net investment income $ 668,107 $ 919,841 $ 1,535,925
Net realized gain 4,288,094 4,520,530 555,805
Change in unrealized appreciation
(depreciation) (806,597) (1,512,964) (1,331,247)
------------ ------------ -------------
Net increase in net assets from
operations 4,149,604 3,927,407 760,483
------------ ------------ -------------
Distributions to Shareholders
From net investment income (601,863) (993,584) --
From net realized gains on
investments (2,427,615) (2,991,390) (293,380)
------------ ------------ -------------
Total distributions to
shareholders (3,029,478) (3,984,974) (293,380)
------------ ------------ -------------
Fund Share (principal)
Transactions (Note 4)
Net proceeds from sale of shares 5,984,646 3,568,994 12,167,766
Net asset value of shares issued
to shareholders in payment of
distributions declared 2,684,361 3,425,523 272,750
Cost of shares redeemed (8,030,311) (18,671,701) (57,868,870)
------------ ------------ -------------
Net increase (decrease) in net
assets from Fund share
transactions 638,696 (11,677,184) (45,428,354)
------------ ------------ -------------
Net increase (decrease) in net
assets 1,758,822 (11,734,751) (44,961,251)
Net Assets
At beginning of period 47,738,515 59,473,266 104,434,517
------------ ------------ -------------
At end of period (including
undistributed net investment
income of $203,249, $8,961 and
$103,026, respectively) $ 49,497,337 $ 47,738,515 $ 59,473,266
============ ============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Financial Highlights
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, Year Ended December 31,
1997 ----------------------------------------------------
(Note 1F) 1996 1995 1994 1993 1992+
------- ------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $ 23.25 $ 23.54 $ 23.12 $ 26.74 $ 19.78 $ 22.20
------- ------- ------- -------- ------- -------
Income from investment operations
Net investment income* 0.39 0.47 0.04 0.21 0.26 0.26
Net realized and
unrealized gain
(loss) on
investments 1.44 1.28 0.45 (2.08) 7.29 (2.47)
------- ------- ------- -------- ------- -------
Total from investment
operations 1.83 1.75 0.49 (1.87) 7.55 (2.21)
------- ------- ------- -------- ------- -------
Less distributions to shareholders
From net investment
income (0.30) (0.51) -- (0.12) (0.23) (0.21)
In excess of net
investment income -- -- -- -- (0.36) --
From net realized
gains on
investments (1.21) (1.53) (0.07) (1.63) -- --
------- ------- ------- -------- ------- -------
Total distributions
to shareholders (1.51) (2.04) (0.07) (1.75) (0.59) (0.21)
------- ------- ------- -------- ------- -------
Net asset value, end
of period $ 23.57 $ 23.25 $ 23.54 $ 23.12 $ 26.74 $ 19.78
======= ======= ======= ======== ======= =======
Total return 7.65% 7.44% 2.14% (6.99)% 38.27% (9.95)%
Ratios (to average daily net
assets)/Supplemental Data
Expenses 0.84%++ 0.50% 1.22% 1.23% 1.34% 1.53%
Net investment income 1.78%++ 1.80% 1.76% 1.52% 1.09% 1.18%
Portfolio Turnover 155% 163% 108% 75% 98% 98%
Average broker
commission per
share (1) $0.0137 $0.0092 -- -- -- --
Net assets, end of
period (000's
omitted) $49,497 $47,739 $59,473 $104,435 $92,419 $56,539
</TABLE>
* For the nine months ended September 30, 1997 and the year ended December 31,
1996, the investment adviser voluntarily agreed not to impose a portion of its
investment advisory fee. In the absence of this agreement, the net investment
income per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
Net investment income
per share $ 0.29 $ 0.27 -- -- -- --
Ratios (to average
daily net assets):
Expenses 1.42%++ 1.29% -- -- -- --
Net investment
income 1.20%++ 1.01% -- -- -- --
</TABLE>
- -------------
+ Audited by other auditors.
++ Computed on an annualized basis.
(1)Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Schedule of Investments - September 30, 1997
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 98.0%
Austria -- 2.5%
Brau-Union Goess-Reininghaus 2,600 $ 155,652
Creditanstalt-Bankverein 7,500 473,671
Oemv AG 2,150 321,607
Wienerberger Baustoff Ind 1,300 271,825
----------
1,222,755
----------
Belgium -- 4.8%
Banque Bruxelles Lampert SA 1,550 400,432
Electrabel SA 1,700 357,333
Fortis AG 1,900 381,600
Glaverbel 2,850 464,976
Groupe Bruxelles Lambert SA 1,900 302,143
Petrofina SA 700 274,920
Soc Gen Belgique Parts De Res. NPV 1,900 177,209
----------
2,358,613
----------
Denmark -- 3.0%
Aarhus Oliefabrik 3,000 161,067
Dfds A/s 400 404,635
Nordiske Kabel Traadfabri 2,200 170,611
Radiometer 3,400 159,207
Sas Danmark 14,000 233,845
Unidanmark 5,700 369,782
----------
1,499,147
----------
Finland -- 2.3%
Merita Ltd. 67,000 319,066
Nokia AB 5,600 528,051
Upm-Kymmeme 10,700 298,423
----------
1,145,540
----------
France -- 4.6%
Accor French Ord 2,400 444,474
Compagnie Financiere Paribas French Ord 4,200 312,268
Elf Gabon SA 600 139,811
Labinal 600 172,254
Lafarge Coppee French 2,800 205,718
Renault SA* 18,200 540,956
Total S.A., Series B 2,500 286,837
Vallourec 2,200 149,182
----------
2,251,500
----------
Germany -- 9.4%
Agiv AG* 28,200 685,189
Commerzbank AG 24,800 896,828
Continental AG Dm50 19,000 490,451
The accompanying notes arean integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Schedule of Investments - September 30, 1997
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Germany (continued)
Daimler Benz 7,000 $ 579,393
DBV Holding AG Registered Shares 1,900 698,950
Deutsche Telekom AG 17,000 330,060
Douglas Holding AG 10,000 393,415
Heidelberger Zement AG 7,365 589,534
----------
4,663,820
----------
Hong Kong -- 3.6%
Great Eagle Holdings Ltd. 157,000 433,152
Hang Lung Development Co. 103,000 193,662
Hong Kong Telecom 56,000 126,640
Jardine Intl. Motor Holdings Ordinary Shares 112,000 120,850
Johnson Electric Holdings-500 101,000 275,389
Regal Hotel International 800 207
Swire Pacific Ltd., Class A 50,000 382,826
Wing Lung Bank 44,000 260,981
----------
1,793,707
----------
Ireland -- 3.4%
Allied Irish Banks PLC 47,000 414,812
CRH PLC 30,400 346,099
Fii Fyffes PLC 1 300,000 436,200
Hibernian Group PLC 49,300 333,322
Smurfit (Jefferson) Group 51,500 172,226
----------
1,702,659
----------
Italy -- 2.9%
Credito Italiano 119,500 323,455
ENI SPA 48,700 307,330
Ifi istit Fin Priv Itl 1000 25,300 347,162
Istituto Nazionale Delle Assoc Ordinary Shares 123,000 195,571
Telecom Italia Spa 40,122 268,716
----------
1,442,234
----------
Japan -- 25.8%
Ajinomoto Co. Inc. 57,000 501,619
Amada Co., Ltd. 28,000 162,491
Bank Of Kyoto 52,000 254,280
Best Denki Co.+ 64,000 419,759
Casio Computer Co. Ltd. 46,000 412,453
Chichibu Onoda Cement Corp. 98,000 266,052
Fuji Bank 25,000 276,048
Fuji Electric Co. 83,000 252,204
Gunma Bank 37,000 316,397
Higo Bank 39,000 241,220
Hitachi Chemical 36,000 270,486
Hokkaido Electric Power 13,000 209,381
The accompanying notes arean integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Schedule of Investments - September 30, 1997
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Japan (continued)
Hokuetsu Paper Mills 71,000 $ 380,789
Japan Radio 37,000 282,607
Joyo Bank 57,000 290,560
Kandenko 41,000 253,591
Kikkoman Corp. 40,000 237,443
Kokusai Electric 27,000 479,701
Kokuyo Co. Ltd 13,000 308,676
Konica Corporation 38,000 203,171
Kyodo Printing Co. 44,000 258,265
Kyowa Hakko Kogyo+ 74,000 396,264
Matsushita Electric Works 26,000 271,980
Minolta Co. Ltd. 53,000 250,809
Nichicon Corp. 48,000 593,773
Nippon Shinpan Co Ordinary Shares 142,000 287,655
Nippon Telegraph and Telephone Corp. 50 460,772
Nippon Yusen Kabushiki Kaish 90,000 302,615
Nissan Fire & Marine Insurance 117,000 480,822
Nissan Motors 65,000 388,543
Ono Pharmaceutical 21,000 625,903
Sakura Bank Ltd. 40,000 191,615
Seino Transportation Co. Ltd. 41,000 371,025
Sumitomo Rubber 58,000 329,846
Sumitomo Warehouse+ 89,000 409,348
Tokyo Electric Power Co., Inc. 18,000 346,700
Toshiba Tungaloy 59,000 205,729
Toyo Suisan Kaisha Ltd. 37,000 340,971
Yamaha Motor 28,000 241,760
-----------
12,773,323
-----------
Malaysia -- 2.7%
Faber Group Berhad* 263,000 133,605
Golden Hope Plantations Bhd 164,000 238,325
Petronas Dagangan Berhad 112,000 179,310
Public Bank Berhad Ord 110,000 83,313
Renong Berhad 233,000 229,557
RJ Reynolds Berhad 81,000 138,408
Systems Telekom Malaysia 43,500 131,920
Technology Resources Industries 113,000 137,075
UMW Holdings 31,000 62,038
-----------
1,333,551
-----------
Netherlands -- 8.0%
ASR Verzekeringsgroep NV 6,800 344,352
Gamma Holding 6,700 366,971
ING Groep 12,930 595,486
KLM Royal Dutch Ari Ord 18,300 640,860
Pakhoed Holding NV Rotter 7,700 273,531
The accompanying notes arean integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Schedule of Investments - September 30, 1997
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Netherlands (continued)
Philips Electronics NV Ordinary Shares 3,300 $ 280,016
Royal Dutch Petroleum Co. 25,600 1,436,986
----------
3,938,202
----------
Singapore -- 1.8%
First Capital Corp-Singapore Ordinary Shares 36,000 80,523
Haw Par Bros Ordinary Shares 151,000 293,309
Overseas Union Bank 37,000 164,552
Robinson & Co. 58,000 278,810
Singapore Telecom Ltd. 58,000 98,247
----------
915,441
----------
Switzerland -- 6.7%
Grands Magasins Jelmoli Br 450 363,279
Julius Baer Holdings 200 308,425
Nestle Registered Shares 330 461,312
Novartis AG 900 1,384,807
Vontobel Holding AG 1,050 814,325
----------
3,332,148
----------
United Kingdom -- 16.5%
Amec PLC 181,700 440,386
Anglian Water PLC 32,100 424,533
Bank Of Scotland 46,000 380,553
Barclays PLC 1P Ordinary Shares 35,300 955,098
BG PLC 104,000 452,876
British Petroleum Co. PLC 34,200 516,684
English China Clays PLC 123,000 561,450
General Accident PLC 38,300 674,857
Hazlewood Foods PLC 192,000 463,799
I M I PLC Ordinary Shares 64,700 428,623
Kwik Save Group PLC 97,000 546,213
Lex Service PLC Ordinary Shares 88,000 636,302
Royal & Sun Alliance Insurance Group 55,300 525,847
Smith and Nephew Associated 175,000 534,426
Transport Development Group PLC 119,000 373,024
Unigate PLC 26,300 240,100
----------
8,154,771
----------
TOTAL EQUITIES (COST $47,989,968) 48,527,411
----------
The accompanying notes arean integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Schedule of Investments - September 30, 1997
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 0.4%
U.S. Government -- 0.4%
FHLB+ 5.800%+ 12/17/1997 $172,000 $ 169,991
-----------
Total U.S. Government (Cost $170,013) 169,991
-----------
TOTAL BONDS AND NOTES (COST $170,013) 169,991
-----------
TOTAL INVESTMENTS -- 98.4% (COST $48,159,981) $48,697,402
Other Assets, Less Liabilities -- 1.6% 799,935
===========
NET ASSETS -- 100% $49,497,337
===========
</TABLE>
Notes to the Schedule of Investments:
FHLB - Federal Home Loan Bank
* Non-income producing security.
+ Denotes all or part of security pledged as collateral to cover margin
requirements on open financial futures contracts (Note 6).
+ Rate noted is yield to maturity.
The accompanying notes arean integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
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 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).
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
F. Change in fiscal year end--
The Board of Trustees voted on July 12, 1997 to change the fiscal year end
of the Fund from December 31 to September 30, effective September 30,
1997.
(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 voluntarily
agreed to limit total Fund operating expenses to 1.00% of the Fund's
average daily net assets for the period April 1, 1997 to September 30,
1997. Prior to April 1, 1997, SIMCO voluntarily agreed to limit total Fund
operating expenses to 0.50% of the Fund's average daily net assets. This
agreement is voluntary and temporary and may be discontinued or revised by
SIMCO at any time. For the nine months ended September 30, 1997 and the
year ended December 31, 1996, SIMCO voluntarily waived a portion of its
investment advisory fee in the amount of $215,367 and $402,258,
respectively. The Trust 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 Trust from SIMCO. Certain of the
trustees and officers of the Trust are directors or officers of SIMCO or
its affiliates.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1997 December 31, 1996
------------------------ ------------------------
Purchases Sales Purchases Sales
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. Government Securities ..... $ 392,507 -- $23,042,519 $26,292,529
=========== =========== =========== ===========
Investments (non-U.S. Government
Securities) .................... $75,499,625 $76,910,303 $50,287,925 $58,275,201
=========== =========== =========== ===========
</TABLE>
(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:
Nine Months
Ended Year Ended Year Ended
September 30, December 31, December 31,
1997 1996 1995
------------ ------------ ------------
Shares sold ................. 258,881 147,664 535,762
Shares issued to shareholders
in payment of distributions
declared .................. 109,893 144,612 12,155
Shares redeemed ............. (322,069) (764,772) (2,539,577)
------------ ------------ ------------
Net increase/(decrease) ..... 46,705 (472,496) 1,991,660
============ ============ ============
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
(5) Federal Income Tax Basis of Investment Securities: The cost and unrealized
appreciation (depreciation) in value of the investment securities owned at
September 30, 1997, as computed on a federal income tax basis, were as
follows:
Aggregate Cost.................................. $48,209,363
===========
Gross unrealized appreciation................... $3,599,881
Gross unrealized depreciation................... (3,111,842)
-----------
Net unrealized appreciation (depreciation)...... $488,039
===========
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek 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. Writing puts and buying calls tend
to increase the Fund's exposure to the underlying instrument. Buying puts
and writing calls tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments. Options, both held and
written by the Fund, are reflected in the accompanying Statement of Net
Assets and Liabilities at market value. The underlying face amount at
value of any open purchased option is shown in the Schedule of
Investments. This amount reflects each contract's exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparties do not perform under
the contracts' terms.
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. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. 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 the nine months ended
September 30, 1997, the Fund had no written option transactions, nor were
there any open written option contracts at September 30, 1997.
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 or upon the
closing of the contract. Forward currency exchange contracts are used by
the fund primarily to protect the value of the Fund's foreign securities
from adverse currency movements. Unrealized appreciation and depreciation
of forward currency exchange contracts is included in the Statement of
Assets and Liabilities.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
At September 30, 1997, the Fund held the following forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
U.S.$ U.S.$
Local Contract U.S. $ Aggregate Unrealized
Contracts to Principal Value Market Face Appreciation/
Receive Amount Date Value Amount (Depreciation)
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Danish Krone $ 991,786 10/02/97 $ 147,929 $ 147,528 $ 401
-----------------------------------
$ 147,929 $ 147,528 $ 401
===================================
U.S.$ U.S.$
Local Contract U.S. $ Aggregate Unrealized
Contracts to Principal Value Market Face Appreciation/
Deliver Amount Date Value Amount (Depreciation)
------------------------------------------------------------------------------
German Deutshe
Mark $ 12,223 10/01/97 $ 6,940 $ 6,941 $ 1
British Pound
Sterling $ 478,307 10/02/97 $ 772,766 $ 767,854 $ (4,912)
Malaysian Ringgit $ 252,531 10/02/97 $ 77,743 $ 80,246 $ 2,503
-----------------------------------
$ 857,449 $ 855,041 $ (2,408)
===================================
</TABLE>
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. Buying futures tends to increase the Fund's
exposure to the underlying instrument, while selling futures tends to
decrease the Fund's exposure to the underlying instrument or hedge other
Fund 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. Losses may arise if there is an illiquid secondary market or if
the counterparties do not perform under the contracts' terms. The Fund
enters into financial futures transactions primarily to manage its
exposure to certain markets and to changes in securities prices and
foreign currencies. Gains and losses are realized upon the expiration or
closing of the futures contracts.
At September 30, 1997, the Fund held the following futures contracts:
<TABLE>
<CAPTION>
Underlying Unrealized
Expiration Face Amount Appreciation/
Contract Position Date at Value (Depreciation)
--------------------- ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Eurotop 100 Futures
(3 contracts) Long 12/23/97 $ 673,500 $ 25,050
Topix Futures (3
contracts) Long 12/12/97 $ 359,518 $ (19,454)
============= =============
1,033,018 5,596
============= =============
</TABLE>
At September 30, 1997, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
17
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
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. If forecasts of interest rates and other market factors
are incorrect, investment performance will diminish compared to what
performance would have been if these investment techniques were not used.
Even if the forecasts are correct, there are risks that the positions may
correlate imperfectly with the assets or liability being hedged, a liquid
secondary market may not always exist, or a counterparty to a transaction
may not perform. 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 the nine months ended
September 30, 1997, the Fund did not enter into any interest rate swap
contract transactions. Gains and losses are realized upon the expiration
of closing of the swap contracts. At September 30, 1997, the Fund had no
open interest rate swap contracts.
(7) Concentration of Credit Risk:
The Fund has a relatively large concentration of portfolio securities
invested in companies domiciled in Japan. The Fund may be more susceptible
to political, social and economic events adversely affecting Japanese
companies than funds not so concentrated.
(8) Tax Information -- Unaudited
The Fund paid distributions of $0.6945 from long term capital gains during
the nine months ended September 30, 1997. Pursuant to section 852 of the
Internal Revenue Code, the Fund designates $1,327,630 as capital gain
dividends for the nine months ended September 30, 1997. All of this amount
represents a 28% tax rate gain distribution.
The Fund paid foreign taxes of $136,256 and the Fund recognized $1,071,169
of foreign source income during the nine months ended September 30, 1997.
Pursuant to section 853 of the Internal Revenue Code the Fund designates
$0.0649 per share of foreign taxes paid and $0.5100 per share (for a share
outstanding at September 30, 1997) of income earned from foreign sources
in the nine months ended September 30, 1997.
18
<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 schedule of investments, as of September 30,
1997, and the related statements of operations for the nine months ended
September 30, 1997 and the year ended December 31, 1996, the statements of
changes in net assets for the nine months ended September 30, 1997 and the
two years in the period ended December 31, 1996 and the financial
highlights for the nine months ended September 30, 1997 and the four years
in the period ended 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 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 September 30, 1997 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 September 30, 1997, and the results of its operations for the
nine months ended September 30, 1997 and the year ended December 31, 1996,
changes in its net assets for the nine months ended September 30, 1997 and
the two years in the period ended December 31, 1996 and the financial
highlights for the nine months ended September 30, 1997 and the four years
in the period ended December 31, 1996, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 11, 1997
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Financial Statement for the Period Ended
September 30, 1997
[STANDISH LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
October 31, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
Enclosed you will find the annual statement for the Standish Equity Fund. Please
note that it is a nine-month reporting period for the fiscal year ended
September 30, 1997, as the fund has changed its fiscal year end from December to
September in order to streamline our reporting process.
As of September 1997, Standish, Ayer & Wood managed assets for its clients of
approximately $36.7 billion, including the Standish mutual fund assets of $5.3
billion. The principal clients of the firm are corporate pension trusts, state
and local governmental units, insurance companies, endowments and foundations,
and high net worth individuals. the firm remains independent and is owned by
investment professionals active in the operation of the business.
During the last nine months ended September 30, 1997, the financial markets have
generally registered very positive rates of return. The U.S. equity markets as
measured by the Standard & Poor's 500 Index or the Russell 2000 Growth Index
have recorded total rates of return of 29.64% and 23.02%, respectively. Foreign
equity markets, as benchmarked by the Morgan Stanley Capital International
Index, have lagged behind these strong domestic returns with a return of 10.42%.
During the last year, we at Standish have continued to add resources to both
investment research and shareholder servicing. We remain confident that we have
the resources and the organization to do a superior investment management job,
and we will be working hard to fulfill your expectations in the years ahead. We
appreciate the opportunity to serve you and hope you will find the attached
information helpful.
Sincerely yours,
/s/ Edward H. Ladd
Edward H. Ladd
Chairman
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Management Discussion & Analysis
The first nine months of 1997 have been a strong period for the U.S. equity
market with the S&P 500 up 29.6%. For the same period, the Standish Equity Fund
has a total return of 35.1%.
For the last several years, there has been a pattern of performance
differentiated by capitalization group, with small and medium capitalization
stocks trailing the performance of the large capitalization stocks. This pattern
continued during the first half of calendar 1997. However, in the last three
months, the S&P Midcap and Russell 2000 indices outperformed the S&P 500 by more
than 8% and 7%, respectively. By industry sector, the best groups within the S&P
500 in 1997 have been Technology, Financials and Healthcare. The sectors that
have underperformed the S&P 500 through September 30 have been Basic Industries,
Consumer Stable, Services and Electric Utilities.
For the Standish Equity Fund, performance through June was hurt by the fact that
the average capitalization of stocks in the Fund is smaller than that of the S&P
500. However, in the quarter ending September 30, the Standish Equity Fund had
outstanding performance beating the S&P 500 by approximately 6%. Particularly
notable was performance in Financials, Services and Healthcare where our results
were ahead of the comparable S&P 500 groups. In addition, we were helped by
modest underweightings in Utilities and Basic Industries 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 continue to be committed to
consistently applying our stock selection disciplines. For the first nine months
of 1997, the Multifactor Model, Price/Earnings Ratio and Earnings Trend factors
have been the strongest indicators. To date in 1997, the top decline of stocks
in our universe have outperformed the universe by over 11.5%. In 1997, our
disciplines have again provided us with a very strong starting point for our
portfolio construction process.
While the reporting period is only nine months, we are still pleased to be able
to report another strong period of performance for the Standish Equity Fund and
are grateful to our shareholders for their continuing support.
Sincerely,
/s/ Ralph S. Tate /s/ David C. Cameron
Ralph S. Tate David C. Cameron
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Comparison of Change in Value of $100,000 Investment in
Standish Equity Fund and the S&P 500 Index
[GRAPHIC OMITTED]
Standish S&P 500
Equity Fund Index
----------- -----
Inception 1/2/91 100000 100000
1/31/91 105200 104360
2/28/91 112000 111822
3/31/91 116300 114528
4/30/91 115748 114803
5/31/91 119964 119751
6/30/91 113088 114266
7/31/91 118475 119591
8/31/91 120439 122425
9/30/91 120036 120381
10/31/91 123528 121994
11/30/91 119985 117077
12/31/91 133349 130471
1/31/92 131582 128044
2/29/92 133713 129709
3/31/92 129660 127180
4/30/92 129974 130919
5/31/92 129031 131560
6/30/92 126256 129600
7/30/92 132182 134901
8/31/92 128425 132135
9/30/92 131336 133694
10/31/92 134788 134162
11/30/92 141851 138724
12/31/92 146046 140430
1/31/93 151326 141610
2/28/93 152104 143536
3/31/93 157328 146564
4/30/93 151810 143017
5/31/93 157718 146850
6/30/93 161675 147276
7/31/93 159998 146687
8/31/93 167599 152246
9/30/93 172405 151074
10/31/93 174758 154201
11/30/93 172461 152736
12/31/93 176446 154585
1/1/94 182557 159840
2/28/94 181758 155509
3/31/94 172390 148729
4/30/94 172734 150632
5/31/94 172046 153103
6/30/94 166978 149352
7/31/94 170853 154250
8/31/94 178198 160575
9/30/94 172357 156641
10/31/94 175142 160165
11/30/94 165683 154335
12/31/94 169774 156619
1/31/95 169655 160676
2/28/95 178304 166937
3/31/95 184642 171862
4/30/95 191011 176932
5/31/95 197797 184004
6/30/95 205154 188272
7/31/95 216634 194523
8/31/95 217112 195011
9/30/95 224766 203241
10/31/95 222845 202515
11/30/95 234311 211406
12/31/95 233529 215477
1/31/96 240371 222812
2/29/96 247416 224878
3/31/96 249495 227043
4/30/96 255894 230390
5/31/96 259262 236332
6/30/96 256195 237232
7/31/96 245225 226751
8/31/96 253418 231533
9/30/96 268901 244564
10/31/96 277543 251309
11/30/96 298105 270306
12/31/96 296213 264951
1/31/97 310417 281505
2/28/97 311180 283712
3/31/97 299689 272054
4/30/97 310647 288269
5/31/97 334555 305824
6/30/97 352494 319525
7/31/97 385105 344959
8/31/97 375928 325642
9/30/97 172046 153103
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Equity Portfolio ("Portfolio"), at value (Note 1A) $ 170,141,845
Receivable for Fund shares sold 51,419
Receivable from Investment Adviser (Note 3) 494
Other assets 9,875
-------------
Total assets 170,203,633
Liabilities
Distribution payable $ 22,390
Accrued accounting, custody & transfer agent fees 3,783
Accrued expenses and other liabilities 7,664
-----------
Total liabilities 33,837
-------------
Net Assets $ 170,169,796
=============
Net Assets consist of:
Paid-in capital $ 114,146,424
Accumulated net realized gain 22,011,512
Distributions in excess of net investment income (21,987)
Net unrealized appreciation 34,033,847
=============
Total Net Asssets $ 170,169,796
=============
Shares of beneficial interest outstanding 3,486,603
=============
Net Asset Value, Offering and Redemption Price Per Share
(Net assets/Shares outstanding) $ 48.81
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September 30, 1997 December 31, 1996
---------------------- ---------------------
<S> <C> <C>
Investment Income (Note 1B)
Interest income $ -- $ 77,789
Dividend income (net of withholding tax of $3,380) -- 612,003
Interest income allocated from Portfolio 228,206 117,893
Dividend income allocated from Portfolio (net of withholding
taxes of $0 and $1,452, respectively) 1,400,800 1,453,073
Expenses allocated from Portfolio (650,790) (479,297)
------------ ------------
Net investment income from Portfolio 978,216 1,781,461
Expenses
Investment Advisory fee (Note 3) -- 163,530
Registration fees 35,740 --
Accounting, custody and transfer agent fees 15,705 46,088
Legal and audit services 7,997 32,621
Miscellaneous 1,720 1,627
------------ ------------
Total expenses 61,162 243,866
Deduct:
Waiver of investment advisory fee -- (12,085)
Reimbursement of Fund operating expenses (22,014) --
------------ ------------
Total waiver of investment advisory fee and reimbursement
of Fund operating expenses (22,014) (12,085)
------------ ------------
Net expenses 39,148 231,781
------------ ------------
Net investment income 939,068 1,549,680
------------ ------------
Realized and Unrealized Gain (Loss)
Net realized gain from:
Investment security transactions -- 3,307,925
Financial futures contracts -- 164,221
Net realized gain allocated from Portfolio on:
Investment security transactions 21,401,393 12,874,303
Financial futures contracts 863,199 428,300
------------ ------------
Net realized gain 22,264,592 16,774,749
Change in unrealized appreciation (depreciation):
Investment securities -- 3,350,428
Financial futures contracts -- (58,213)
From Portfolio -- 3,404,697
------------ ------------
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investment securities 17,006,988 --
Financial futures contracts (47,733) --
------------ ------------
Change in net unrealized appreciation (depreciation) 16,959,255 6,696,912
------------ ------------
Net realized and unrealized gain on investments 39,223,847 23,471,661
------------ ------------
Net increase in net assets resulting from operations $ 40,162,915 $ 25,021,341
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended Year Ended
September 30, 1997 December 31, 1996 December 31, 1995
----------------------- -------------------- ----------------------
<S> <C> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 939,068 $ 1,549,680 $ 2,196,110
Net realized gain 22,264,592 16,774,749 21,564,705
Change in net unrealized appreciation 16,959,255 6,696,912 10,229,026
(depreciation) ------------ ------------ ------------
Net increase in net assets from operations 40,162,915 25,021,341 33,989,841
------------ ------------ ------------
Distributions to Shareholders
From net investment income (1,248,360) (1,481,454) (2,203,103)
In excess of net investment income (21,987) -- --
From net realized gain (7,692,777) (11,604,448) (8,605,084)
------------ ------------ ------------
Total distributions to shareholders (8,963,124) (13,085,902) (10,808,187)
------------ ------------ ------------
Fund share (principal) Transactions (Note 5)
Net proceeds from sale of shares 42,813,303 21,565,418 32,648,683
Net asset value of shares issued to shareholders
in payment of distributions declared 8,649,462 12,463,945 10,246,215
Cost of shares redeemed (18,347,542) (28,642,403) (64,134,926)
------------ ------------ ------------
Increase in net assets from Fund share
transactions 33,115,223 5,386,960 (21,240,028)
------------ ------------ ------------
Net increase in net assets 64,315,014 17,322,399 1,941,626
Net Assets
At beginning of period 105,854,782 88,532,383 86,590,757
------------ ------------ ------------
At end of period (including distributions in excess
of net investment income of $21,987, undistributed
net investment income of $88,950 and
distributions in excess of net
investment income of $20,274, respectively) $170,169,796 $105,854,782 $ 88,532,383
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended
September 30, 1997 Year Ended December 31,
--------------------------------------------------
(Note 1E) 1996 1995 1994 1993 1992 +
----------- --------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 38.79 $ 34.81 $ 28.66 $ 30.89 $ 26.28 $ 25.66
-------- -------- ------- -------- -------- -------
Income from operations:
Net investment income * 0.39 0.60 0.76 0.45 0.50 0.56
Net realized and unrealized gain (loss) on
investments 12.79 8.52 9.94 (1.62) 5.57 1.81
-------- -------- ------- -------- -------- -------
Total from investment operations 13.18 9.12 10.70 (1.17) 6.07 2.37
-------- -------- ------- -------- -------- -------
Less distributions declared to shareholders
From net investment income (0.43) (0.56) (0.78) (0.44) (0.47) (0.54)
From net realized gain on investments (2.73) (4.58) (3.77) (0.62) (0.99) (1.19)
From paid-in capital -- -- -- -- -- (0.02)
-------- -------- ------- -------- -------- -------
Total distributions (3.16) (5.14) (4.55) (1.06) (1.46) (1.75)
-------- -------- ------- -------- -------- -------
Net asset value, end of period $ 48.81 $ 38.79 $ 34.81 $ 28.66 $ 30.89 $ 26.28
======== ======== ======= ======== ======== =======
Total return 35.13% 26.84% 37.55% (3.78)% 20.79% 9.52%
Ratios (to average daily net assets)/
Supplemental Data:
Net assets, end of period (000's omitted) $170,170 $105,855 $88,532 $ 86,591 $ 72,916 $14,679
Expenses * (1) 0.70%++ 0.71% 0.69% 0.70% 0.80% --
Net investment income * 0.95%++ 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 -- -- -- --
* For the nine months ended September 30, 1997 and for the years ended December
31, 1996, 1993 and 1992, the investment adviser did not impose a portion of
its advisory fee and/or reimbursed a portion of the Fund's operating
expenses. If this voluntary reduction had not been taken, the net investment
income per share and the ratios would have been:
Net investment income per share $0.38 $ 0.59 -- -- $ 0.47 $ 0.34
Ratios (to average daily net assets):
Expenses (1) 0.72%++ 0.72% -- -- 0.97% 1.00%
Net investment income 0.93%++ 1.52% -- -- 1.12% 1.52%
</TABLE>
- ----------
+ Audited by other auditors.
++ Computed on an annualized basis.
(1) Includes the Fund's share of Standish Equity Portfolio's allocated
expenses for the nine months ended September 30, 1997 and for the period
from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover and average broker commission rate represents activity
while the Fund was investing 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.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
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.
The Fund invests all of its investable assets in an interest of 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, 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 September 30, 1997). 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. The method
by which the Portfolio values it's securities 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.
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.
E. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Fund from December 31 to September 30, effective September
30, 1997.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(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).
(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, Inc. ("SA&W") for such services.
For the period ended September 30, 1997, SA&W voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.70% of
the Fund's average daily net assets. This agreement is voluntary and
temporary and may be discontinued or revised by SA&W at any time.
Pursuant to this agreement, for the nine months ended September 30,
1997, SA&W voluntarily reimbursed the Fund for it's operating expenses
of $22,014 and for the year ended December 31, 1996, SA&W voluntarily
waived $12,085 of its investment advisory fee. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Trust 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 Trust 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 nine months ended September 30, 1997 aggregated $42,815,798 and
$19,153,532, respectively. For the period from May 3, 1996 to December
31, 1996, increases and decreases in the Fund's investment in the
Portfolio aggregated $113,559,410 and $25,080,761, 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:
<TABLE>
<CAPTION>
Nine Months Ended Year Ended Year Ended
September 30, 1997 December 31, 1996 December 31, 1995
------------------------ ---------------------- ----------------------
<S> <C> <C> <C>
Shares sold 979,248 561,325 932,595
Shares issued to shareholders in
payment of distributions declared 202,060 325,504
294,939
Shares redeemed (423,446) (701,269) (1,705,536)
------------------------ ---------------------- ----------------------
Net increase 757,862 185,560 (478,002)
======================== ====================== ======================
</TABLE>
At September 30, 1997, the Fund had one shareholder of record owning
approximately 10% of the Fund's outstanding voting shares.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Tax Information - Unaudited:
The Fund paid distributions of $2.10 from long term capital gains
during the nine months ended September 30, 1997. Pursuant to section
852 of the Internal Revenue Code, the Fund designates $4,695,163 as
capital gain dividends for the nine months ended September 30, 1997.
All of this amount represents a 28% rate gain distribution.
11
<PAGE>
Report of Independent Accountants h\DOT\48120.dot
To the Trustees of Standish, Ayer & Wood Investment Trust and
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 September 30, 1997, and the related statements of
operations for the nine months ended September 30, 1997 and for the
year ended December 31, 1996, the statements of changes in net assets
for the nine months ended September 30, 1997 and for each of the two
years in the period ended December 31, 1996 and the financial
highlights for the nine months ended September 30, 1997 and for each of
the four years in the period ended 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 audits. The
financial highlights for the year ended December 31, 1992, presented
herein, were audited by other auditor's, 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 audits
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
present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Equity Fund as of
September 30, 1997, and the results of its operations for the nine
months ended September 30, 1997 and for the year ended December
31,1996, changes in its net assets for the nine months ended September
30, 1997 and for each of the two years in the period ended December 31,
1996 and financial highlights for the nine months ended September 30,
1997 and for each of the four years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 11, 1997
12
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 95.0%
Basic Industry -- 3.8%
Dexter Corp. 27,800 $ 1,113,738
Lubrizol Corp. 24,300 1,020,600
Lyondell Petro Chemical 75,600 1,979,775
Southdown, Inc. 22,000 1,201,750
USX-US Steel Group, Inc. 33,100 1,150,225
---------------
6,466,088
---------------
Capital Goods -- 8.6%
Aeroquip-Vickers Inc. 30,300 1,484,700
Airborne Freight Corporation 14,600 884,213
Caterpiller Tractor, Inc. 30,800 1,661,275
Crane Company 36,400 1,496,950
Deere & Co. 38,200 2,053,250
General Dynamics 24,800 2,160,700
Ingersoll Rand Co. 42,950 1,849,534
Kaydon Corp. 4,700 282,000
Manitowoc Co., Inc. 10,200 364,013
Timken Co. 39,000 1,562,438
Yellow Corp.* 25,500 830,344
---------------
14,629,417
---------------
Consumer Stable -- 10.0%
Alberto Culver Company, Class B 25,000 760,938
Coors (Adolph) 23,800 901,425
Dole Food Company 36,800 1,662,900
Fred Meyer, Inc.* 29,200 1,554,900
Interstate Bakeries Corp. 30,000 2,056,875
Lancaster Colony Corp. 18,500 982,813
Owens Illinois* 54,800 1,859,775
Philip Morris Companies Inc. 44,800 1,862,000
Safeway, Inc.* 47,300 2,571,937
Sealed Air Corp.* 32,100 1,763,494
Universal Foods Corp. 25,900 1,042,475
---------------
17,019,532
---------------
Early Cyclical -- 4.2%
Ford Motor Co. 59,900 2,710,474
U.S. Airways Group, Inc.* 45,900 1,899,113
UAL Corp.* 18,100 1,531,713
USG Corp.* 22,700 1,088,181
---------------
7,229,481
---------------
Energy -- 9.3%
British Petroleum Co. PLC 34,864 3,166,047
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Energy (continued)
Camco International, Inc. 17,600 $ 1,227,600
Chevron Corporation 13,500 1,123,031
Ensco International, Inc. 29,600 1,167,350
Global Marine Inc.* 36,000 1,197,000
Pennzoil 20,900 1,665,469
Phillips Petroleum Co. 45,200 2,333,449
Tidewater, Inc. 28,400 1,682,700
USX-Marathon Group 61,000 2,268,438
---------------
15,831,084
---------------
Financial -- 14.9%
Ace Limited 19,400 1,823,600
BankAmerica Corp. 34,800 2,551,274
Bear Stearns Cos., Inc. 48,605 2,138,620
Chase Manhattan Corp. 13,700 1,616,600
Cigna Corp. 7,800 1,452,750
Conseco, Inc. 40,900 1,996,431
First Union Corp. 39,200 1,962,450
Golden West Financial Corp. 20,000 1,795,000
H.F. Ahmanson & Co. 39,800 2,261,138
Old Republic International Corp. 47,600 1,856,400
Reliastar Financial Corp. 42,800 1,703,975
Republic New York Corp. 19,800 2,249,775
The Money Store, Inc. 68,200 1,943,700
---------------
25,351,713
---------------
Growth Cyclical -- 8.4%
Applebees International, Inc. 28,900 722,500
Costco Companies Inc.* 30,900 1,162,613
G Tech Holdings Corp.* 35,800 1,223,913
Liz Claiborne 23,100 1,269,056
Nautica Enterprises Inc.* 50,100 1,409,063
Neiman Marcus Group Inc.* 60,200 1,926,400
Pier 1 Imports Inc. 72,150 1,294,191
Ross Stores Inc. 65,400 2,231,775
Ryan's Family Steakhouse* 77,300 710,194
Tommy Hilfiger Corp.* 46,100 2,302,118
---------------
14,251,823
---------------
Health Care -- 10.2%
Becton Dickinson & Co 34,800 1,666,050
Bergen Brunswig Corp., Class A 26,450 1,067,919
Biomet, Inc. 81,800 1,963,200
Health Care & Retirement* 33,000 1,227,188
Lincare Holdings, Inc.* 22,700 1,144,931
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Health Care (continued)
Novacare, Inc.* 73,900 $ 1,274,775
Schering-Plough Corp. 88,600 4,562,899
Sofamor Danek Group, Inc.* 19,400 1,108,225
Tenet Healthcare Corp.* 37,300 1,086,363
Watson Pharmaceutical Inc.* 38,500 2,300,375
---------------
17,401,925
---------------
Real Estate -- 1.9%
Duke Realty Investments, REIT 22,800 520,125
Felcor Suite Hotels Inc., REIT 9,700 398,306
Prentiss Properties Trust, REIT 31,600 912,450
Starwood Lodging Trust, REIT 23,900 1,372,756
---------------
3,203,637
---------------
Services -- 10.4%
Ameritech Corp. 35,400 2,354,099
Bell Atlantic Corp. 19,968 1,606,176
Bellsouth Corp. 37,300 1,725,125
Cincinnati Bell, Inc. 66,200 1,882,563
Gannett Co., Inc. 26,000 2,806,374
New York Times Co. Class A 44,400 2,330,999
Omnicom Group 27,800 2,022,450
Shared Medical 18,700 988,763
Xerox Corp. 24,500 2,062,594
---------------
17,779,143
---------------
Technology -- 12.6%
Adaptec Inc.* 29,400 1,374,450
Compaq Computer* 17,600 1,315,600
Computer Associates International, Inc. 25,900 1,859,944
Harris Corp., Inc. 36,000 1,647,000
Kulicke & Soffa Industries* 36,200 1,676,513
Pitney Bowes, Inc. 18,300 1,522,331
Raychem Corp. 8,700 735,150
Sci Sys, Inc.* 49,000 2,428,562
Storage Technology Corp.* 47,100 2,251,969
Stratus Computer, Inc.* 31,300 1,514,138
Sun Microsystems Inc.* 41,500 1,942,719
Symantec* 58,900 1,339,975
Tech Data Corp.* 38,600 1,775,600
---------------
21,383,951
---------------
Utilities -- 0.7%
FPL Group Inc. 21,600 1,107,000
---------------
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
TOTAL EQUITIES (COST $127,583,794) 161,654,794
---------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BOND -- 0.3%
U.S. Government -- 0.3%
FNMA+ 5.551% 12/16/1997 $ 100,000 $ 98,862
FNMA+ 5.512% 12/11/1997 375,000 371,014
---------------
Total U.S. Government (Cost $469,863) 469,876
---------------
TOTAL BOND (COST $469,863) 469,876
---------------
SHORT-TERM INVESTMENTS -- 4.2%
Repurchase Agreements -- 4.2%
Prudential-Bache Repurchase Agreement,
dated 9/30/97, due 10/1/97, with a
maturity value of $7,210,834 and an
effective yield of 5.47%, collateralized by
a U.S. Government Agency Obligation with a
rate of 9.00%, with a maturity date
of 4/1/10 and with an aggregate market
value of $7,353,933. 7,209,738 7,209,738
---------------
Total Repurchase Agreements (Cost $7,209,738) 7,209,738
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $7,209,738) 7,209,738
---------------
TOTAL INVESTMENTS-- 99.5% (COST $135,263,395) $ 169,334,408
Other Assets, Less Liabilities-- 0.5% 807,597
---------------
NET ASSETS-- 100% $ 170,142,005
===============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
+ Denotes all or part of security pledged as collateral to cover margin
requirements on open financial futures contracts (Note 5).
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $135,263,395) $ 169,334,408
Receivable for investments sold 665,607
Interest and dividends receivable 158,611
Other assets 7,569
Deferred organization costs (Note 1E) 53,596
-------------
Total assets 170,219,791
Liabilities
Payable for daily variation margin on open financial futures $ 61,625
contracts (Note5)
Accrued accounting and custody fees 5,487
Accrued expenses and other liabilities 10,674
------------
Total liabilities 77,786
-------------
Net Assets (applicable to investors' beneficial interests) $ 170,142,005
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
May 3, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
--------------------- --------------------
<S> <C> <C>
Investment Income (Note 1C)
Dividend income (net of withholding tax of $0 and $1,452,
respectively.) $ 1,400,800 $ 1,453,074
Interest income 228,206 117,893
------------- -------------
Total income 1,629,006 1,570,967
Expenses
Investment advisory fee (Note 2) 493,202 345,301
Accounting and custody fees 78,676 81,888
Legal and audit services 47,083 23,672
Amortization of organization cost (Note 1E) 11,007 10,067
Miscellaneous 20,822 18,369
------------- -------------
Total expenses 650,790 479,297
------------- -------------
Net investment income 978,216 1,091,670
------------- -------------
Realized and Unrealized Gain (loss)
Net realized gain
Investment security transactions 21,401,416 12,874,316
Financial futures contracts 863,199 428,300
------------- -------------
Net realized gain 22,264,615 13,302,616
Change in unrealized appreciation (depreciation)
Investment securities 17,007,005 3,338,425
Financial futures contracts (47,733) 66,274
------------- -------------
Change in net unrealized appreciation (depreciation) 16,959,272 3,404,699
------------- -------------
Net realized and unrealized gain 39,223,887 16,707,315
------------- -------------
Net increase (decrease) in net assets from operations $ 40,202,103 $ 17,798,985
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Period
May 3, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
---------------------- --------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 978,216 $ 1,091,670
Net realized gain 22,264,615 13,302,616
Change in net unrealized appreciation (depreciation) 16,959,272 3,404,699
------------ ------------
Net increase in net assets from operations 40,202,103 17,798,985
------------ ------------
Capital transactions
Assets contributed by Standish Equity Fund at commencement
(including unrealized gain of $13,669,897) -- 97,994,616
Contributions 42,815,799 15,564,794
Withdrawals (19,153,531) (25,080,761)
------------ ------------
Increase in net assets resulting from capital transactions 23,662,268 88,478,649
------------ ------------
Total increase in net assets 63,864,371 106,277,634
Net Assets
At beginning of period 106,277,634 --
------------ ------------
At end of period $170,142,005 $106,277,634
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
May 3, 1996
Nine Months Ended (commencement of
Nine Months Ended operations) to
September 30, 1997 December 31, 1996
-------------------- --------------------------
<S> <C> <C>
Ratios (to average daily net assets):
Expenses 0.66%+ 0.69%+
Net investment income 0.99%+ 1.58%+
Portfolio Turnover 75% 78%
Average broker commission per share (1) $ 0.0465 $ 0.0483
Net assets, end of period (000s omitted) $170,142 $106,278
</TABLE>
- ----------
+ Computed on an annualized basis.
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
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 (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust. As of September 30, 1997, the
Standish Equity Fund's proportionate interest in the net assets of the
Portfolio was approximately 100%.
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 Internal Revenue 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.
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
F. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Portfolio from December 31 to September 30, effective
September 30, 1997.
(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 Trust 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 Trust
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:
<TABLE>
<CAPTION>
For the Period May 3, 1996
Nine Months Ended (commencement of operations) to
September 30, 1997 December 31, 1996
----------------------------------- -----------------------------------
Purchases Sales Purchases Sales
----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
U.S. Government Securities $ 740,421 $ 0 $ 0 $ 0
================= ================ ================ =================
Investments (non-U.S. Government $ 161,249,954 $ 141,898,028 $ 75,936,681 $ 81,731,534
================= ================ ================ =================
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 1997, as computed on a
federal income tax basis, were as follows:
Aggregate Cost $ 135,287,920
===============
Gross unrealized appreciation $ 34,624,206
Gross unrealized depreciation $ (577,718)
---------------
Net unrealized appreciation (depreciation) $ 34,046,488
===============
22
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek 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 Parts A and B of the Master Portfolio registration
statement.
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 seek to hedge against
risks of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and
buying calls tend to increase the Portfolio's exposure to the
underlying instrument. Buying puts and writing calls tend to decrease
the Portfolio's exposure to the underlying instrument, or hedge other
portfolio investments. Options, both held and written by the Portfolio,
are reflected in the accompanying Statement of Assets and Liabilities
at market value. The underlying face amount at value of any open
purchased option is shown in the Schedule of Investments. This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparties do not perform under the
contracts' terms.
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.
Realized gains and losses on purchased options are included in realized
gains and losses on investment securities, except purchased options on
foreign currency which are included in realized gains and losses on
foreign currency transactions. 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 for the period
ended September 30, 1997.
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. Buying futures tend to increase the Portfolio's exposure
to the underlying instrument, while selling futures tends to decrease
the Portfolio's exposure to the underlying instrument or hedge other
portfolio 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. Losses may arise if there is an
illiquid secondary market or if the counterparties do not perform under
the contracts' terms. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. Gains and losses
are realized upon the expiration or closing of the futures contracts.
At September 30, 1997, the Portfolio had entered into the following
financial futures contracts:
<TABLE>
<CAPTION>
Underlying
Face/amount at Unrealized
Contract Position Expiration Date value Gain/(Loss)
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 (17 Contracts) Long 12/19/97 8,113,250 $ (37,145)
=============
</TABLE>
23
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
At September 30, 1997, the Portfolio had segregated sufficient cash
and/or securities to cover margin requirements on open futures
contracts.
24
<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 schedule of investments as of
September 30, 1997, and the related statements of operations, the
statements of changes in net assets and the supplementary data for the
nine months ended September 30, 1997 and 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 audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits 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 September 30, 1997 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 audits provide 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 September 30, 1997, and the results of its
operations, changes in its net assets and supplementary data for the
respective stated periods, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
November 11, 1997
25
<PAGE>
(This page intentionally left blank)
26
<PAGE>
(This page intentionally left blank)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Financial Statements for the Period Ended
September 30, 1997
[STANDISH LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
October 31, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
Enclosed you will find the annual statement for the Standish Small Cap Equity
Fund. Please note that it is a nine-month reporting period for the fiscal year
ended September 30, 1997, as the fund has changed its fiscal year end from
December to September in order to streamline our reporting process.
As of September 1997, Standish, Ayer & Wood managed assets for its clients of
approximately $36.7 billion, including the Standish mutual fund assets of $5.3
billion. The principal clients of the firm are corporate pension trusts, state
and local governmental units, insurance companies, endowments and foundations,
and high net worth individuals. the firm remains independent and is owned by
investment professionals active in the operation of the business.
During the nine months ended September 30, 1997, the financial markets have
generally registered very positive rates of return. The U.S. equity markets as
measured by the Standard & Poor's 500 Index or the Russell 2000 Growth Index
have recorded total rates of return of 29.64% and 23.02%, respectively. Foreign
equity markets, as benchmarked by the Morgan Stanley Capital International
Index, have lagged behind these strong domestic returns with a return of 10.42%.
During the year ended September 30, 1997, we at Standish have continued to add
resources to both investment research and shareholder servicing. We remain
confident that we have the resources and the organization to do a superior
investment management job, and we will be working hard to fulfill your
expectations in the years ahead. We appreciate the opportunity to serve you and
hope you will find the attached information helpful.
Sincerely yours,
/s/ Edward H. Ladd
Edward H. Ladd
Chairman
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Management Discussion & Analysis
The strong performance in small cap stocks which began with a bang in May has
continued to date. We are pleased to report that 1997 is turning out to be an
excellent year for small cap stocks after all. For the period from January 1
through September 30, the Standish Small Cap Fund gained 27.92%, compared to a
gain of 23.02% for the Russell 2000 Growth Index, and a gain of 26.61% for the
Russell 2000 Index.
Small caps had been performing poorly for the past four years, with some notable
sharp rallies as exceptions. Currently, there is some evidence that the tone of
the market is more favorable for these stocks. The key to this shift apparently
is in earnings and valuation. Small caps have been improving in terms of
earnings growth and propensity to positively surprise analysts' estimates. In
addition, their price/earnings multiples on average compare well to those of
large cap stocks. Large cap stock earnings are more in question now because of
the age of this business cycle and the challenge of repatriating foreign
earnings that must be translated into a very strong U.S. currency. Large cap
valuations appear extended, and it may be that investors are taking some
profits, and marginally gravitating to small cap stocks. It would take very
little increased attention from institutional managers to have a noticeable
impact on small cap stocks. In a marketplace which has been very generous to
shareholders, we believe that the best part of this cycle has been experienced,
but prospects for small caps are still good for the longer term.
The first nine months of 1997 has been again a volatile period for small cap
stocks. After a strong January the stocks languished badly through April, with a
very strong rally beginning in May and continuing to date. Our investments are
oriented toward rapidly growing, high quality companies at the smaller end of
the small cap spectrum, and this has presented a performance challenge for the
last two years. In recent months smallness seems to have ceased as a negative.
Also this has been a better year for value investors compared to growth, and we
are decidedly in the higher growth camp. This past trend again has moderated in
recent months. Our most important value-addition this year has been from stock
selection, while our sector emphasis a neutral influence. While we were helped
by growth sector emphasis in technology in particular, it was offset by the
strong performance in financial stocks, and more recently in the traditionally
cyclical industries; areas in which we typically have very few investments. As a
reminder, our high growth orientation leads us to heavier commitments in the
technology, medical, and business services sectors, with comparatively fewer
investments in the slower growth areas of the economy. We generally seek to
invest in the highest quality companies, and we select stocks based on earnings
and margin dynamics, business position analysis, and an evaluation of
management.
We are very pleased to announce the addition of Jonathan Stone to the Standish
Small Cap Team. Jonathan joins Drew Beja, Melissa Dane and me after several
years as an effective and distinguished analyst with a regional research and
brokerage firm where he covered technology stocks. He is an experienced,
seasoned analyst who has already had considerable impact in stock selection as
well as portfolio management. He is clearly an important addition to our
capabilities.
In closing, it is important to remind you of the volatility of small cap
investments, while we do not expect a diminution of this volatility in the
future. We remain, however, optimistic about the outlook for small cap stocks
and view the category as having important potential over the long term. We are
very appreciative of your support and thank you for your interest in the
Standish Small Capitalization Equity Fund.
Sincerely,
/s/ Nicholas S. Battelle
Nicholas S. Battelle
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Comparison of Change in Value of $100,000 Investment
in Standish Small Capitalization Fund,
in the S&P 500 Index, the Russell 2000 Index, and the Russell 2000 Growth Index
[GRAPHIC OMITTED]
[The following table was represented as a line graph in the printed materials.]
Standish Small
Capitalization Russell 2000 S&P 500 Russell 2000
Equity Fund Index Index Growth Index
----------- ----- ----- ------------
Inception 9/1/90 100000 100000 100000 100000
9/30/90 91650 91110 95170 90527
10/31/90 86544 85543 94846 85451
11/30/90 96795 92070 100850 93307
12/31/90 105117 95688 103654 97757
1/31/91 114039 104310 108173 106938
2/28/91 129023 116014 115908 119224
3/31/91 134971 124146 118712 127623
4/30/91 135963 123823 118997 126104
5/31/91 145342 129717 124126 132194
6/30/91 138841 122220 118441 123197
7/31/91 149636 126497 123961 128780
8/31/91 153870 131165 126898 134465
9/30/91 156311 132188 124779 136492
10/31/91 168745 135678 126451 142304
11/30/91 156082 129396 121355 134880
12/31/91 173092 139748 135238 147796
1/31/92 185514 151081 132723 159406
2/29/92 185081 155493 134448 161107
3/31/92 178546 150237 131827 151841
4/30/92 168374 144964 135702 143025
5/31/92 166166 146892 136367 142705
6/30/92 156860 139988 134335 133605
7/31/92 162314 144860 139830 137799
8/31/92 161275 140760 136963 132493
9/30/92 168201 143998 138579 136193
10/31/92 174910 148548 139064 141793
11/30/92 187808 159927 143793 155026
12/31/92 189929 165492 145561 159280
1/31/93 191980 171086 146784 161255
2/28/93 183826 167134 148780 152498
3/31/93 191121 172549 151919 156426
4/30/93 186114 167804 148243 151462
5/31/93 195604 175221 152216 160543
6/30/93 197702 176307 152657 160925
7/31/93 201469 178740 152047 162531
8/31/93 214725 186462 157809 170314
9/30/93 226265 191720 156594 175940
10/31/93 229842 196666 159836 181028
11/30/93 228363 190255 158317 173705
12/31/93 243531 196762 160233 180560
1/31/94 253626 202920 165681 185366
2/28/94 252532 202190 161191 184551
3/31/94 235027 191534 154163 173214
4/30/94 239751 192664 156136 173479
5/31/94 236718 190487 158697 169591
6/30/94 224748 184068 154809 162345
7/31/94 224696 187087 159886 164658
8/31/94 237944 197507 166442 176741
9/30/94 237995 196836 162364 177481
10/31/94 239530 196048 166017 179371
11/30/94 226180 188128 159974 172114
12/31/94 234638 193170 162342 176169
1/31/95 234582 190736 166546 172580
2/28/95 241318 198671 173037 180555
3/31/95 248777 202068 178141 185829
4/30/95 248443 206554 183396 188624
5/31/95 246328 210106 190727 191095
6/30/95 255086 221011 195152 204263
7/31/95 280472 233741 201623 220184
8/31/95 290271 238577 202129 222901
9/30/95 296339 242838 210659 227490
10/31/95 282699 231979 209907 216300
11/30/95 294557 241722 219122 225848
12/31/95 304637 248098 223342 230852
1/31/96 302870 247830 230944 228941
2/29/96 311418 255555 233085 239381
3/31/96 324752 260838 235330 244113
4/30/96 362020 274785 238799 262854
5/31/96 387093 285614 244957 276333
6/30/96 358091 273886 245891 258377
7/31/96 309817 249965 235027 226834
8/31/96 336505 264478 239984 243627
9/30/96 347415 274814 253490 256173
10/31/96 329291 270579 260481 245122
11/30/96 334746 281727 280171 251939
12/31/96 357533 289111 274621 256852
1/31/97 370698 294887 291779 263268
2/28/97 340993 287736 294067 247369
3/31/97 313449 274158 281984 229912
4/30/97 306428 274923 298790 227245
5/31/97 354833 305522 316986 261400
6/30/97 378865 318629 331187 270262
7/31/97 399711 333445 357550 284099
8/31/97 411750 341081 337527 292622
9/30/97 237995 196836 162364 177481
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
Assets
Investment in Standish Small Capitalization Equity Portfolio
("Portfolio"), at value (Note 1A) $274,164,195
Receivable for Fund shares sold 207,175
Receivable from Investment Adviser (Note 3) 1,037
Other assets 13,706
------------
Total assets 274,386,113
Liabilities
Payable for Fund shares redeemed $ 7,500
Accrued accounting, custody and transfer agent fees 3,489
Accrued expenses and other liabilities 6,958
--------
Total liabilities 17,947
------------
Net Assets $274,368,166
============
Net Assets consist of:
Paid-in capital $182,395,989
Accumulated net realized gain 23,572,592
Net unrealized appreciation 68,399,585
------------
Total Net Assets $274,368,166
============
Shares of beneficial interest outstanding 4,125,823
============
Net Asset Value, Offering and Redemption Price Per Share
(Net assets/Shares outstanding) $ 66.50
============
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statements of Operations
- --------------------------------------------------------------------------------
Nine Months
Ended Year Ended
September 30, December 31,
1997 1996
------------- -------------
Investment Income (Note 1B)
Interest income $ -- $ 108,348
Dividend income -- 89,921
Interest income allocated from Portfolio 172,824 305,276
Dividend income allocated from Portfolio 114,280 153,520
Expenses allocated from Portfolio (1,240,209) (1,112,861)
------------- -------------
Net investment income from Portfolio (953,105) (455,796)
Expenses
Investment Advisory fee (Note 3) -- 396,796
Accounting, custody and transfer agent fees 21,515 76,102
Registration fees 17,578 11,758
Legal and audit services 10,055 29,409
Miscellaneous 1,429 14,821
------------- -------------
Total expenses 50,577 528,886
Deduct:
Waiver of investment advisory fee -- (13,118)
Reimbursement of Fund operating expenses (6,952) --
------------- -------------
Total waiver of investment advisory fee
and reimbursement
of Fund operating expenses (6,952) (13,118)
------------- -------------
Net expenses 43,625 515,768
------------- -------------
Net investment loss (996,730) (971,564)
------------- -------------
Realized and Unrealized Gain (Loss)
Net realized gain from:
Investment securities transactions -- 15,760,827
Financial futures contracts -- 87,425
Net realized gain allocated from Portfolio on:
Investment securities transactions 23,991,237 20,794,956
Financial futures contracts 832,557 717,750
------------- -------------
Net realized gain 24,823,794 37,360,958
Change in unrealized appreciation
(depreciation):
Investment securities -- 20,543,632
Financial futures contracts -- 82,425
From Portfolio -- (23,038,475)
------------- -------------
Change in unrealized appreciation
(depreciation) allocated from Portfolio on:
Investment securities 36,145,336 --
Financial futures contracts (66,305) --
------------- -------------
Change in net unrealized appreciation
(depreciation) 36,079,031 (2,412,418)
------------- -------------
Net realized and unrealized gain on
investments 60,902,825 34,948,540
------------- -------------
Net increase in net assets resulting from
operations $59,906,095 $33,976,976
============= =============
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
Nine Months
Ended Year Ended Year Ended
September 30, December 31, December 31,
1997 1996 1995
--------------------------------------------
Increase (decrease) in Net Assets
From operations
Net investment loss $ (996,730) $ (971,564) $ (436,289)
Net realized gain 24,823,794 37,360,958 12,833,607
Change in net unrealized
appreciation (depreciation) 36,079,031 (2,412,418) 27,572,436
------------ ------------ ------------
Net increase in net assets
from operations 59,906,095 33,976,976 39,969,754
------------ ------------ ------------
Distributions to Shareholders
From net realized gain (4,207,292) (39,018,707) (4,170,634)
------------ ------------ ------------
Fund share (principal) Transactions
(Note 5)
Net proceeds from sale of shares 23,255,837 63,681,602 56,591,350
Net asset value of shares issued
to shareholders in payment of
distributions declared 3,950,929 36,043,859 3,924,054
Cost of shares redeemed (52,668,241) (31,022,858 (23,435,868)
------------ ------------ ------------
Increase (decrease) in net
assets from Fund share
transactions (25,461,475) 68,702,603 37,079,536
------------ ------------ ------------
Net increase in net assets 30,237,328 63,660,872 72,878,656
Net Assets
At beginning of period 244,130,838 180,469,966 107,591,310
------------ ------------ ------------
At end of period $274,368,166 $244,130,838 $180,469,966
============ ============ ============
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months
Ended Year Ended
September December 31,
30, 1997 ---------------------------------------
(Note 1E)(3) 1996 1995 1994 1993 1992+
------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of period $52.96 $53.46 $42.15 $48.97 $39.83 $39.99
------ ------ ------ ------ ------ ------
Income from investment
operations:
Net investment income* (0.23) -- -- -- (0.07) (0.11)
Net realized and
unrealized gain
(loss) on
investments 14.80 9.29 12.57 (1.84) 11.31 4.00
------ ------ ------ ------ ------ ------
Total from investment
operations 14.57 9.29 12.57 (1.84) 11.24 3.89
------ ------ ------ ------ ------ ------
Less distributions declared
to shareholders
From net realized gain
on investments (1.03) (9.79) (1.26) (4.98) (2.10) (4.05)
------ ------ ------ ------ ------ ------
Net asset value, end
of period $66.50 $52.96 $53.46 $42.15 $48.97 $39.83
====== ====== ====== ====== ====== ======
Total return 27.92% 17.36% 29.83% (3.66)% 8.21% 9.74%
</TABLE>
<TABLE>
Ratios (to average daily net assets)/Supplemental Data:
Net assets, end of
<S> <C> <C> <C> <C> <C> <C>
period (000 omitted) $274,368 $244,131 $180,470 $107,591 $85,141 $50,950
Expenses * (1) 0.74%++ 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment loss * (0.57)%++ (0.44)% (0.30)% (0.27)% (0.18)% (0.38)%
Portfolio turnover (2) -- 28% 112% 130% 144% 101%
Average broker
commission rate (2) -- $0.045 -- -- -- --
</TABLE>
* For the nine months ended September 30, 1997 and for the year ended to
December 31, 1996, the investment adviser did not impose a portion of its
advisory fee and/or reimbursed the Fund for a portion of its operating
expenses. 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 $(0.23) $(0.0) -- -- -- --
Ratios (to average daily
net assets):
Expenses (1) 0.74%++ 0.76% -- -- -- --
Net investment loss (0.57)%++ (0.45)% -- -- -- --
- -------------
+ Audited by other auditors.
++ Computed on an annualized basis.
(1) Includes the Fund's share of the Standish Small Capitalization Equity
Portfolio's allocated expenses for the nine months ended September 30,
1997 and for the period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover and average broker commission rate represents activity
while the Fund was investing 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.
(3) Calculated based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
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.
The Fund invests all of its investable assets in an interest in 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, 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 September 30, 1997). 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. The method by
which the Portfolio values its securities 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.
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.
E. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year end
of the Fund from December 31 to September 30, effective September 30,
1997.
(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
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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).
(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, Inc. ("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 September 30, 1997 and for
the year ended December 31, 1996, SA&W voluntarily agreed to limit the
aggregate annual operating expenses of the Fund and the Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.74% and
0.75%, respectively, of the Fund's average daily net assets. This
agreement is voluntary and temporary and may be discontinued or revised by
SA&W at any time. Pursuant to this agreement, SA&W voluntarily reimbursed
the Fund for operating expenses in the amount of $6,952 for the nine
months ended September 30, 1997 and voluntarily waived $13,118 of its
investment advisory fee for the year ended December 31, 1996. The Trust
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 Trust 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
nine months ended September 30, 1997 aggregated $23,224,550 and
$55,662,396, respectively. For the period May 3, 1996 to December 31,
1996, increases and decreases in the Fund's investment in the Portfolio
aggregated $253,391,982 and $23,335,985, 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:
Nine Months
Ended Year Ended Year Ended
September 30, December December
1997 31, 1996 31, 1995
------------- ------------- ------------
Shares sold................... 431,424 1,100,618 1,215,183
Shares issued to shareholders
in payment of
distributions declared...... 73,437 562,742 73,432
Shares redeemed............... (988,851) (531,585) (465,355)
------------- ------------- ------------
Net increase/(decrease)....... (483,990) 1,131,775 823,260
============= ============= ============
Effective December 20, 1996, the Fund was closed to new investors.
(6) Tax Information- Unaudited
The Fund paid distributions of $7.86 from long term capital gains during
the nine months ended September 30, 1997. Pursuant to section 852 of the
Internal Revenue Code the Fund designates $3,738,369 as capital gain
dividends for the nine months ended September 30, 1997. All of this amount
represents a 28% rate gain distribution.
10
<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 statements of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Small Capitalization
Equity Fund (the "Fund"), as of September 30, 1997 and the related
statements of operations for the nine months ended September 30, 1997 and
for the year ended December 31, 1996, the statements of changes in net
assets for the nine months ended September 30, 1997 and for each of the
two years in the period ended December 31, 1996 and financial highlights
for the nine months ended September 30, 1997 and for each of the four
years in the period ended 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 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 audits 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 September 30, 1997, and the results of its operations
for the nine months ended September 30, 1997 and for the year ended
December 31, 1996, changes in its net assets for the nine months ended
September 30, 1997 and for each of the two years in the period ended
December 31, 1996 and financial highlights for the nine months ended
September 30, 1997 and for each of the four years in the period ended
December 31, 1996, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 11, 1997
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 99.2%
Basic Industry -- 1.5%
Chirex, Inc.* 159,500 $ 4,067,249
------------
Capital Goods -- 8.0%
Align-Rite International, Inc.* 79,600 1,900,450
Ballantyne Of Omaha, Inc.* 122,000 2,348,500
Hagler Bailly* 40,200 1,020,075
Kellstrom Industries, Inc.* 125,700 2,592,562
Power-One, Inc.* 28,300 396,200
SBS Technologies, Inc.* 154,900 3,698,237
Service Experts, Inc.* 74,900 2,026,981
Tetra Technologies, Inc.* 98,600 2,280,125
Trailer Bridge, Inc.* 179,100 2,373,074
Triumph Group, Inc.* 98,400 3,290,249
------------
21,926,453
------------
Consumer Stable -- 6.9%
800-Jr Cigar, Inc.* 112,500 3,937,499
Aviation Sales Co.* 129,700 3,923,424
General Cigar Holdings, Inc.* 74,300 2,145,413
Hughes Supply, Inc. 102,450 3,092,708
Robert Mondavi Corp., Class A* 51,800 2,836,049
Suiza Foods Corp.* 59,800 3,079,699
------------
19,014,792
------------
Early Cyclical -- 3.8%
Aftermarket Technology, Inc.* 118,500 2,814,374
Atlantic Coast Airlines, Inc.* 122,800 2,640,199
Excelsior-Henderson Motorcycle* 192,400 1,238,575
Hospitality Worldwide Services* 125,700 1,649,813
Midwest Express Holdings* 60,600 1,942,988
------------
10,285,949
------------
Energy -- 3.6%
Cal Dive International, Inc.* 44,100 1,642,725
Friede Goldman Intl, Inc.* 50,500 3,029,999
Hvide Marine, Inc.* 111,200 3,558,399
Veritas DGC, Inc.* 37,200 1,583,325
------------
9,814,448
------------
Financial -- 2.2%
CCC Information Services Group* 63,300 1,345,125
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Financial (continued)
Rental Service Corp.* 111,400 $ 2,499,537
Texas Regional Bancshares, Class A 66,800 2,087,500
------------
5,932,162
------------
Growth Cyclical -- 16.9%
Alliance Gaming Corp.* 408,000 2,702,999
Apple South, Inc. 195,600 3,765,299
Ashworth, Inc.* 157,700 1,616,425
Atria Communities, Inc.* 138,700 2,496,599
Central Garden & Pet Co.* 121,200 3,726,899
Coach USA, Inc.* 138,200 4,154,637
Coldwater Creek, Inc.* 67,300 1,951,700
Gadzooks, Inc.* 153,900 3,231,899
Golden Bear Golf, Inc.* 92,200 1,290,800
Logan's Roadhouse Inc.* 80,000 2,080,000
North Face, Inc.* 83,700 2,249,438
Scientific Games Holdings Corp.* 111,200 2,418,599
Sonic Corp.* 73,100 2,046,800
Steiner Leisure Ltd.* 72,900 2,679,074
Suburban Lodges of America* 130,100 3,431,387
Sunrise Assisted Living, Inc.* 80,600 2,911,674
Travel Services, Inc.* 64,500 1,338,375
Vans, Inc.* 141,700 2,267,200
------------
46,359,804
------------
Health Care -- 19.8%
Arbor Health Care Company* 49,900 2,195,600
Arris Pharmaceutical Corp.* 197,400 2,566,199
Ballard Medical Products 105,900 2,554,837
CN Bioscience, Inc.* 130,000 3,054,999
Cohr, Inc.* 112,100 1,821,625
Daou Systems, Inc.* 66,100 2,065,625
Guilford Pharmaceuticals, Inc.* 99,900 2,947,049
HCIA, Inc.* 113,600 1,533,600
Horizon Health Corp.* 137,700 3,442,499
Ilex Oncology, Inc.* 133,700 1,604,400
Imnet Systems, Inc.* 80,400 2,160,750
Impath, Inc.* 105,400 3,082,949
Inhale Therapeutic Systems* 108,100 3,391,637
Medimmune, Inc.* 74,100 2,723,174
Medquist, Inc.* 135,150 3,159,130
National Surgery Centers, Inc.* 125,175 2,722,555
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Health Care (continued)
Neurogen Corp.* 116,800 $ 3,153,599
Pharmaceutical Product Development* 115,000 2,343,125
Possis Medical, Inc.* 86,100 1,226,925
Rochester Medical Corp.* 87,000 1,457,250
Specialty Care Network, Inc.* 163,700 2,025,788
Urologix, Inc.* 125,600 2,982,999
------------
54,216,314
------------
Services -- 19.1%
Abacus Direct Corp.* 60,400 1,940,350
Analysts International Corp. 64,100 2,483,874
Barrett Business Services, Inc.* 136,400 2,284,700
Best Software, Inc.* 78,800 1,152,500
BET Holdings, Inc.* 60,900 3,220,087
Data Processing Resources Corp.* 109,300 2,732,499
Emmis Broadcasting Corp., Class A* 62,900 3,003,474
F.Y.I., Inc. 107,500 2,794,999
Gray Communications Systems, Class B 108,900 2,722,499
Harbinger Corp.* 31,000 1,127,625
Inspire Insurance Solutions* 106,500 1,930,313
LCC International, Inc.* 130,500 2,854,687
Metzler Group, Inc.* 44,500 1,785,563
On Assignment, Inc.* 65,300 2,971,149
Personnel Group of America, Inc.* 69,000 2,363,249
Physician Support Systems* 124,700 2,104,313
Remedy Temp, Inc.* 107,300 2,521,549
Rural Metro Corp.* 80,000 2,439,999
Scandinavian Broadcast Systems Corp.* 146,800 3,523,199
Scholastic Corp.* 79,800 3,152,099
Wackenhut Corrections Corp.* 51,900 1,608,900
Walsh International, Inc.* 141,200 1,765,000
------------
52,482,627
------------
Technology -- 17.4%
Advanced Technology Material* 111,900 4,112,324
Benchmark Electronics, Inc.* 91,900 2,590,430
Brooks Automation, Inc.* 60,000 2,302,500
C. P. Clare Corp.* 109,300 2,158,675
CFM Technologies, Inc.* 52,200 2,045,588
Datastream Systems, Inc.* 61,700 2,307,963
Exar Corp.* 83,100 2,202,150
FSI International, Inc.* 80,400 1,678,350
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Technology (continued)
Hadco Corp.* 51,400 $ 2,783,628
Helix Technology Corp. 29,200 1,807,661
Hyperion Software Corp.* 89,600 2,794,399
Intelligroup, Inc.* 115,700 2,487,549
Lecroy Corp.* 52,100 2,305,425
Level One Communications, Inc.* 56,600 2,278,150
Periphonics Corp. 89,500 956,531
Photronics, Inc.* 28,700 1,738,144
Radiant Systems, Inc.* 114,700 2,408,699
Semtech Corp.* 41,400 2,861,774
Star Telecommunications, Inc.* 129,100 2,969,299
Ultrak, Inc.* 147,700 1,809,325
Viisage Technology, Inc.* 109,400 1,230,750
------------
47,829,314
------------
TOTAL EQUITIES (COST $203,530,742) 271,929,112
------------
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------
BOND -- 0.0%
U.S. Government -- 0.0%
FNMA+ 5.551% 12/16/1997 150,000 148,293
----------
Total U.S. Government (Cost $148,290) 148,293
----------
TOTAL BOND (COST $148,290) 148,293
----------
SHORT-TERM INVESTMENTS -- 0.2%
REPURCHASE AGREEMENTS -- 0.2%
Prudential-Bache Repurchase Agreement, dated 9/30/97,
due 10/1/97, with a maturity value of $544,264
and an effective yield of 5.47%, collateralized by a
U.S. Government Agency Obligation with a rate
of 9.00%, with a maturity date of 4/1/10 and
with an aggregate market value of $555,065. 544,181 544,181
----------
Total Repurchase Agreements (Cost $544,181) 544,181
----------
TOTAL SHORT-TERM INVESTMENTS (COST $544,181) 544,181
----------
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS-- 99.4% (COST $204,223,213) $272,621,586
Other Assets, Less Liabilities-- 0.6% 1,542,736
============
NET ASSETS-- 100% $274,164,322
============
Notes to the Schedule of Investments:
* Non-income producing security.
+ Denotes all or part of security pledged as collateral to cover margin
requirements on open financial futures contracts (Note 6).
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
Assets
Investments, at value (Note 1A)
(identified cost, $204,223,213) $272,621,586
Cash 25,000
Receivable for investments sold 7,869,381
Interest and dividends receivable 634
Other assets 4,266
Deferred organization costs (Note 1E) 53,596
------------
Total assets 280,574,463
Liabilities
Payable for investments purchased $ 6,383,367
Accrued accounting and custody fees 7,769
Payable for daily variation margin on open
financial futures contracts (Note 5) 3,055
Accrued expenses and other liabilities 15,950
------------
Total liabilities 6,410,141
------------
Net Assets (applicable to investors' beneficial interests) $274,164,322
============
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statements of Operations
- --------------------------------------------------------------------------------
For the
period
May 3, 1996
(commencement
of
Nine Months operations)
Ended to
September 30, December 31,
1997 1996
------------- ------------
Investment Income (Note 1C)
Dividend income $114,280 $153,520
Interest income 172,824 305,276
----------- -----------
Total income 287,104 458,796
Expenses
Investment advisory fee (Note 2) 1,051,872 920,742
Accounting and custody fees 96,700 125,602
Legal and audit services 53,927 32,620
Amortization of organization expense (Note 1E) 11,007 10,067
Miscellaneous 26,703 23,830
----------- -----------
Total expenses 1,240,209 1,112,861
----------- -----------
Net investment loss (953,105) (654,065)
----------- -----------
Realized and Unrealized Gain (Loss)
Net realized gain
Investment security transactions 23,991,258 20,794,956
Financial futures contracts 832,557 717,750
----------- -----------
Net realized gain 24,823,815 21,512,706
Change in unrealized appreciation (depreciation)
Investment securities 36,145,344 (22,995,625)
Financial futures contracts (66,305) (42,850)
----------- -----------
Change in net unrealized appreciation
(depreciation) 36,079,039 (23,038,475)
----------- -----------
Net realized and unrealized gain (loss) 60,902,854 (1,525,769)
----------- -----------
Net increase (decrease) in net assets from
operations $59,949,749 $(2,179,834)
=========== ===========
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
For the Period
Nine Months May 3, 1996
Ended (commencement of
September operations) to
30, 1997 December 31, 1996
------------ ---------------------
Increase (decrease) in Net Assets
From operations
Net investment loss $ (953,10) $ (654,065)
Net realized gain 24,823,815 21,512,706
Change in net unrealized appreciation
(depreciation) 36,079,039 (23,038,475)
------------ ------------
Net increase (decrease) in net assets
from operations 59,949,749 (2,179,834)
------------ ------------
Capital transactions
Assets contributed by Standish Small
Capitalization Equity Fund at
commencement (including unrealized
appreciation of $55,359,029) -- 233,108,124
Contributions 23,224,550 39,060,115
Withdrawals (55,662,397) (23,335,985)
------------ ------------
Increase (decrease) in net assets
resulting from capital transactions (32,437,847) 248,832,254
------------ ------------
Total increase in net assets 27,511,902 246,652,420
Net Assets:
At beginning of period 246,652,420 --
------------ ------------
At end of period $274,164,322 $246,652,420
============ ============
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Supplementary Data
- --------------------------------------------------------------------------------
For the period
Nine Months May 3, 1996
Ended (commencement of
September operations) to
30, 1997 December 31, 1996
------------- --------------------
Ratios (to average daily net assets):
Expenses 0.71%+ 0.73%+
Net investment loss (0.54)%+ (0.43)%+
Portfolio Turnover 70% 76%
Average broker commission per share (1) $0.0403 $0.0434
Net assets, end of period (000's omitted) $274,164 $246,652
- -------------------------
+ Computed on an annualized basis.
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
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. As of September 30,
1997, the Standish Small Capitalization Equity Fund's proportionate
interest in the net assets of the Portfolio was approximately 100%.
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
Internal Revenue 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.
21
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
F. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year end
of the Portfolio from December 31 to September 30, effective September 30,
1997.
(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 has 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. This agreement is voluntary and temporary and may be discontinued
or revised by SA&W at any time. The Portfolio Trust 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 Trust
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, were as follows:
<TABLE>
<CAPTION>
For the Period May 3, 1996
(commencement of operations) to
Nine months Ended September 30, 1997 December 31, 1996
--------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C>
Purchases Sales Purchases Sales
------------------ ================== ================== ------------------
U.S. Government Securities............ $ 434,158 $ 0 $ 0 $ 0
================== ================== ================== ==================
Investments (non-U.S.
Government Securities)................ $ 163,412,852 $ 194,172,021 $ 193,914,188 $ 171,786,086
================== ================== ================== ==================
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 1997, as computed on a
federal income tax basis, were as follows:
Aggregate Cost....................................... $204,410,309
============
Gross unrealized appreciation........................ $ 73,738,370
Gross unrealized depreciation........................ $ (5,527,093)
------------
Net unrealized appreciation (depreciation)........... $ 68,211,277
============
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek 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 Parts A and B of the Master Portfolio registration statement.
The Portfolio trades the following financial instruments with off-balance
sheet risk:
22
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. Writing puts and buying calls tend
to increase the Portfolio's exposure to the underlying instrument. Buying
puts and writing calls tend to decrease the exposure to the underlying
instrument, or hedge other portfolio investments. Options, both held and
written by the Portfolio, are reflected in the accompanying Statement of
Assets and Liabilities at market value. The underlying face amount at
value of any open purchased option is shown in the schedule of
investments. This amount reflects each contracts' exposure to the
underlying instrument at period end. Losses may arise from changes in the
value of the underlying instruments, if there is an illiquid secondary
market for the contracts, or if the counterparties do not perform under
the contracts' terms.
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. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. 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 ended September 30, 1997.
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. Buying futures tends to
increase the Portfolio's exposure to the underlying instrument, while
selling futures tends to decrease the fund's exposure to the underlying
instrument or hedge other portfolio 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. Losses may arise if
there is an illiquid secondary market or if the counterparties do not
perform under the contracts' terms. The Portfolio enters into financial
futures transactions primarily to manage its exposure to certain markets
and to changes in securities prices and foreign currencies. Gains and
losses are realized upon the expiration or closing of the futures
contracts. The Portfolio had the following open financial futures
contracts at September 30, 1997.
Underlying
Face
Expiration Amount at Unrealized
Contract Position Date value Appreciation
-------------------------------------------------------------------------
Midcap 400 Futures
Dec 97 Long 12/19/97 $2,171,650 $1,220
At September 30, 1997, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
23
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and the 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 schedule of investments as
of September 30, 1997 and the related statements of operations, the statements
of changes in net assets and the supplementary data for the nine months ended
September 30, 1997 and 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 audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits 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 September 30, 1997 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 audits provide 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 September 30, 1997, and the results of its
operations, changes in its net assets and supplementary data for the respective
stated periods, in conformity with United States generally accepted accounting
principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
November 11, 1997
24
<PAGE>
(This page intentionally left blank)
25
Exhibit 11
INDEPENDENT AUDITORS' CONSENT
We consent in this Post-Effective Amendment No. 87 to Registration Statement No.
33-8214 of Standish Equity Fund, Standish International Equity Fund, and
Standish Small Capitalization Equity Fund Series of Standish, Ayer & Wood
Investment Trust to the reference to us under the heading "Experts and Financial
Statements" appearing in the Statement of Additional Information, which is a
part of such Registration Statement.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
Boston, Massachusetts
January 26, 1998
<PAGE>
Consent of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust:
We consent to the inclusion in Post-Effective Amendment No. 87 to the
Registration Statement on Form N-1A (1933 Act File Number 33-8214) of Standish,
Ayer & Wood Investment Trust: Standish International Equity Fund, Standish
Equity Fund, Standish Small Capitalization Equity Fund and Standish Small
Capitalization Equity Fund II, our report dated November 11, 1997, on our audits
of the financial statements and financial highlights of the Standish
International Equity Fund, Standish Equity Fund, Standish Small Capitalization
Equity Fund and Standish Small Capitalization Equity Fund II, which reports are
included in the Annual Report to Shareholders for the periods stated therein,
which is also included in this Registration Statement.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
January 26, 1998
<PAGE>
[Coopers and Lybrand Letterhead]
January 28, 1998
Consent of Independent Accountants
We consent to the inclusion in Post-Effective Amendment No. 87 to the
Registration Statement of Standish, Ayer & Wood Investment Trust (1933 Act File
No. 33-8214) on behalf of Standish Small Capitalization Equity Fund, Standish
Small Capitalization Equity Fund II, Standish Equity Fund, of our reports
relating to Standish Small Capitalization Equity Portfolio, Standish Small
Capitalization Equity Portfolio II, Standish Equity Portfolio, Standish Fixed
Income Portfolio, Standish Global Fixed Income Portfolio dated November 11,
1997, in the Statements of Additional Information, which are part of such
Registration Statements.
We also consent to the reference to our Firm under the caption "Independent
Accountants" in the Prospectuses and under the caption "Experts and Financial
Statements" in the Statements of Additional Information which are part of the
Registration Statements.
Chartered Accountants
Toronto, Ontario
<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 September 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Standish Small Capitalization Equity Fund
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 205,764,610
<INVESTMENTS-AT-VALUE> 274,164,195
<RECEIVABLES> 208,212
<ASSETS-OTHER> 13,706
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 274,386,113
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 17,947
<TOTAL-LIABILITIES> 17,947
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 182,395,989
<SHARES-COMMON-STOCK> 4,125,823
<SHARES-COMMON-PRIOR> 3,375,809
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 23,572,592
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 68,399,585
<NET-ASSETS> 274,368,166
<DIVIDEND-INCOME> 114,280
<INTEREST-INCOME> 172,824
<OTHER-INCOME> (1,240,209)
<EXPENSES-NET> 43,625
<NET-INVESTMENT-INCOME> (996,730)
<REALIZED-GAINS-CURRENT> 24,823,794
<APPREC-INCREASE-CURRENT> 36,079,031
<NET-CHANGE-FROM-OPS> 59,906,095
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 4,207,292
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 431,424
<NUMBER-OF-SHARES-REDEEMED> 988,851
<SHARES-REINVESTED> 73,437
<NET-CHANGE-IN-ASSETS> 30,237,328
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 3,952,719
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 1,290,786
<AVERAGE-NET-ASSETS> 233,977,354
<PER-SHARE-NAV-BEGIN> 52.96
<PER-SHARE-NII> (0.23)
<PER-SHARE-GAIN-APPREC> 14.80
<PER-SHARE-DIVIDEND> (1.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 66.50
<EXPENSE-RATIO> 0.74
<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 September 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Standish International Equity Fund
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 48,159,981
<INVESTMENTS-AT-VALUE> 48,697,402
<RECEIVABLES> 2,725,580
<ASSETS-OTHER> 325,233
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 51,748,215
<PAYABLE-FOR-SECURITIES> 1,816,611
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 434,267
<TOTAL-LIABILITIES> 2,250,878
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 44,624,008
<SHARES-COMMON-STOCK> 2,100,374
<SHARES-COMMON-PRIOR> 2,053,669
<ACCUMULATED-NII-CURRENT> 203,249
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 4,140,985
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 529,095
<NET-ASSETS> 49,497,337
<DIVIDEND-INCOME> 934,913
<INTEREST-INCOME> 49,228
<OTHER-INCOME> 0
<EXPENSES-NET> 316,034
<NET-INVESTMENT-INCOME> 668,107
<REALIZED-GAINS-CURRENT> 4,288,094
<APPREC-INCREASE-CURRENT> (806,597)
<NET-CHANGE-FROM-OPS> 4,149,604
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 601,863
<DISTRIBUTIONS-OF-GAINS> 2,427,615
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 258,881
<NUMBER-OF-SHARES-REDEEMED> 322,069
<SHARES-REINVESTED> 109,893
<NET-CHANGE-IN-ASSETS> 1,758,822
<ACCUMULATED-NII-PRIOR> 8,961
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 300,055
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 531,401
<AVERAGE-NET-ASSETS> 50,160,963
<PER-SHARE-NAV-BEGIN> 23.25
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 1.44
<PER-SHARE-DIVIDEND> (0.30)
<PER-SHARE-DISTRIBUTIONS> (1.21)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 23.57
<EXPENSE-RATIO> 0.84
<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 September 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Standish Equity Fund
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 136,107,998
<INVESTMENTS-AT-VALUE> 170,141,845
<RECEIVABLES> 51,913
<ASSETS-OTHER> 9,875
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 170,203,633
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 33,837
<TOTAL-LIABILITIES> 33,837
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,146,424
<SHARES-COMMON-STOCK> 3,486,603
<SHARES-COMMON-PRIOR> 2,728,741
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (21,987)
<ACCUMULATED-NET-GAINS> 22,011,512
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 34,033,847
<NET-ASSETS> 170,169,796
<DIVIDEND-INCOME> 1,400,800
<INTEREST-INCOME> 228,206
<OTHER-INCOME> (650,790)
<EXPENSES-NET> 39,148
<NET-INVESTMENT-INCOME> 939,068
<REALIZED-GAINS-CURRENT> 22,264,592
<APPREC-INCREASE-CURRENT> 16,959,255
<NET-CHANGE-FROM-OPS> 40,162,915
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,270,347
<DISTRIBUTIONS-OF-GAINS> 7,692,777
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 979,248
<NUMBER-OF-SHARES-REDEEMED> 423,446
<SHARES-REINVESTED> 202,060
<NET-CHANGE-IN-ASSETS> 64,315,014
<ACCUMULATED-NII-PRIOR> 88,950
<ACCUMULATED-GAINS-PRIOR> 7,655,446
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61,162
<AVERAGE-NET-ASSETS> 131,878,923
<PER-SHARE-NAV-BEGIN> 38.79
<PER-SHARE-NII> 0.39
<PER-SHARE-GAIN-APPREC> 12.79
<PER-SHARE-DIVIDEND> (0.43)
<PER-SHARE-DISTRIBUTIONS> (2.73)
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 48.81
<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 June 30, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 16
<NAME> Standish Small Capitalization Equity Fund II Series
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> SEP-30-1997
<INVESTMENTS-AT-COST> 5,128,824
<INVESTMENTS-AT-VALUE> 6,296,360
<RECEIVABLES> 38,400
<ASSETS-OTHER> 700
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 6,335,460
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,902
<TOTAL-LIABILITIES> 21,902
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 5,010,315
<SHARES-COMMON-STOCK> 216,818
<SHARES-COMMON-PRIOR> 23,750
<ACCUMULATED-NII-CURRENT> 6,541
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 129,163
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 1,167,539
<NET-ASSETS> 6,313,558
<DIVIDEND-INCOME> 1,471
<INTEREST-INCOME> 7,017
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 8,488
<REALIZED-GAINS-CURRENT> 129,163
<APPREC-INCREASE-CURRENT> 1,158,569
<NET-CHANGE-FROM-OPS> 1,296,220
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,145
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 222,940
<NUMBER-OF-SHARES-REDEEMED> 29,941
<SHARES-REINVESTED> 69
<NET-CHANGE-IN-ASSETS> 5,829,390
<ACCUMULATED-NII-PRIOR> 198
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 61,639
<AVERAGE-NET-ASSETS> 2,312,057
<PER-SHARE-NAV-BEGIN> 20.39
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 8.71
<PER-SHARE-DIVIDEND> (0.01)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 29.12
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
