As filed with the Securities and Exchange Commission on November 12, 1999
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. 94 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 98 |X|
(Check appropriate box or boxes.)
---------------
Standish, Ayer & Wood Investment Trust
--------------------------------------------------
(Exact Name of Registrant as Specified in Charter)
One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
---------------------------
(Name and Address of Agent for Service)
It is proposed that this filing will become effective:
|_| Immediately upon filing pursuant to Rule 485(b)
|_| On [Date] pursuant to Rule 485(b)
|_| 60 days after filing pursuant to Rule 485(a)(1)
|_| On [Date] pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to Rule 485(a)(2)
|X| On January 28, 2000 pursuant to Rule 485(a)(2)
----------------------
This Post-Effective Amendment has been executed by Standish, Ayer & Wood
Master Portfolio.
<PAGE>
[LOGO] STANDISH FUNDS (R)
Standish Group of
Prospectus Equity Funds
- -----------------------------------------------------------------
January 28, 2000 Standish Equity Fund
Standish Small
Capitalization Equity Fund
Standish Small Cap Growth Fund
(Institutional Class Shares)
Standish Small Cap Value Fund
Standish International
Equity Fund
Standish International
Small Cap Fund
The Securities and Exchange Commission has not approved or disapproved these
securities or determined whether this prospectus is accurate or complete. Any
statement to the contrary is a crime.
<PAGE>
Contents
- --------------------------------------------------------------------------------
Risk/Return Summary ........................................ 3
Who may want to invest ................................... 3
Mutual fund risks ........................................ 3
Equity and small cap equity funds ........................ 4
Small cap value and small cap growth funds ............... 6
International equity and international small cap funds ... 6
The Funds' Investments and Related Risks ................... 10
The Investment Advisers .................................... 12
About Standish(R) and SIMCO(R) ........................... 12
Fund managers ............................................ 13
Advisory services and fees ............................... 13
[GRAPHIC
OMITTED] Investment and Account Information ......................... 14
How to purchase shares ................................... 15
How to exchange shares ................................... 15
How to redeem shares ..................................... 15
Transaction and account policies ......................... 16
Valuation of shares ...................................... 16
Dividends and distributions .............................. 16
Year 2000 issue .......................................... 16
Fund Details ............................................... 17
Taxes .................................................... 17
Master/feeder structure .................................. 17
The funds' service providers ............................. 17
Financial Highlights ....................................... 18
For More Information ....................................... 24
Standish Group of Equity Funds 2
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
Each of the Standish equity funds seeks long-term growth of capital. Standish,
Ayer & Wood, Inc. manages Standish Equity Fund, Standish Small Capitalization
Equity Fund, Standish Small Cap Value Fund and Standish Small Cap Growth Fund.
Standish International Management Company, LLC (SIMCO), an affiliate of
Standish, manages Standish International Equity Fund and Standish International
Small Cap Fund.
Standish was founded in 1933 and currently manages more than $45 billion of
assets for a broad range of clients in the U.S. and abroad.
- --------------------------------------------------------------------------------
Who may want to invest
The Standish equity funds may be appropriate for investors:
o Looking to invest over the long term and willing to ride out market
swings.
o Who do not need stable income and are willing to tolerate more risk than
fixed income investments.
o Comfortable with the risks of the stock market and, in the case of
International Equity Fund and International Small Cap Fund, the risks of
investing primarily in foreign stock and currency markets.
Descriptions of the funds begin on the next page and include more information
about each fund's key investments and strategies, principal risk factors, past
performance and expenses.
- --------------------------------------------------------------------------------
Mutual fund risks
An investment in a fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
3 Standish Group of Equity Funds
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
----------------------------------------------------
Equity Fund Small Capitalization
Equity Fund
----------------------------------------------------
Investment objective Long-term growth of Long-term growth of
capital. capital.
Key investments The fund invests The fund is closed to
and strategies primarily in equity new investors. The fund
securities of companies invests primarily in
that appear to be equity securities of
undervalued relative to small cap U.S.
current earnings companies with total
growth. The fund may market capitalizations
invest without limit in no greater than 75% of
securities of U.S. the maximum
companies and of capitalization of the
foreign companies that companies included in
are listed or traded in the Russell 2000 Growth
the U.S. but not more Index.
than 10% of assets in
other foreign
securities.
----------------------------------------------------
How stocks are selected The adviser employs a The adviser employs a
value based investment growth oriented
style in managing the investment style in
fund's portfolio which managing the fund's
means the adviser seeks portfolio which means
to identify those the adviser seeks to
companies with stocks identify those small
trading at prices below cap companies which are
what the adviser experiencing or will
believes are their experience rapid
intrinsic values. The earnings growth. The
adviser measures value adviser focuses on high
by looking at the quality companies,
stock's price/earnings especially those with
ratio relative to its products or services
position in the market. that are leaders in
The adviser uses the their market niches.
following stock The adviser selects
selection process: stocks for the fund's
portfolio by:
o The adviser uses a
quantitative o Using fundamental
proprietary model to research to identify
rank a universe of and follow companies
up to 1500 companies with attractive
with the most liquid characteristics,
stocks according to such as strong
these business and
characteristics: competitive
price/earnings positions, solid
ratio; consistency cash flows and
of earnings growth; balance sheets, high
near term reported quality management
earnings momentum; and high sustainable
and actual earnings growth.
relative to, and the
current trend in, o Investing in a
earnings company when the
expectations. adviser's research
indicates that the
o The adviser uses company will
fundamental research experience
and qualitative accelerating
analysis to select revenues and
among the stocks expanding operating
ranked as attractive margins, which may
by the model. The lead to rising
adviser looks for estimate trends and
companies with favorable earnings
strong competitive surprises.
positions, high
quality management
and financial
strength.
The adviser focuses on individual stock selection
instead of trying to predict which industries or
sectors will perform best. The adviser's stock
selection process for the Equity Fund is designed to
produce a diversified portfolio that, relative to
the S&P 500 Index, has a below-average
price/earnings ratio and an above-average earnings
growth trend. The adviser's stock selection process
for the Small Capitalization Equity Fund is designed
to produce a portfolio with sector and industry
exposures similar to that of the Russell 2000 Growth
Index.
----------------------------------------------------
Principal risks of Investors could lose money on their investments in a
investing in the funds fund, or a fund could perform less well than other
possible investments, if any of the following
occurs:
o U.S. stock markets go down.
o The markets strongly favor growth stocks over
stocks with value characteristics, in the case of
the Equity Fund, or favor stocks with value
characteristics over growth stocks, in the case
of the Small Capitalization Equity Fund.
o An adverse event, such as an unfavorable earnings
report, depresses the value of a particular
company's stock.
o The adviser's judgment about the attractiveness,
value or potential appreciation of a particular
stock proves to be incorrect.
o In the case of the Small Capitalization Equity
Fund, small cap stocks are out of favor with the
market.
o In the case of the Small Capitalization Equity
Fund, negative market sentiment towards, or
events effecting issuers in, technology, health
care, business services and communications
sectors disproportionately hurts the fund's
performance.
----------------------------------------------------
Risks of small In the case of the Small Capitalization Equity Fund,
cap companies there is a risk that the fund will lose money
because it invests primarily in small cap stocks.
Smaller companies may have limited product lines,
markets and financial resources. They may have
shorter operating histories and more volatile
businesses. The prices of small cap stocks tend to
be more volatile than the prices of other stocks. In
addition, it may be harder to sell these stocks,
which can reduce their selling prices.
Standish Group of Equity Funds 4
<PAGE>
- --------------------------------------------------------------------------------
Total return The bar charts and total return table indicate the
performance risks of investing in the funds. The bar charts show
changes in the performance of each fund from year to
year for the full calendar periods indicated. The
total return table shows how each fund's average
annual returns for different calendar periods
compare to those of two widely recognized, unmanaged
indices of common stock prices. Each fund's past
performance does not necessarily indicate how the
fund will perform in the future.
Quarterly returns:
Equity Fund
Highest: xx.xx% in x quarter 19xx
Lowest: x.xx% in x quarter 19xx
Quarterly returns:
Small Capitalization Equity Fund
Highest: xx% in xth quarter xxxx
Lowest: -xx% in x quarter xxxx
Equity Fund
[The following table was represented as a bar chart in the printed material.]
Calendar Year Ended December 31 Percent
1991 33.35
1992 9.52
1993 20.81
1994 -3.78
1995 37.55
1996 26.84
1997 36.27
1998 7.21
1999
Small Cap Equity Fund
[The following table was represented as a bar chart in the printed material.]
Calendar Year Ended December 31 Percent
1991 64.67
1992 9.73
1993 28.22
1994 -3.65
1995 29.83
1996 17.36
1997 15.16
1998 1.71
1999
- --------------------------------------------------------------------------------
Average annual total returns
for selected periods ended December 31, 1999
Life of Inception
1 Year 5 Years Fund Date
- --------------------------------------------------------------------------------
Equity Fund x.xx x.xx x.xx 1/2/91
S&P 500 Index x.xx x.xx x.xx N/A
Small Cap Equity Fund(1) x.xx x.xx x.xx 9/1/90
Russell 2000 Growth Index xx.xx xx.xx xx.xx N/A
Expense example
This example is intended to help you compare the cost of investing in each fund
with the cost of investing in other mutual funds. The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o You redeem at the end of each period;
o Your investment has a 5% return each year; and
o The fund's operating expenses have not been capped and remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
After After After After
1 year 3 years 5 years 10 years
Equity Fund(2) $ 67 $211 $368 $822
Small Cap Equity Fund $ 82 $255 $444 $990
Fees and expenses of the funds
This table describes the fees and expenses you may pay if you buy and hold
shares of the funds.
Based on fiscal year Small Cap
ended 9/30/99 Equity Fund Equity Fund
Shareholder fees (fees paid
directly from your investment) None None
Annual fund operating expenses(1,2)
(expenses that are deducted
from fund assets)
Management fees 0.50% 0.60%
Distribution (12b-1) fees None None
Other expenses 0.16% 0.20%
Total annual fund operating
expenses 0.66% 0.80%
- --------------------------------------------------------------------------------
(1) Because Standish has agreed to cap the Small Cap Equity Fund's operating
expenses, the fund's actual expenses were:
Management fees 0.59%
Other expenses 0.18%
Total annual fund
operating expenses 0.74%
This cap may be changed or eliminated.
(2) The table and example reflect the combined expenses of Equity Fund and the
master fund in which it invests all its assets.
5 Standish Group of Equity Funds
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
----------------------------------------------------
Small Cap Growth Fund Small Cap Value Fund
(formerly Small Cap
Equity Fund II)
----------------------------------------------------
Investment objective Long-term growth of Long-term growth of
capital. capital.
----------------------------------------------------
Key investments The fund invests The fund invests
and strategies primarily in equity primarily in equity
securities of small cap securities of small cap
U.S. companies. The U.S. companies. The
fund focuses on fund focuses on
companies within the companies with total
range of total market market capitalizations
capitalizations of the within the range of
companies included in capitalizations of the
the Russell 2000 Growth companies included in
Index. the Russell 2000 Index.
----------------------------------------------------
How stocks The adviser employs a The adviser employs a
are selected growth oriented value based investment
investment style in style in managing the
managing the fund's fund's portfolio which
portfolio which means means the adviser seeks
the adviser seeks to to identify those small
identify those small cap companies with
cap companies which are stocks trading at
experiencing or will prices below what the
experience rapid adviser believes are
earnings or revenue their appropriate
growth. The adviser values. The adviser
selects stocks by: uses the following
stock selection
o Using fundamental process:
research to identify
and follow companies o The adviser uses a
with attractive quantitative
characteristics, proprietary model to
such as strong identify small
business and companies which are
competitive attractively priced
positions, solid relative to their
cash flows and earnings potential.
balance sheets, high
quality management o The adviser uses
and high sustainable fundamental research
growth. and quantitative
analysis to select
o Investing in a among the stocks
company when the ranked as attractive
adviser's research by the quantitative
indicates that the model.
company will
experience
accelerating
revenues and
expanding operating
margins, which may
lead to rising
estimate trends and
favorable earnings
surprises.
The adviser focuses on individual stock selection
instead of trying to predict which industries or
sectors will perform best. Each fund's investment
strategy may lead it to emphasize certain sectors,
such as technology, health care, business services
and communications.
----------------------------------------------------
Principal risks of Investors could lose money on their investments in a
investing in the funds fund, or a fund could perform less well than other
possible investments, if any of the following
occurs:
o The U.S. stock market goes down.
o Small cap stocks are out of favor with the
market.
o The markets strongly favor growth stocks over
stocks with value characteristics, in the case of
the Small Cap Value Fund, or favor stocks with
value characteristics over growth stocks, in the
case of the Small Cap Growth Fund.
o Negative market sentiment towards, or events
affecting issuers in, the technology, health
care, business services and communications
sectors disproportionately hurts the fund's
performance.
o An adverse event, such as an unfavorable earnings
report, depresses the value of a particular
company's stock.
o The adviser's judgment about the attractiveness,
value or potential appreciation of a particular
company's stock proves to be incorrect.
----------------------------------------------------
Risks of small There is a risk that the funds will lose money
cap companies because they invest primarily in small cap stocks.
Smaller companies may have limited product lines,
markets and financial resources. They may have
shorter operating histories and more volatile
businesses. The prices of small cap stocks, and in
particular aggressive growth stocks, tend to be more
volatile than the prices of other stocks. In
addition, it may be harder to sell these stocks,
which can reduce their selling prices.
Standish Group of Equity Funds 6
<PAGE>
- --------------------------------------------------------------------------------
Total return The bar charts and total return table indicate the
performance risks of investing in the funds. The bar chart shows
changes in the performance of the Small Cap Growth
Fund from year to year for the full calendar periods
indicated. The total return table shows how the
Small Cap Growth Fund's average annual returns for
different calendar periods compare to those of a
widely recognized, unmanaged index of common stock
prices. The Small Cap Growth Fund's past performance
does not necessarily indicate how the fund will
perform in the future. Because the Small Cap Value
Fund is a new fund, it does not yet have a
performance history which can be shown in a bar
chart or total return table like the Small Cap
Growth Fund.
Quarterly returns:
Small Cap Growth Fund
Highest: xx.xx% in x quarter 19xx
Lowest: xx.xx% in x quarter 19xx
Small Cap Growth Fund
[The following table was represented as a bar chart in the printed material.]
Calendar Year Ended December 31 Percent
1997 30.86
1998 14.30
1999
- --------------------------------------------------------------------------------
Average annual total returns
for selected periods ended December 31, 1999
1 Year 5 Years Life of Fund Inception Date
- --------------------------------------------------------------------------------
Small Cap Growth Fund x.xx x.xx x.xx 12/23/96
Russell 2000 Growth Index x.xx x.xx x.xx N/A
Expense example
This example is intended to help you compare the cost of investing in each fund
with the cost of investing in other mutual funds. The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o You redeem at the end of each period;
o Your investment has a 5% return each year; and
o The fund's operating expenses have not been capped and remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
After After After After
1 year 3 years 5 years 10 years
Small Cap
Growth Fund(3) $141 $437 $755 $1657
Small Cap
Value Fund $577 $1717 N/A N/A
Fees and expenses of the funds
This table describes the fees and expenses you may pay if you buy and hold
shares of the funds.
Small Small
Based on fiscal year Cap Growth Cap Value
ended 9/30/99 Fund Fund
Shareholder fees (fees paid
directly from your investment) None None
Annual fund operating expenses(1,2,3)
(expenses that are deducted
from fund assets)
Management fees 0.80% 0.80%
Distribution (12b-1) fees None None
Other expenses 0.58% 4.99%
Total annual fund operating expenses 1.38% 5.79%
- --------------------------------------------------------------------------------
(1) The fees and expenses for the Small Cap Value Fund are based on estimated
expenses for the current fiscal year. The fees and expenses for the Small Cap
Growth Fund have been restated to reflect the fund's current management fees.
(2) Because Standish has agreed to cap each fund's operating expenses, the Small
Cap Growth Fund's actual expenses (revised to refelct current management fees)
were and the Small Cap Value Funds' expenses are estimated to be:
Management fees 0.60% 0.00%
Other expenses 0.40% 1.00%
Total annual fund operating expenses 1.00% 1.00%
This cap may be changed or eliminated.
(3) The table and example reflect the combined expenses of the Small Cap Growth
Fund and the master fund in which it invests all its assets.
7 Standish Group of Equity Funds
<PAGE>
Risk/Return Summary
- --------------------------------------------------------------------------------
----------------------------------------------------
International International
Equity Fund Small Cap Fund
----------------------------------------------------
Investment objective Long-term growth of Long-term growth of
capital. capital.
Key investments The fund invests The fund invests
and strategies primarily in equity primarily in equity
securities of companies securities of companies
located in the foreign that are located in
countries represented foreign countries
in the MSCI EAFE Index represented in the
and Canada. The fund Salomon Smith Barney
may invest up to 25% of Extended Market Index
assets in emerging (EMI). The fund invests
market countries. primarily in those
companies which have
total market
capitalizations that
fall in the range of
the capitalizations of
the companies that
comprise the EMI.
The EMI is made up of
those companies
representing the bottom
20% of each country's
total available market
capitalization.
----------------------------------------------------
How stocks are Each fund invests in stocks that appear to be
selected undervalued (as measured by their price/earnings
ratios) and that may have value and/or growth
characteristics. The adviser uses the following
stock selection processes.
o Country allocations o Stock selection The
The adviser uses adviser uses
proprietary proprietary
quantitative value quantitative models
and earnings growth and traditional
models, as well as qualitative analysis
traditional to identify
qualitative attractive stocks
analysis, to with low relative
identify countries price multiples and
with low relative positive trends in
price multiples and earnings forecasts.
positive relative
trends in earnings o Country allocations
forecasts. The adviser seeks to
allocate country
o Sector and industry weights in
allocations The accordance with the
adviser groups EMI. Minor
stocks into deviations from the
microuniverses of EMI weights may
similar companies occur.
within each country
to facilitate o Sector and industry
comparisons. The allocations The
adviser's sector adviser groups
allocations may stocks into
differ from those of microuniverses of
EAFE. similar companies
within each country
o Stock selection The to facilitate
adviser uses comparisons. The
proprietary adviser uses the
quantitative models sector allocations
and traditional of the EMIIndex as a
qualitative analysis guide, but
to identify allocations may
attractive stocks differ from those of
with low relative the Index.
price multiples and
positive trends in
earnings forecasts.
Each fund's stock selection process is designed to
produce a diversified portfolio that, relative to
the applicable market index shown on the opposite
page, has a below-average price/earnings ratio and
an above-average earnings growth trend.
----------------------------------------------------
Principal risks of Investors could lose money on their investments in a
investing in the funds fund, or a fund could perform less well than other
possible investments, if any of the following
occurs:
o Foreign stock markets go down.
o The markets strongly favor growth or value stocks
over stocks that combine both characteristics.
o An adverse event, such as an unfavorable earnings
report, depresses the value of a particular
company's stock.
o The adviser's judgment about the attractiveness,
value or potential appreciation of a particular
stock proves to be incorrect.
o In the case of the International Small Cap Fund,
small cap stocks are out of favor with the
market.
----------------------------------------------------
Foreign investment Prices of foreign securities may go down because of
risks unfavorable foreign government actions, political,
economic or market instability or the absence of
accurate information about foreign companies. Also,
a decline in the value of foreign currencies
relative to the U.S. dollar will reduce the value of
securities denominated in those currencies. Foreign
securities are sometimes less liquid and harder to
value than securities of U.S. issuers. These risks
are more severe for securities of issuers in
emerging market countries.
Risks of small The risks of foreign investing are more significant
cap companies for the International Small Cap Fund because of its
focus on small cap foreign stocks. Smaller companies
may have limited product lines, markets and
financial resources. They may have shorter operating
histories and more volatile businesses. The prices
of small cap foreign stocks tend to be more volatile
than the prices of other foreign stocks. In
addition, it may be harder to sell these stocks,
which can reduce their selling prices.
Standish Group of Equity Funds 8
<PAGE>
- --------------------------------------------------------------------------------
Total return The bar charts and total return table indicate the
performance risks of investing in the funds. The bar charts show
changes in the performance of each fund from year to
year for the full calendar periods indicated. The
total return table shows how each fund's average
annual returns for different calendar periods
compare to those of two widely recognized, unmanaged
indices of common stock prices. The information
included in the bar chart and total return table for
the International Small Cap Fund includes the
performance of its predecessor, SIMCO International
Small Cap Fund, L.P., for periods prior to the
fund's inception date. The predecessor fund was not
registered as a mutual fund and therefore was not
subject to certain investment restrictions that are
imposed upon mutual funds. If the predecessor fund
had been registered as a mutual fund, the
predecessor fund's performance may have been
adversely affected. The past performance of each
fund (including the performance of the predecessor
fund of the International Small Cap Fund) does not
necessarily indicate how the fund will perform in
the future.
Quarterly returns:
International Equity Fund
Highest: xx.xx% in x quarter 19xx
Lowest: xx.xx% in x quarter 19xx
Quarterly returns:
International Small Cap Fund
Highest: xx.xx% in x quarter 19xx
Lowest: xx.xx% in x quarter 19xx
International Equity Fund
[The following table was represented as a bar chart in the printed material.]
Calendar Year Ended December 31 Percent
1991 -9.43
1992 11.72
1993 -9.97
1994 38.28
1995 -7.01
1996 2.14
1997 7.44
1998 -2.47
1999 24.53
International Small Cap Fund*
[The following table was represented as a bar chart in the printed material.]
Calendar Year Ended December 31 Percent
1997 1.45
1998 10.09
1999
Average annual total returns
for selected periods ended December 31, 1999
Life of Inception
1 Year 5 Years 10 Years Fund Date
- --------------------------------------------------------------------------------
International Equity Fund x.xx x.xx x.xx x.xx 12/8/88
EAFE Index x.xx x.xx x.xx x.xx N/A
International Small Cap Fund x.xx N/A N/A x.xx 1/28/00
EMI Index x.xx N/A N/A x.xx N/A
Expense example
This example is intended to help you compare the cost of investing in each fund
with the cost of investing in other mutual funds. The example assumes that:
o You invest $10,000 in the fund for the time periods indicated;
o You redeem at the end of each period;
o Your investment has a 5% return each year; and
o The fund's operating expenses have not been capped and remain the same.
Although your actual costs may be higher or lower, under these assumptions your
costs would be:
After After After After
1 year 3 years 5 years 10 years
International Equity Fund $144 $446 $771 1691
International
Small Cap Fund $263 $808 N/A N/A
Fees and expenses of the funds
This table describes the fees and expenses you may pay if you buy and hold
shares of the funds.
Based on fiscal year International International
ended 9/30/99 Equity Fund Small Cap Fund
Shareholder fees (fees paid
directly from your investment) None None
Annual fund operating expenses(1,2)
(expenses that are deducted
from fund assets)
Management fees 0.80% 1.00%
Distribution (12b-1) fees None None
Other expenses 0.61% 1.60%
Total annual fund operating
expenses 1.41% 2.60%
- --------------------------------------------------------------------------------
(1) The fees and expenses for the International Small Cap Fund are based on
estimated expenses for the current fiscal year.
(2) Because Standish has agreed to cap each fund's operating expenses, the
International Equity Fund's actual expenses were and the International Small Cap
Fund's expenses are estimated to be:
Management fees 0.39% 0.00%
Other expenses 0.61% 1.25%
Total annual fund
operating expenses 1.00% 1.25%
These caps may be changed or eliminated.
9 Standish Group of Equity Funds
<PAGE>
The Funds' Investments and Related Risks
- --------------------------------------------------------------------------------
The funds can invest in various types of equity securities, as well as
securities of foreign issuers. International Equity Fund and International Small
Cap Fund emphasize foreign stocks.
Equity investments Equity securities include exchange-traded and
over-the-counter (OTC) common and preferred stocks, warrants, rights, equity
index futures contracts, investment grade convertible securities, depository
receipts and shares, trust certificates, limited partnership interests, shares
of other investment companies and real estate investment trusts and equity
participations. Small Capitalization Equity Fund, Small Cap Growth Fund, Small
Cap Value Fund and International Small Cap Fund may each invest up to 20% of
assets in companies with total market capitalization greater than that described
on pages 4, 6 and 8.
Foreign securities International Equity Fund and International Small Cap Fund
invest primarily in securities of companies located in foreign countries. Each
fund intends to invest in a broad range of (and in any case at least five
different) countries. However, each fund is not required to invest in every
country represented in, or to match the country weightings of, its index.
International Equity Fund and International Small Cap Fund may each invest up to
25% of assets in securities of issuers located in emerging market countries but
not more than 5% of assets in companies located in any one emerging market
country. An emerging market is any country not represented in the Morgan Stanley
Capital International World Index, which is an index of stocks of companies in
developed countries.
Equity Fund may invest without limit in foreign securities traded in a U.S.
market, but only 10% of assets in foreign securities traded outside the U.S.
Small Capitalization Equity Fund, Small Cap Value Fund and Small Cap Growth Fund
may each invest up to 15% of assets in foreign securities, including those of
emerging market issuers, regardless of where they are traded.
In Europe, Economic and Monetary Union (EMU) and the introduction of a single
currency (euro) began in 1999. There are political and economic risks associated
with EMU, which may increase the volatility of a fund's European investments and
present valuation problems.
The risks of foreign securities are described under "Principal risks of
investing in the funds" on page 8.
Defensive investing Each fund may depart from its principal investment
strategies in response to adverse market, economic or political conditions by
taking temporary defensive positions in all types of money market and short-term
debt securities. If a fund takes a temporary defensive position, it may be
unable for a time to achieve its investment objective.
Derivative contracts Each fund may, but is not required to, use derivative
contracts for any of the following purposes:
o To hedge against adverse changes--caused by changing interest rates, stock
market prices or currency exchange rates--in the market value of
securities held by or to be bought for a fund.
o As a substitute for purchasing or selling securities.
o To enhance a fund's potential gain in non-hedging situations.
A derivative contract will obligate or entitle a fund to deliver or receive an
asset or a cash payment that is based on the change in value of a designated
security, currency or index. Even a small investment in derivative contracts can
have a big impact on a portfolio's interest rate, stock market and currency
exposure. Therefore, using derivatives can disproportionately increase portfolio
losses and reduce opportunities for gains when interest rates, stock prices or
currency rates are changing. A fund may not fully benefit from or may lose money
on derivatives if changes in their value do not correspond accurately to changes
in the value of the fund's portfolio holdings.
Counterparties to OTC derivative contracts present the same types of credit risk
as issuers of fixed income securities. Derivatives can also make a fund's
portfolio less liquid and harder to value, especially in declining markets.
Standish Group of Equity Funds 10
<PAGE>
- --------------------------------------------------------------------------------
Fixed income securities Equity Fund may invest up to 20% of assets in high grade
fixed income securities. International Equity Fund and International Small Cap
Fund may each invest up to 35% of assets in high grade fixed income securities
and may invest in preferred stocks of any credit quality if common stocks of
that company are not available. These funds' fixed income securities may be of
any maturity or duration. Small Capitalization Equity Fund, Small Cap Value Fund
and Small Cap Growth Fund may each invest up to 20% of assets in high grade
fixed income securities with remaining maturities of three years or less. Each
fund may invest up to 5% of assets in securities rated, or of comparable quality
to those rated, in the lowest long-term investment grade rating category.
The funds' fixed income securities may have all types of interest rate payment
and reset terms. These securities may be issued by the U.S. government or any of
its agencies, foreign governments or their subdivisions and U.S. and foreign
companies.
Credit quality and risk Securities are investment grade or high grade if:
o They are rated, respectively, in one of the top four or top three
long-term rating categories of a nationally recognized statistical rating
organization.
o They have received a comparable short-term or other rating.
o They are unrated securities that the adviser believes to be of comparable
quality.
The value of a fund's fixed income securities may go down if:
o Interest rates rise, which will make the prices of fixed income securities
go down.
o The issuer of a security owned by the fund has its credit rating
downgraded or defaults on its obligation to pay principal and/or interest.
Impact of high portfolio turnover Each fund may engage in active and frequent
trading to achieve its principal investment strategies. This may lead to the
realization and distribution to shareholders of higher capital gains, which
would increase their tax liability. Frequent trading also increases transaction
costs, which could detract from a fund's performance.
Investment objective Small Cap Value Fund's, Small Cap Growth Fund's and
International Small Cap Fund's investment objectives may be changed by the
fund's trustees without shareholder approval.
11 Standish Group of Equity Funds
<PAGE>
The Investment Advisers
- --------------------------------------------------------------------------------
Standish offers a broad array of investment services that include management of
domestic and international equity and fixed income portfolios.
About Standish and SIMCO
Standish was established in 1933 and manages more than $45 billion in assets for
institutional and individual investors in the U.S. and abroad. Standish is the
adviser to Standish Equity Fund, Standish Small Capitalization Equity Fund,
Standish Small Cap Value Fund and Standish Small Cap Growth Fund. SIMCO, a
limited liability company in which Standish holds a 100% interest, was
established in 1991. SIMCO is the adviser to Standish International Equity Fund
and Standish International Small Cap Fund.
By choice, Standish has remained a privately held investment management firm
over its more than 65 year history. Ownership is shared by a limited number of
employees, who are the directors of the firm. Standish believes the firm's
organizational structure has helped preserve an entrepreneurial orientation,
which is responsible for its continued commitment to superior investment
performance.
Standish believes that experience is a prerequisite for long-term investment
success. But experience alone is insufficient in a world of complex new
securities and rapidly changing technologies. To keep pace with today's
investment markets, Standish has built a staff which balances enthusiasm and
intellectual curiosity with professional and technical expertise. This
combination of experience and enthusiasm, tradition and innovation has worked
well and serves as a blueprint for future growth at Standish.
Standish and SIMCO rely on a combination of traditional fundamental research,
which is the product of a seasoned staff of specialists, and innovative
quantitative analysis, which uses sophisticated computer-based models to help
identify potentially attractive securities in equity and fixed income markets.
In each market, Standish and SIMCO seek to discover opportunity by attention to
detail and adherence to a strict set of disciplines. Standish and SIMCO use
fundamental research to uncover a security sufficiently complex as to have been
misvalued by traditional analysis. Standish and SIMCO use sophisticated
quantitative techniques, which may help identify persistent market
inefficiencies that can be exploited by their portfolio managers.
Standish and SIMCO strive to balance individual insight with the shared wisdom
of the investment team. By combining technology and an experienced research
staff, Standish has built a powerful internal network of overlapping resources.
Performance of predecessor funds
The Small Cap Value Fund is a new mutual fund which commenced operations as of
the date of this prospectus. Standish had previously managed the assets of this
new fund in a predecessor fund. The predecessor fund, Standish Small Cap Value
Fund, L.P., had the same investment objective and substantially similar
investment policies as the new fund. Accordingly, the table below sets forth the
performance of the predecessor fund as compared to the Small Cap Value Fund's
benchmark index. It is important to note that the performance of the predecessor
fund is not that of the Small Cap Value Fund and is not necessarily indicative
of any fund's future results. The fund's actual total return may vary
significantly from the performance of the predecessor fund.
- --------------------------------------------------------------------------------
Average annual total returns for selected
periods for the predecessor fund
Life of Fund Inception Date
- --------------------------------------------------------------------------------
Small Cap Value Fund, L.P x/x/xx 1/4/99
(predecessor fund)
- --------------------------------------------------------------------------------
Russell 2000 Value Index x/x/xx 1/2/96
- --------------------------------------------------------------------------------
Standish Group of Equity Funds 12
<PAGE>
- --------------------------------------------------------------------------------
Fund managers
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Positions during past
Fund Fund managers five years
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Equity Fund Ralph S. Tate Vice president and managing director of
Standish. Director and, since 1996,
president of SIMCO
David H. Cameron Vice president and director of Standish.
Director of SIMCO.
- ---------------------------------------------------------------------------------------------
Small Capitalization Nicholas S. Battelle Vice president and director of Standish
Equity Fund
- ---------------------------------------------------------------------------------------------
Small Cap Value Fund Edward R. Walter Vice president of Standish and of
Standish International Management
Company since 1997 and manager of the
quantitative research group. Vice
President since 1998 and an analyst at
Standish prior to 1998.
Stephanie K. Scherer Vice president since 1998 and an equity
analyst with Standish prior to 1998.
- ---------------------------------------------------------------------------------------------
Small Cap Growth Fund Nicholas S. Battelle Vice president and director of Standish
Andrew L. Beja Vice president and senior analyst of
Standish since March 1996. Previously a
vice president and analyst at Advest,
Inc.
- ---------------------------------------------------------------------------------------------
International Equity Fund Remi J. Browne Vice president and chief investment
officer of SIMCO and, since 1996, vice
president of Standish. Previously a
managing director of Ark Asset
Management Company
- ---------------------------------------------------------------------------------------------
International Small Cap Fund Daniel B. LeVan Vice president of SIMCO since January
1999 and a quantitative analyst with
Standish prior to 1999.
Edward R. Walter (see above)
- ---------------------------------------------------------------------------------------------
</TABLE>
Advisory services and fees
SIMCO provides International Equity Fund and Standish International Small Cap
Fund and Standish provides each other fund with portfolio management and
investment research services, places orders to buy and sell each fund's
portfolio securities and manages each fund's business affairs. For the year
ended September 30, 1999, each fund paid an advisory fee for these services.
Each fund's adviser agreed to limit the fund's total annual operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) and some of
the fund's advisory fee payments were less than the fund's contractual advisory
fee. These agreements are temporary and may be terminated or changed at any
time.*
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Annual Advisory Fee Rates
(as a percentage of the fund's average net assets)
Actual advisory fee paid Contractual advisory fee Current expense limitation
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Equity Fund 0.50% 0.50% 0.71%
- -----------------------------------------------------------------------------------------------------------------------
Small Capitalization Equity Fund 0.59% 0.60% 0.74%
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund N/A 0.80% 1.00%
- -----------------------------------------------------------------------------------------------------------------------
Small Cap Growth Fund 0.60% 0.80%* 1.00%
- -----------------------------------------------------------------------------------------------------------------------
International Equity Fund 0.39% 0.80% 1.00%
- -----------------------------------------------------------------------------------------------------------------------
International Small Cap Fund N/A 1.00% 1.25%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
*Prior to the date of this prospectus, the contractual advisory fee for the
Small Cap Growth Fund was 0.60% of assets
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111-2662
Standish International Management Company, LLC
One Financial Center
Boston, Massachusetts 02111-2662
13 Standish Group of Equity Funds
<PAGE>
Investment and Account Information
- --------------------------------------------------------------------------------
How to purchase shares
Small Capitalization Equity Fund is closed to new investors.
Minimum initial investment: $100,000.
Minimum subsequent investment: $5,000.
Minimum investments may be waived by the distributor for investors in omnibus
accounts and clients and employees of Standish and their immediate families.
All orders to purchase shares received by the distributor or its agent before
the close of regular trading on the New York Stock Exchange will be executed at
that day's share price. Orders received after that time will be executed at the
next business day's price. All orders must be in good form and accompanied by
payment. Each fund reserves the right to reject purchase orders or to stop
offering its shares without notice to shareholders.
Shares of the funds are not available for sale in every state.
- --------------------------------------------------------------------------------
By check
Opening an account
o Send a check to the distributor payable to Standish Funds with the
completed original account application.
Adding to an account
o Send a check to the distributor payable to Standish Funds and a letter of
instruction with the account name and number and effective date of the
request.
- --------------------------------------------------------------------------------
By wire
Opening an account
o Send the completed original account application to the distributor.
o Call the distributor to obtain an account number.
o Instruct your bank to wire the purchase amount to Investors Bank & Trust
Company (see below).
Adding to an account
o Call the distributor. Instruct your bank to wire the amount of the
additional investment to Investors Bank & Trust Company (see below).
- --------------------------------------------------------------------------------
By fax
Opening an account
o Fax the completed account application to 617.350.0042.
o Mail the original account application to the distributor.
o Follow the instructions for opening an account by wire.
Adding to an account
o Fax a letter of instruction to 617.350.0042 with the account name and
number and effective date of the request.
o Call the distributor. Instruct your bank to wire the amount of the
additional investment to Investors Bank & Trust Company.
- --------------------------------------------------------------------------------
Through a financial intermediary
Opening or adding to an account
o Contact your financial intermediary. Financial intermediaries acting on an
investor's behalf are responsible for transmitting orders to the
distributor or its agent by the scheduled deadline.
- --------------------------------------------------------------------------------
The distributor's address is:
Standish Fund Distributors, L.P.
PO Box 1407
Boston, Massachusetts 02205-1407
Tel: 1.800.221.4795
Fax: 617.350.0042
Email: [email protected]
Wire instructions:
Investors Bank & Trust Company
Boston, MA
ABA#: 011 001 438
Account #: 79650-4116
Fund name:
Investor account #:
Standish Group of Equity Funds 14
<PAGE>
- --------------------------------------------------------------------------------
How to exchange shares
You may exchange shares of a fund for the same class of shares of any other
Standish fund, if the registration of both accounts is identical. A fund may
refuse any exchange order and may alter, limit or suspend its exchange privilege
on 60 days' notice. Exchange requests will not be honored until the distributor
receives payment for the exchanged shares (up to 3 business days). An exchange
involves a taxable redemption of shares surrendered in the exchange.
- --------------------------------------------------------------------------------
By mail
o Send a letter of instruction to the distributor signed by each registered
account owner.
o Provide the name of the current fund, the fund to exchange into and dollar
amount to be exchanged.
o Provide both account numbers.
o Signature guarantees may be required.
- --------------------------------------------------------------------------------
By telephone
o If the account has telephone privileges, call the distributor.
o Provide the name of the current fund, the fund to exchange into and dollar
amount to be exchanged.
o Provide both account numbers.
o The distributor may ask for identification and all telephone transactions
may be recorded.
How to redeem shares
All orders to redeem shares received by the distributor or its agent before 4:00
p.m. eastern time will be executed at that day's share price. Orders received
after 4:00 p.m. will be executed at the next business day's price. All
redemption orders must be in good form. Each fund has the right to suspend
redemptions of shares and to postpone payment of proceeds for up to seven days,
as permitted by law.
- --------------------------------------------------------------------------------
By mail
o Send a letter of instruction to the distributor signed by each registered
account owner.
o State the name of the fund and number of shares or dollar amount to be
sold.
o Provide the account number.
o Signature guarantees may be required (see below).
- --------------------------------------------------------------------------------
By telephone
For check or wire
o If the account has telephone privileges, call the distributor.
o Proceeds will be mailed by check payable to the shareholder of record to
the address, or wired to the bank as directed, on the account application.
o The distributor may ask for identification and all telephone transactions
may be recorded.
- --------------------------------------------------------------------------------
By fax
o Fax the request to the distributor at 617.350.0042.
o Include your name, the name of the fund and the number of shares or dollar
amount to be sold.
o Proceeds will be mailed by check payable to the shareholder of record to
the address, or wired to the bank as directed, on the account application.
- --------------------------------------------------------------------------------
Through a financial intermediary
o Contact your financial intermediary. Financial intermediaries acting on an
investor's behalf are responsible for transmitting orders to the
distributor or its agent by the scheduled deadline.
- --------------------------------------------------------------------------------
Good form
o Good form means that you have provided adequate instructions and there are
no outstanding claims against your account or transaction limitations on
your account. Also, a signature guarantee may be required with certain
requests.
15 Standish Group of Equity Funds
<PAGE>
Investment and Account Information
- --------------------------------------------------------------------------------
Transaction and account policies
Accounts with low balances. If an account falls below $50,000 as a result of
redemptions (and not because of performance), the distributor may ask the
investor to increase the size of the account to $50,000 within 30 days. If the
investor does not increase the account to $50,000 the distributor may redeem the
account at net asset value and remit the proceeds to the investor.
In-kind purchases and redemptions. Securities you own may be used to purchase
shares of a fund. The adviser will determine if the securities are consistent
with the fund's objective and policies. If accepted, the securities will be
valued the same way the fund values securities it already owns. A fund may make
payment for redeemed shares wholly or in part by giving the investor portfolio
securities. A redeeming shareholder will pay transaction costs to dispose of
these securities.
Signature guarantees. A signature guarantee may be required for any written
request to sell or exchange shares, or to change account information for
telephone transactions.
The distributor will accept signature guarantees from:
o members of the STAMP program or the Exchange's Medallion Signature Program
o a broker or securities dealer
o a federal savings, cooperative or other type of bank
o a savings and loan or other thrift institution
o a credit union
o a securities exchange or clearing agency
A notary public cannot provide a signature guarantee.
Valuation of shares
Each fund offers its shares at the NAV per share of the fund or class, if more
than one class is offered. Each fund calculates its NAV once daily as of the
close of regular trading on the New York Stock Exchange (generally at 4:00 p.m.,
New York time) on each day the exchange is open. The Small Cap Growth Fund
calculates the NAV of each class separately. If the exchange closes early, the
funds accelerate calculation of NAV and transaction deadlines to that time.
Each fund values the securities in its portfolio on the basis of market
quotations and valuations provided by independent pricing services. If
quotations are not readily available, or the value of a security has been
materially affected by events occurring after the closing of a foreign exchange,
each fund may value its assets by a method that the trustees believe accurately
reflects fair value. A fund that uses fair value to price securities may value
those securities higher or lower than a fund that uses market quotations.
Foreign markets may be open on days when U.S. markets are closed and the value
of foreign securities owned by a fund may change on days when shareholders
cannot purchase or redeem shares.
Dividends and distributions
Each fund intends to distribute all or substantially all of its net investment
income and realized capital gains, if any, for each taxable year. The funds
declare and pay dividends, if any, from net investment income semiannually and
distribute capital gains annually. Most of a fund's distributions will be from
capital gains. All dividends and capital gains are reinvested in shares of the
fund that paid them unless the shareholder elects to receive them in cash.
Year 2000 issue
The funds' securities trades, pricing and accounting services and other
operations could be adversely affected if the computer systems of the advisers,
distributor, custodian and transfer agent were unable to recognize dates after
1999. The advisers and other service providers have told the funds that they are
taking action to prevent, and do not expect the funds to suffer from, material
year 2000 problems.
Standish Group of Equity Funds 16
<PAGE>
Fund Details
- --------------------------------------------------------------------------------
Taxes
- --------------------------------------------------------------------------------
Transactions Federal Tax Status
- --------------------------------------------------------------------------------
Sales or exchanges of shares. Usually capital gain or loss. Tax rate
depends on how long shares are held.
- --------------------------------------------------------------------------------
Distributions of long-term capital Taxable as long-term capital gain.
gain.
- --------------------------------------------------------------------------------
Distributions of short-term capital Taxable as ordinary income.
gain.
- --------------------------------------------------------------------------------
Dividends from net investment income. Taxable as ordinary income.
- --------------------------------------------------------------------------------
Every January, the funds provide information to their shareholders about the
funds' dividends and distributions, which are taxable even if reinvested, and
about the shareholders' redemptions during the previous calendar year. Any
shareholder who does not provide the funds with a correct taxpayer
identification number and required certification may be subject to federal
backup withholding tax.
Shareholders should generally avoid investing in a fund shortly before an
expected dividend or capital gain distribution. Otherwise, a shareholder may pay
taxes on dividends or distributions that are economically equivalent to a
partial return of the shareholder's investment.
Shareholders should consult their tax advisers about their own particular tax
situations.
- --------------------------------------------------------------------------------
Master/feeder structure
Equity Fund and Small Cap Growth Fund are "feeder" funds that invest exclusively
in corresponding "master" portfolios with identical investment objectives.
Except where indicated, this prospectus uses the term "fund" to mean each feeder
fund and its master portfolio taken together. The master portfolio may accept
investments from multiple feeder funds, which bear the master portfolio's
expenses in proportion to their assets.
Each feeder fund and its master portfolio expect to maintain consistent
investment objectives, but if they do not, the fund will withdraw from the
master portfolio, receiving either cash or securities in exchange for its
interest in the master portfolio. The fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.
- --------------------------------------------------------------------------------
The funds' service providers
Principal Underwriter
Standish Fund Distributors, L.P.
Custodian, Transfer Agent and Fund Accountant
Investors Bank & Trust Company
Independent Accountants
PricewaterhouseCoopers LLP
Legal Counsel
Hale and Dorr LLP
17 Standish Group of Equity Funds
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
The financial highlights tables are intended to help shareholders understand the
funds' financial performance for the past five years, or less if a fund has a
shorter operating history. Certain information reflects financial results for a
single fund share. Total returns represent the rate that a shareholder would
have earned on an investment in a fund (assuming reinvestment of all dividends
and distributions). The information was audited by PricewaterhouseCoopers LLP,
independent accountants, whose reports, along with the funds' financial
statements, are included in the funds' annual reports (available upon request).
Equity Fund
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended
September 30, September 30, Fiscal year ended December 31,
------------------ ------------------------------------
1999 1998 1997(1) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period $48.81 $38.79 $34.81 $28.66 $30.89
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income* 0.30 0.39 0.60 0.76 0.45
Net realized and unrealized gain (loss) (4.30) 12.79 8.52 9.94 (1.62)
------ ------ ------ ------ ------ ------
Total from investment operations (4.00) 13.18 9.12 10.70 (1.17)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income (0.29) (0.43) (0.56) (0.78) (0.44)
In excess of net investment income (0.01) -- -- -- --
From net realized gain on investments (7.04) (2.73) (4.58) (3.77) (0.62)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (7.34) (3.16) (5.14) (4.55) (1.06)
------ ------ ------ ------ ------ ------
Net asset value--end of period $37.47 $48.81 $38.79 $34.81 $28.66
====== ====== ====== ====== ====== ======
Total return (9.33)% 35.13% 26.84% 37.55% (3.78)%
Ratios (to average daily net
assets)/Supplemental data
Net assets at end of period (000 omitted) $198,322 $170,170 $105,855 $88,532 $86,591
Expenses*,(5) 0.71% 0.71%(4) 0.71% 0.69% 0.70%
Net investment income*,(5) 0.69% 0.95%(4) 1.53% 2.05% 1.55%
Portfolio turnover 144%(3) 0.75%(3) 118%(3) 128%(2) 100%(2)
<CAPTION>
-------------------
*The adviser voluntarily did not impose some or all of its investment advisory fee and limited the fund's expenses. Had
these actions not been taken, the net investment income per share and the ratios would have been:
<S> <C> <C> <C> <C> <C> <C>
Net investment income per share -- $0.38 $0.59 -- --
Ratios (to average net assets)
Expenses(5) -- 0.72%(4) 0.72% -- --
Net investment income(5) -- 0.93%(4) 1.52% -- --
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Portfolio turnover represents activity while the fund was making investments
directly in securities.
(3) Represents unaudited theoretical portfolio turnover rate of the fund for the
year ended December 31, 1996 had the fund not contributed its assets to Standish
Equity Portfolio on May 3, 1996. The portfolio turnover rate of the fund for the
period from January 1, 1996 to May 2, 1996 was 41%. The portfolio turnover rate
of Standish Equity Portfolio for the period from May 3, 1996 to December 31,
1996 was 78%. For periods after December 31, 1996 information provided is for
Standish Equity Portfolio.
(4) Computed on an annualized basis.
(5) Includes the fund's share of Standish Equity Portfolio's allocated expenses
for the years ended September 30, 1999 and 1998, the nine months ended September
30, 1997 and for the period from May 3, 1996 to December 31, 1996.
Standish Group of Equity Funds 18
<PAGE>
- --------------------------------------------------------------------------------
Small Capitalization Equity Fund
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended
September 30, September 30, Fiscal year ended December 31,
------------------ ----------------------------------
1999 1998(1) 1997(1) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period $66.50 $52.96 $53.46 $42.15 $48.97
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income/(loss)* (0.31) (0.23) -- -- --
Net realized and unrealized gain (loss) (16.57) 14.80 9.29 12.57 (1.84)
------ ------ ------ ------ ------ ------
Total from investment operations (16.88) 14.57 9.29 12.57 (1.84)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net realized gain on investments (7.88) (1.03) (9.79) (1.26) (4.98)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (7.88) (1.03) (9.79) (1.26) (4.98)
------ ------ ------ ------ ------ ------
Net asset value--end of period $41.74 $66.50 $52.96 $53.46 $42.15
====== ====== ====== ====== ====== ======
Total return (27.20)% 27.92% 17.36% 29.83% (3.66)%
Ratios (to average daily net
assets)/Supplemental data
Net assets at end of period (000 omitted) $147,000 $274,368 $244,131 $180,470 $107,591
Expenses*,(3) 0.74% 0.74%(4) 0.75% 0.75% 0.79%
Net investment income/(loss)* (0.57)% (0.57)%(5) (0.44)% (0.30)% (0.27)%
Portfolio turnover 107%(4) 70%(4) 113%(4) 103%(2) 95%(2)
<CAPTION>
-------------------
*The adviser voluntarily did not impose some or all of its investment advisory fee and limited the fund's expenses. Had
these actions not been taken, the net investment income per share and the ratios would have been:
<S> <C> <C> <C> <C> <C> <C>
Net investment income (loss) per share ($0.34) ($0.23) ($0.01) -- --
Ratios (to average net assets)
Expenses(3) 0.78% 0.74%(5) 0.76% -- --
Net investment income (loss)(3) (0.61)% (0.57)%(5) (0.45)% -- --
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Portfolio turnover represents activity while the fund was making investments
directly in securities.
(3) Includes the fund's share of Standish Small Cap Equity Portfolio's allocated
expenses for the years ended September 30, 1999 and 1998, the nine months ended
September 30, 1997 and for the period from May 3, 1996 to December 31, 1996.
(4) Represents the unaudited theoretical portfolio turnover rate of the fund for
the year ended December 31, 1996 had the fund not contributed its assets to
Standish SmallCap Equity Portfolio on May 3, 1996. The portfolio turnover rate
of the fund for the period from January 1, 1996 to May 2, 1996 was 28%. The
portfolio turnover rate of Standish Small Cap Equity Portfolio for the period
from May 3, 1996 to December 31, 1996 was 76%. For period after December 31,
1996, information provided is for StandishSmall Cap Equity Portfolio.
(5) Computed on an annualized basis.
19 Standish Group of Equity Funds
<PAGE>
- --------------------------------------------------------------------------------
Small Cap Growth Fund
(formerly Small Capitalization Equity Fund II)
<TABLE>
<CAPTION>
Fiscal year ended Nine months December 23(2) to
September 30, ended September 30, December 31,
1999 1998(1) 1997(1) 1996
-----------------
<S> <C> <C> <C> <C>
Net asset value--beginning of period $29.12 $20.39 $20.00
------ ------ ------
Income from investment operations
Net investment income (loss)* (0.07) $0.03 $0.00
Net realized and unrealized gain (loss) (5.01) $8.71 0.39
------ ------ ------
Total from investment operations (5.08) $8.74 $0.39
------ ------ ------
Less distributions declared to shareholders
From net investment income (0.04) (0.01) --
From realized gain on investment (0.54) -- --
In excess of net realized gain on investment (1.24) -- --
------ ------ ------
Total distributions (1.82) ($0.01) --
Net asset value--end of period $22.22 $29.12 $20.39
====== ====== ======
Total return (17.84)% 42.94% N/A(6)
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $11,944 $6,314 $484
Expenses(3) 0.58% 0.00%(5) N/A(6)
Net investment income (loss)* (0.25) 0.49%(5) N/A(6)
Portfolio turnover(4) 147% 122% --
<CAPTION>
-------------------
*The investment adviser voluntarily agreed not to impose all or a portion of its investment advisory fee and
reimbursed the fund for all or a portion of its operating expenses. If these voluntary actions had not been
taken, the net investment income per share and the ratios would have been:
<S> <C> <C> <C> <C>
Net investment income (loss) per share ($0.42) ($0.25) N/A(6)
Ratios (to average net assets)
Expenses 1.94% 3.56%(5) N/A(6)
Net investment income (1.61)% (3.07)%(5) N/A(6)
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Commencement of operations
(3) Includes the fund's share of Standish Small Capitalization Equity Portfolio
II's allocated expenses for the periods since commencement of operations.
(4) The portfolio turnover provided is for Standish Small Capitalization Equity
Portfolio II.
(5) Computed on an annualized basis.
(6) Amounts are not meaningful due to the short period of operations.
Standish Group of Equity Funds 20
<PAGE>
- --------------------------------------------------------------------------------
International Equity Fund
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended
September 30, September 30, Fiscal year ended December 31,
------------------- ---------------------------------
1999 1998 1997(1) 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period $23.57 $23.25 $23.54 $23.12 $26.74
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income* 0.32 0.39 0.47 0.04 0.21
Net realized and unrealized gain (loss) (1.17) 1.44 1.28 0.45 (2.08)
------ ------ ------ ------ ------ ------
Total from investment operations (0.85) 1.83 1.75 0.49 (1.87)
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income (0.31) (0.30) (0.51) -- (0.12)
From net realized gains on investments (2.24) (1.21) (1.53) (0.07) (1.63)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (2.55) (1.51) (2.04) (0.07) (1.75)
------ ------ ------ ------ ------ ------
Net asset value--end of period $20.17 $23.57 $23.25 $23.54 $23.12
====== ====== ====== ====== ====== ======
Total return (2.92)% 7.65% 7.44% 2.14% (6.99)%
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $36,816 $49,497 $47,739 $59,473 $104,435
Expenses* 1.00% 0.84%(2) 0.50% 1.22% 1.23%
Net investment income* 1.30% 1.78%(2) 1.80% 1.76% 1.52%
Portfolio turnover 206% 155% 163% 108% 51%
<CAPTION>
-------------------
*For the periods indicated, the adviser voluntarily did not impose some or all of its investment advisory fee and limited the
fund's expenses. Had these actions not been taken, the net investment income per share and the ratios would have been:
<S> <C> <C> <C> <C> <C> <C>
Net investment income per share $0.22 $0.29 $0.27 -- --
Ratios (to average net assets)
Expenses 1.42% 1.42%(2) 1.29% -- --
Net investment income 0.88% 1.20%(2) 1.01% -- --
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Computed on an annualized basis.
21 Standish Group of Equity Funds
<PAGE>
Notes
- --------------------------------------------------------------------------------
Standish Group of Equity Funds 22
<PAGE>
Notes
- --------------------------------------------------------------------------------
23 Standish Group of Equity Funds
<PAGE>
Standish, Ayer & Wood, Inc. is an independent investment counseling firm that
has been managing assets for institutional investors and high net worth
individuals, as well as mutual funds, for more than 65 years. Standish offers a
broad array of investment services that includes management of domestic and
international equity and fixed income portfolios.
For More Information
- --------------------------------------------------------------------------------
For investors who want more information about the Standish group of equity
funds, the following documents are available free upon request.
Annual/Semiannual Reports
Additional information about the funds' investments is available in the funds'
annual and semiannual reports to shareholders. Each fund's annual report
contains a discussion of the market conditions and investment strategies that
significantly affected the fund's performance during its last fiscal year.
Statement of Additional Information (SAI)
The SAI provides more detailed information about the funds and is incorporated
into this prospectus by reference.
Investors can get free copies of reports and SAIs, request other information and
discuss their questions about the funds by contacting the funds at:
Standish Funds
P.O. Box 1407
Boston, MA 02205-1407
Telephone: 1.800.729.0066
Email:
[email protected]
Internet:
http://www.standishonline.com
Investors can review the funds' reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission. Investors can get text-only copies:
o For a fee, by writing to or calling the Public Reference Room of the
Commission, Washington, D.C. 20549-6009 Telephone: 1.800.SEC.0330
o Free from the Commission's Internet website at http://www.sec.gov
[LOGO] STANDISH FUNDS(R)
One Financial Center
Boston, MA 02111-2662
800.729.0066
www.standishonline.com
Investment Company Act
file number (811-4813)
99-269
<PAGE>
January 28, 2000
[STANDISH LOGO]
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
(800) 729-0066
STATEMENT OF ADDITIONAL INFORMATION
Standish Group of Equity Funds
Standish Equity Fund
Standish Small Capitalization Equity Fund
Standish Small Cap Growth Fund
Standish Small Cap Value Fund
Standish International Equity Fund
Standish International Small Cap Fund
This combined Statement of Additional Information (SAI) is not a
prospectus. The SAI expands upon and supplements the information contained in
the combined prospectus dated January 28, 2000, as amended and/or supplemented
from time to time, of Standish Equity Fund (Equity Fund), Standish Small
Capitalization Equity Fund (Small Cap Fund), Standish Small Cap Growth Fund
(Small Cap Growth Fund), Standish Small Cap Value Fund (Small Cap Value Fund),
Standish International Equity Fund (International Equity Fund) and Standish
International Small Cap Fund (International Small Cap Fund), each a separate
investment series of Standish, Ayer & Wood Investment Trust (Trust).
This SAI should be read in conjunction with the funds' prospectus.
Additional information about each fund's investments is available in the funds'
annual and semi-annual reports to shareholders. Investors can get free copies of
reports and the prospectus, request other information and discuss their
questions about the funds by contacting the funds at the phone number above.
Each fund's financial statements which are included in the 1999 annual reports
to shareholders are incorporated by reference into this SAI.
Contents
--------------------------------------
Investment Objectives and Policies...........................................2
Description of Securities Related Risks......................................5
Investment Techniques and Related Risk......................................13
Investment Restrictions.....................................................21
Calculation of Performance Data.............................................28
Management..................................................................32
Purchase and Redemption of Shares...........................................39
Portfolio Transactions......................................................40
Determination of Net Asset Value........................................... 41
The Funds and Their Shares..................................................42
The Portfolio and Its Investors ............................................43
Taxation....................................................................44
Additional Information..................................................... 48
Experts and Financial Statements........................................... 48
<PAGE>
INVESTMENT OBJECTIVES AND POLICIES
The prospectus describes the investment objective and policies of each
fund. The following discussion supplements the description of the funds'
investment policies in the prospectus.
Master/Feeder Structure. Equity Fund invests all of its investable assets
in Standish Equity Portfolio (the "Equity Portfolio"). Small Cap Growth Fund
invests all of its investable assets in Standish Small Cap Growth Portfolio
("Small Cap Growth Portfolio"). These two funds are sometimes referred to in
this SAI as the feeder funds. Each Portfolio is a series of the Standish, Ayer
and Wood Master Portfolio (the "Portfolio Trust"), an open-end management
investment company. Standish, Ayer and Wood, Inc. ("Standish") is the investment
adviser to Equity and Small Cap Growth Portfolios and Small Capitalization
Equity Fund and Small Cap Value Fund. Standish International Management Company,
LLC ("SIMCO") is the investment adviser to the International Equity Fund and
International Small Cap Fund. Both Standish and SIMCO are sometimes referred to
collectively in this SAI as the "adviser." Each Portfolio has the same
investment objective and restrictions as its corresponding fund. Because the
feeder funds invest all of their investable assets in their corresponding
Portfolios, the description of each fund's investment policies, techniques,
specific investments and related risks that follows also applies to the
corresponding Portfolio.
In addition to these feeder funds, other feeder funds may invest in these
Portfolios, and information about the other feeder funds is available from
Standish. The other feeder funds invest in the Portfolios on the same terms as
the funds and bear a proportionate share of the Portfolios' expenses. The other
feeder funds may sell shares on different terms and under a different pricing
structure than the funds, which may produce different investment results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a fund would be required
to withdraw is 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.
Suitability. None of the funds is intended to provide an investment
program meeting all of the requirements of an investor. Notwithstanding each
fund's ability to spread risk by holding securities of a number of portfolio
companies, shareholders should be able and prepared to bear the risk of
investment losses which may accompany the investments contemplated by the funds.
-2-
<PAGE>
Equity Fund
Additional Investment Information. Under normal circumstances, at least
80% of Equity Fund's total assets are invested in a diversified portfolio of
equity and equity-related securities. The fund may invest in equity securities
of foreign issuers that are listed on a U.S. securities exchange or traded in
the U.S. OTC market, but will not invest more than 10% of its total assets in
such securities that are not so listed or traded. The fund may also, to a
limited extent, invest in debt securities and preferred stocks that are
convertible into, or exchangeable for, common stocks. Generally, such securities
will be rated, at the time of investment, Aaa, Aa or A by Moody's Investors
Service, Inc. ("Moody's") or AAA, AA or A by Standard & Poor's Ratings Group
("Standard & Poor's"), Duff and Phelps ("Duff") or Fitch IBCA International
("Fitch") or, if unrated, will be determined by the adviser to be of comparable
credit quality. Up to 5% of the fund's total assets invested in convertible debt
securities and preferred stocks may be rated, at the time of investment, 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.
Small Cap Equity Fund
Additional Investment Information. Under normal circumstances, at least
80% of Small Cap Fund's total assets are invested in a diversified portfolio of
equity and equity-related securities of companies that, at the time of purchase
of the security, have "total market capitalizations" no greater than 75% of the
maximum market capitalization of the companies included in the Russell 2000
Growth Index, updated monthly. The fund may invest in securities of larger, more
mature companies, provided that such investments do not exceed 20% of the fund's
total assets. The fund may participate in initial public offerings for
previously privately held companies which are expected to have market
capitalizations no greater than 75% of the maximum market capitalization of the
companies included in the Russell 2000 Growth Index, updated monthly, after the
consummation of the offering, and whose securities are expected to be liquid
after the offering. The fund may also invest up to 15% of its total assets in
equity securities of foreign issuers, including issuers located in emerging
markets.
Small Cap Growth Fund
Additional Investment Information. On January 28, 2000, the fund changed
its name from Standish Small Capitalization Equity Fund II to Standish Small Cap
Growth Fund. The trustees approved this name change so that the fund's name is
more reflective of the manner in which Standish manages the fund.
Under normal circumstances, at least 80% of Small Cap Growth Fund's total
assets are invested in equity and equity-related securities of companies that,
at the time of purchase of the security, have "total market capitalizations"
within the range of capitalizations of the companies included in the Russell
2000 Growth Index, updated monthly. Small Cap Growth Fund may invest in
securities of larger, more mature companies, provided that such investments do
not exceed 20% of the fund's total assets. The fund may participate in initial
public offerings for previously privately held companies which are generally
expected to have market capitalizations within the range of market
capitalizations of the companies included in the Russell 2000 Growth Index,
updated monthly, after the consummation of the offering, and whose securities
are expected to be liquid after the offering. The fund may also invest up to 15%
of its total assets in equity and equity-related securities of foreign issuers,
including issuers located in emerging markets.
Small Cap Value Fund
Additional Investment Information. Under normal circumstances, at least
80% of Small Cap Value Fund's total assets are invested in equity and
equity-related securities of U.S. companies that, at the
-3-
<PAGE>
time of purchase of the security, have "total market capitalizations" within the
range of capitalizations of the companies included in the Russell 2000 Index,
updated monthly. Small Cap Value Fund may invest in securities of larger, more
mature companies, provided that such investments do not exceed 20% of the fund's
total assets. The fund may participate in initial public offerings for
previously privately held companies which are generally expected to have market
capitalizations within the range of market capitalizations of the companies
included in the Russell 2000 Value Index, updated monthly, after the
consummation of the offering, and whose securities are expected to be liquid
after the offering. The fund may also invest up to 15% of its total assets in
equity and equity-related securities of foreign issuers, including issuers
located in emerging markets.
International Equity Fund
Additional Investment Information. Under normal circumstances, at least
65% of 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 will purchase securities representing various industries and
sectors. Up to 25% of the fund's total assets may be invested in securities of
issuers located 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.
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. The fund may also 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. Income received on the fund's investments is
incidental to the fund's primary objective to obtain long-term capital gains.
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.
International Small Cap Fund
Additional Investment Information. Under normal circumstances, at least
65% of International Small Cap Fund's total assets are invested in equity and
equity-related securities, including preferred stocks, of companies located in
the foreign countries represented in the Salomon Smith Barney Extended Market
Index (the "EMI"), and, to a limited extent, emerging markets. The fund will
purchase securities representing various industries and sectors. The fund may
purchase stocks not identified by the quantitative models in order to gain
exposure to emerging industries. The fund may also participate in initial public
offerings for previously privately held companies which are expected to have
market capitalizations within the range of capitalizations of companies included
in the EMI after the consummation of the offering, and whose securities are
expected to be liquid after the offering. Up to 25% of the fund's total assets
may be invested in securities of issuers located 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.
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. The fund may also 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
-4-
<PAGE>
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. Income
received on the fund's investments is incidental to the fund's primary objective
to obtain long-term capital gains. 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.
DESCRIPTION OF SECURITIES AND RELATED RISKS
General Risks of Investing in the Group of Equity Funds
The funds invest primarily in equity and equity-related securities and are
subject to the risks associated with investments in such securities. Because
investing in equity and equity-related securities is the principal investment
strategy for each of the funds, the risks associated with these investments are
described in the prospectus. The funds are also subject to the risks associated
with direct investments in foreign securities and, to a lesser degree, to the
risks associated with investments in fixed income securities.
Investing in Foreign Securities. International Equity and International
Small Cap Funds may invest in foreign securities without limit. Small Cap, Small
Cap Growth and Small Cap Value Funds limit their investments in foreign
securities to 15% of their total assets, including securities of foreign issuers
that trade on a U.S. exchange or in the U.S. OTC market. Equity Fund 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. Investors should understand that
the expense ratios of the funds may be higher than that of investment companies
investing exclusively in domestic securities because of the cost of maintaining
the custody of foreign securities.
Investing in the securities of foreign issuers involves risks that are not
typically associated with investing in U.S. dollar-denominated securities of
domestic issuers. Investments in foreign issuers may be affected by changes in
currency rates, changes in foreign or U.S. laws or restrictions applicable to
such investments and in exchange control regulations (e.g., currency blockage).
A decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denominated
relative to the U.S. dollar would reduce the value of the portfolio security.
Commissions on transactions in foreign securities may be higher than those for
similar transactions on domestic stock markets 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 divided or interest payments (or in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investment in those countries.
Currency Risks. The U.S. dollar value of securities denominated in a
foreign currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of the currency in which a 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
-5-
<PAGE>
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. However, currency exchange rates may fluctuate based on factors
intrinsic to that country's economy. 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.
International Equity and International Small Cap Funds may invest any
portion of their assets in securities denominated in a particular foreign
currency. The portion of the International Equity Fund's and International Small
Cap 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 denominated 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 chances in foreign currency exchange rates, although
Equity, Small Cap, Small Cap Growth and Small Cap Value Funds 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 and Derivative Transactions"
within the "Investment Techniques and Related Risks" section for a further
discussion of the risks associated with currency transactions.
Economic and Monetary Union (EMU). EMU began on January 1, 1999, when 11
European countries adopted a single currency - the euro. For participating
countries, EMU means sharing a single currency and single official interest rate
and adhering to agreed upon limits on government borrowing. Budgetary decisions
remain in the hands of each participating country, but are subject to each
country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. A European Central Bank is responsible for setting the
official interest rate to maintain price stability within the euro zone.
EMU is driven by the expectation of a number of economic benefits,
including lower transaction costs, reduced exchange risk, greater competition,
and a broadening and deepening of European financial markets. However, there are
a number of significant risks associated with EMU. Monetary and economic union
on this scale has never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain committed to EMU
in the face of changing economic conditions. This uncertainty may increase the
volatility of European markets and may adversely effect the prices of securities
of European issuers in the fund's portfolios.
Investing in Securities of Emerging Markets. Although each fund invests
primarily in securities of established issuers based in the U.S. and,
particularly in the case of International Equity and International Small Cap
Funds, 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.
International Equity and International Small Cap Funds may invest up to 25% of
their total assets in issuers located in emerging markets. Equity, Small Cap,
Small Cap Growth and Small Cap Value Funds 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.
-6-
<PAGE>
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 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 affect 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.
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.
-7-
<PAGE>
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
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.
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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. In the past, 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, religious 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.
Investing in Fixed Income Securities
The funds may invest a portion of their total assets in fixed income
securities. Fixed income securities are subject to interest rate risk, default
risk and call and extension risk.
Interest Rate Risk. When interest rates decline, the market value of fixed
income securities tends to increase. Conversely, when interest rates increase,
the market value of fixed income securities tends to decline. The volatility of
a security's market value will differ depending upon the security's duration,
the issuer and the type of instrument.
Default Risk/Credit Risk. Investments in fixed income securities are
subject to the risk that the issuer of the security could default on its
obligations causing a fund to sustain losses on such investments. A default
could impact both interest and principal payments. Because the funds invest only
in investment grade fixed income securities, this risk is reduced.
Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
a right to pay principal on an obligation
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earlier than scheduled which would cause cash flows to be returned earlier than
expected. This typically results when interest rates have declined and a fund
will suffer from having to reinvest in lower yielding securities. Extension risk
exists when the issuer may exercise a right to pay principal on an obligation
later than scheduled which would cause cash flows to be returned later than
expected. This typically results when interest rates have increased and a fund
will suffer from the inability to invest in higher yield securities.
Credit Quality. Investment grade securities are those that are rated at
least 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. High grade
securities are those that are rated within the top three investment grade
ratings (i.e., Aaa, Aa or A by Moody's or AAA, AA or A by Standard & Poor's,
Duff or Fitch) or, if unrated, determined by the adviser to be of comparable
credit quality. If a security is rated differently by two or more rating
agencies, the adviser uses the highest rating to compute a fund's credit quality
and also to determine the security's rating category. If the rating of a
security held by a fund is downgraded below investment grade, the adviser will
determine whether to retain that security in the fund's portfolio. 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.
Specific Risks
The following sections include descriptions of specific risks that are
associated with a fund's purchase of a particular type of security or the
utilization of a specific investment technique.
Common Stocks. The funds purchase common stocks. Common stocks are shares
of a corporation or other entity that entitle the holder to a pro rata share of
the profits of the corporation, if any, without preference over any other
shareholder or class of shareholders, including holders of the entity's
preferred stock and other senior equity. Common stock usually carries with it
the right to vote and frequently an exclusive right to do so.
Small Capitalization Stocks. Small Cap, Small Cap Growth, Small Cap Value
and International Small Cap Funds invest primarily, and Equity Fund 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 fund of
securities in order to meet redemptions or otherwise may require the fund to
sell securities at a discount from market prices, over a longer period of time
or during periods when disposition is not desirable.
Convertible Securities. Each fund may invest in convertible debt and
preferred stock. Convertible debt securities and preferred stock entitle the
holder to acquire the issuer's stock by exchange or purchase for a predetermined
rate. Convertible securities are subject both to the credit and interest rate
risks associated with fixed income securities and to the stock market risk
associated with equity securities.
Warrants. Each fund may purchase 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
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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 the
expiration dates.
Depositary Receipts and Depositary Shares. The funds may purchase
depository receipts and depository shares. Depositary receipts and depositary
shares are typically issued by a U.S. or foreign bank or trust company and
evidence ownership of underlying securities of a U.S. or foreign issuer.
Unsponsored programs are organized independently and without the cooperation of
the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored depositary
instruments and their prices may be more volatile than if they were sponsored by
the issuers of the underlying securities. Examples of such investments include,
but are not limited to, American Depositary Receipts and Shares ("ADRs" and
"ADSs"), Global Depositary Receipts and Shares ("GDRs" and "GDSs") and European
Depositary Receipts and Shares ("EDRs" and "EDSs").
Investments in REITs. Each fund may invest in shares of real estate
investment trusts (REITs), 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").
Corporate Debt Obligations. Each fund may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
corporations. Corporate debt obligations are subject to the risk of an issuer's
inability to meet principal and interest payments on the obligations and may
also be subject to price volatility due to such factors as market interest
rates, market perception of the creditworthiness of the issuer and general
market liquidity. Zero coupon securities are securities sold at a discount to
par value and on which interest payments are not made during the life of the
security.
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.
Sovereign Debt Obligations. International Equity and International Small
Cap Funds may invest in sovereign debt obligations. Investments in sovereign
debt obligations involve special risks which are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and a fund may have limited
recourse in the event of a default. During periods of economic uncertainty, the
market prices of sovereign debt, and a fund's net asset value, to the extent it
invests in such securities, may be more volatile than prices of U.S. debt
issuers. In the past, certain foreign countries have encountered difficulties in
servicing their debt obligations, withheld payments of principal and interest
and declared moratoria on the payment of principal and interest on their
sovereign debt.
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A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Repurchase Agreements. Equity, Small Cap, Small Cap Growth and Small Cap
Value Funds may each invest up to 10% of its net assets in repurchase
agreements. International Equity and International Small Cap Funds are not
subject to the same limit, except that investments in repurchase agreements
maturing in more than 7 days are subject to a fund's 15% limit on investments in
illiquid securities. In a repurchase agreement, a fund buys a security at one
price and simultaneously agrees to sell it back at a higher price. Delays or
losses could result if the other party to the agreement defaults or becomes
insolvent. Repurchase agreements acquired by a fund will always be fully
collateralized as to principal and interest by money market instruments and will
be entered into only with commercial banks, brokers and dealers considered
creditworthy by the adviser.
Short Sales. Each fund may engage in short sales and short sales against
the box. In a short sale, a fund sells a security it does not own in
anticipation of a decline in the market value of the 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, although the Equity, Small Cap, Small Cap
Growth and Small Cap Value Funds 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 Board of Trustees has adopted guidelines and delegated to the adviser
the function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Board of Trustees
however retains oversight and is ultimately responsible for such determinations.
The purchase price and subsequent valuation of illiquid securities normally
reflect a discount, which may be significant, from the market price of
comparable securities for which a liquid market exists.
Investments in Other Investment Companies. Each fund is permitted to
invest up to 10% of its total assets in shares of registered investment
companies and up to 5% of its total assets in any one registered 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
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involve duplication of advisory fees and other expenses. The funds 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 ("SPDRs") 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. Investments in index baskets involve the
same risks associated with a direct investment in the types of securities
included in the baskets.
Portfolio Turnover and Short-Term Trading. Although it is not the policy
of any fund to purchase or sell securities for trading purposes, the funds place
no restrictions on portfolio turnover and will sell a portfolio security without
regard to the length of time such security has been held if, in the adviser's
view, the security meets the criteria for disposal. 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.
See "Financial Highlights" in the funds' prospectus for each fund's portfolio
turnover rates.
Temporary Defensive Investments. Notwithstanding a fund's investment
objective, each fund may on occasion, for temporary defensive purposes to
preserve capital or to meet redemption requests, hold part or all of its assets
in cash and investment grade money market instruments (i.e., securities with
maturities of less than one year) and short-term debt securities (i.e.,
securities with maturities of one to three years). Each fund may also invest
uncommitted cash and cash needed to maintain liquidity for redemptions in
investment grade money market instruments and short-term debt securities. The
Equity, Small Cap, Small Cap Growth and Small Cap Value Funds' investments in
such securities are limited to 20% of total assets unless the fund is in a
temporary defensive position. The International Equity and International Small
Cap Funds are limited to investing up to 35% of their total assets in investment
grade fixed income securities generally.
The money market instruments and short-term debt securities in which the
funds may invest consist of obligations issued or guaranteed by the U.S.
Government, its agencies, instrumentalities or authorities; instruments
(including negotiable certificates of deposit, non-negotiable fixed time
deposits and bankers' acceptances) of U.S. banks and foreign banks; repurchase
agreements; and prime commercial paper of U.S. companies and foreign companies.
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 each fund's assets invested in short-term debt securities will be
rated, at the time of investment, Aaa, Aa, or A by Moody's or AAA, AA, or A by
Standard & Poor's or, if not rated, determined to be of comparable credit
quality by the adviser. Up to 5% of each fund's total assets invested in
short-term debt securities may be invested in securities which are rated Baa by
Moody's or BBB by Standard & Poor's or, if not rated, determined to be of
comparable credit quality by the adviser.
INVESTMENT TECHNIQUES AND RELATED RISK
Strategic and Derivative 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 or fixed
income 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.
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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 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 or 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 although each fund will attempt to
limit its net loss exposure resulting from Strategic Transactions entered into
for such purposes to not more than 3% of its net assets at any one time and, to
the extent necessary, the funds 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 a 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 Equity Fund is underweighted in cyclical
stocks and overweighted in consumer stocks, Equity 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 Strategic Transactions successfully will
depend on the adviser's ability to predict pertinent market and currency and
interest rate movements, which cannot be assured. Each fund will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The funds' activities involving Strategic
Transactions may be limited in order to enable the funds to satisfy the
requirements of the Code, for qualification as a regulated investment company.
Risks of Strategic and Derivative 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
risks associated with the funds' transactions in options, futures and other
types of derivative securities including swaps may include some or all of the
following: market risk, leverage and volatility risk, correlation risk, credit
risk and liquidity and valuation risk. The writing of put and call options may
result in losses to the funds, force the purchase or sale, respectively of
portfolio securities at inopportune times or for prices higher than (in the case
of purchases due to the exercise of put options) or lower than (in the case of
sales due to the exercise of call options) current market values, limit the
amount of appreciation the funds can realize on their respective investments or
cause the funds to hold a security they might otherwise sell or sell a security
they might otherwise hold. The use of currency transactions by a fund can result
in the fund incurring losses as a result of a number of factors including the
imposition of exchange controls, suspension of settlements, or the inability to
deliver or receive a specified currency. The use of options and futures
transactions entails certain other risks. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of a fund creates the possibility that losses on
the hedging instrument may be greater than gains in the value of the fund's
position. The writing of options could significantly increase a fund's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads. In
addition, futures and options markets may not be liquid in all circumstances and
certain over-the-counter options may have no markets. As a result, in certain
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markets, the funds 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, these transactions 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 such
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.
Risks of Strategic and Derivative Transactions Outside the United States.
When conducted outside the United States and especially in emerging markets,
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.
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, 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, currency,
futures contract, index 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. The funds
are authorized to purchase and sell exchange listed options and over-the-counter
options ("OTC options"). Exchange listed options are issued by a regulated
intermediary such as the Options Clearing Corporation ("OCC"), which guarantees
the performance of the obligations of the parties to such options. The
discussion below uses the OCC as an example, but is also applicable to other
financial intermediaries.
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With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is
"in-the-money" (i.e., where the value of the underlying instrument exceeds, in
the case of a call option, or is less than, in the case of a put option, the
exercise price of the option) at the time the option is exercised. Frequently,
rather than taking or making delivery of the underlying instrument through the
process of exercising the option, listed options are closed by entering into
offsetting purchase or sale transactions that do not result in ownership of the
new option.
A fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct bilateral
agreement with the Counterparty. In contrast to exchange listed options, which
generally have standardized terms and performance mechanics, all the terms of an
OTC option, including such terms as method of settlement, term, exercise price,
premium, guarantees and security, are set by negotiation of the parties. The
funds will generally sell (write) OTC options (other than OTC currency options)
that are subject to a buy-back provision permitting a fund to require the
Counterparty to sell the option back to the fund at a formula price within seven
days. OTC options purchased by the funds and portfolio securities "covering" the
amount of the funds' obligation pursuant to an OTC option sold by them (the cost
of the sell-back plus the in-the-money amount, if any) are subject to the funds'
restriction on illiquid securities, unless determined to be liquid in accordance
with procedures adopted by the Board of Trustees. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. The funds expect generally to
enter into OTC options that have cash settlement provisions, although they are
not required to do so.
Unless the parties provide for it, there is no central clearing or
guaranty function in the OTC option market. As a result, if the Counterparty
fails to make delivery of the security, currency or other instrument underlying
an OTC option it has entered into with a fund or fails to make a cash settlement
payment due in accordance with the terms of that option, the fund will lose any
premium it paid for the option as well as any anticipated benefit of the
transaction. Accordingly, the adviser must assess the creditworthiness of each
such Counterparty or any guarantor or credit enhancement of the Counterparty's
credit to determine the likelihood that the terms of the OTC option will be
satisfied. The funds will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers", or broker dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from S&P or Moody's or an equivalent
rating from any other nationally recognized statistical rating organization
("NRSRO") or which issue debt that is determined to be of equivalent credit
quality by the adviser.
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.
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Each fund may purchase and sell (write) call options on equity securities
and Eurodollar instruments that are traded on U.S. and foreign securities
exchanges and in the over-the-counter markets, and on securities indices,
currencies and futures contracts. All call options sold by the funds must be
"covered" (i.e., the fund must own the securities or the futures contract
subject to the call) or must meet the asset segregation requirements described
below as long as the call is outstanding. Even though a fund will receive the
option premium to help offset any loss, the fund may incur a loss if the
exercise price is below the market price for the security subject to the call at
the time of exercise. A call option 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 equity 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 total
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that a fund may be required to
buy the underlying security at a price above the market price.
Options on Securities Indices and Other Financial Indices. Each fund may
also purchase and sell (write) call and put options on securities indices and
other financial indices. Options on securities indices and other financial
indices are similar to options on a security or other instrument except that,
rather than settling by physical delivery of the underlying instrument, they
settle by cash settlement. For example, an option on an index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the index upon which the option is based exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the differential between the closing
price of the index and the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated, in return
for the premium received, to make delivery of this amount upon exercise of the
option. In addition to the methods described above, the funds 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 the custodian) upon conversion or exchange of other securities in their
portfolios.
General Characteristics of Futures. Each fund may enter into financial
futures contracts or purchase or sell put and call options on such futures. The
International Equity Fund and International Small Cap Fund may enter into
futures contracts which are based upon indexes of foreign securities, such as
the CAC40 or Nikkei 225. 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. 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.
The funds' use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
regulations of the Commodity Futures Trading Commission (the "CTFC") relating to
exclusions from regulation as a commodity pool operator. Those regulations
currently provide that the funds may use commodity futures and option positions
(i) for bona
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fide hedging purposes without regard to the percentage of assets committed to
margin and option premiums, or (ii) for other purposes permitted by the CTFC to
the extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions (net the amount the positions were "in the
money" at the time of purchase) do not exceed 5% of each fund's respective net
asset value, 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 funds. If a fund exercises an option on a futures contract it will be
obligated to post initial margin (and potential subsequent variation margin) for
the resulting futures position just as it would for any position. Futures
contracts and options thereon are generally settled by entering into an
offsetting transaction but there can be no assurance that the position can be
offset prior to settlement at an advantageous price, nor that delivery will
occur. The segregation requirements with respect to futures contracts and
options thereon are described below.
Currency Transactions. The funds 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 over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
S&P or Moody's, respectively, or that have an equivalent rating from a NRSRO or
(except for OTC currency options) whose obligations are determined to be of
equivalent credit quality by the adviser.
The funds' 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 and Derivative 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 South Korean security
and the adviser may believe that the Korean won will deteriorate against the
Japanese yen. The
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fund would sell Korean won to reduce its exposure to that currency and buy
Japanese yen. This strategy would be a hedge against a decline in the value of
Korean won, although it would expose the fund to declines in the value of the
Japanese yen relative to the U.S. dollar.
To seek to reduce the effect of currency fluctuations on the value of
existing or anticipated holdings of portfolio securities, the funds may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
the fund's portfolio is exposed is difficult to hedge or to hedge against the
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a fund's portfolio securities are or
are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the fund's securities denominated in
linked currencies. For example, if the adviser considers that the British pound
is linked to the euro, a fund holds securities denominated in pounds and the
adviser believes that the value of pounds will decline against the U.S. dollar,
the adviser may enter into a contract to sell euros and buy dollars. Proxy
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to the
funds 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 funds are 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.
Swaps, Caps, Floors, Spreads and Collars. Among the Strategic Transactions
into which each of the funds may enter are interest rate, currency rate and
index swaps and the purchase or sale of related caps, floors, spreads and
collars. Interest rate swaps involve the exchange by a 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 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. 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. 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 or a spread is a combination of
a cap and a floor that preserves a certain rate of return within a predetermined
range of interest rates or values.
The funds will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with a fund receiving or
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paying, as the case may be, only the net amount of the two payments. The funds
will not enter into any swap, cap, floor, spread or collar transaction unless,
at the time of entering into such transaction, the unsecured long-term debt of
the Counterparty, combined with any credit enhancements, is rated at least A by
S&P or Moody's or has an equivalent rating from an NRSRO or the Counterparty
issues debt that is determined to be of equivalent credit quality by the
adviser. If there is a default by the Counterparty, a fund may have contractual
remedies pursuant to the agreements related to the transaction. The swap market
has grown substantially in recent years with a large number of banks and
investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors, spreads and collars are more recent innovations
for which standardized documentation has not yet been fully developed. Swaps,
caps, floors, spreads 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 Board of Trustees has adopted guidelines and delegated
to the adviser the daily function of determining and monitoring the liquidity of
swaps, caps, floors, spreads and collars. The Board of Trustees, however,
retains oversight focusing on factors such as valuation, liquidity and
availability of information and is ultimately responsible for such
determinations. The staff of the SEC currently takes the position that swaps,
caps, floors, spreads and collars are illiquid, and are subject to each fund's
limitation on investing in illiquid securities.
Combined Transactions. Each fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
swap transactions, and multiple interest rate transactions, structured notes and
any combination of futures, options, swaps, currency, multiple currency
transactions (including forward currency contracts) and interest rate
transactions ("component" transactions), instead of a single Strategic
Transaction, as part of a single or combined strategy when, in the opinion of
the adviser it is in the best interests of the 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.
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 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 liquid assets on the fund's records or
in a segregated account in the amount prescribed. If the market value of these
securities declines or the fund's obligations on the underlying Strategic
Transaction increases, additional cash or liquid securities will be segregated
daily so that the aggregate market value of the segregated securities is at
least equal to the amount of the fund's obligations on the underlying Strategic
Transactions. Segregated assets 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.
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
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options thereon to hedge against changes in LIBOR, to which many interest rate
swaps and fixed income instruments are linked.
Short-Term Trading. Each fund will sell a portfolio security without
regard to the length of time that security has been held if, in the adviser's
view, the security meets the criteria for disposal.
Portfolio Diversification and Concentration. Each fund is diversified,
which generally means that, with respect to 75% of its total assets (i) no more
than 5% of the fund's total assets may be invested in the securities of a single
issuer and (ii) each fund will purchase no more than 10% of the outstanding
voting securities of a single issuer. The funds will not concentrate (invest 25%
or more of their total assets) in the securities of issuers in any one industry.
The funds' policies concerning diversification and concentration are fundamental
and may not be changed without shareholder approval.
INVESTMENT RESTRICTIONS
The funds and the Portfolio's 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 lessor 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. A fund's non-fundamental policies may be changed
by the Board of Trustees, without shareholder approval, in accordance with
applicable laws, regulations or regulatory policy.
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
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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).
Small Cap Equity Fund. As a matter of fundamental policy, 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 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 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 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 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
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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 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 Trust without investor approval, in accordance with
applicable laws, regulations or regulatory policy. The 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).
Small Cap Growth Fund and Small Cap Growth Portfolio. As a matter of
fundamental policy, Small Cap Growth Portfolio (Small Cap Growth 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
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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
Growth Portfolio (Small Cap Growth 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.
Small Cap Value Fund. As a matter of fundamental policy, Small Cap Value
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
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accordance with the fund's investment policies or within the meaning of
paragraph 6 below, are not deemed to be senior securities.
3. Borrow money, except in amounts not to exceed 33 1/3% of the value of the
fund's total assets (including the amount borrowed) taken at market value
(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 fund may enter into reverse repurchase agreements and forward
roll transactions. For purposes of this investment restriction,
investments in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitments shall not
constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the fund may be
deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities
that are secured by real estate or interests therein, (iv) purchase and
sell mortgage-related securities and (v) hold and sell real estate
acquired by the fund as a result of the ownership of securities.
6. Purchase securities on margin (except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities or commodity contracts, except the fund may
purchase and sell options on securities, securities indices and currency,
futures contracts on securities, securities indices and currency and
options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the fund's investment policies.
8. Make loans, except that the fund (1) may lend portfolio securities in
accordance with the fund's investment policies up to 33 1/3% of the fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase
is made upon the original issuance of the securities.
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 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 fund.
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 Small Cap Value 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.
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<PAGE>
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.
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.
-26-
<PAGE>
International Small Cap Fund. As a matter of fundamental policy,
International 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 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 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
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 fund may enter into reverse repurchase agreements and forward
roll transactions. For purposes of this investment restriction,
investments in short sales, futures contracts, options on futures
contracts, securities or indices and forward commitments shall not
constitute borrowing.
4. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the fund may be
deemed to be an underwriter under the Securities Act of 1933.
5. Purchase or sell real estate except that the fund may (i) acquire or lease
office space for its own use, (ii) invest in securities of issuers that
invest in real estate or interests therein, (iii) invest in securities
that are secured by real estate or interests therein, (iv) purchase and
sell mortgage-related securities and (v) hold and sell real estate
acquired by the fund as a result of the ownership of securities.
6. Purchase securities on margin (except that the fund may obtain such
short-term credits as may be necessary for the clearance of purchases and
sales of securities).
7. Purchase or sell commodities or commodity contracts, except the fund may
purchase and sell options on securities, securities indices and currency,
futures contracts on securities, securities indices and currency and
options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the fund's investment policies.
8. Make loans, except that the fund (1) may lend portfolio securities in
accordance with the fund's investment policies up to 33 1/3% of the fund's
total assets taken at market value, (2) enter into repurchase agreements,
and (3) purchase all or a portion of an issue of debt securities, bank
loan participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the purchase
is made upon the original issuance of the securities.
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 fund's total assets taken at market value to be
invested in the securities of such
-27-
<PAGE>
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 fund.
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 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.
* * * * * * * * * * * * * * * *
Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Equity and Small Cap Growth Funds may each invest all
of its assets in the securities of a single open-end registered investment
company with substantially the same fundamental investment objectives,
restrictions and policies 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 assets will not constitute a violation of the
restriction.
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 Director 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
Each fund may, from time to time, advertise certain total return
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 average annual total return of a fund ("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.
-28-
<PAGE>
The funds' average annual total return for the one-, five-, and ten-year
(or life of fund, if shorter) periods ended September 30, 1999 were as follows:
Average Annual Total Return
---------------------------
Fund 1-Year 5-Year 10-Year
---- ------ ------ -------
Equity Fund 12.29% 18.78% N/A(1)
Small Cap Fund 44.02% 15.04% N/A(2)
Small Cap Growth Fund 72.14% N/A(3) N/A
Small Cap Value Fund N/A(4) N/A(4) N/A(4)
International Equity Fund 21.26% 5.98% 5.58%(5)
International Small Cap Fund N/A(6) N/A(6) N/A(6)
- ----------
(1) Equity Fund commenced operations on June 2, 1991.
(2) Small Cap Fund commenced operations on September 1, 1990.
(3) Small Cap Growth Fund commenced operations on December 23, 1996.
(4) Small Cap Value Fund commences operations on January 28, 2000.
(5) International Equity Fund commenced operations on December 8, 1988.
(6) International Small Cap Fund commences operations on January 28, 2000.
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
4Q97 0.85 1.02
1997 36.27 37.19
1Q98 12.64 12.82
2Q98 (1.87) (1.71)
3Q98 (18.66) (18.50)
4Q98 19.23 19.40
-29-
<PAGE>
Quarter/Year Net Gross
- ------------ --- -----
1998 7.21 7.92
1Q99 (6.98) (6.83)
2Q99 (8.02) (8.19)
3Q99 (6.27) (6.10)
4Q99
1999
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
(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
4Q97 (9.98) (9.80)
1997 15.16 15.99
1Q98 13.35 13.55
2Q98 (7.01) (6.84)
3Q98 (23.27) (23.12)
4Q98 25.77 25.97
1998 1.71 2.45
1Q99 17.28 17.55
2Q99 14.01 14.27
3Q99 (2.14) (1.96)
4Q99
1999
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<PAGE>
Small Cap Growth 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
4Q97 (8.48) (8.48)
1997 30.82 30.82
1Q98 16.07 16.07
2Q98 (4.87) (4.63)
3Q98 (18.73) (18.52)
4Q98 27.36 27.65
1998 14.30 15.14
1Q99 17.28 17.55
2Q99 14.01 14.27
3Q99 1.08 1.33
4Q99
1999
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)
4Q97 (9.40) (9.17)
1997 (2.47) (1.63)
1Q98 21.51 21.78
2Q98 3.52 3.77
3Q98 (14.82) (14.61)
4Q98 16.22 16.49
1998 24.53 25.71
1Q99 (2.09) (1.85)
2Q99 3.37 3.62
3Q99 3.08 3.32
4Q99
1999
-31-
<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, 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 and Small Cap
Growth Funds 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
Small Cap Value Fund may compare its performance to the Russell 2000 Index, the
Russell 2000 Value Index, which is generally considered to be representative of
those Russell 2000 companies with lower price-to-book ratios and lower
forecasted growth values and the S&P 500 Index. The International Equity Fund
may compare its performance to the EAFE Index. 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. The International Small
Cap Fund may compare its performance to the Salomon Smith Barney Extended Market
Index. The EMI represents the small capitalization component of the Salomon
Brothers Broad Market Index (excluding the U.S.). The Broad Market Index is a
comprehensive float weighted equity index consisting of every company with an
investable market capitalization of $100 million in 22 countries. Investable
market capitalization is defined as total market capital less large private
holdings, government holdings and corporate cross-holdings and taking into
account legal restrictions on foreign investment. 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
The Board of Trustees has established the investment objective and
policies which govern each fund's and each Portfolio's operation. The Board has
appointed officers of the Trust who conduct the day-to-day business of each
fund. The Board, however, remains responsible for ensuring that each fund is
operating consistently accordingly to its objective and policies and the
requirements of the federal securities laws. 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. All executive officers of the Trust and the
Portfolio Trust are affiliates of Standish, Ayer & Wood, Inc.
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
*D. Barr Clayson, 7/29/35 Trustee and Vice President and Managing Director,
c/o Standish, Ayer & Wood, Inc. Vice President Standish, Ayer & Wood, Inc.;
One Financial Center Chairman and Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Samuel C. Fleming, 9/30/40 Trustee Chairman of the Board
c/o Decision Resources, Inc. and Chief Executive Officer,
1100 Winter Street Decision Resources, Inc.;
Waltham, MA 02154 Trustee, Cornell University;
Director, CareGroup Inc.
</TABLE>
-32-
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 Mertens House, Inc.
So. Woodstock, VT 05071
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer &
One Financial Center Wood, Inc.; Director,
Boston, MA 02111 Standish International
Management Company, L.P.
Caleb Loring III, 11/14/43 Trustee Trustee, Essex Street Associates
c/o Essex Street Associates (family investment trust office);
400 Essex Street Director, Holyoke Mutual Insurance Company;
Beverly, MA 01915 Director, Carter Family Corporation;
Board Member, Gordon-Conwell Theological
Seminary; Chairman of the Advisory Board,
Salvation Army; Chairman, Vision New England
*Richard S. Wood, 5/21/54 Trustee and President Vice President and
c/o Standish, Ayer & Wood, Inc. Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management Company,
L.P.
James E. Hollis III, 11/21/48 Executive Vice President Vice President and Director,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Anne P. Herrmann, 1/26/56 Vice President and Secretary Assistant Vice President and
c/o Standish, Ayer & Wood, Inc. Senior Fund Administration Manager,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President of Finance, Standish, Ayer & Wood,
c/o Standish, Ayer & Wood, Inc. Inc. since October 1996; formerly Senior Vice
One Financial Center President, Treasurer and Chief Financial Officer of
Boston, MA 02111 Liberty Financial Bank 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
Denise B. Kneeland, 8/19/51 Vice President Vice President and Manager,
c/o Standish, Ayer & Wood, Inc. Mutual Funds Operations,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111 since December 1995; formerly
Vice President, Scudder, Stevens and Clark
</TABLE>
-33-
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Rosalind J. Lillo, 2/6/38 Vice President Broker/Dealer Administrator,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center since October 1995; formerly
Boston, MA 02111 Compliance Administrator,
New England Securities Corp.
Tami M. Pester, 10/29/67 Vice President Assistant Compliance Manager
c/o Standish, Ayer & Wood, Inc. and Compliance Officer,
One Financial Center Standish, Ayer & Wood, Inc.,
Boston, MA 02111 since 1998;
Compliance Officer,
State Street Global Advisors
Deborah Rafferty-Maple, 1/4/69 Vice President Financial Planner and Registered Investment
c/o Standish, Ayer & Wood, Inc. Networks Marketing Manager,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
</TABLE>
- ----------
* Indicates that Trustee is an interested person of the Trust for purposes
of the 1940 Act.
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, 1999, 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
Trustees as of the funds' fiscal years ended September 30, 1999:
<TABLE>
<CAPTION>
Pension or
Retire-
Aggregate Compensation from the Funds ment
------------------------------------- Benefits Total
Small Accrued as Compensation
Small Cap Small Cap International Part of from Funds and
Equity Cap Growth Value Small Cap International Fund's Other Funds in
Name of Trustee Fund** Fund Fund** Fund Fund Equity Fund Expenses Complex*
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
D. Barr Clayson 0 0 0 N/A N/A 0 $0 0
Samuel C. Fleming 4,536 4,368 2,044 N/A N/A 1,082 0 $57,000
Benjamin M. Friedman 4,536 4,368 2,044 N/A N/A 1,082 0 57,000
John H. Hewitt 4,738 4,501 2,063 N/A N/A 1,113 0 62,000
Edward H. Ladd 0 0 0 N/A N/A 0 0 0
Caleb Loring, III 4,536 4,368 2,044 N/A N/A 1,082 0 57,000
Richard S. Wood 0 0 0 N/A N/A 0 0 0
</TABLE>
- ----------
* As of the date of this Statement of Additional Information, there were 25
mutual funds in the fund complex.
-34-
<PAGE>
** The fund bears its pro rata allocation of trustee's fees paid by its
corresponding portfolio to the trustees of the Portfolio Trust.
Certain Shareholders
At November 5, 1999, the Trustees and officers of the Trust as a group
beneficially owned (i.e., had voting and/or investment power) less than 1% of
the then outstanding shares of each fund. Also at that date, no person
beneficially owned 5% or more of the then outstanding shares of any fund except:
[SAW: Please update for each fund]
<TABLE>
<CAPTION>
Percentage of Percentage of
Name and Address Outstanding Shares Name and Address Outstanding Shares
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Standish Equity Fund
Newburyport Contributory 11% Teamsters Local Union 918 7%
Retirement System Pension Fund
City Hall 2137-47 Utica Avenue
60 Pleasant Street Brooklyn, NY 11234
Newburyport, MA 01950
Univ. of Washington 6% Mentor Trust Co., Ttee. Life 5%
280 Gerberding Hall Technologies Pension Plan
Box 351248 Two Logan Square, 6th Floor
Seattle, WA 98195 Philadelphia, PA 19103
- ----------------------------------------------------------------------------------------------------------------------
Standish International
Equity Fund
Town of Wellesley 14% Factory Mutual Insurance 12%
Contributory Company
Pearlreef & Co. 225 Wyman Street
c/o State Street Bank & Trust P.O. Box 9198
P.O. Box 470 Waltham, MA 02454
Boston, MA 02101
Cannon Foundation, Inc. 10%
First Union National Bank
1525 West WT Harris Blvd.
Charlotte, NC 28288
- ----------------------------------------------------------------------------------------------------------------------
Standish Small Cap Equity
Fund II
Kenyon College Balanced 18% Charles Schwab & Co., Inc. - 12%
Fund Special Account FBO Customers
Kenyon College 101 Montgomery Street
Walton House Attn: Mutual Funds
Gambier, OH 43022 San Francisco, CA 94104
</TABLE>
-35-
<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Name and Address Outstanding Shares Name and Address Outstanding Shares
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Wentworth Institute of 10% Stephen Phillips Memorial 5%
Technology Charitable Trust Scholarship
c/o State Street Bank & Trust Foundation
P.O. Box 1992 P.O. Box 242
Boston, MA 02105 Salem, MA 01970
- ----------------------------------------------------------------------------------------------------------------------
Standish Small Cap Equity
Fund
Factory Mutual Insurance 13% Hendrix College 11%
Company 1601 Harkrider Street
225 Wyman Street Conway, AZ 72032
P.O. Box 9198
Waltham, MA 02454
Norwest Bank MN TR FBO 6%
Brown Printing Company
Profit Sharing
2700 Snellling Ave. N.
Suite 300
Minneapolis, MN 55475
</TABLE>
Investment Advisers
Standish serves as the adviser to the Equity Portfolio, Small Cap Growth
Portfolio, Small Cap Fund and Small Cap Value Fund pursuant to written
investment advisory agreements. Prior to the close of business on May 3, 1996,
Standish managed directly the assets of the Equity and Small Cap Funds pursuant
to investment advisory agreements. These agreements were terminated by the
Equity and Small Cap funds on such date subsequent to the approval by the funds'
shareholders on March 29, 1996 to implement certain changes in the Funds'
investment restrictions which enable the Funds to invest all of their investable
assets in the Equity Portfolio and Small Cap Portfolio, respectively. On
December 31, 1999, the Small Cap Fund withdrew its assets from the Small
Capitalization Equity Portfolio and is now investing those assets directly in
securities as it had prior to May 3, 1996. Accordingly, Standish again serves as
investment adviser to the Small Cap Fund pursuant to a written investment
advisory agreement. Standish is a Massachusetts corporation organized in 1933
and is registered under the Investment Advisers Act of 1940.
The following, constituting all of the Directors and all of the
shareholders of Standish, are 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, 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,
Thomas P. Sorbo, David C. Stuehr, Ralph S. Tate, Michael W. Thompson and Richard
S. Wood.
SIMCO serves as investment adviser to International Equity and
International Small Cap Funds pursuant to an investment advisory agreement.
SIMCO is a Delaware limited liability company which was organized in 1991 and is
a registered investment adviser under the Investment Advisers Act of 1940. The
managing member of SIMCO is Standish, which holds a 100% interest. Ralph S.
Tate, Managing Director of Standish, is President and a Director of SIMCO.
Richard S. Wood, Vice President and Managing Director of Standish and the
President and a Trustee of the Trust and Portfolio Trust, is the Executive Vice
President and a
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Director of SIMCO. D. Barr Clayson, a Managing Director and Vice President of
Standish and a Trustee and Vice President of the Trust and Portfolio Trust, is a
Vice President of SIMCO.
Subject to the supervision and direction of the Trustees of the Trust and
the Portfolio Trust, the adviser recommends investment decisions, places orders
to purchase and sell securities and permits the Portfolios' and the funds to use
the name "Standish." In addition to those services, the adviser provides the
Small Cap, Small Cap Value, International Small Cap and International Equity
Funds (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 for its services based upon a percentage of the Small Cap, Small
Cap Value, International Small Cap, 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 average daily net assets)
Fund
- ----
Equity Portfolio 0.50%
Small Cap Fund 0.60%
Small Cap Growth Portfolio 0.80%
Small Cap Value Fund 0.80%
International Equity Fund 0.80%
International Small Cap Fund 1.00%
During the last fiscal year ended September 30, 1999 and the previous two
fiscal years ended September 30, 1998 and 1997, the funds and the Portfolios
paid advisory fees in the following amounts:
Fund 1997 1998 1999
---- ---- ---- ----
Equity Fund N/A N/A N/A
Equity Portfolio $493,202 $1,017,136 $1,360,746
Small Cap Fund N/A N/A N/A
Small Cap Portfolio $1,051,872 $1,363,260 $1,009,277(1)
Small Cap Growth Fund N/A N/A N/A
Small Cap Growth Portfolio 0(2) $0(2) $173,628
Small Cap Value Fund N/A N/A N/A
International Equity Fund $84,688(4) $160,467(4) $154,083(4)
International Small Cap
Fund N/A N/A N/A
- ----------
(1) For the fiscal year ended September 30, 1999, the adviser voluntarily
agreed not to impose all or a portion of its advisory fee in the amount of
$16,107.
(2) The adviser voluntarily agreed not to impose all or a portion of its
advisory fee for the period through December 31, 1996 and for the fiscal
years ended September 30, 1997 and 1998 in the amounts of $62, $10,209 and
$61,698, respectively.
(3) Small Cap Value and International Small Cap Funds commence operations on
January 28, 2000.
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(4) For the fiscal years ended September 30, 1997, 1998 and 1999 the adviser
voluntarily agreed not to impose a portion of its fees for the
International Equity Fund in the amounts of $215,367, $175,579 and
$164,027, respectively.
The adviser has voluntarily and temporarily agreed to limit total expenses
(excluding brokerage commissions, taxes and extraordinary expenses) of Equity
Fund, Small Cap Fund, Small Cap Growth Fund, Small Cap Value Fund, International
Equity Fund and International Small Cap Fund to 0.71%, 0.74%, 1.00%, 1.00%,
1.00% and 1.25%, respectively, of the applicable fund's average daily net
assets. Standish and/or SIMCO 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, Small Cap,
Small Cap Value, International Equity and International Small Cap Funds each
bear expenses of their operations other than those incurred by the adviser
pursuant to the investment advisory agreement. Among other expenses, the funds
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 Small CapFund , Small Cap Value Fund,
International Equity Fund, International Small Cap Fund or the applicable
Portfolio, and, in either event (ii) by vote of a majority of the Trustees of
the Trust or the Portfolio Trust (as applicable) who are not parties to the
investment advisory agreement or "interested persons" (as defined in the 1940
Act) of any such party, cast in person at a meeting called for the purpose of
voting on such approval. Each investment advisory agreement may be terminated at
any time without the payment of any penalty by vote of the Trustees of the Trust
or the Portfolio Trust or by the "vote of a majority of the outstanding voting
securities" of the Small Cap Fund, Small Cap Value Fund, the International
Equity Fund, International Small Cap 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 Small Cap Fund, Small Cap Value Fund, International Equity Fund, the
International Small Cap Value 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 Small Cap Fund, Small Cap Value Fund, the
International Equity Fund, the International Small Cap Fund and its
shareholders, and the Portfolios and their investors, come before those of the
Adviser and its employees.
Administrator
Investors Bank & Trust Company ("IBT"), 200 Clarendon Street, Boston,
Massachusetts 02116, serves as administrator to the Portfolios and Standish
serves as the administrator to the feeder funds pursuant to written
administration agreements with the Trust on behalf of these funds. As
administrators, IBT and Standish manage the affairs of their respective
Portfolios or funds, and, in the case of Standish, allows the feeder funds to
use the name "Standish." For these services, IBT currently receives a fee from
the funds based on a percentage of the fund's net assets according to the
following formula: 0.0105% of net
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assets up to the first $1 billion, 0.0034% of net assets for the next $500
million and 0.0017 of net assets in excess of $1.5 billion. IBT also receives an
aggregate fee of $12,625 per month from all of the Portfolios in the Portfolio
Trust and all of the non-feeder funds in the Trust. This fee is allocated among
each Portfolio and non-feeder fund based upon the relative asset sizes of the
Portfolios and non-feeder funds. IBT receives an aggregate fee of $2,500 per
month from all of the feeder funds in the Trust. This fee is allocated among
each feeder fund based upon the relative asset sizes. Standish currently does
not receive any additional compensation for its services as administrator. The
Trustees of the Trust may, however, determine in the future to compensate
Standish for its administrative services. Each of the administration agreements
can be terminated by either party on not more than sixty days' written notice.
Distributor of the Trust
Standish Fund Distributors, L.P., an affiliate of the adviser, serves as
the Trust's exclusive principal underwriter and makes itself available to
receive purchase orders for the funds' shares. In that capacity, Standish Fund
Distributors has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of the funds' shares in accordance with the terms
of the Underwriting Agreement between the Trust and Standish Fund Distributors.
Pursuant to the Underwriting Agreement, Standish Fund Distributors has agreed to
use its best efforts to obtain orders for the continuous offering of the funds'
shares. Standish Fund Distributors 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 with respect to a fund 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 by a vote of the holders of a majority of the applicable 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 Standish Fund
Distributors are located at One Financial Center, 26th Floor, Boston,
Massachusetts 02111.
PURCHASE AND REDEMPTION OF SHARES
Additional information on purchase and 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 New York Stock Exchange is closed (other than customary weekend or
holiday closings) or trading on the exchange is restricted; (ii) for any period
during which an emergency exists as a result of which disposal by a fund of
securities owned by it or determination by a fund of the value of its net assets
is not reasonably practicable; or (iii) for such other periods as the SEC may
permit for the protection of shareholders of the funds.
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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 fund portfolio securities. Portfolio securities paid upon redemption
of fund shares will be valued at their then current market value. The Trust has
elected to be governed by the provisions of Rule 18f-1 under the 1940 Act which
limits the 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.
PORTFOLIO TRANSACTIONS
The adviser is responsible for placing the Small Cap, Small Cap Value,
International Equity, International Small Cap Fund's and each Portfolio's
portfolio transactions and will do so in a manner deemed fair and reasonable to
the Small Cap, Small Cap Value, International Equity, International Small Cap
Funds 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 Small Cap, Small Cap Value,
International Equity, International Small Cap Funds 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 Small Cap, Small Cap Value, International Equity,
International Small Cap Funds 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 Small Cap, Small Cap Value, International Equity, International Small Cap
Funds 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
Small Cap, Small Cap Value, International Equity, International Small Cap Funds
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
Small Cap, Small Cap Value, International Equity, International Small Cap Funds
or a Portfolio. In making such allocations, the main factors considered by the
adviser will be the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment.
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BROKERAGE COMMISSIONS
Aggregate Brokerage Commissions
Paid by the Fund for Portfolio Transactions
-------------------------------------------
Fund/Portfolio 1997(1) 1998(1) 1999(1)
-------------- ------- ------- -------
Equity Fund(2) N/A N/A N/A
Equity Portfolio(5) $294,686 $555,507 $464,684
Small Cap Fund(2) N/A N/A N/A
Small Cap Portfolio(1) $247,090 $346,603 $656,220
Small Cap Growth Fund(2) N/A N/A N/A
Small Cap Growth Portfolio $ 12,384 $ 20,950 $ 66,805
Small Cap Value Fund(4) N/A N/A N/A
International Equity Fund(3) $608,296 $772,948 $455,427
International Small Cap Fund(4) N/A N/A N/A
- ----------
(1) For the fiscal years ended September 30, 1999 and 1998 and the 9 month
period ended September 30, 1997.
(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) At September 30, 1999, International Equity Fund held securities issued by
Nomura Securities with a market value of $295,300. Nomura Securities is
one of the fund's regular brokers or dealers.
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, Jr. 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). If the NYSE closes early, the
calculation of net asset value will be accelerated to that time. Net Asset Value
is computed by dividing the value of all securities and other assets of a fund
(substantially all of which, in the case of Equity Fund and Small Cap Growth
Funds will be represented by the fund's interest in its corresponding Portfolio)
less all liabilities by the applicable number of fund shares outstanding, and
adjusting to the nearest cent per share. Expenses and fees of each fund are
accrued daily and taken into account for the purpose of determining net asset
value.
The value of a Portfolio's net assets (i.e., the value of its securities
and other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the net asset value per
share of the Equity and Small Cap Growth 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
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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 quotations are not readily available and all other assets
are valued at fair value as determined in good faith at the direction of the
Trustees.
Money market instruments with less than sixty days remaining to maturity
when acquired by 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 a diversified investment series of the Trust, an open-end
management investment company organized as an unincorporated business trust
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 SAI, 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 SAI, the Equity and Small Cap Growth Funds invest all of their
investible assets in other open-end investment companies (i.e., the
corresponding Portfolio).
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All fund shares have equal rights with regard to voting, and shareholders
of a fund have the right to vote as a separate class with respect to matters as
to which their interests are not identical to those of shareholders of other
classes of the Trust, including the approval of an investment advisory contract
and any change of investment policy requiring the approval of shareholders.
Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a Trustee. The Declaration also provides for indemnification from the assets
of the Trust for all losses and expenses of any Trust shareholder held liable
for the obligations of the Trust. Thus, the risk of a shareholder incurring a
financial loss on account of his or its liability as a shareholder of the Trust
is limited to circumstances in which the Trust would be unable to meet its
obligations. The possibility that these circumstances would occur is remote.
Upon payment of any liability incurred by the Trust, the shareholder paying the
liability will be entitled to reimbursement from the general assets of the
Trust. The Declaration also provides that no series of the Trust is liable for
the obligations of any other series. The Trustees intend to conduct the
operations of the Trust to avoid, to the extent possible, ultimate liability of
shareholders for liabilities of the Trust.
Except as described below, whenever the Trust is requested to vote on a
fundamental policy of or matters pertaining to a Portfolio, the Trust will hold
a meeting of the associated fund's shareholders and will cast its vote
proportionately as instructed by the fund's shareholders. Fund shareholders who
do not vote will not affect the Trust's votes at the Portfolio meeting. The
percentage of the Trust's votes representing fund shareholders not voting will
be voted by the Trustees of the Trust in the same proportion as the fund
shareholders who do, in fact, vote. Subject to applicable statutory and
regulatory requirements, a fund would not request a vote of its shareholders
with respect to (a) any proposal relating to the Portfolio, which proposal, if
made with respect to the fund, would not require the vote of the shareholders of
the fund, or (b) any proposal with respect to the Portfolio that is identical in
all material respects to a proposal that has previously been approved by
shareholders of the fund. Any proposal submitted to holders in a Portfolio, and
that is not required to be voted on by shareholders of the fund, would
nonetheless be voted on by the Trustees of the Trust.
THE PORTFOLIO AND ITS INVESTORS
Each Portfolio is a series of Standish, Ayer & Wood Master Portfolio,
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.
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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 Equity Fund
and Small Cap Growth Fund invest their assets in the Equity and Small Cap Growth
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, Equity Fund and Small Cap Growth 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 treated by shareholders under the
Code as if received on December 31 of the year the distributions are declared,
rather than the year in which the distributions are received.
Each fund is not subject to Massachusetts corporate excise or franchise
taxes. Provided that the funds qualify as regulated investment companies under
the applicable provisions of federal law incorporated in Massachusetts law, they
will also not be required to pay any Massachusetts income tax.
Each fund will not distribute net capital gains realized in any year to
the extent that a capital loss is carried forward from prior years against such
gain. For federal income tax purposes, a fund is permitted to carry forward a
net capital loss in any year to offset its own net capital gains, if any, during
the eight years following the year of the loss. To the extent subsequent net
capital gains are offset by such losses, they would not result in federal income
tax liability to the fund and, as noted above, would not be distributed as such
to shareholders.
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.
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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 Small Cap Fund, Small Cap Value Fund, International Equity
Fund, International Small Cap 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 obtaining cash
necessary to satisfy tax distribution requirements.
Foreign exchange gains and losses realized by a Portfolio, Small Cap Fund,
Small Cap Value Fund, International Equity Fund or International Small Cap 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', Small Cap Fund, Small Cap Value Fund's, International Equity
Fund's or International Small Cap 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, Small Cap Fund, Small Cap Value Fund, International Equity
Fund and International Small Cap 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%
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<PAGE>
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 Small Cap Fund, Small Cap Value Fund, International Equity Fund and
International Small Cap 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 Small Cap Fund, Small Cap Value Fund, International Equity Fund or
International Small Cap 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 Small Cap Fund, Small Cap Value Fund,
International Equity Fund or International Small Cap 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 Fund as a separate
category of income for purposes of computing the limitations on the foreign tax
credit. Tax exempt shareholders will ordinarily not benefit from this election.
Each year (if any) that Small Cap Fund, Small Cap Value Fund, International
Equity Fund or International Small Cap 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, Small Cap Value Fund, International Equity Fund or
International Small Cap 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 rents
and royalties, or capital gains) or hold at least 50% of their assets in
investments producing such passive income ("passive foreign investment
companies"), the relevant fund could be subject to Federal income tax and
additional interest charges on "excess distributions" actually or constructively
received from such companies or gain from the actual or deemed sale of stock in
such companies, even if all income or gain actually realized is timely
distributed to its shareholders. They would not be able to pass through to their
shareholders any credit or deduction for such a tax. Certain elections may, if
available, ameliorate these adverse tax consequences, but any such election
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, Small Cap Fund, Small Cap Value Fund,
International Equity Fund or International Small Cap 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 treated under the
Code as ordinary income (if they are from the fund's investment company taxable
income) or long-term capital gain (if they are from the fund's net capital gain
and are designated by the fund as "capital gain dividends") 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.
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<PAGE>
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 Small Cap Fund, Small Cap Value Fund,
International Equity Fund or International Small Cap Fund are 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.
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
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<PAGE>
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.
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 funds with their correct taxpayer identification number and
certain certifications or if they are otherwise subject to backup withholding.
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 a fund 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.
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 advisers regarding such
treatment and the application of foreign taxes to an investment in the funds.
ADDITIONAL INFORMATION
The funds' prospectus and this SAI omit certain information contained in
the Trust's 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 SEC.
EXPERTS AND FINANCIAL STATEMENTS
Each fund's and portfolio's financial statements contained in the 1999
Annual Reports of the funds have been audited by PricewaterhouseCoopers L.L.P.,
independent accountants, and are incorporated by reference into this SAI.
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<PAGE>
PART C
OTHER INFORMATION
Item 24. Exhibits
(a) Agreement and Declaration of Trust dated August 13, 1986***
(a1) Certificate of Designation of Standish Fixed Income Fund***
(a2) Certificate of Designation of Standish International Fund***
(a3) Certificate of Designation of Standish Securitized Fund***
(a4) Certificate of Designation of Standish Short-Term Asset Reserve
Fund***
(a5) Certificate of Designation of Standish Marathon Fund***
(a6) Certificate of Amendment dated November 21, 1989***
(a7) Certificate of Amendment dated November 29, 1989***
(a8) Certificate of Amendment dated April 24, 1990***
(a9) Certificate of Designation of Standish Equity Fund***
(a10) Certificate of Designation of Standish International Fixed Income
Fund***
(a11) Certificate of Designation of Standish Intermediate Tax Exempt Bond
Fund***
(a12) Certificate of Designation of Standish Massachusetts Intermediate
Tax Exempt Bond Fund***
(a13) Certificate of Designation of Standish Global Fixed Income Fund***
(a14) Certificate of Designation of Standish Controlled Maturity Fund and
Standish Fixed Income Fund II***
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<PAGE>
(a15) Certificate of Designation of Standish Tax-Sensitive Small Cap
Equity Fund and Standish Tax-Sensitive Equity Fund***
(a16) 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***
(a17) Form of Certificate of Designation of Standish Small Capitalization
Equity Fund II***
(a18) Certificate of Designation of Standish Small Capitalization Equity
Asset Fund II, Standish Diversified Income Fund, Standish
Diversified Income Asset Fund*
(a19) Form of Certificate of Designation of Institutional Shares and
Service Shares of Standish Small Capitalization Equity Fund II and
Standish International Fixed Income Fund****
(a20) Form of Certificate of Designation of Standish International Fixed
Income Fund II*****
(a21) Certificate of Designation of Standish Small Cap Value Fund and
Standish International Small Cap Fund******
(a22) Amendment to the Agreement and Declaration of Trust dated March 4,
1999*****
(b) Bylaws of the Registrant***
(c) Not applicable
(d1) Form of Investment Advisory Agreement between Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International
Fund***
(d2) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Securitized Fund***
(d3) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Fixed Income
Fund***
C-2
<PAGE>
(d4) Assignment of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund***
(d5) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Intermediate Tax
Exempt Bond Fund***
(d6) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Massachusetts Intermediate
Tax Exempt Bond Fund***
(d7) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Controlled Maturity Fund***
(d8) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Fixed Income Fund II***
(d9) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund***
(d10) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Tax-Sensitive
Equity Fund***
(d11) Form of Assignment of Investment Advisory Agreement***
(d12) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International Fixed
Income Fund II*****
(d13) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Small Cap Value Fund******
(d14) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Small Cap
Fund******
(e1) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.***
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<PAGE>
(f) Not applicable
(g1) Master Custody Agreement between the Registrant and Investors Bank &
Trust Company***
(g2) Custody Agreement between Registrant with respect to Standish
International Equity Fund and Morgan Stanley Company***
(g3) Master Custody Agreement between the Registrant and Morgan Stanley
Trust Company***
(h1) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company***
(h2) Most recently dated/filed revised Exhibit A to Transfer Agency and
Service Agreement between the Registrant and Investors Bank & Trust
Company*****
(h3) Master Administration Agreement between the Registrant and Investors
Bank & Trust Company***
(h4) Form of Administrative Services Agreement between Standish, Ayer &
Wood, Inc. and the Registrant***
(h5) Most recently dated/filed revised Exhibit A to Administrative
Services Agreement between Standish, Ayer & Wood, Inc. and the
Registrant***
(h6) Form of Service Plan relating to Standish Small Capitalization
Equity Fund II and Standish International Fixed Income Fund****
(i) Opinion and Consent of Counsel for the Registrant**
(j) Not applicable
(k) Not applicable
(l) Not applicable
(m) Not applicable
(n) Not applicable
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<PAGE>
(o) Multiple Class Plan pursuant to Rule 18f-3 relating to Standish
Small Capitalization Equity Fund II and Standish International Fixed
Income Fund****
(p1) Power of Attorney for Registrant (Richard S. Wood)^
(p2) Power of Attorney for Registrant (Samuel C. Fleming)^
(p3) Power of Attorney for Registrant (Benjamin M. Friedman)^
(p4) Power of Attorney for Registrant (John H. Hewitt)^
(p5) Power of Attorney for Registrant (Edward H. Ladd)^
(p6) Power of Attorney for Registrant (Caleb Loring III)^
(p7) Power of Attorney for Registrant (D. Barr Clayson)^
(p8) Power of Attorney for Registrant (Paul G. Martins)**
(p9) Power of Attorney for Portfolio Trust (Richard S. Wood)^
(p10) 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)+
(p11) Power of Attorney for Portfolio Trust (Paul G. Martins)**
- --------------------
^ Filed as an exhibit to Registration Statement No. 33-8214 and
incorporated herein by reference thereto.
+ Filed electronically as an exhibit to Registration Statement No.
811-07603 and incorporated herein by reference thereto.
* Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 81) and incorporated herein by
reference thereto.
** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 82) and incorporated herein by
reference thereto.
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<PAGE>
*** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 88) and incorporated by
reference thereto.
**** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 91) and incorporated by
reference thereto.
***** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 93) and incorporated by
reference thereto.
****** Filed herewith.
Item 24. 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 25. 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
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<PAGE>
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 26. Business and Other Connections of Investment Advisers
The business and other connections of the officers and Directors of
Standish, Ayer & Wood, Inc. ("Standish, Ayer & Wood"), the investment adviser to
certain series of the Registrant, are listed on the Form ADV of Standish, Ayer &
Wood as currently on file with the Commission (File No. 801-584), the text of
which is hereby incorporated by reference.
The business and other connections of the officers and partners of
Standish International Management Company, L.P. ("SIMCO"), the investment
adviser to certain other series of the Registrant, are listed on the Form ADV of
SIMCO as currently on file with the Commission (File No. 801-639338), the text
of which is hereby incorporated by reference.
The following sections of each such Form ADV are incorporated herein by
reference:
(a) Items 1 and 2 of Part 2;
(b) Section IV, Business Background, of each Schedule D.
Item 27. Principal Underwriter
(a) Standish Fund Distributors, L.P. serves as the principal
underwriter of each of the following series of the Registrant:
Standish Fixed Income Fund
Standish Securitized Fund
Standish Short-Term Asset
Reserve Fund
Standish International Fixed
Income Fund
Standish International Fixed Income Fund II
Standish Global Fixed Income Fund
Standish Equity Fund
Standish Small Capitalization Equity Fund
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<PAGE>
Standish Massachusetts Intermediate
Tax Exempt Bond Fund
Standish Intermediate Tax Exempt
Bond Fund
Standish International Equity Fund
Standish Controlled Maturity Fund
Standish Fixed Income Fund II
Standish Small Cap Tax-Sensitive
Equity Fund
Standish Tax-Sensitive Equity Fund
Standish Equity Asset Fund
Standish Small Capitalization
Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Asset Fund
Standish Small Capitalization Equity Fund II
Standish Diversified Income Fund
Standish Diversified Income Asset Fund
Standish Small Cap Value Fund
Standish International Small Cap Fund
(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 28. 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 29. Management Services
Not applicable
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<PAGE>
Item 30. Undertakings
Not applicable.
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<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Post-Effective Amendment to its Registration Statement pursuant to Rule 485(a)
under the Securities Act of 1933 to be signed on its behalf by the undersigned,
thereunto duly authorized, on the 12th day of November, 1999.
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.
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<PAGE>
Signature Title Date
Richard S. Wood* Trustee and President November 12, 1999
- ------------------------ (principal executive officer)
Richard S. Wood
/s/ Paul G. Martins Treasurer (principal November 12, 1999
- ------------------------ financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee November 12, 1999
- ------------------------
D. Barr Clayson
Samuel C. Fleming* Trustee November 12, 1999
- ------------------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee November 12, 1999
- ------------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 12, 1999
- ------------------------
John H. Hewitt
Edward H. Ladd* Trustee November 12, 1999
- ------------------------
Edward H. Ladd
Caleb Loring III* Trustee November 12, 1999
- ------------------------
Caleb Loring III
*By: /s/ Paul G. Martins
-------------------
Paul G. Martins
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 12th day of November, 1999.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Paul G. Martins
----------------------------------
Paul G. Martins, Treasurer
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
Richard S. Wood* Trustee and President November 12, 1999
- ------------------------ (principal executive
Richard S. Wood officer)
Paul G. Martins* Treasurer (principal November 12, 1999
- ------------------------ financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee November 12, 1999
- ------------------------
D. Barr Clayson
Samuel C. Fleming* Trustee November 12, 1999
- ------------------------
Samuel C. Fleming
C-12
<PAGE>
Benjamin M. Friedman* Trustee November 12, 1999
- ------------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 12, 1999
- ------------------------
John H. Hewitt
Edward H. Ladd* Trustee November 12, 1999
- ------------------------
Edward H. Ladd
Caleb Loring III* Trustee November 12, 1999
- ------------------------
Caleb Loring III
*By: /s/ James E. Hollis III
-----------------------
James E. Hollis, III
Attorney-In-Fact
C-13
<PAGE>
EXHIBIT INDEX
Exhibit
(a21) Certificate of Designation of Standish Small Cap Value Fund and Standish
International Small Cap Fund******
(d13) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Small Cap Value Fund******
(d14) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Small Cap Fund******
STANDISH, AYER & WOOD INVESTMENT TRUST
One Financial Center
Boston, Massachusetts 02111
Certificate of Designation
The undersigned, being a Vice President of Standish, Ayer & Wood
Investment Trust (the "Trust"), a trust with transferable shares of the type
commonly called a Massachusetts business trust, DOES HEREBY CERTIFY that,
pursuant to the authority conferred upon the Trustees of the Trust by Section
6.1(b) and Section 9.3 of the Agreement and Declaration of Trust, dated August
13, 1986, as amended (as so amended, the "Declaration of Trust"), and by the
affirmative vote of a Majority of the Trustees at a meeting duly called and held
on October 12, 1999, the Declaration of Trust is amended as set forth in this
Certificate of Designation.
A. There is hereby established and designated two additional Series of the
Trust: "Standish Small Cap Value Fund" and ""Standish International Small Cap
Fund." Such series is referred to herein as the "Fund" (references in this
Certificate of Designation to the "Fund" shall apply equally and individually to
each of the foregoing Funds.)
B. The beneficial interest in the Fund shall be divided into Shares having
a nominal or par value of one cent ($.01) per Share, of which an unlimited
number may be issued, which Shares shall represent interests only in the Fund.
The Shares of the Fund shall have the following rights and preferences:
1. Assets Belonging to the Fund. Any portion of the Trust Property
allocated to the Fund, and all consideration received by the Trust for the
issue or sale of Shares of the Fund, together with all assets in which
such consideration is invested or reinvested, all interest, dividends,
income, earnings profits and gains therefrom, and proceeds thereof,
including any proceeds derived from the sale, exchange or liquidation of
such assets, and any funds or payments derived from any reinvestment of
such proceeds in whatever form the same may be, shall be held by the
Trustees in trust for the benefit of the holders of Shares of the Fund and
shall irrevocably belong to the Fund for all purposes, and shall be so
recorded upon the books of account of the Trust, and the Shareholders of
any other Fund who are not Shareholders of the Fund shall not have, and
shall be conclusively deemed to have waived, any claims to the assets of
the Fund. Such consideration, assets, interest, dividends, income,
earnings, profits, gains and proceeds, together with any General Items
allocated to the Fund as provided in the following sentence, are herein
referred to collectively as "Fund-Assets" of the Fund, and as assets
"belonging to" the Fund. In the event
<PAGE>
that there are any assets, income, earnings, profits and proceeds thereof,
funds, or payments which are not readily identifiable as belonging to any
particular Fund (collectively "General Items"), the Trustees shall
allocate such General Items to and among any one or more of the Funds
established and designated from time to time in such manner and on such
basis as they, in their sole discretion, deem fair and equitable; and any
General Items so allocated to the Fund shall belong to and be part of the
Fund Assets of the Fund. Each such allocation by the Trustees shall be
conclusive and binding upon the Shareholders of all the Funds for all
purposes.
2. Liabilities of the Fund. The assets belonging to the Fund shall
be charged with the liabilities in respect of the Fund and all expenses,
costs, charges and reserves attributable to the Fund, and any general
liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as pertaining to any particular Fund shall be
allocated and charged by the Trustees to and among any one or more of the
Funds established and designated from time to time in such manner and on
such basis as the Trustees in their sole discretion deem fair and
equitable. The indebtedness, expenses, costs, charges and reserves
allocated and so charged to the Fund are herein referred to as
"liabilities of" the Fund. Each allocation of liabilities, expenses,
costs, charges and reserves by the Trustees shall be conclusive and
binding upon the Shareholders of all the Funds or all purposes. Any
creditor of the Fund may look only to the assets of the Fund to satisfy
such creditor's debt.
3. Dividends. Dividends and distributions on Shares of the Fund may
be paid with such frequency as the Trustees may determine, which may be
daily or otherwise pursuant to a standing resolution or resolutions
adopted only once or with such frequency as the Trustees may determine, to
the Shareholders of the Fund, from such of the income, accrued or
realized, and capital gains, realized or unrealized, and out of the assets
belonging to the Fund, as the Trustees may determine, after providing for
actual and accrued liabilities of the Fund. All dividends and
distributions on Shares of the Fund shall be distributed pro rata to the
Shareholders of the Fund in proportion to the number of such Shares held
by such holders at the date and time of record established for the payment
of such dividends or distributions, except that in connection with any
dividend or distribution program or procedure the Trustees may determine
that no dividend or distribution shall be payable on Shares as to which
the Shareholder's purchase order and/or payment have not been receive by
the time or times established by the Trustees under such program or
procedure, or that dividends or distributions shall be payable on Shares
which have been tendered by the holder thereof for redemption or
-2-
<PAGE>
repurchase, but the redemption or repurchase proceeds of which have not
yet been paid to such Shareholder. Such dividends and distributions may be
made in cash or Shares of the Fund or a combination thereof as determined
by the Trustees, or pursuant to any program that the Trustees may have in
effect at the time for the election by each Shareholder of the mode of the
making of such dividend or distribution to that Shareholder. Any such
dividend or distribution paid in Shares will be paid at the net asset
value thereof as determined in accordance with subsection (8) hereof.
4. Liquidation. In the event of the liquidation or dissolution of
the Trust or the liquidation of the Fund, the Shareholders of the Fund
shall be entitled to receive, when and as declared by the Trustees, the
excess of the Fund Assets over the liabilities of the Fund. The assets so
distributable to the Shareholders of the Fund shall be distributed among
such Shareholders in proportion to the number of Shares of the Fund held
by them and recorded on the books of the Trust. The Fund or class thereof
may be terminated by either (i) the affirmative vote of the holders of not
less than two-thirds of the Shares outstanding and entitled to vote at any
meeting or action of Shareholders of the Fund or class thereof; provided,
however, that if such termination is recommended by the Trustees, a
Majority Shareholder Vote shall be sufficient to authorize such
liquidation, or (ii) notice to Shareholders of the Fund or class by means
of an instrument in writing signed by a majority of the Trustees, stating
that a majority of the Trustees has determined that the continuation of
the Fund or class thereof is not in the best interest of the Shareholders
of the Fund or class as a result of factors or events adversely affecting
the ability of the Fund or class to conduct its business in an
economically viable manner. Such factors and events may include (but are
not limited to) the inability of the Fund or class to maintain its assets
at an appropriate size, changes in laws or regulations governing the Fund
or class or affecting assets of the type in which the Fund invests or
economic developments or trends having a significant adverse impact on the
business or operation of the Fund or class.
5. Voting. The Shareholders shall have the voting rights set forth
in or determined under Article 7 of the Declaration of Trust.
6. Redemption by Shareholder. Each holder of Shares of the Fund
shall have the right at such times as may be permitted by the Trust to
require the Trust to redeem all or any part of his Shares of the Fund at a
redemption price equal to the net asset value per Share of the Fund next
determined in accordance with subsection (8) hereof after the Shares are
properly tendered for redemption; provided, that the Trustees may from
time to time, in their discretion, determine
-3-
<PAGE>
and impose a fee for such redemption. Payment of the redemption price
shall be in cash; provided, however, that if the Trustees determine, which
determination shall be conclusive, that conditions exist which make
payment wholly in cash unwise or undesirable, the Trust may make payment
wholly or partly in Securities or other assets belonging to the Fund at
the value of such Securities or assets used in such determination of net
asset value. Notwithstanding the foregoing, the Trust may postpone payment
of the redemption price and may suspend the right of the holders of Shares
of the Fund to require the Trust to redeem Shares of the Fund during any
period or at any time when and to the extent permissible under the
Investment Company Act of 1940, as amended (the "1940 Act").
7. Redemption at the Option of the Trust. Each Share of the Fund
shall be subject to redemption at the option of the Trust at the
redemption price which would be applicable if such Share were then being
redeemed by the Shareholder pursuant to subsection (6) hereof: (i) at any
time, if the Trustees determine in their sole discretion that failure to
so redeem may have materially adverse consequences to the holders of the
Shares of the Trust or of any Fund, or (ii) upon such other conditions
with respect to maintenance of Shareholder accounts of a minimum amount as
may from time to time be determined by the Trustees and set forth in the
then current Prospectus of the Fund. Upon such redemption the holders of
the Shares so redeemed shall have no further right with respect thereto
other than to receive payment of such redemption price.
8. Net Asset Value. The net asset value per Share of the Fund at any
time shall be the quotient obtained by dividing the value of the net
assets of the Fund at such time (being the current value of the assets
belonging to the Fund, less its then existing liabilities) by the total
number of Shares of the Fund then outstanding, all determined in
accordance with the methods and procedures, including without limitation
those with respect to rounding, established by the Trustees from time to
time. The Trustees may determine to maintain the net asset value per Share
of the Fund at a designated constant dollar amount and in connection
therewith may adopt procedures not inconsistent with the 1940 Act for the
continuing declaration of income attributable to the Fund as dividends
payable in additional Shares of the Fund at the designated constant dollar
amount and for the handling of any losses attributable to the Fund. Such
procedures may provide that in the event of any loss each Shareholder
shall be deemed to have contributed to the shares of beneficial interest
account of the Fund his pro rata portion of the total number of Shares
required to be canceled in order to permit the net asset value per Share
of the Fund to be maintained, after reflecting such loss, at the
designated constant dollar amount. Each
-4-
<PAGE>
Shareholder of the Fund shall be deemed to have expressly agreed, by his
investment in the Fund, to make the contribution referred to in the
preceding sentence in the event of any such loss.
9. Transfer. All Shares of the Fund shall be transferable, but
transfers of Shares of the Fund will be recorded on the Share transfer
records of the Trust applicable to the Fund only at such times as
Shareholders shall have the right to require the Trust to redeem Shares of
the Fund and at such other times as may be permitted by the Trustees.
10. Equality. All Shares of the Fund shall represent an equal
proportionate interest in the assets belonging to the Fund (subject to the
liabilities of the Fund), and each Share of the Fund shall be equal to
each other Share thereof; but the provisions of this sentence shall not
restrict any distinctions permissible under subsection (3) hereof that may
exist with respect to dividends and distributions on Shares of the Fund.
The Trustees may from time to time divide or combine the Shares of the
Fund into a greater or lesser number of Shares of the Fund without thereby
changing the proportionate beneficial interest in the assets belonging to
the Fund or in any way affecting the rights of the holders of Shares of
any other Fund.
11. Rights of Fractional Shares. Any fractional Share of any Series
shall carry proportionately all the rights and obligations of a whole
Share of that Series, including rights and obligation with respect to
voting, receipt of dividends and distributions, redemption of Shares, and
liquidation of the Trust or of the Fund.
12. Conversion Rights. Subject to compliance with the requirements
of the 1940 Act, the Trustees shall have the authority to provide that
holders of Shares of the Fund shall have the right to convert said Shares
into Shares of one or more other Funds in accordance with such
requirements and procedures as the Trustees may establish.
13. Master/Feeder. Notwithstanding any other provisions herein or in
the Declaration of Trust as applicable to the Fund, the Trustees shall
have full power in their discretion, without any requirement of approval
by shareholders of the Fund, to invest part or all of the Fund Assets, or
to dispose of parts or all of the Fund Assets and invest the proceeds of
such disposition, in securities issued by one or more other investment
companies registered under the 1940 Act. Any such other investment company
may (but need not) be a trust (formed under the laws of the Commonwealth
of Massachusetts any other state or
-5-
<PAGE>
jurisdiction) which is classified as a partnership for Federal income tax
purposes.
14. Multiple Class. Notwithstanding any other provisions herein or
in the Declaration of Trust as applicable to the Fund, the Trustees shall
have full power and authority in their discretion, without any requirement
of approval by shareholders of the Fund, to establish and designate, and
to change, in any manner Shares of any classes with such preferences,
terms of conversion, voting powers, rights and privileges as the Trustees
may determine (but the Trustees may not change Shares which have
previously been issued by the Fund and are currently outstanding in a
manner materially adverse to the Shareholders of such Shares without a
Majority Shareholder Vote of such Shareholders); to divide or combine the
Shares of any classes into a greater or lesser number; to classify or
reclassify any unissued Shares of any class into one or more classes of
Shares; and to abolish any one or more classes of Shares. The assets
belonging to the Fund shall be charged with the liabilities of the Fund
and all expenses, costs, charges and reserves attributable to the Fund,
except that liabilities and expenses allocated solely to a particular
class shall be borne by that class. All dividends and other distributions
on Shares of the Fund shall be distributed pro rata to the Shareholders of
the Fund in proportion to the number of Shares of the Fund they held on
the record date established for such payment, except that such dividends
and distributions shall appropriately reflect expenses allocated to a
particular class of the Fund. The net asset value per Share of any class
shall be determined in the same manner that net asset value per Share of
any Fund is determined in accordance with subparagraph (h) of Section 6.2
of the Declaration of Trust. If the Shares of the Fund are divided into
separate classes, each matter required or permitted to be voted upon at a
meeting or by written consent of Shareholders shall be submitted to a
separate vote of the outstanding shares of each class; provided that (a)
when required by the Declaration of Trust or by the 1940 Act, Shares shall
be voted in the aggregate and not by an individual class, and (b) when the
Trustees have determined that the matter affects the interests of more
than one class, then the Shareholders of all such classes shall be
entitled to vote thereon. Each Shareholder of any class shall be entitled
to the same voting powers and rights as are the Shareholders of any
Series, including the requirements for quorum and shareholder action, as
are set forth in the Declaration of Trust. In addition to the powers set
forth in Section 5.2 of the Declaration of Trust, the Trustees shall also
have the power and authority to enter into any one or more contracts with
any one or more Contracting Party to provide for the performance and
assumption of some or all of the services, duties and responsibilities set
forth in subparagraphs (a) through (g) of Section 5.2 of the Declaration
of Trust to, for or on behalf of any class, as the
-6-
<PAGE>
Trustees may deem appropriate. To the extent necessary to accommodate the
creation of multiple classes of Shares, any other provision of the
Declaration of Trust which refers specifically to a Fund or Series shall
also refer to a class, as context requires.
15. Amendment, etc. Subject to the provisions and limitations of
Section 9.3 of the Declaration of Trust and applicable law, this
Certificate of Designation may be amended by an instrument signed in
writing by a Majority of the Trustees (or by an officer of the Trust
pursuant to the Vote of a Majority of the Trustees), provided that, if any
amendment adversely affects the rights of the Shareholders of the Fund,
such amendment may be adopted by an instrument signed in writing by a
Majority of the Trustees (or by an officer of the Trust pursuant to the
vote of a Majority of the Trustees) when authorized to do so by the vote
in accordance with Section 7.1 of the Declaration of Trust of the holders
of a majority of all the Shares of the Fund outstanding and entitled to
vote, without regard to the other Series.
16. Incorporation of Defined Terms. All capitalized terms which are
not defined herein shall have the same meanings as are assigned to those
terms in the Declaration of Trust filed with the Secretary of State of The
Commonwealth of Massachusetts.
The Trustees further direct that, upon the execution of this Certificate
of Designation, the Trust take all necessary action to file a copy of this
Certificate of Designation with the Secretary of State of The Commonwealth of
Massachusetts and at any other place required by law or by the Declaration of
Trust.
IN WITNESS WHEREOF, the undersigned has set her hand and seal this 10th
day of November, 1999.
By: /s/ Anne P. Herrmann
--------------------
Anne P. Herrmann
Its: Vice President
-7-
<PAGE>
ACKNOWLEDGMENT
M A S S A C H U S E T T S
SUFFOLK, SS.: November 10, 1999
Then personally appeared the above-named Vice President of Standish, Ayer
& Wood Investment Trust and acknowledged the foregoing instrument to be her free
act and deed.
Before me,
/s/Joseph W. Chin
-----------------
Notary Public
My commission expires: August 12, 2005
-8-
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this ____ day of _______, between Standish, Ayer &
Wood Investment Trust, an unincorporated business trust organized under the laws
of The Commonwealth of Massachusetts (the "Trust"), and Standish, Ayer & Wood,
Inc., a Massachusetts corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the assets held by the Trustees of the Trust may be divided into
separate funds, each with its own separate investment portfolio, investment
objectives, policies and purposes; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services, and is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Adviser to furnish investment
advisory services to Standish Small Cap Tax-Sensitive Equity Fund (the "Fund"),
a separate fund of the Trust, and the Adviser is willing to furnish such
services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of the Adviser. The Trust hereby appoints the Adviser to
act as investment adviser of the Fund for the period and on the terms herein set
forth. The Adviser accepts such appointment and agrees to render the services
herein set forth, for the compensation herein provided. The Adviser shall for
all purposes herein be deemed an independent contractor and shall, unless
expressly otherwise provided, have no authority to act for or represent the Fund
in any way nor shall otherwise be deemed an agent of the Fund.
2. Duties of the Adviser.
(a) The Adviser, at its expense, will furnish continuously an
investment program for the Fund, will determine, subject to the overall
supervision and review of the Trustees of the Trust, what investments shall be
purchased, held, sold or exchanged by the Fund and what portion, if any, of the
assets of the Fund will be held uninvested, and shall, on behalf of the Trust,
make changes in the investments of the Fund. Subject always to the supervision
of the Trustees of the Trust and to the provisions of the Trust's Agreement and
Declaration of Trust and Bylaws and of the 1940 Act, the Adviser will also
manage, supervise and conduct the other affairs and business of the Fund and
matters incidental thereto. The Adviser, and any affiliates thereof, shall be
free to render similar services to other investment companies and other clients
and to engage in other activities, so long as the services rendered hereunder
are not impaired.
(b) The Adviser shall provide, without cost to the Trust, all
necessary office space and the services of executive personnel for administering
the affairs of the Fund.
(c) The Fund shall bear the expenses of its operations, including
legal and auditing services, taxes and governmental fees, certain insurance
premiums, costs of shareholder notices and reports, typesetting and printing of
prospectuses and statements of additional information for regulatory purposes
and for distribution to shareholders, bookkeeping and share pricing expenses,
fees and disbursements of the Trust's custodian, transfer and dividend
disbursing agent or registrar, or interest and other like expenses properly
payable by the Trust.
A-1
<PAGE>
3. Compensation of the Adviser.
(a) As full compensation for the services and facilities furnished
by the Adviser under this Agreement, the Trust agrees to pay to the Adviser a
fee at the annual rate of 0.80% of the Fund's average daily net asset value.
Such fees shall be accrued when computed and payable monthly. For purposes of
calculating such fees, the Fund's average daily net asset value shall be
determined by taking the average of all determinations of net asset value made
in the manner provided in the Fund's current prospectus and statement of
additional information.
(b) The compensation payable to the Adviser hereunder for any period
less than a full month during which this Agreement is in effect shall be
prorated according to the proportion which such period bears to a full month.
4. Limitation of Liability of the Adviser. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the Fund
in connection with any investment policy or the purchase, sale or retention of
any securities on the recommendation of the Adviser; provided, however, that
nothing herein contained shall be construed to protect the Adviser against any
liability to the Fund by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties, or by reason of reckless disregard
of its obligations and duties under this Agreement.
5. Term and Termination.
(a) This Agreement shall become effective on the date hereof. Unless
terminated as herein provided, this Agreement shall remain in full force and
effect for two years from the date hereof and shall continue in full force and
effect for successive periods of one year thereafter, but only so long as each
such continuance is approved annually (i) by either the Trustees of the Trust or
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Fund, and, in either event, (ii) by vote of a majority of the
Trustees of the Trust who are not parties to this 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.
(b) This Agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of the Trust or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Fund or by
the Adviser, on sixty days' written notice to the other parties.
(c) This Agreement shall automatically and immediately terminate in
the event of its assignment as defined in the 1940 Act.
6. Limitation of Liability. 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 Trust dated August 13, 1986, as the
same may subsequently thereto have been, or subsequently hereto be, amended. It
is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, shareholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the trust property of
the Trust as provided in the Agreement and Declaration of Trust of the Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and this Agreement has been signed by an authorized
officer of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them, but shall bind only the trust property of the Trust as
provided in the Agreement and Declaration of Trust.
A-2
<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
STANDISH, AYER & WOOD INVESTMENT TRUST
on behalf of Standish Small Cap Tax-Sensitive Equity Fund
Attest:
___________________ By: ______________________________________________
Its:______________________________________________
STANDISH, AYER & WOOD, INC.
Attest:
___________________ By: ______________________________________________
Its:______________________________________________
A-3
EXHIBIT A
INVESTMENT ADVISORY AGREEMENT
AGREEMENT made as of this ____ day of _______, 2000, between Standish,
Ayer & Wood Master Portfolio, an unincorporated business trust organized under
the laws of the State of New York (the "Trust"), and Standish, Ayer & Wood,
Inc., a Massachusetts corporation (the "Adviser").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is so registered under the Investment Company Act of
1940, as amended (the "1940 Act"); and
WHEREAS, the assets held by the Trustees of the Trust may be divided into
separate funds, each with its own separate investment portfolio, investment
objectives, policies and purposes; and
WHEREAS, the Adviser is engaged in the business of rendering investment
advisory and management services, and is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended; and
WHEREAS, the Trust desires to retain the Adviser to furnish investment
advisory services to Standish Small Capitalization Equity Portfolio II (the
"Portfolio"), a separate series of the Trust, and the Adviser is willing to
furnish such services;
NOW, THEREFORE, it is hereby agreed between the parties hereto as follows:
1. Appointment of the Adviser. The Trust hereby appoints the Adviser to
act as investment adviser of the Portfolio for the period and on the terms
herein set forth. The Adviser accepts such appointment and agrees to render the
services herein set forth, for the compensation herein provided. The Adviser
shall for all purposes herein be deemed an independent contractor and shall,
unless expressly otherwise provided, have no authority to act for or represent
the Portfolio in any way nor shall otherwise be deemed an agent of the
Portfolio.
2. Duties of the Adviser.
(a) The Adviser, at its expense, will furnish continuously an
investment program for the Portfolio, will determine, subject to the overall
supervision and review of the Trustees of the Trust, what investments shall be
purchased, held, sold or exchanged by the Portfolio and what portion, if any, of
the assets of the Portfolio will be held uninvested, and shall, on behalf of the
Trust, make changes in the investments of the Portfolio. Subject always to the
supervision of the Trustees of the Trust and to the provisions of the Trust's
Agreement and Declaration of Trust and Bylaws and of the 1940 Act, the Adviser
will also manage, supervise and conduct the other affairs and business of the
Portfolio and matters incidental thereto. Notwithstanding the foregoing, the
Adviser shall not be required to perform any such non-investment advisory
services that may, in the opinion of counsel to the Trust, cause the Portfolio
to be engaged in a "trade or business within the United States", as such term is
used in Section 864 of the Internal Revenue Code of 1986, or any successor
statute. The Adviser, and any affiliates thereof, shall be free to render
similar services to other investment companies and other clients and to engage
in other activities, so long as the services rendered hereunder are not
impaired.
(b) The Portfolio shall bear the expenses of its operations,
including legal and auditing services, taxes and governmental fees, certain
insurance premiums, costs of notices and reports to interestholders, typesetting
and printing of registration and financial statements for regulatory purposes
and for distribution to existing and prospective interestholders, bookkeeping
and interest pricing expenses, fees and disbursements of the Trust's custodian,
administrator, transfer and dividend disbursing agent or registrar, or interest
and other like expenses properly payable by the Trust.
A-1
<PAGE>
3. Compensation of the Adviser.
(a) As full compensation for the services and facilities furnished
by the Adviser under this Agreement, the Trust agrees to pay to the Adviser a
fee equal at the annual rate to 0.80% of the Portfolio's average daily net
assets. Such fees shall be accrued when computed and payable monthly. For
purposes of calculating such fees, the Portfolio's average daily net asset value
shall be determined by taking the average of all determinations of net asset
value made in the manner provided in the Portfolio's current registration
statement.
(b) The compensation payable to the Adviser hereunder for any period
less than a full month during which this Agreement is in effect shall be
prorated according to the proportion which such period bears to a full month.
4. Limitation of Liability of the Adviser. The Adviser shall not be liable
for any error of judgment or mistake of law or for any loss suffered by the
Portfolio in connection with any investment policy or the purchase, sale or
retention of any securities on the recommendation of the Adviser; provided,
however, that nothing herein contained shall be construed to protect the Adviser
against any liability to the Portfolio by reason of willful misfeasance, bad
faith or gross negligence in the performance of its duties, or by reason of
reckless disregard of its obligations and duties under this Agreement.
5. Term and Termination.
(a) This Agreement shall become effective on the date hereof. Unless
terminated as herein provided, this Agreement shall remain in full force and
effect for two years from the date hereof and shall continue in full force and
effect for successive periods of one year thereafter, but only so long as each
such continuance is approved annually (i) by either the Trustees of the Trust or
by vote of a majority of the outstanding voting securities (as defined in the
1940 Act) of the Portfolio, and, in either event, (ii) by vote of a majority of
the Trustees of the Trust who are not parties to this 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.
(b) This Agreement may be terminated at any time without the payment
of any penalty by vote of the Trustees of the Trust or by vote of a majority of
the outstanding voting securities (as defined in the 1940 Act) of the Portfolio
or by the Adviser, on sixty days' written notice to the other parties.
(c) This Agreement shall automatically and immediately terminate in
the event of its assignment as defined in the 1940 Act.
6. Limitation of Liability. The term "Standish, Ayer & Wood Master
Portfolio" means and refers to the Trustees from time to time serving under the
Agreement and Declaration of Trust of the Trust dated January 18, 1996, as the
same may subsequently thereto have been, or subsequently hereto be, amended. It
is expressly agreed that the obligations of the Trust hereunder shall not be
binding upon any of the Trustees, interestholders, nominees, officers, agents or
employees of the Trust, personally, but shall bind only the trust property of
the Trust as provided in the Agreement and Declaration of Trust of the Trust.
The execution and delivery of this Agreement have been authorized by the
Trustees of the Trust and interestholders of the Portfolio and this Agreement
has been signed by an authorized officer of the Trust, acting as such, and
neither such authorization by such Trustees and interestholders nor such
execution and delivery by such officer shall be deemed to have been made by any
of them, but shall bind only the trust property of the Trust as provided in the
Agreement and Declaration of Trust.
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<PAGE>
IN WITNESS WHEREOF the parties hereto have caused this Agreement to be duly
executed as of the date first written above.
STANDISH, AYER & WOOD MASTER PORTFOLIO
on behalf of Standish Small Captialization
Equity Portfolio II
Attest:
By:
- -------------------------- -------------------------------------
Its:
-------------------------------------
STANDISH, AYER & WOOD, INC.
Attest:
By:
- -------------------------- -------------------------------------
Its:
-------------------------------------
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