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. 101 |X|
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
Amendment No. 105 |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
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(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code: (617) 375-1760
Ernest V. Klein, Esq.
Hale and Dorr LLP
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 May 1, 2000 pursuant to Rule 485(b)
|_| 60 days after filing pursuant to Rule 485(a)(1)
|X| On January 28, 2001 pursuant to Rule 485(a)(1)
|_| 75 days after filing pursuant to Rule 485(a)(2)
|_| On [date] pursuant to Rule 485(a)(2)
----------------------
This Post-Effective Amendment has been executed by Standish, Ayer & Wood Master
Portfolio.
<PAGE>
[LOGO] STANDISH FUNDS(R)
Standish Group of
Equity Funds
Prospectus
---------------------------------------------------------------
January 31, 2001
Standish Select Value Fund
(Formerly, Standish Equity Fund)
Standish Small Cap Value Fund
Standish Small Cap Growth Fund
(Institutional Class Shares)
Standish Small
Capitalization Equity 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
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Risk/Return Summary.........................................................3
Who may want to invest...................................................3
Mutual fund risks........................................................3
Select value and small cap value funds...................................4
Small cap growth and small cap equity funds..............................6
International equity and international small cap funds...................6
The Funds' Investments and Related Risks...................................10
The Investment Adviser.....................................................12
About Standish(R).......................................................12
Fund managers...........................................................13
Advisory services and fees..............................................13
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
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. serves as each fund's investment adviser.
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
--------------------------------------------------------------------------------
----------------------------------------------------------
Select Value Fund Small Cap Value Fund
(formerly, Equity Fund)
----------------------------------------------------------
Investment objective Long-term growth of capital. Long-term growth of capital.
----------------------------------------------------------
Key investments The fund invests all of its The fund invests primarily
and strategies investible assets in a in equity securities of
Standish master portfolio small cap U.S. companies.
which invests primarily in The fund focuses on
equity securities of companies with total market
companies that appear to be capitalizations within the
undervalued relative to range of market
underlying business capitalizations of the
fundamentals. Except where companies included in the
indicated, this prospectus Russell 2000 Index. This
uses the term "fund" to mean would correspond to
the fund and its master companies with total market
portfolio taken together. capitalizations of less
The fund may invest without than $X billion as of
limit in securities of U.S. January 1, 2001.
companies and of foreign
companies that are listed or
traded in the U.S. but not
more than 10% of assets in
other foreign securities.
These U.S. and foreign
companies may be of any
size.
----------------------------------------------------------
How stocks are The adviser employs a value based investment style in
selected managing the fund's portfolio which means the adviser
seeks to identify those companies with stocks trading at
prices below what the adviser believes are their intrinsic
values. The adviser measures value by evaluating a
company's valuation multiples (price/earnings,
price/sales, price/cash flow), current competitive
position, and expected business growth relative to its
industry.
The adviser uses a The adviser uses the
combination of quantitative following stock selection
and fundamental research to process:
identify portfolio
candidates. A quantitative o The adviser uses a
model screens a universe of quantitative proprietary
up to 1,500 companies with model to identify small
the most liquid stocks companies which are
according to valuation attractively priced
multiples, consistency of relative to their earnings
growth, near-term reported potential.
business momentum, and
actual earnings relative to, o The adviser uses
and the current trend in, fundamental research and
expected earnings. quantitative analysis to
Fundamental research is also select among the stocks
used to identify companies ranked as attractive by
that appear valued the quantitative model.
attractively based on
business dynamics, hidden
assets, or special
circumstances.
The adviser uses fundamental
research and qualitative
analysis to select stocks
among the portfolio
candidates. The adviser
looks for companies with
strong competitive
positions, high quality
management, and financial
strength.
The adviser focuses primarily on individual stock
selection instead of trying to predict which industries or
sectors will perform best. The stock selection process for
both funds is designed to produce a diversified portfolio
of companies that the adviser believes are undervalued
relative to expected business growth.
----------------------------------------------------------
Principal risks of Investors could lose money on their investments in a fund,
investing in the or a fund could perform less well than other possible
funds 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.
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 Cap Value Fund, small cap
stocks are out of favor with the market.
----------------------------------------------------------
Risks of small In the case of the Small Cap Value Fund, there is a risk
cap companies 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 risks
performance 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.
Select Value Fund
[The following information was represented by a bar chart in the
printed materials.]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
33.35 9.52 20.81 -3.78 37.55 26.84 36.27 7.21 -0.17 0
Calendar Year Ended December 31
Quarterly returns:
Select Value Fund
Highest: xx% in x quarter x
Lowest: xx% in x quarter x
Quarterly returns:
Small Cap Value Fund
Highest: xx% in x quarter x
Lowest: xx% in x quarter x
Small Cap Value Fund
[The following information was represented by a bar chart in the
printed materials.]
2000
0
Calendar Year Ended December 31
--------------------------------------------------------------------------------
Average annual total returns for selected periods ended December 31, 2000
--------------------------------------------------------------------------------
Life of Inception
1 Year 5 Years Fund Date
--------------------------------------------------------------------------------
Select Value Fund (x) x x 1/2/91
--------------------------------------------------------------------------------
Russell 1000 Value Index* x x x N/A
--------------------------------------------------------------------------------
Small Cap Value Fund N/A N/A x 2/1/00
--------------------------------------------------------------------------------
Russell 2000 Index* N/A N/A x N/A
--------------------------------------------------------------------------------
*The Russell 1000 Value Index is an unmanaged index representing those Russell
1000 companies with value characteristics. The Russell 1000 Index is an
unmanaged index of 1000 stocks of large capitalization companies. The Russell
2000 Index is an unmanaged index of 2,000 stocks of small cap U.S. companies.
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
Select Value Fund(2) $x $x $x $x
Small Cap Value Fund $x $x $x $x
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 9/30/00 Select Value Fund Value 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% 0.80%
Distribution (12b-1) fees None None
Other expenses 0.23% 3.71%
Total annual fund operating
expenses 0.73% 4.51%
--------------------------------------------------------------------------------
(1) Because Standish has agreed to cap the Small Cap Value Fund's operating
expenses, the fund's actual expenses were:
Management fees 0.50% 0.00%
Other expenses 0.21% 1.00%
Total annual fund
operating expenses 0.71% 1.00%
This cap may be changed or eliminated.
(2) The table and example reflect the combined expenses of the Select Value Fund
and the master portfolio in which it invests all its assets.
5 Standish Group of Equity Funds
<PAGE>
Risk/Return Summary
--------------------------------------------------------------------------------
----------------------------------------------------------
Small Cap Growth Fund Small Capitalization
Equity Fund
----------------------------------------------------------
Investment objective Long-term growth of capital. Long-term growth of capital.
----------------------------------------------------------
Key investments The fund invests all of its This fund is closed to new
and strategies investible assets in a investors. The fund invests
Standish master portfolio primarily in equity
which invests primarily in securities of small cap U.S.
equity securities of small companies with total market
cap U.S. companies. Except capitalizations no greater
where indicated, this than 75% of the maximum
prospectus uses the term capitalization of the
"fund" to mean the fund and companies included in the
its master portfolio taken Russell 2000 Growth Index.
together. The fund focuses This would correspond to
on companies with total companies with total market
market capitalization within capitalization of less than
the range of total market $xx billion as of January 1,
capitalizations of the 2001.
companies included in the
Russell 2000 Growth Index.
This would correspond to
companies with total market
capitalization of less than
$xx billion as of January 1,
2001.
----------------------------------------------------------
How stocks The adviser employs a growth oriented investment style in
are selected managing each fund's portfolio which means the adviser
seeks to identify those small cap companies which are
experiencing or will experience rapid earnings or revenue
growth. The adviser focuses on high quality companies,
especially those with products or services that are
leaders in their market niches. The adviser selects stocks
by:
o Using fundamental research to identify and follow
companies with attractive characteristics, such as
strong business and competitive positions, solid cash
flows and balance sheets, high quality management and
high sustainable growth.
o Investing in a company when the adviser's research
indicates that the 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 fund,
investing in the or a fund could perform less well than other possible
funds 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 stocks with value
characteristics over growth stocks.
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 because
cap companies 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 risks
performance of investing in the funds. The bar chart shows 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 a widely recognized,
unmanaged index of common stock prices. Each fund's past
performance does not necessarily indicate how the fund
will perform in the future.
Small Cap Growth Fund
[The following information was represented by a bar chart in the
printed materials.]
1997 1998 1999 2000
30.86 14.30 127.67
Calendar Year Ended December 31
Quarterly returns:
Small Cap Growth Fund
Highest: x% in x quarter x
Lowest: x% in x quarter x
Quarterly returns:
Small Capitalization Equity Fund
Highest: x% in x quarter x
Lowest: x% in x quarter x
Small Capitalization Equity Fund
[The following information was represented by a bar chart in the
printed materials.]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
64.67 9.73 28.22 -3.65 29.83 17.36 15.16 1.71 79.10 0.00
Calendar Year Ended December 31
Average annual total returns for selected periods ended December 31, 2000
--------------------------------------------------------------------------------
Life of Inception
1 Year 5 Years Fund Date
--------------------------------------------------------------------------------
Small Cap Growth Fund xx -- xx 12/23/96
--------------------------------------------------------------------------------
Russell 2000 Growth Index* xx -- xx N/A
--------------------------------------------------------------------------------
Small Capitalization Equity Fund xx 9/1/90
--------------------------------------------------------------------------------
Russell 2000 Growth Index* xx -- xx N/A
--------------------------------------------------------------------------------
*The Russell 2000 Index is an unmanaged index of 2,000 stocks of small cap U.S.
companies. The Russell 2000 Growth Index is an unmanaged index representing
those Russell 2000 companies with higher price-to-book ratios and forecasted
growth.
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
SmallCap
Growth Fund(2) $x $x $x $x
Small Cap
Equity Fund $x $x $x $x
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 Equity
ended 9/30/00 Fund 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% 0.60%
Distribution (12b-1) fees None None
Other expenses 0.18% 0.17%
Total annual fund operating expenses 0.98% 0.77%
--------------------------------------------------------------------------------
(1) Because Standish has agreed to cap the Small Capitalization Equity Fund's
operating expenses, the fund's actual expenses were:
Management fees 0.60%
Other expenses 0.14%
Total annual fund operating expenses 0.74%
These caps may be changed or eliminated.
(2) The table and example reflect the combined expenses of the Small Cap Growth
Fund and the master portfolio in which it invests all its assets.
7 Standish Group of Equity Funds
<PAGE>
Risk/Return Summary
--------------------------------------------------------------------------------
----------------------------------------------------------
International Equity Fund International Small Cap Fund
----------------------------------------------------------
Investment objective Long-term growth of capital. Long-term growth of capital.
----------------------------------------------------------
Key investments The fund invests primarily The fund invests primarily
and strategies in equity securities of in equity securities of
companies located in the companies that are located
foreign countries in foreign countries
represented in the MSCI represented in the Salomon
Europe, Australia, Far East Smith Barney Extended Market
(EAFE) Index and Canada. The Index (EMI). The fund
fund may invest up to 25% of invests primarily in those
assets in emerging market companies which have total
countries. market capitalizations that
fall in the range of the
capitalizations of the
companies that comprise the
EMI Ex-U.S. Index. The EMI
Ex-U.S. Index is made up of
those companies representing
the lowest 20% of each
country's total available
market capitalization.
----------------------------------------------------------
How stocks are Each fund invests in stocks that appear to be undervalued
selected (as measured by their price/earnings ratios) and that may
have value and/or growth characteristics. However, the
investment approach used by the adviser to select stocks
for each fund differs. In the case of International Equity
Fund, the adviser employs a top-down approach which places
greater emphasis on country allocations that will
outperform the market rather than individual stock
selections. In the case of International Small Cap Fund,
the adviser employs a bottom-up approach which emphasizes
individual stock selection. Reflective of the difference
in these two approaches, the adviser emphasizes the
following in order of importance:
o Country allocations The o Stock selection The
adviser uses proprietary adviser uses proprietary
quantitative value and quantitative models and
earnings growth models, as traditional qualitative
well as traditional analysis to identify
qualitative analysis, to attractive stocks with low
identify countries with relative price multiples
low relative price and positive trends in
multiples and positive earnings forecasts.
relative trends in
earnings forecasts. o Country allocations The
adviser seeks to allocate
o Sector and industry country weights in
allocations The adviser accordance with the EMI
groups stocks into Index. Minor deviations
microuniverses of similar from the EMI Index weights
companies within each may occur.
country to facilitate
comparisons. The adviser's o Sector and industry
sector allocations may allocations The adviser
differ from those of EAFE. groups stocks into
microuniverses of similar
o Stock selection The companies within each
adviser uses proprietary country to facilitate
quantitative models and comparisons. The adviser
traditional qualitative uses the sector
analysis to identify allocations of the EMI
attractive stocks with low Index as a guide, but
relative price multiples allocations may differ
and positive trends in from those of the Index.
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 fund,
investing in the or a fund could perform less well than other possible
funds 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 for
cap companies 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 risks
performance 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., which began operations on January 2, 1996,
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 performance of the predecessor fund was
calculated according to the standardized SEC method except
that monthly rather than daily fund values were used. 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.
International Equity Fund
[The following information was represented by a bar chart in the
printed materials.]
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
11.72 -9.97 38.28 -7.01 2.14 7.44 -2.47 24.53 17.85 0
Calendar Year Ended December 31
--------------------------------------------------------------------------------
Quarterly returns:
International Equity Fund
Highest: x% in x quarter x
Lowest: x% in x quarter x
Quarterly returns:
International Small Cap Fund*
Highest: x% in x quarter x
Lowest: x% in x quarter x
*Includes performance of predecessor fund for
periods prior to January 31, 2000.
International Small Cap Fund*
[The following information was represented by a bar chart in the
printed materials.]
1997 1998 1999 2000
1.45 10.09 41.13 0.00
Calendar Year Ended December 31
--------------------------------------------------------------------------------
Average annual total returns for selected periods ended December 31, 2000
--------------------------------------------------------------------------------
Life of Inception
1 Year 5 Years 10 Years Fund Date
--------------------------------------------------------------------------------
International Equity Fund x x x x 12/8/88
--------------------------------------------------------------------------------
EAFE Index** x x x x N/A
--------------------------------------------------------------------------------
International Small Cap Fund x N/A N/A x 1/2/96
--------------------------------------------------------------------------------
Salomon Smith Barney Broad
Market Ex. U.S. Index** x N/A N/A x N/A
--------------------------------------------------------------------------------
**The EAFE Index is an unmanaged index of common stocks that are publically
traded in European, Australian and Far Eastern securities markets. The Salomon
Smith Barney Broad Market Ex. U.S. Index represents the small capitalization
component of the Salomon Brothers Broad Market Index which is a comprehensive
index of companies in 22 countries excluding the U.S.
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 $x $x $x $x
International
Small Cap Fund $x $x $x $x
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 9/30/00 Equity Fund Small Cap Fund
Shareholder fees (fees paid
directly from your investment) None None
Annual fund operating expenses(1)
(expenses that are deducted
from fund assets)
Management fees 0.80% 1.00%
Distribution (12b-1) fees None None
Other expenses 0.56% 1.29%
Total annual fund operating
expenses 1.36% 2.29%
--------------------------------------------------------------------------------
(1) Because Standish has agreed to cap each fund's operating expenses, each
fund's actual expenses were:
Management fees 0.44% 0.00%
Other expenses 0.56% 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 investments in foreign stocks.
Additional Information About the Funds' Principal Investments
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.
Select Value 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.
Information About the Funds' Other Investment Strategies
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 Select Value 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 Adviser
--------------------------------------------------------------------------------
Standish offers a broad array of investment services that include management of
domestic and international equity and fixed income portfolios.
About Standish
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 each fund. Prior to October 13, 2000, Standish International
Management Company, LLC, a limited liability company and wholly owned subsidiary
of Standish, served as the adviser to Standish International Equity Fund and
Standish International Small Cap Fund. The contractual advisory fee rate payable
under these fund's advisory agreements did not change in connection with this
change in investment advisers.
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 relies 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 seeks to discover opportunity by attention to detail and
adherence to a strict set of disciplines. Standish uses fundamental research to
uncover a security sufficiently complex as to have been misvalued by traditional
analysis. Standish uses sophisticated quantitative techniques, which may help
identify persistent market inefficiencies that can be exploited by their
portfolio managers.
Standish strives 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.
Standish Group of Equity Funds 12
<PAGE>
--------------------------------------------------------------------------------
Fund managers
--------------------------------------------------------------------------------
Fund Fund managers Positions during past
five years
--------------------------------------------------------------------------------
Select Value Fund David H. Cameron Vice president and
director of Standish,
Dave heads the firm's
equity department which
includes core, small
cap, international
equities and
tax-sensitive equity
investments.
--------------------------------------------------------------------------------
Small Cap Value Fund Joseph M. Corrado Director of Standish.
Joseph oversees
domestic equity
research.
Stephanie K. Scherer Vice president of
Standish since 1998 and
an equity analyst prior
to 1998.
--------------------------------------------------------------------------------
Small Cap Growth Fund Edward R. Walter Director of Standish
since 1999 and, prior
to 1999, vice president
of Standish. Edward
serves as head of the
firm's small cap
aggressive growth
group.
--------------------------------------------------------------------------------
Small Capitalization Steven L. Gold Director of Standish
Equity Fund since 2000 and, prior
to 2000, vice president
of Standish. Steven
serves as a portfolio
manager for various
equity products and as
a senior investment
research analyst for
Small Cap Growth Fund.
--------------------------------------------------------------------------------
International Equity Fund Remi J. Browne Vice president of
Standish and chief
investment officer of
international equities.
Previously a managing
director of Ark Asset
Management Company.
--------------------------------------------------------------------------------
International Small Cap Edward R. Walter Director of Standish
Fund since 1999 and, prior
to 1999, vice president
of Standish. Edward
serves as head of the
firm's small cap
aggressive growth
group.
Daniel B. LeVan Vice president of
Standish, Dan is
responsible for the
portfolio management
and quantitative
research for global and
small cap equities.
--------------------------------------------------------------------------------
Advisory services and fees
Standish provides each 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, 2000,
each fund paid an advisory fee for these services. Standish agreed to limit each
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.
--------------------------------------------------------------------------------
Annual Advisory Fee Rates
(as a percentage of the fund's average net assets)
<TABLE>
<CAPTION>
Actual advisory fee paid Contractual advisory fee Current expense limitation
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Select Value Fund 0.50% 0.50% 0.71%
------------------------------------------------------------------------------------------------------------------------------
Small Cap Value Fund 0.00% 0.80% 1.00%
------------------------------------------------------------------------------------------------------------------------------
Small Cap Growth Fund 0.80% 0.80% 1.00%
------------------------------------------------------------------------------------------------------------------------------
Small Capitalization Equity Fund 0.60% 0.60% 0.74%
------------------------------------------------------------------------------------------------------------------------------
International Equity Fund 0.44% 0.80% 1.00%
------------------------------------------------------------------------------------------------------------------------------
International Small Cap Fund 0.00% 1.00% 1.25%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111-2662
13 Standish Group of Equity Funds
<PAGE>
Investment and Account Information
--------------------------------------------------------------------------------
How to purchase shares
Minimum initial investment: $100,000.
Minimum subsequent investment: $5,000.
Small Capitalization Equity Fund is closed to new investors.
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: Wire instructions:
Standish Fund Distributors, L.P. Investors Bank & Trust Company
PO Box 1407 Boston, MA
Boston, Massachusetts 02205-1407 ABA#: 011 001 438
Tel: 1.800.221.4795 Account #: 79650-4116
Fax: 617.350.0042 Fund name:
Email: [email protected] 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 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 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.
Household delivery of fund documents. With your consent, Standish may send a
single prospectus and shareholder report to your residence for you and any other
member of your household who has an account with the fund. If you wish to revoke
your consent to this practice, you may do so by contacting Standish, either
orally or in writring at the telephone number or address for the funds listed on
the back cover of this prospectus. Standish will begin mailing prospectuses and
shareholder reports to you individually within 30 days after receiving your
revocation.
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. The service class shares of Small
Cap Growth Fund are offered in another prospectus. 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.
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 gain. Taxable as long-term capital
gain.
--------------------------------------------------------------------------------
Distributions of short-term capital gain. Taxable as ordinary income.
--------------------------------------------------------------------------------
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
Select Value Fund and Small Cap Growth Fund are "feeder" funds that invest
exclusively in corresponding "master" portfolios with identical investment
objectives. 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 Independent Accountants
Standish Fund Distributors, L.P. PricewaterhouseCoopers LLP
Custodian, Transfer Agent and Fund Accountant Legal Counsel
Investors Bank & Trust Company 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 or lost 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).
Select Value Fund (formerly Equity Fund)
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended Fiscal year ended
September 30, September 30, December 31,
------------------------------- ----------------- ---------------------
2000(1) 1999(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period x $37.47 $48.81 $38.79 $34.81 $28.66
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income* x 0.29 0.30 0.39 0.60 0.76
Net realized and unrealized gain (loss) x 4.49 (4.30) 12.79 8.52 9.94
------ ------ ------ ------ ------ ------
Total from investment operations x 4.78 (4.00) 13.18 9.12 10.70
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income (x) (0.23) (0.29) (0.43) (0.56) (0.78)
In excess of net investment income -- -- (0.01) -- -- --
From net realized gain on investments (x) (4.23) (7.04) (2.73) (4.58) (3.77)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (x) (4.46) (7.34) (3.16) (5.14) (4.55)
------ ------ ------ ------ ------ ------
Net asset value--end of period $x $37.79 $37.47 $48.81 $38.79 $34.81
====== ====== ====== ====== ====== ======
Total return x% 12.29% (9.33)% 35.13% 26.84% 37.55%
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $x $130,556 $198,322 $170,170 $105,855 $88,532
Expenses(*,5) x% 0.66% 0.71% 0.71%(4) 0.71% 0.69%
Net investment income(*,5) x% 0.74% 0.69% 0.95%(4) 1.53% 2.05%
Portfolio turnover x 90% 144%(3) 75%(3) 118%(3) 128%(2)
<FN>
----------
*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:
</FN>
Net investment income per share $x -- -- $0.38 $0.59 --
Ratios (to average net assets)
Expenses(5) x% -- -- 0.72%(4) 0.72% --
Net investment income(5) x% -- -- 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 Select Value 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 Select Value 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 Select Value
Portfolio.
(4) Computed on an annualized basis.
(5) Includes the fund's share of Standish Select Value Portfolio's allocated
expenses for the years ended September 30, 2000, 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 Cap Value Fund
<TABLE>
<CAPTION>
For the period
February 1, 2000
(Commencement of Operations)
to September 30, 2000
------------------------------
<S> <C>
Net asset value--beginning of period $x
-----
Income from investment operations
Net investment income (loss)* x
Net realized and unrealized gain (loss) x
-----
Total from investment operations x
-----
Less distributions declared to shareholders
From net investment income (x)
-----
Total distributions (x)
Net asset value--end of period $x
=====
Total return(2) x%(3)
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $x
Expenses* X%(4)
Net investment income (loss)* X%(4)
Portfolio turnover(4) X%(3)
<FN>
----------
*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:
</FN>
Net investment income (loss) per share $(X)
Ratios (to average net assets)
Expenses x%(4)
Net investment income (loss) (x)%(4)
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Total return would have been lower in absence of expense waivers.
(3) Not annualized.
(4) Computed on an annualized basis.
19 Standish Group of Equity Funds
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
Small Cap Growth Fund
(Institutional Class Shares)
<TABLE>
<CAPTION>
Fiscal year ended Nine months December 23(2) to
September 30, ended September 30, December 31,
--------------------------------- ------------------- -----------------
2000(1) 1999(1) 1998(1) 1997 1996
<S> <C> <C> <C> <C> <C>
Net asset value--beginning of period $x $22.22 $29.12 $20.39 $20.00
------ ------ ------ ------ ------
Income from investment operations
Net investment income (loss)* (x) (0.24) (0.07) 0.03 --
Net realized and unrealized gain (loss) x 16.30 (5.01) 8.71 0.39
------ ------ ------ ------ ------
Total from investment operations x 16.06 (5.08) 8.74 0.39
------ ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income -- -- (0.04) (0.01) --
From realized gain on investment (x) -- (0.54) -- --
In excess of net realized gain on investment -- -- (1.24) -- --
------ ------ ------ ------ ------
Total distributions (x) -- (1.82) ($0.01) --
------ ------ ------ ------ ------
Net asset value--end of period $x $38.28 $22.22 $29.12 $20.39
====== ====== ====== ====== ======
Total return x% 72.14% (17.84)% 42.94% N/A(6)
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $x $44,031 $11,944 $6,314 $484
Expenses* x% 1.00% 0.58% 0.00%(5) N/A(6)
Net investment income (loss)* (x)% (0.73)% (0.25)% 0.49%(5) N/A(6)
Portfolio turnover(4) x% 242% 147% 122% --
<FN>
----------
*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:
</FN>
Net investment income (loss) per share N/A $(0.30) $(0.42) $(0.25) N/A(6)
Ratios (to average net assets)
Expenses N/A 1.18% 1.94% 3.56%(5) N/A(6)
Net investment income N/A (0.91)% (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 Cap Growth Portfolio allocated
expenses for the periods since commencement of operations.
(4) The portfolio turnover provided is for Standish Small Cap Growth
Portfolio.
(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>
--------------------------------------------------------------------------------
Small Capitalization Equity Fund
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended Fiscal year ended
September 30, September 30, December 31,
---------------------------------- ----------------- --------------------------
2000(1) 1999(1) 1998(1) 1997(1) 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period $x $41.74 $66.50 $52.96 $53.46 $42.15
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income/(loss)* (x) (0.28) (0.31) (0.23) -- --
Net realized and unrealized gain (loss) x 17.77 (16.57) 14.80 9.29 12.57
------ ------ ------ ------ ------ ------
Total from investment operations x 17.49 (16.88) 14.57 9.29 12.57
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net realized gain on investments (x) (4.77) (7.88) (1.03) (9.79) (1.26)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (x) (4.77) (7.88) (1.03) (9.79) (1.26)
------ ------ ------ ------ ------ ------
Net asset value--end of period $x $54.46 $41.74 $66.50 $52.96 $53.46
====== ====== ====== ====== ====== ======
Total return x% 44.02% (27.20)% 27.92% 17.36% 29.83%
Ratios (to average daily net assets)/
Supplemental data
Net assets at end of period (000 omitted) $x $147,332 $147,000 $274,368 $244,131 $180,470
Expenses(*,3) $(x) 0.74% 0.74% 0.74%(5) 0.75% 0.75%
Net investment income/(loss)* x% (0.56)% (0.57)% (0.57)%(5) (0.44)% (0.30)%
Portfolio turnover (x)% 173%(4) 107%(4) 70%(4) 113%(4) 103%(2)
<FN>
----------
*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:
</FN>
Net investment income (loss) per share $(0.30) $(0.34) $(0.23) $(0.01) --
Ratios (to average net assets)
Expenses(3) 0.80% 0.78% 0.74%(5) 0.76% --
Net investment income (loss)(3) (0.62)% (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 through September 30, 1999, information
provided is for Standish Small Cap Equity Portfolio.
(5) Computed on an annualized basis.
21 Standish Group of Equity Funds
<PAGE>
Financial Highlights
--------------------------------------------------------------------------------
International Equity Fund
<TABLE>
<CAPTION>
Fiscal year ended Nine months ended Fiscal year ended
September 30, September 30, December 31,
--------------------------------- ----------------- ---------------------
2000(1) 1999(1) 1998 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Net asset value--beginning of period $x $20.17 $23.57 $23.25 $23.54 $23.12
------ ------ ------ ------ ------ ------
Income from investment operations
Net investment income* x 0.27 0.32 0.39 0.47 0.04
Net realized and unrealized gain (loss) x 3.98 (1.17) 1.44 1.28 0.45
------ ------ ------ ------ ------ ------
Total from investment operations x 4.25 (0.85) 1.83 1.75 0.49
------ ------ ------ ------ ------ ------
Less distributions declared to shareholders
From net investment income (x) (0.33) (0.31) (0.30) (0.51) --
From net realized gains on investments (x) (0.32) (2.24) (1.21) (1.53) (0.07)
------ ------ ------ ------ ------ ------
Total distributions declared to shareholders (x) (0.65) (2.55) (1.51) (2.04) (0.07)
------ ------ ------ ------ ------ ------
Net asset value--end of period $x $23.77 $20.17 $23.57 $23.25 $23.54
====== ====== ====== ====== ====== ======
Total return x% 21.26% (2.92)% 7.65% 7.44% 2.14%
Ratios (to average daily net assets)/
Supplemental data
Net assets at end of period (000 omitted) $x $39,018 $36,816 $49,497 $47,739 $59,473
Expenses* x% 1.00% 1.00%(2) 0.84%(2) 0.50% 1.22%
Net investment income* x% 1.20% 1.30% 1.78%(2) 1.80% 1.76%
Portfolio turnover x% 195% 206% 155% 163% 108%
<FN>
----------
*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:
</FN>
Net investment income per share $x $0.18 $0.22 $0.29 $0.27 --
Ratios (to average net assets)
Expenses x% 1.41% 1.42% 1.42%(2) 1.29% --
Net investment income x% 0.79% 0.88% 1.20%(2) 1.01% --
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Computed on an annualized basis.
Standish Group of Equity Funds 22
<PAGE>
--------------------------------------------------------------------------------
Standish International Small Cap Fund
For the
period from
February 2000(1) to
September 30, 2000
-------------------
Net asset value--beginning of period $x
-----
Income from investment operations
Net investment income (loss)* x
Net realized and unrealized gain (loss) x
-----
Total from investment operations x
Less distributions declared to shareholders
From net investment income (x)
From realized gain on investment --
In excess of net realized gain on investment --
-----
Total distributions (x)
-----
Net asset value--end of period $x
=====
Total return x%
Ratios (to average daily net assets)/Supplemental data
Net assets at end of period (000 omitted) $x
Expenses* x%(5)
Net investment income (loss)* x%(5)
Portfolio turnover(4) x%
----------
*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:
Net investment income (loss) per share $x
Ratios (to average net assets)
Expenses x%(5)
Net investment income x%(5)
(1) Calculated based on average shares outstanding.
(2) Commencement of operations
(3) Includes the fund's share of Standish allocated expenses for the periods
since commencement of operations.
(4) The portfolio turnover provided is for Standish.
(5) Computed on an annual basis.
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:
1.800.221.4795
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 the Public Reference Room of the Commission,
Washington, D.C. 20549-6009 Telephone: 1.800.733.0330
o For a fee, by sending an email or electronic request to the Public
Reference Room of the Commission at: [email protected]
o Free from the Commission's Internet website at http://www.sec.gov
[LOGO] STANDISH FUNDS(R) Investment Company Act
One Financial Center file number (811-4813)
Boston, MA 02111-2662
800.221.4795
www.standishonline.com 00-356
<PAGE>
January 31, 2001
[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 Select Value Fund
(formerly, Standish Equity Fund)
Standish Small Cap Value Fund
Standish Small Cap Growth Fund
Standish Small Capitalization Equity 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 31, 2001, as amended and/or supplemented from time to
time, of Standish Select Value Fund (Select Value Fund), Standish Small Cap
Value Fund (Small Cap Value Fund), Standish Small Cap Growth Fund (Small Cap
Growth Fund), Standish Small Capitalization Equity Fund (Small Cap 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 2000 annual reports to
shareholders are incorporated by reference into this SAI.
Contents
---------------------------------------
INVESTMENT OBJECTIVES AND POLICIES ........................................ 1
DESCRIPTION OF SECURITIES AND RELATED RISKS ............................... 4
INVESTMENT TECHNIQUES AND RELATED RISK .................................... 12
INVESTMENT RESTRICTIONS ................................................... 18
CALCULATION OF PERFORMANCE DATA ........................................... 24
MANAGEMENT ................................................................ 28
PURCHASE AND REDEMPTION OF SHARES ......................................... 35
PORTFOLIO TRANSACTIONS .................................................... 35
BROKERAGE COMMISSIONS ..................................................... 36
DETERMINATION OF NET ASSET VALUE .......................................... 36
THE FUNDS AND THEIR SHARES ................................................ 37
THE PORTFOLIO AND ITS INVESTORS ........................................... 38
TAXATION .................................................................. 38
ADDITIONAL INFORMATION .................................................... 42
EXPERTS AND FINANCIAL STATEMENTS .......................................... 42
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.
<PAGE>
Master/Feeder Structure. Select Value Fund invests all of its investable assets
in Standish Select Value Portfolio (the "Select Value Portfolio"), formerly
Standish 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 Select Value and Small
Cap Growth Portfolios and Small Capitalization Equity Fund, Small Cap Value
Fund, International Equity Fund and International Small Cap Fund. Standish is
sometimes referred to 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.
Select Value Fund
Additional Investment Information. On July 1, 2000, the fund changed its name
from Standish Equity Fund to Standish Select Value Fund and the Select Value
Portfolio changed its name from Standish Equity Portfolio to Standish Select
Value Portfolio.
Under normal circumstances, at least 80% of Select Value 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
-2-
<PAGE>
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 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 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 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 Growth Fund
Additional Investment Information. On January 31, 2000, the fund changed its
name from Standish Small Capitalization Equity Fund II to Standish Small Cap
Growth Fund and the Small Cap Growth Portfolio changed its name from Standish
Small Capitalization Equity Portfolio II to Standish Small Cap Growth Portfolio.
The trustees approved this name changes so that the fund's and Portfolio's names
are more reflective of the manner in which Standish manages the fund and the
Portfolio.
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 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.
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
-3-
<PAGE>
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 Standish 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 Broad Market
ex-U.S. Index, 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 Broad Market Index 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 time of investment A or better by Moody's, Standard & Poor's, Duff
or Fitch or, if unrated, determined by Standish 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. Select Value 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.
-4-
<PAGE>
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 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
Select Value, 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.
-5-
<PAGE>
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 affect 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. Select Value, 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.
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
-6-
<PAGE>
predicted. Due to restrictions on direct investment in equity securities in
certain emerging market countries, such as Taiwan, the funds may invest only
through investment funds in such emerging market countries.
The repatriation of both investment income and capital from several emerging
market countries is subject to restrictions such as the need for certain
governmental consents. Even where there is no outright restriction on
repatriation of capital, the mechanics of repatriation may affect certain
aspects of the operation of the funds to the extent that they invest in emerging
market countries.
Market Characteristics. All of the securities markets of emerging market
countries have substantially less volume than the New York Stock Exchange.
Equity securities of most emerging market companies are generally less liquid
and subject to greater price volatility than equity securities of U.S. companies
of comparable size. Some of the stock exchanges in the emerging market countries
are in the earliest stages of their development.
Certain of the securities markets of emerging market countries are marked by
high concentrations of market capitalization and trading volume in a small
number of issuers representing a limited number of industries, as well as a high
concentration of ownership of such securities by a limited number of investors.
Even the market for relatively widely traded securities in the emerging markets
may not be able to absorb, without price disruptions, a significant increase in
trading volume or trades of a size customarily undertaken by institutional
investors in 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.
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
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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 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
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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 Select Value 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 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").
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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.
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. Select Value, 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
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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 Select Value, 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 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 Select Value, 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
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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.
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 Select Value Fund is underweighted in cyclical stocks and overweighted in
consumer stocks, Select Value 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
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than gains in the value of the fund's position. The writing of options could
significantly increase a fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads. In addition, futures and options
markets may not be liquid in all circumstances and certain over-the-counter
options may have no markets. As a result, in certain markets, 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.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security or currency, although in the future cash
settlement may become available. Index options and Eurodollar instruments are
cash settled for the net amount, if any, by which the option is "in-the-money"
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.
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A fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct 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.
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.
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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 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
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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 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
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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 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
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("LIBOR"), although foreign currency-denominated instruments are available from
time to time. Eurodollar futures contracts enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate for borrowings.
A fund might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed income
instruments are linked.
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 Portfolios have adopted the following fundamental policies.
Each fund's and Portfolio's fundamental policies cannot be changed unless the
change is approved by a "vote of the outstanding voting securities" of the fund
or the Portfolio, as the case may be, which phrase as used herein means the
lesser of (i) 67% or more of the voting securities of the fund or the Portfolio
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of the fund or the Portfolio are present or represented by proxy, or
(ii) more than 50% of the outstanding voting securities of the fund or the
Portfolio. 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 Select Value Fund and Select Value Portfolio. As a matter of
fundamental policy, the Select Value Portfolio (Select 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.
2. Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio
(fund) may be deemed to be an underwriter under the Securities Act of
1933.
3. Purchase real estate or real estate mortgage loans.
4. Purchase securities on margin (except that the Portfolio (fund) may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities).
5. Purchase or sell commodities or commodity contracts (except futures
contracts and options on such futures contracts and foreign currency
exchange transactions).
6. With respect to at least 75% of its total assets, invest more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer.
7. Issue senior securities, borrow money, enter into reverse repurchase
agreements or pledge or mortgage its assets, except that the Portfolio
(fund) may borrow from banks in an amount up to 15% of the current value
of its total assets as a temporary measure for extraordinary or emergency
purposes (but not investment purposes), and pledge its assets to an extent
not greater than 15% of the current value of its total assets to secure
such borrowings; however, the fund may not make any additional investments
while its outstanding borrowings exceed 5% of the current value of its
total assets.
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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 Select
Value Portfolio (Select 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.
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 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 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.
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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.
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.
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
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.
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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 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.
-21-
<PAGE>
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 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).
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).
-22-
<PAGE>
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.
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,
-23-
<PAGE>
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 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 Select Value, Small Cap Growth, Small Cap Value and International
Small Cap 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.
-24-
<PAGE>
The funds' average annual total return for the one-, five-, and ten-year (or
life of fund, if shorter) periods ended December 31, 2000 were as follows:
Average Annual Total Return
---------------------------
Fund 1-Year 5-Year 10-Year
---- ------ ------ -------
Select Value Fund % % (1)
Small Cap Value Fund (4) (4) (4)
Small Cap Growth Fund % (3)
Small Cap Fund % % (2)
International Equity Fund % % %(5)
International Small Cap Fund (6) (6) (6)
[to be updated]
----------
1 Select Value 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 commence operations on February 1, 2000.
5 International Equity Fund commenced operations on December 8, 1988.
6 International Small Cap Fund commence operations on February 1, 2000.
For periods prior to February 1, 2000, the performance record of the
International Small Cap Fund includes the performance record of its
predecessor fund, SIMCO International Small Cap Fund, L.P. The
predecessor fund was advised by Standish Investment Management Company,
LLC, a wholly-owned subsidiary of Standish ("SIMCO"), using investment
strategies and policies that are substantially similar to those of the
International Small Cap Fund. The predecessor fund was not, however,
registered as a mutual fund and therefore was not subject to certain
investment restrictions that are imposed upon mutual funds (such as the
International Small Cap Fund). If the predecessor fund had been
registered as a mutual fund, the predecessor fund's performance may have
been adversely affected.
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:
Select Value 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
1998 7.21 7.92
1Q99 (6.98) (6.83)
2Q99 (8.02) (8.19)
3Q99 (6.27) (6.10)
4Q99 6.00 6.19
1999 (0.17) 0.51
1Q00 5.42 5.60
2Q00 (1.65) (1.47)
3Q00 6.02 6.21
4Q00
2000
[to be updated]
-25-
<PAGE>
Small Cap Fund
Quarter/Year Net Gross
1Q91 28.41% 28.68%
2Q91 2.87 3.12
3Q91 12.58 12.73
4Q91 10.74 10.94
1991 64.71 65.95
1Q92 3.16 3.38
2Q92 (12.15) (11.92)
3Q92 7.23 7.52
4Q92 12.91 13.20
1992 9.74 10.83
1Q93 0.62 0.84
2Q93 3.45 3.70
3Q93 14.45 14.67
4Q93 7.63 7.83
1993 28.21 29.30
1Q94 (3.48) (3.29)
2Q94 (4.39) (4.19)
3Q94 5.90 6.11
4Q94 (1.42) (1.22)
1994 (3.66) (2.88)
1Q95 6.03 6.22
2Q95 2.55 2.73
3Q95 16.17 16.36
4Q95 2.80 2.98
1995 29.83 30.77
1Q96 6.60 6.80
2Q96 10.27 10.47
3Q96 (2.98) (2.80)
4Q96 (2.91) (3.11)
1996 17.36 18.24
1Q97 (12.33) (12.16)
2Q97 20.87 21.08
3Q97 20.72 20.92
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 56.40 56.65
1999 79.10 80.34
1Q00 23.07 23.27
2Q00 (9.18) (9.02)
3Q00 (4.11) (3.96)
4Q00
2000
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 68.44 68.76
1999 127.67 129.69
1Q00 16.94 17.20
2Q00 (7.11) (6.89)
3Q00 (6.21) (5.98)
4Q00
2000
International Small Cap Fund*
Quarter/Year Net Gross
------------ --- -----
1Q96 9.12 9.12
2Q96 8.12 8.12
3Q96 0.48 0.48
4Q96 6.23 6.23
1996 25.94 25.94
1Q97 2.47 2.85
2Q97 12/31 12.73
3Q97 1.71 2.09
4Q97 (13.32) (13.00
1997 1.45 2.99
1Q98 21.69 22.14
2Q98 2.01 2.40
3Q98 (20.87) (20.56)
4Q98 12.06 12.40
1998 10.09 11.67
1Q99 9.30 9.67
2Q99 14.28 14.73
3Q99 10.33 10.77
4Q99 2.40 2.80
1999 41.13 43.27
1Q00 5.48 5.83
2Q00 3.68 3.50
3Q00 (2.92) (2.63)
2000
--------------------------------------------------------------------------------
*For periods prior to February 1, 2000, the performance record of the
International Small Cap Fund includes the performance record of its predecessor
fund, SIMCO International Small Cap Fund, L.P.
-26-
<PAGE>
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 12.96 13.22
1999 17.85 18.97
1Q00 (0.88) (0.64)
2Q00 0.41 0.65
3Q00 (4.11) (3.96)
4Q00
2000
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, Select Value Fund may compare
its performance to the Russell 1000 Value Index, which is generally considered
to be representative of those Russell 1000 companies with value characteristics.
The Russell 1000 Index is generally considered to be representative of unmanaged
large capitalization stocks in the United States 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 S&P 500 Index 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 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 ex-U.S. The EMI ex-U.S. 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
-27-
<PAGE>
index consisting of every company with an investable market capitalization of
$100 million in 23 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>
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.
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 2333 Mertens House, Inc.
New London, NH 03257
*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
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 President and
c/o Standish, Ayer & Wood, Inc. Managing Director,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
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
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
Position Held Principal Occupation
Name, Address and Date of Birth with Trust During Past 5 Years
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Anne P. Herrmann, 1/26/56 Vice President and Secretary 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
Boston, MA 02111 of 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
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, Compliance Compliance Manager
c/o Standish, Ayer & Wood, Inc. Officer and Manager 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 Assistant Vice President Financial Planner and Registered Investment
c/o Standish, Ayer & Wood, Inc. Networks Marketing Specialist,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
Lisa Kane Vice President Assistant Vice President and
c/o Standish, Ayer & Wood, Inc. Client Service Representative
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
Steven M. Anderson Vice President Assistant Vice President and
c/o Standish, Ayer & Wood, Inc. Mutual Funds Controller,
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, 2000, 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.
-29-
<PAGE>
The following table sets forth all compensation paid to the Trust's Trustees as
of the funds' fiscal years ended September 30, 2000:
Aggregate Compensation from the Funds
-------------------------------------
<TABLE>
<CAPTION>
Pension or
Retirement
Benefits Total
Small Small Accrued as Compensation
Select Cap Cap International Part of from Funds and
Value Value Growth Small Cap 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 0 0 0 $0 0
Samuel C. Fleming 3,285 503 3,406 3,942 518 1,099 0 $58,625
Benjamin M. Friedman 3,285 503 3,406 3,942 518 1,099 0 58,625
John H. Hewitt 3,388 504 3,519 4,107 525 1,136 0 63,625
Edward H. Ladd 0 0 0 0 0 0 0 0
Caleb Loring, III 3,285 503 3,406 3,942 518 1,099 0 58,625
Richard S. Wood 0 0 0 0 0 0 0 0
</TABLE>
----------
* As of the date of this Statement of Additional Information, there were 28
mutual funds in the fund complex.
** The fund bears its pro rata allocation of trustee's fees paid by its
corresponding portfolio to the trustees of the Portfolio Trust.
*** Mr. Clayson resigned as a trustee effective December 31, 2000.
Certain Shareholders
At November 8, 2000, 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:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
Name and Address Outstanding Shares Name and Address Outstanding Shares
---------------------------------------------------------------------------------------------------------------------
Standish Select Value Fund
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Univ. of Washington 10% Teamsters Local Union 918 Pension 10%
280 Gerberding Hall Fund
Box 351248 2137-47 Utica Avenue
Seattle, WA 98195 Brooklyn, NY 11234
---------------------------------------------------------------------------------------------------------------------
First Union National Bank, Ttee. 7%
Life Technologies Pension Plan
9800 Medical Center Drive
Rockville, MD 20850
---------------------------------------------------------------------------------------------------------------------
Standish International Equity
Fund
---------------------------------------------------------------------------------------------------------------------
Town of Wellesley Contributory 15% Factory Mutual Insurance Company 8%
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. 13%
First Union National Bank
1525 West WT Harris Blvd.
Charlotte, NC 28288
---------------------------------------------------------------------------------------------------------------------
Standish Small Cap Growth Fund
---------------------------------------------------------------------------------------------------------------------
</TABLE>
-30-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
Name and Address Outstanding Shares Name and Address Outstanding Shares
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Charles Schwab & Co., Inc. - 20% Wentworth Institute of Technology 12%
Special Account FBO Customers Bowen David & Co.
101 Montgomery Street P.O. Box 1647
Attn: Mutual Funds Boston, MA 02105
San Francisco, CA 94104
---------------------------------------------------------------------------------------------------------------------
Nabalaska & Co. FBO 6% Stephen Phillips Memorial 6%
First National Bank of Alaska Charitable Trust Scholarship
Trust Foundation
P.O. Box 100600 P.O. Box 242
301 W. Northern Lights Blvd. Salem, MA 01970
Anchorage, AK 99510
---------------------------------------------------------------------------------------------------------------------
Standish Small Cap Equity Fund
---------------------------------------------------------------------------------------------------------------------
Factory Mutual Insurance Company 26% Wells Fargo MN NA FBO 15%
225 Wyman Street Brown Printing Company Profit
P.O. Box 9198 Sharing
Waltham, MA 02454 P.O. Box 1533
Minneapolis, MN 55480
---------------------------------------------------------------------------------------------------------------------
Allendale Mutual Retirement Ea 8% Fleet National Bank Cust. FBO 6%
Inc. The Providence Mutual Fire
c/o FM Global Insurance Co.
225 Wyman Street P.O. Box 92800
P.O. Box 9198 Rochester, NY 14692
Waltham, MA 02454
---------------------------------------------------------------------------------------------------------------------
BDG & Co. 6%
Bingham, Dana & Gould Trust Dept.
150 Federal Street
Boston, MA 02110
---------------------------------------------------------------------------------------------------------------------
Standish International Small Cap
Fund
---------------------------------------------------------------------------------------------------------------------
Factory Mutual Insurance Company 17% Charles Schwab & Co., Inc. 16%
225 Wyman Street Special Account FBO Customers
P.O. Box 9198 101 Montgomery Street
Waltham, MA 02454 Attn: Mutual Funds
San Francisco, CA 94104
---------------------------------------------------------------------------------------------------------------------
James H. Cummings Foundation 7%
1807 Elmwood Avenue
Buffalo, NY 14207
---------------------------------------------------------------------------------------------------------------------
Standish Small Cap Value Fund
---------------------------------------------------------------------------------------------------------------------
Jewish Seniors Agency of R.I. 8% Saturn & Co. FBO 8%
The Jewish Home for the Aged of Provident Art Trust
R.I. P.O. Box 1537
229 Waterman Street Boston, MA 02205
Providence, RI 02906
---------------------------------------------------------------------------------------------------------------------
Ralph S. Tate 6% Saturn & Co. FBO 6%
385 Middle Street Worth Loomis Keogh Plan
Amherst, MA 01002 P.O. Box 1537
Boston, MA 02205
---------------------------------------------------------------------------------------------------------------------
</TABLE>
-31-
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------
Percentage of Percentage of
Name and Address Outstanding Shares Name and Address Outstanding Shares
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CFG Investment Corp. 5% Lisen Bonnier Rev. Tr. 5%
A subsidiary of Citizens c/o Bingham, Dana & Gould
Financial Group, Inc. 150 Federal Street
Executive Supplemental Boston, MA 02110
Benefits Trust
Citizens Trust
One Citizens Plaza
Providence, RI 02903
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment Adviser
Standish serves as the adviser to the Equity Portfolio, Small Cap Growth
Portfolio, Small Cap Fund, Small Cap Value Fund, International Equity Fund and
International Small Cap Fund pursuant to written investment advisory agreements.
Prior to the close of business on May 3, 1996, Standish managed directly the
assets of the Select Value and Small Cap Funds pursuant to investment advisory
agreements. These agreements were terminated by the Select Value 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 Select Value Portfolio and Small Cap Portfolio, respectively. On December
31, 1999, the Small Cap Fund withdrew its assets from the Small Capitalization
Equity Portfolio and currently invests its 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. On October 13, 2000,
Standish replaced SIMCO as the investment adviser for each of the Standish
International Equity Fund and Standish International Small Cap Fund. Standish
assumed all of SIMCO's responsibilities under each investment advisory agreement
between SIMCO and the Trust on behalf of these funds. The contractual advisory
fee rates payable under the investment advisory agreements did not change.
Standish is a wholly-owned subsidiary of SAW Trust, a Massachusetts business
trust. The following, constituting all of the Trustees and all of the
shareholders of SAW Trust, are SAW Trust controlling persons: Caleb F. Aldrich,
Beverly E. Banfield, Katherine S. Bowes, David H. Cameron, Karen K. Chandor,
Lavina B. Chase, Susan B. Coan, W. Charles Cook, James M. Conway, Joseph M.
Corrado, Richard R. Davis, Richard C. Doll, Dolores S. Driscoll, Sean P.
Fitzgibbon, Maria D. Furman, Steven L. Gold, James Hendrickson, James E. Hollis
III, David M. Horsfall, Raymond J. Kubiak, Edward H. Ladd, Philip D. Leonardi,
David C. Leduc, Laurence A. Manchester, Nevin G. Markwart, Richard S. Mattison,
Barbara J. McKenna, John R. McNichols, John W. Murray, George W. Noyes, Arthur
H. Parker, Jennifer A. Pline, Catherine A. Powers, Daniel A. Rabasco, Rip L.
Reeves, Howard B. Rubin, Mark P. Seidner, Austin C. Smith, Thomas P. Sorbo,
David C. Stuehr, Ralph S. Tate, Michael W. Thompson, Ellen K. Thurmond,
Christine H. Todd, Jeffrey S. Wakelin, Edward R. Walter and Richard S. Wood.
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
--------
Fund (as a percentage of average daily net assets)
----
Select Value Portfolio 0.50%
Small Cap Value Fund 0.80%
Small Cap Growth Portfolio 0.80%*
Small Cap Fund 0.60%
-32-
<PAGE>
International Equity Fund 0.80%
International Small Cap Fund 1.00%
----------
* Prior to January 31, 2000, the Small Cap Growth Portfolio paid the adviser a
fee equal on an annual basis to 0.60% of the Portfolio's average daily net
assets.
During the last fiscal year ended September 30, 2000 and the previous two fiscal
years ended September 30, 1999 and 1998, the funds and the Portfolios paid
advisory fees in the following amounts:
Fund 1998 1999 2000
---- ---- ---- ----
Select Value Fund N/A N/A N/A
Select Value Portfolio $1,017,136 $1,360,746 828,980
Small Cap Value Fund N/A(3) N/A(3) 0(5)
Small Cap Growth Fund N/A N/A N/A
Small Cap Growth Portfolio $0(2) $173,628(2) 1,008,451
Small Cap Fund N/A N/A 742,203(7)
Small Cap Portfolio $1,363,260 $1,009,277(1) 317,710(1)
International Equity Fund $160,467(4) $154,083(4) 180,477(4)
International Small Cap Fund N/A(3) N/A(3) 0(6)
----------
1 For the fiscal years ended September 30, 1999 and 2000, the adviser
voluntarily agreed not to impose all or a portion of its advisory fee in the
amounts of $16,107 and $30,069.
2 The adviser voluntarily agreed not to impose all or a portion of its advisory
fee for the fiscal years ended September 30, 1998 and 1999 in the amounts of
$10,209 and $61,698, respectively.
3 Small Cap Value and International Small Cap Funds commenced operations on
February 1, 2000.
4 For the fiscal years ended September 30, 1998, 1999 and 2000, the adviser
voluntarily agreed not to impose a portion of its fees for the International
Equity Fund in the amounts of $175,579, $164,027 and $149,939, respectively.
5 For the fiscal year ended September 30, 2000, the adviser voluntarily agreed
not to impose any of its advisory fee in the amount of $15,451.
6 For the fiscal year ended September 30, 2000, the adviser voluntarily agreed
not to impose any of its advisory fee in the amount of $103,453.
7 For the fiscal year ended September 30, 2000, the adviser voluntarily agreed
not to impose a portion of its fees in the amount of $27,775.
The adviser has voluntarily and temporarily agreed to limit total expenses
(excluding brokerage commissions, taxes and extraordinary expenses) of Select
Value 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 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.
The initial term of the investment advisory agreements for the Small Cap Growth
Portfolio, the Small Cap Value Fund and the International Small Cap Fund ends on
January 31, 2002. The investment advisory agreement of each other Fund and
Portfolio is outside its initial term. Unless terminated as provided below, the
investment advisory agreements continue in full force and effect from year to
year after their initial terms 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 Cap Fund, Small Cap Value Fund, International Equity
Fund,
-33-
<PAGE>
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 codes
of ethics containing 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. Subject to the requirements
of the codes of ethics, personnel of the advisor and its affiliates may invest
in securities, including securities that may be purchased or held by the funds
and the Portfolios The restrictions contained in the codes of ethics 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 also performs
administrative functions to the funds 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 and/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 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.
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<PAGE>
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. Shares of the funds purchased through authorized brokers and
dealers may be subject to transaction fees on purchases or redemptions, no part
of which will be received by any of the funds, Standish Fund Distributors or
Standish.
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.
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,
-35-
<PAGE>
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.
BROKERAGE COMMISSIONS
Aggregate Brokerage Commissions Paid by the
Fund for Portfolio Transaction for the fiscal years
ended December 31,
------------------
Fund/Portfolio 1998(1) 1999(1) 2000
-------------- ------ ------ ----
Select Value Fund(1) N/A N/A N/A
Select Value Portfolio $555,507 $464,684 $317,420
Small Cap Value Fund(4) N/A N/A $ 4,679
Small Cap Growth Fund(2) N/A N/A N/A
Small Cap Growth Portfolio $20,950 $66,805 $296,743
Small Cap Fund(1) N/A N/A $206,395
Small Cap Portfolio(1) $346,603 $656,220 $[_____]
International Equity Fund(2) $772,948 $455,427 $286,388
International Small Cap Fund(3) N/A N/A $ 39,264
----------
1 The fund was a feeder fund in the master-feeder structure and did not directly
pay brokerage commissions but bore its pro rata share of brokerage commissions
paid by its corresponding Portfolio. The Small Cap Fund withdrew its assets from
the Small Cap Portfolio on December 31, 1999 and, therefore, is no longer a
feeder fund.
2 At September 30, 2000, International Equity Fund held securities issued by
Nomura Securities with a market value of $[______]. Nomura Securities is one of
the fund's regular brokers or dealers. [to be updated]
3 The Small Cap Value Fund and International Small Cap Funds commence operations
on February 1, 2000.
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 (generally 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 Select Value 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 Select Value 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
-36-
<PAGE>
beneficial interests in a Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of the close of regular trading on the NYSE on
such day plus or minus, as the case may be, the amount of net additions to or
reductions in the investor's investment in the Portfolio effected on such day,
and (ii) the denominator of which is the aggregate net asset value of the
Portfolio as of the close of regular trading on the NYSE on such day plus or
minus, as the case may be, the amount of the net additions to or reductions in
the aggregate investments in the Portfolio by all investors in the Portfolio.
The percentage so determined will then be applied to determine the value of the
investor's interest in a Portfolio as of the close of regular trading on the
NYSE on the following Business Day.
Portfolio securities are valued at the last sale prices on the exchange or
national securities market on which they are primarily traded. Securities not
listed on an exchange or national securities market, or securities for which
there were no reported transactions, are valued at the last quoted bid price.
Securities for which 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 Select Value and Small Cap Growth Funds invest all of
their investible assets in other open-end investment companies (i.e., the
corresponding Portfolios).
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.
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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. The Portfolio Trust 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 Trust
continue to hold office until their successors are elected and have qualified.
Holders holding a specified percentage of interests in a Portfolio Trust may
call a meeting of holders in the Portfolio for the purpose of removing any
Trustee. A Trustee of the Portfolio Trust may be removed upon a majority vote of
the interests held by holders in the Portfolio Trust qualified to vote in the
election. The 1940 Act requires a Portfolio to assist its holders in calling
such a meeting. Upon liquidation of a Portfolio, holders in a Portfolio would be
entitled to share pro rata in the net assets of a Portfolio available for
distribution to holders. Each holder in the Portfolio is entitled to a vote in
proportion to its percentage interest in the Portfolio.
TAXATION
Each series of the Trust, including each fund, is treated as a separate entity
for accounting and tax purposes. Each fund has qualified and elected to qualify
and elect to be treated as a "regulated investment company" ("RIC") under
Subchapter M of the Code, and intends to continue to so qualify in the future.
As such and by complying with the applicable provisions of the Code regarding
the sources of its income, the timing of its distributions, and the
diversification of its assets, each fund will not be 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
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whether it has received any cash distributions from the Portfolio. Because
Select Value Fund and Small Cap Growth Fund invest their assets in the Select
Value 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, 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, Select Value 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, 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. [Amounts and expiration dates of any existing capital loss
carryforwards to be disclosed.]
Limitations imposed by the Code on regulated investment companies like the funds
may restrict a fund's or a Portfolio's ability to enter into futures, options or
currency forward transactions.
Certain options, futures or currency forward transactions undertaken by a fund
or a Portfolio may cause the fund or Portfolio to recognize gains or losses from
marking to market even though the fund's or Portfolio's positions have not been
sold or terminated and affect the character as long-term or short-term (or, in
the case of certain options, futures or forward contracts relating to foreign
currency, as ordinary income or loss) and timing of some capital gains and
losses realized by 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.
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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's, 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% requirement, shareholders of each such
fund generally will not directly take into account the foreign taxes, if any,
paid by the corresponding Portfolio and will not be entitled to any related tax
deductions or credits. Such taxes will reduce the amounts these funds would
otherwise have available to distribute.
The International Equity Fund 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 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 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 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 Fund, 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
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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.
For purposes of the dividends received reduction available to corporations,
dividends received by a fund, or dividends required 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 Fund or Portfolio, for U.S. Federal
income tax purposes, for at least a minimum holding period, generally 46 days,
extending before and after each dividend and distributed and designated by the
fund may be treated as qualifying dividends. Corporate shareholders must meet
the minimum holding period requirements referred to above with respect to their
shares of the applicable fund in order to qualify for the deduction and, if they
borrow to acquire or otherwise incur debt attributable to such shares, may be
denied a portion of the dividends received deduction. The entire qualifying
dividend, including the otherwise deductible amount, will be included in
determining the excess (if any) of a corporate shareholder's adjusted current
earnings over its alternative minimum taxable income, which may increase its
alternative minimum tax liability.
Additionally, any corporate shareholder should consult its tax adviser regarding
the possibility that its basis in its shares may be reduced, for Federal income
tax purposes, by reason of "extraordinary dividends" received with respect to
the shares, and, to the extent such basis would be reduced below zero, 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
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discussion does not address special tax rules applicable to certain classes of
investors, such as tax-exempt entities, insurance companies, and financial
institutions. Dividends, capital gain distributions, and ownership of or gains
realized on the redemption (including an exchange) of fund shares may also be
subject to state and local taxes. A state income (and possibly local income
and/or intangible property) tax exemption is generally available to the extent,
if any, a fund's distributions are derived from interest on (or, in the case of
intangible property taxes, the value of its assets is attributable to)
investments in certain U.S. Government obligations, provided in some states that
certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of a Feeder Fund's indirect ownership (through the Portfolio) of
any such obligations, as well as the Federal, and any other state or local, tax
consequences of ownership of shares of, and receipt of distributions from, a
fund in their particular circumstances.
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-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, Form W-8BEN, or
other authorized form is on file, to 31% backup withholding on certain
distributions 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 2000 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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PART C
OTHER INFORMATION
Item 24. Exhibits
(a) Agreement and Declaration of Trust dated August 13, 1986(3)
(a1) Certificate of Designation of Standish Fixed Income Fund(3)
(a2) Certificate of Designation of Standish International Fund(3)
(a3) Certificate of Designation of Standish Securitized Fund(3)
(a4) Certificate of Designation of Standish Short-Term Asset Reserve
Fund(3)
(a5) Certificate of Designation of Standish Marathon Fund(3)
(a6) Certificate of Amendment dated November 21, 1989(3)
(a7) Certificate of Amendment dated November 29, 1989(3)
(a8) Certificate of Amendment dated April 24, 1990(3)
(a9) Certificate of Designation of Standish Equity Fund(3)
(a10) Certificate of Designation of Standish International Fixed Income
Fund(3)
(a11) Certificate of Designation of Standish Intermediate Tax Exempt Bond
Fund(3)
(a12) Certificate of Designation of Standish Massachusetts Intermediate
Tax Exempt Bond Fund(3)
(a13) Certificate of Designation of Standish Global Fixed Income Fund(3)
(a14) Certificate of Designation of Standish Controlled Maturity Fund and
Standish Fixed Income Fund II(3)
(a15) Certificate of Designation of Standish Tax-Sensitive Small Cap
Equity Fund and Standish Tax-Sensitive Equity Fund(3)
(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(3)
(a17) Form of Certificate of Designation of Standish Small Capitalization
Equity Fund II(3)
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(a18) Certificate of Designation of Standish Small Capitalization Equity
Asset Fund II, Standish Diversified Income Fund, Standish
Diversified Income Asset Fund(1)
(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(4)
(a20) Form of Certificate of Designation of Standish International Fixed
Income Fund II(5)
(a21) Certificate of Designation of Standish Small Cap Value Fund and
Standish International Small Cap Fund(6)
(a22) Certificates of Designation of Standish Crossover Bond Fund,
Standish Opportunistic High Yield Fund, Standish Opportunistic
Emerging Markets Debt Fund and Standish High Yield Bond Fund(8)
(a23) Amendment to the Agreement and Declaration of Trust dated March 4,
1999(5)
(b) Bylaws of the Registrant(3)
(c) Not applicable
(d1) Form of Investment Advisory Agreement between Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International
Fund(3)
(d2) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Securitized Fund(3)
(d3) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Fixed Income
Fund(3)
(d4) Assignment of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund(3)
(d5) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Intermediate Tax
Exempt Bond Fund(3)
(d6) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Massachusetts Intermediate
Tax Exempt Bond Fund(3)
(d7) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Controlled Maturity Fund(3)
(d8) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Fixed Income Fund II(3)
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(d9) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund(3)
(d10) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Tax-Sensitive
Equity Fund(3)
(d11) Form of Assignment of Investment Advisory Agreement(3)
(d12) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International Fixed
Income Fund II(5)
(d13) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Small Cap Value Fund(6)
(d14) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Small Cap
Fund(6)
(d15) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Crossover Bond Fund(8)
(d16) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Opportunistic High Yield
Fund(8)
(d17) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Opportunistic Emerging
Markets Debt Fund(8)
(d18) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish High Yield Bond Fund(8)
(d19) Substitution and Assumption Agreement among Standish, Ayer & Wood,
Inc., Standish International Management Company, LLC and the
Registrant relating to Standish International Small Cap Fund #
(d20) Substitution and Assumption Agreement among Standish, Ayer & Wood,
Inc., Standish International Management Company, LLC and the
Registrant relating to Standish International Equity Fund #
(e1) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.(3)
(f) Not applicable
(g1) Master Custody Agreement between the Registrant and Investors Bank &
Trust Company(3)
(g2) Custody Agreement between Registrant with respect to Standish
International Equity Fund and Morgan Stanley Company(3)
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(g3) Master Custody Agreement between the Registrant and Morgan Stanley
Trust Company(3)
(h1) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company(3)
(h2) Most recently dated/filed revised Exhibit A to Transfer Agency and
Service Agreement between the Registrant and Investors Bank & Trust
Company(5)
(h3) Master Administration Agreement between the Registrant and Investors
Bank & Trust Company(3)
(h4) Form of Administrative Services Agreement between Standish, Ayer &
Wood, Inc. and the Registrant(3)
(h5) Most recently dated/filed revised Exhibit A to Administrative
Services Agreement between Standish, Ayer & Wood, Inc. and the
Registrant(3)
(h6) Form of Service Plan relating to Standish Small Capitalization
Equity Fund II and Standish International Fixed Income Fund(4)
(i) Opinion and Consent of Counsel for the Registrant(2)
(j) Consent of Independent Public Accountants for the Registrant*
(k) Financial Statements:
Included in Parts A of Standish Select Value Fund, Standish Small
Cap Value Fund, Standish Small Cap Growth Fund, Standish Small
Capitalization Equity Fund, Standish International Equity Fund, and
Standish International Small Cap Fund: each a series of the
Registrant.
Financial Highlights
Incorporated by reference into Parts B of the funds as listed
above.*
Schedule of Portfolio Investments
Statement of Assets and Liabilities
Statement of Operations
Statement of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Independent Auditors' Report
(l) Not applicable
(m) Not applicable
(n1) Financial Data Schedule for Standish Select Value Fund*
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<PAGE>
(n2) Financial Data Schedule for Standish Small CapValue Fund*
(n3) Financial Data Schedule for Standish Small Cap Growth Fund*
(n4) Financial Data Schedule for Standish Small Capitalization Equity
Fund*
(n4) Financial Data Schedule for Standish Small Capitalization Equity
Fund*
(n5) Financial Data Schedule for Standish International Equity Fund*
(n6) Financial Data Schedule for Standish International Small Cap Fund*
(o) Multiple Class Plan pursuant to Rule 18f-3 relating to Standish
Small Capitalization Equity Fund II and Standish International Fixed
Income Fund(4)
(p1) Code of Ethics for Standish, Ayer & Wood Investment Trust and
Standish, Ayer & Wood Master Portfolio(7)
(p2) Code of Ethics for Standish, Ayer & Wood, Inc., Standish
International Management Company, LLC and Standish Fund
Distributors, L.P.(7)
(q1) Power of Attorney for Registrant (Richard S. Wood)^
(q2) Power of Attorney for Registrant (Samuel C. Fleming)^
(q3) Power of Attorney for Registrant (Benjamin M. Friedman)^
(q4) Power of Attorney for Registrant (John H. Hewitt)^
(q5) Power of Attorney for Registrant (Edward H. Ladd)^
(q6) Power of Attorney for Registrant (Caleb Loring III)^
(q7) Power of Attorney for Registrant (D. Barr Clayson)^
(q8) Power of Attorney for Registrant (Paul G. Martins)(2)
(q9) Power of Attorney for Portfolio Trust (Richard S. Wood)^
(q10) 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)+
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<PAGE>
(q11) Power of Attorney for Portfolio Trust (Paul G. Martins)(2)
----------
^ 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.
1 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 81) and incorporated herein by
reference thereto.
2 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 82) and incorporated herein by
reference thereto.
3 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 88) and incorporated by
reference thereto.
4 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 91) and incorporated by
reference thereto.
5 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 93) and incorporated by
reference thereto.
6 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post Effective Amendment No. 94) and incorporated by
reference thereto.
7 Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post Effective Amendment No. 98) and incorporated by
reference thereto.
8. Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post Effective Amendment No. 100) and incorporated herein
by reference.
# Filed herewith.
* To be filed by amendment.
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
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<PAGE>
is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a Trustee, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by any
such Trustee, officer or controlling person against the Registrant in connection
with the securities being registered, and the Commission is still of the same
opinion, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.
Item 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, LLC ("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; and
(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 Short-Term Asset Reserve Fund
Standish International Fixed Income Fund
Standish International Fixed Income Fund II
Standish Global Fixed Income Fund
Standish Select Value Fund
Standish Small Capitalization Equity Fund
Standish Massachusetts Intermediate Tax Exempt Bond Fund
Standish Intermediate Tax Exempt Bond Fund
Standish International Equity Fund
Standish Controlled Maturity Fund
Standish Small Cap Tax-Sensitive Equity Fund
Standish Tax-Sensitive Equity Fund
Standish Select Value Asset Fund
Standish Small Capitalization Equity Asset Fund
Standish Fixed Income Asset Fund
Standish Global Fixed Income Asset Fund
Standish Small Cap Growth Fund
Standish World High Yield Fund
Standish Diversified Income Asset Fund
Standish Small Cap Value Fund
Standish International Small Cap Fund
Standish Crossover Bond Fund
Standish Opportunistic High Yield Fund
Standish Opportunistic Emerging Markets Debt Fund
Standish High Yield Bond Fund
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<PAGE>
(b) Directors and Officers of Standish Fund Distributors, L.P.:
Positions and Offices Positions and Offices
Positions and Offices Positions and Offices
Name with Underwriter with Registrant
---- ---------------- ---------------
James E. Holliss, 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
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 28th day of November, 2000.
STANDISH, AYER & WOOD
INVESTMENT TRUST
/s/ Anne P. Herrmann
----------------------------------
Anne P. Herrmann, Vice President
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 28, 2000
------------------------ (principal executive officer)
Richard S. Wood
Paul G. Martins* Treasurer (principal November 28, 2000
----------------------------- financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee November 28, 2000
------------------------
D. Barr Clayson
Samuel C. Fleming* Trustee November 28, 2000
------------------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee November 28, 2000
------------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 28, 2000
------------------------
John H. Hewitt
Edward H. Ladd* Trustee November 28, 2000
------------------------
Edward H. Ladd
Caleb Loring III* Trustee November 28, 2000
------------------------
Caleb Loring III
*By: /s/ Anne P. Herrmann
--------------------
Anne P. Herrmann
Attorney-In-Fact
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<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, in the city of Nashua, New Hampshire on the 28th day
of November, 2000.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Anne P. Herrmann
----------------------------------
Anne P. Herrmann, Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment to the Registration Statement of Standish, Ayer & Wood Investment
Trust has been signed by the following persons in their capacities with
Standish, Ayer & Wood Master Portfolio and on the date indicated.
Signature Title Date
Richard S. Wood* Trustee and President November 28, 2000
---------------------- (principal executive
Richard S. Wood officer)
Paul G. Martins* Treasurer (principal November 28, 2000
---------------------- financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee November 28, 2000
----------------------
D. Barr Clayson
Samuel C. Fleming* Trustee November 28, 2000
----------------------
Samuel C. Fleming
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<PAGE>
Benjamin M. Friedman* Trustee November 28, 2000
----------------------
Benjamin M. Friedman
John H. Hewitt* Trustee November 28, 2000
----------------------
John H. Hewitt
Edward H. Ladd* Trustee November 28, 2000
----------------------------
Edward H. Ladd
Caleb Loring III* Trustee November 28, 2000
----------------------
Caleb Loring III
*By: /s/ Richard S. Wood
-------------------
Richard S. Wood
Attorney-In-Fact
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<PAGE>
EXHIBIT INDEX
Exhibit
(d19) Substitution and Assumption Agreement among Standish, Ayer & Wood, Inc.,
Standish International Management Company, LLC and the Registrant relating
to Standish International Small Cap Fund
(d20) Substitution and Assumption Agreement among Standish, Ayer & Wood, Inc.,
Standish International Management Company, LLC and the Registrant relating
to Standish International Equity Fund
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