STANDISH AYER & WOOD INVESTMENT TRUST, 485APOS, 2000-10-16

STANDISH AYER & WOOD INVESTMENT TRUST
485APOS, 2000-10-16

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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. 100 |X|

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|

Amendment No. 104 |X|
(Check appropriate box or boxes.)

---------------

Standish, Ayer & Wood Investment Trust
---------------------------------------------
(Exact Name of Registrant as Specified in Charter)

One Financial Center, Boston, Massachusetts 02111
--------------------------------------------------
(Address of Principal Executive Offices)

Registrant's Telephone Number, including Area Code: (617) 375-1760

ERNEST V. KLEIN, Esq.
Hale and Dorr
60 State Street
Boston, Massachusetts 02109
-------------------------------------
(Name and Address of Agent for Service)

It is proposed that this filing will become effective:

|_| Immediately upon filing pursuant to Rule 485(b)

|_| On May 1, 2000 pursuant to Rule 485(b)

|_| 60 days after filing pursuant to Rule 485(a)(1)

|_| On [date] pursuant to Rule 485(a)(1)

|_| 75 days after filing pursuant to Rule 485(a)(2)

|X| On January 1, 2001 pursuant to Rule 485(a)(2)

----------------------

This Post-Effective Amendment has been executed by Standish, Ayer & Wood Master
Portfolio.

<PAGE>

[LOGO] STANDISH FUNDS(R)

Prospectus
----------------------------------------------------
January 1, 2001
Standish Crossover Bond Fund

Standish Opportunistic High Yield Fund

Standish Opportunistic Emerging
Markets Debt Fund

The Securities and Exchange Commission has not
approved or disapproved these securities or
determined whether this prospectus is accurate or
complete. Any statement to the contrary is a
crime.
<PAGE>

Contents
--------------------------------------------------------------------------------

Risk/Return Summary.............................3
Who may want to invest.......................3
Mutual fund risks............................3
Crossover Bond Fund..........................4
Opportunistic High Yield Fund................6
Opportunistic Emerging Markets Debt Fund.....8

The Funds' Investments and Related Risks.......10
Additional investment policies..............11

The Investment Adviser.........................12
About Standish(R)...........................12
Fund managers...............................13
Advisory services and fees..................13
[GRAPHIC OMITTED]
Investment and Account Information.............14
How to purchase shares......................14
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
The funds' service providers................17

For More Information...........................20

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 2
<PAGE>

Risk/Return Summary
--------------------------------------------------------------------------------

Standish, Ayer & Wood, Inc. manages each fund. Standish believes that
discovering pockets of inefficiency is the key to adding value to fixed income
investments. Standish focuses on identifying undervalued sectors and securities
and deemphasizes the use of interest rate forecasting. Standish looks for fixed
income securities with the most potential for added value, such as those with
unique structural characteristics or innovative features and the potential for
credit upgrades.

Standish 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

These fixed income funds may be appropriate for investors:

o Looking to diversify a fixed income portfolio with a high level of income.

o Willing to tolerate fluctuations in bond prices due to interest rate
changes.

o Looking for higher returns than an investmet grade bond fund and are
willing to tolerate greaer volatility.

In addition, for Opportunistic Emerging Markets Debt Fund:

o Looking to diversify a fixed income portfolio beyond just developed
foreign markets.

o Prepared to accept the heightened risks associated with investing in
emerging 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.

Standish Crossover Bond, Opportunistic High
3 Yield and Emerging Markets Debt Funds
<PAGE>

Risk Return Summary
--------------------------------------------------------------------------------

Crossover Bond Fund

Investment objective

To maximize total return, consistent with preserving principal, primarily
through the generation of current income and capital appreciation.

Key investments and strategies

The fund invests, under normal circumstances, at least 80% of assets in fixed
income securities issued by U.S. and foreign governments, companies and banks,
as well as preferred stocks, convertible bonds, bank loans, warrants and
tax-exempt bonds. At least 95% of the assets are U.S. dollar denominated or
currency hedged to seek to protect the U.S. dollar value of the fund's assets.
The fund may also invest in futures contracts and options in an attempt to
manage portfolio risks and enhance returns.

Credit quality

The fund invests primarily in below investment grade securities with an emphasis
on those issues that appear likely to be upgraded. Many of these securities have
higher yields and offer a higher level of current income than U.S. government
bonds but at heightened levels of risk. As a result, the fund may realize
substantial capital appreciation over time. At the time of purchase, at least
90% of the fund's assets must be rated BB-/Ba3 or higher.

Targeted average portfolio credit quality

In the range of BB+/Ba1 to BB-/Ba3.

Maturity

The fund generally will maintain an average dollar-weighted effective maturity
of 5 to 13 years but may invest in individual securities of any maturity.

How investments are selected

The adviser focuses on identifying undervalued sectors and securities, and
minimizes the use of interest rate anticipation strategies. The adviser selects
securities for the fund's portfolio by:

o Employing top down quantitative and macro-economic analysis to allocate
assets to undervalued sectors to seek to maximize investment returns.

o Using fundamental analysis to identify those securities with the most
potential for capital appreciation, such as those that offer favorable
relative value and the best opportunity for credit upgrade.

o Targeting individual issues that that are rated in the BB rating category.

o Focusing on securities in areas of the yield curve that offer the most
favorable risk/return characteristics.

Principal risks of investing in the fund

Investors could lose money on their investments in the fund or the fund could
under perform other possible investments if any of the following occurs:

o Interest rates rise, which will make the prices of fixed income securities
and the value of the fund's portfolio 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.
This risk is higher for below investment grade fixed income securities.

o When interest rates are declining, the issuer of a security exercises its
right to prepay principal earlier than scheduled, forcing the fund to
reinvest in lower yielding securities. This is known as call or prepayment
risk.

o When interest rates are rising, the average life of some securities may
extend because of slower than expected principal payments. This will lock
in a below-market interest rate, increase the security's duration and
reduce the value of the security. This is known as extension risk.

o The adviser's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or hedging
strategy proves to be incorrect.

o Prices of foreign securities go down because of unfavorable foreign
government actions, political, economic or market instability or the
absence of accurate information about foreign companies. Foreign
securities are sometimes less liquid and harder to value than securities
of U.S. issuers.

o During periods of extreme interest rate volatility, the fund has
difficulty closing out its position in interest rate futures contracts or
closing out its position at a price which the adviser believes would be
advantageous to the fund.

Other risks

There is a greater risk that the fund will lose money because it invests
primarily in high yield securities. These securities are considered speculative
because they have a higher risk of issuer default, are subject to greater price
volatility and may be illiquid.

The fund is non-diversified. This means that the fund may invest more of its
assets in the securities of a single issuer than other funds. To the extent the
fund invests more of its assets in a single issuer, the fund's share price may
be adversely affected by events affecting that issuer.

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 4
<PAGE>

--------------------------------------------------------------------------------

Total return performance

Because the fund is newly organized, it does not yet have a performance history
which can be shown in a bar chart or total return table.

Fees and expenses of the fund

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund. Other expenses are based upon estimates for the current
fiscal year.

Crossover
Bond Fund

Shareholder fees (fees paid
directly from your investment) None

Annual fund operating expenses(1)
(expenses that are deducted
from fund assets)

Management fees 0.40%

Distribution (12b-1) fees None

Other expenses 0.20%

Total annual fund operating
expenses 0.60%

(1)Because Standish has agreed to cap the fund's operating expenses, actual
expenses are estimated to be:

Management fees 0%

Other expenses 0.05%

Total annual fund
operating expenses 0.05%

This cap may be changed or eliminated.

Expense Example

This example is intended to help you compare the cost of investing in the 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
1 year 3 years

Crossover Bond Fund $61 $194

Standish Crossover Bond, Opportunistic High
5 Yield and Emerging Markets Debt Funds
<PAGE>

Risk/Return Summary
--------------------------------------------------------------------------------

Opportunistic High Yield Fund

Investment objective

To maximize total return, consistent with preserving principal, primarily
through the generation of current income and, to a lesser extent, capital
appreciation.

Key investments and strategies

The fund invests, under normal circumstances, at least 80% of assets in fixed
income securities issued by U.S. and foreign governments, companies and banks,
as well as convertible bonds, bank loans, preferred stocks, warrants and
tax-exempt bonds. At least 95% of the assets are U.S. dollar denominated or
currency hedged to seek to protect the U.S. dollar value of the fund's assets.
The fund may also invest in futures contracts and options in an attempt to
manage portfolio risks and enhance returns.

Credit quality

The fund invests at least 65% of assets in below investment grade securities
with an emphasis on those issues that appear likely to be upgraded. Many of
these securities have higher yields and offer a higher level of current income
than U.S. government bonds but at heightened levels of risk. As a result, the
fund may realize substantial capital appreciation over time.

Targeted average portfolio credit quality

In the range of BB+/Ba1 to B/B2.

Maturity

The fund generally will maintain an average dollar-weighted effective maturity
of 5 to 13 years but may invest in individual securities of any maturity.

How investments are selected

The adviser focuses on identifying undervalued sectors and securities, and
minimizes the use of interest rate anticipation strategies. The adviser achieves
this by selecting securities for the fund's portfolio by:

o Employing top down quantitative and macro-economic analysis to allocate
assets to undervalued sectors to seek to maximize investment returns.

o Targeting individual issues that that are rated in the BB and B rating
categories.

o Focusing on securities in areas of the yield curve that offer the most
favorable risk/return characteristics.

Principal risks of investing in the fund

Investors could lose money on their investments in the fund or the fund could
under perform other possible investments if any of the following occurs:

o Interest rates rise, which will make the prices of fixed income securities
and the value of the fund's portfolio go down.

o The adviser's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or hedging
strategy proves to be incorrect.

Other risks

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 6
<PAGE>

--------------------------------------------------------------------------------

Total return performance

Because the fund is newly organized, it does not yet have a performance history
which can be shown in a bar chart or total return table.

Fees and expenses of the fund

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund. Other expenses are based upon estimates for the current
fiscal year.

Opportunistic
High
Yield Fund

Shareholder fees (fees paid
directly from your investment) None

Annual fund operating expenses(1)
(expenses that are deducted
from fund assets)

Management fees 0.40%

Distribution (12b-1) fees None

Other expenses 0.20%

Total annual fund operating
expenses 0.60%

(1)Because Standish has agreed to cap the fund's operating expenses, actual
expenses are estimated to be:

Management fees 0%

Other expenses 0.05%

Total annual fund
operating expenses 0.05%

This cap may be changed or eliminated.

Expense example

This example is intended to help you compare the cost of investing in the 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
1 year 3 years

Opportunistic High Yield Fund $61 $194

Standish Crossover Bond, Opportunistic High
7 Yield and Emerging Markets Debt Funds
<PAGE>

Risk/Return Summary
--------------------------------------------------------------------------------

Opportunistic Emerging Markets Debt Fund

Investment objective

The fund's investment objective is to generate a high total return through a
combination of capital appreciation and income, to the extent consistent with
prudent investment risk. The fund pursues this objective by investing primarily
in lower quality emerging market government and corporate bonds.

Key investments and strategies

The fund invests, under normal circumstances, at least 65% of assets in lower
quality fixed income securities issued by governments, companies and banks of
emerging markets, as well as preferred stocks, warrants and tax-exempt bonds. At
least 65% of the assets are U.S. dollar denominated or currency hedged to seek
to protect the U.S. dollar value of the fund's assets. The fund may also invest
in futures contracts, and options in an attempt to manage portfolio risks and
enhance returns.

Credit quality

The fund invests at least 65% of assets in below investment grade emerging
market securities. Many of these securities have higher yields and offer a
higher level of current income than U.S. government bonds but at heightened
levels of risk. The fund may realize substantial capital appreciation or
depreciation over a short time. The fund may invest in securities of any credit
quality, including securities that are in default as to principal or interest.

Targeted average portfolio credit quality

In the range of BB/Ba to B/B2.

Maturity

The fund generally will maintain an average dollar-weighted effective maturity
of 5 to 13 years but may invest in individual securities of any maturity.

How investments are selected

The adviser uses an investment process that combines top down country allocation
and bottom up security selection. The adviser selects individual securities for
investment by:

o Employing a top down approach to investing in countries that it believes
are undergoing positive fundamental change or that are fundamentally
mispriced. The approach emphasizes fundamental and quantitative research
and considers factors such as economic growth, social and political risk,
and fiscal and monetary policy.

o Selecting individual issues based upon fundamental and quantitative
assessment emphasizing relative creditworthiness, yield to maturity,
interest rate spread, duration and liquidity.

o Selecting individual securities to create exposure to foreign currencies
that it believes will provide a high level of income or the potential for
capital appreciation.

Principal risks of investing in the fund

Investors could lose money on their investments in the fund or the fund could
under perform other possible investments if any of the following occurs:

o The adviser is not able to adequately protect the U.S. dollar value of the
fund's assets through currency hedging at times when the value of foreign
currencies in which some of the fund's securities are denominated declines
relative to the U.S. dollar.

o The adviser's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or hedging
strategy proves to be incorrect.

o Interest rates rise, which will make the prices of fixed income securities
and the value of the fund's portfolio go down.

o During periods of extreme interest rate volatility, the fund has
difficulty closing out its position in interest rate futures or swap
contracts, or closing out its position at a price which the adviser
believes would be advantageous to the fund.

There is a greater risk that the fund will lose money because it invests
primarily in high yield securities of emerging market issuers. Many of these
securities are considered speculative because they have a higher risk of issuer
default, are subject to greater price volatility and may be illiquid.

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 8
<PAGE>

--------------------------------------------------------------------------------

Total return performance

Because the fund is newly organized, it does not yet have a performance history
which can be shown in a bar chart or total return table.

Fees and expenses of the fund

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund. Other expenses are based upon estimates for the current
fiscal year.

Opportunistic
Emerging Markets
Debt Fund

Shareholder fees (fees paid
directly from your investment) None

Annual fund operating expenses(1)
(expenses that are deducted
from fund assets)

Management fees 0.50%

Distribution (12b-1) fees None

Other expenses 0.50%

Total annual fund operating
expenses 1.00%

(1)Because Standish has agreed to cap the fund's operating expenses, actual
expenses are estimated to be:

Management fees 0%

Other expenses 0.05%

Total annual fund
operating expenses 0.05%

This cap may be changed or eliminated.

Expense example

This example is intended to help you compare the cost of investing in the 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
1 year 3 years

Opportunistic Emerging
Markets Debt Fund $102 $322

Standish Crossover Bond, Opportunistic High
9 Yield and Emerging Markets Debt Funds
<PAGE>

The Funds' Investments and Related Risks
--------------------------------------------------------------------------------

The funds may invest in a wide range of fixed income securities.

Additional Information About the Funds' Principal Investments

Fixed income investments Fixed income investments include bonds, notes
(including structured notes), mortgage-related securities, asset-backed
securities, bank loans, loan assignments and participations, convertible
securities, eurodollar and Yankee dollar instruments, preferred stocks and money
market instruments. Fixed income securities may be issued by U.S. and foreign
corporations or entities; U.S. and foreign banks; the U.S. government, its
agencies, authorities, instrumentalities or sponsored enterprises; state and
municipal governments; and foreign governments and their political subdivisions.
These securities may have all types of interest rate payment and reset terms,
including fixed rate, adjustable rate, zero coupon, contingent, deferred,
payment in kind and auction rate features.

Asset-backed securities represent participations in, or are secured by and
payable from, assets such as installment sales or loan contracts, leases, credit
card receivables and other categories of receivables.

Mortgage-related securities may be issued by private companies or by agencies of
the U.S. government. Mortgage-related securities represent direct or indirect
participations in, or are collateralized by and payable from, mortgage loans
secured by real property. Mortgage-related and asset-backed securities are
especially sensitive to prepayment and extension risk.

For mortgage derivatives and structured securities that have imbedded leverage
features, small changes in interest or prepayment rates may cause large and
sudden price movements. Mortgage derivatives can also become illiquid and hard
to value in declining markets.

Bank loans are privately negotiated loans issued by one or more banks or other
types of financial institutions to a foreign company or government. The fund's
investment in these loans may be in the form of participations and assignments.
In a participation, the fund acquires the right to receive a portion of the
amount repaid by the borrower. In an assignment, the fund acquires direct rights
against the borrower for a portion of the loan. Investments in bank loans,
participations and assignments involve special risks, including a lack of
liquidity and the risk that the borrower and the lender may default on their
obligations.

Information About the Funds' Other Investment Strategies

Foreign Investments The Crossover Bond Fund and Opportunistic High Yield Fund
will purchase securities denominated in currencies only of countries with
advanced or transition economies as defined by the International Monetary Fund
(IMF). The IMF currently considers the following foreign countries and countries
within the following regions to have advanced or transition economies: Western
European countries, Canada, Australia, New Zealand, Israel, Japan, Hong Kong,
Singapore and Taiwan.

Sovereign Default Risk The Opportunistic Emerging Markets Fund invests in
sovereign debt securities of foreign governments, including Brady Bonds.
Investments in such securities involve special risks. The issuer of the debt or
the governmental authorities that control the repayment of the debt may be
unable or unwilling to repay principal or interest when due in accordance with
the terms of such debt. Periods of economic uncertainty may result in the
volatility of market prices of sovereign debt, and in turn the fund's net asset
value, to a greater extent than the volatility inherent in domestic fixed income
securities.

The Opportunistic High Yield Fund may invest up to 10% of assets in common
stock.

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 10
<PAGE>

--------------------------------------------------------------------------------

Additional Investment Policies

Credit quality Securities are considered below investment grade if rated below
the four highest long-term rating categories of a nationally recognized
statistical rating organization, have received a comparable short-term or other
rating or are unrated securities that the adviser believes are of comparable
quality.

The Crossover Bond and Opportunistic High Yield Funds may only purchase
securities rated B-/B3 or higher. If unrated, the Standish internal rating must
be B-/B3 or higher at time of purchase.

If a security receives "split" (different) ratings from multiple rating
organizations, a fund will treat the security as being rated in the higher
rating category. A fund may choose not to sell securities that are downgraded
below the fund's minimum acceptable credit rating after their purchase. Each
fund's credit standards also apply to counterparties to OTC derivative
contracts.

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 in the market value of securities held by
or to be bought for a fund caused by changing interest rates or currency
exchange rates.

o As a substitute for purchasing or selling securities.

o To shorten or lengthen the effective maturity or duration of a fund's
portfolio.

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 or currency exposure.
Therefore, using derivatives can disproportionately increase portfolio losses
and reduce opportunities for gains when interest rates 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. OTC derivatives can also make a fund's
portfolio less liquid and harder to value, especially in volatile markets.

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 Each fund's investment objective may be changed by the
fund's trustees without shareholder approval.

Standish Crossover Bond, Opportunistic High
11 Yield and Emerging Markets Debt 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, established in 1933, has remained by choice a privately held
investment management firm over its more than 65 year history. Ownership is
shared by a limited number of employees of the firm. Standish believes the
firm's organizational structure has helped preserve an entrepreneurial
orientation, which reinforces its commitment to 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 uncover opportunity by utilizing detailed analysis and
thorough adherence to a strict set of disciplines. Standish uses fundamental
research to identify a security sufficiently complex as to have been misvalued
by more traditional analysis. Standish uses sophisticated quantitative
techniques, which may help identify market misvaluations 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 complimentary resources.

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 12
<PAGE>

--------------------------------------------------------------------------------

Fund managers
--------------------------------------------------------------------------------
Fund Fund managers Positions during past five years

Crossover Bond Fund John R. McNichols Associate Director and a Chartered
Financial Analyst, John is a
Opportunistic High portfolio manager for aggressive
Yield Fund core fixed income accounts and
co-director of global credit
investing. His prior experience
with Standish includes managing
emerging markets fixed income
investments and corporate bond
research.

Jonathan M. Uhrig Vice president, Jonathan joined
the firm in 1997 and has worked in
high yield trading and portfolio
management. He has previous
experience as an analyst and
portfolio manager in fixed income
and equity risk-arbitrage at
Longfellow Investment management
and was a corporate bond
strategist in Fixed Income
Research at Goldman, Sachs & Co.
--------------------------------------------------------------------------------
Opportunistic Emerging John L. Peta Vice president of Standish, and a
Markets Debt Fund Chartered Financial Analyst, John
is responsible for emerging market
fixed income research and
international quantitative
analysis. John joined Standish
from Chancellor-LGT Asset
Management in 1997.

Kent J. Wosepka Assistant vice president and a
Chartered Financial Analyst, Kent
is responsible for emerging market
fixed income research. Prior to
joining Standish in 1998, Kent
worked at Jeffrey Slocum &
Associates and Rowe Price-Fleming
International, Inc.
--------------------------------------------------------------------------------

Advisory services and fees

Standish provides each fund with portfolio management and investment research
services. The adviser places orders to buy and sell each fund's portfolio
securities and manages each fund's business affairs. The adviser is entitled to
an advisory fee for these services as set forth below. However, the adviser has
agreed to limit the funds' total annual operating expenses (excluding brokerage
commissions, taxes and extraordinary expenses). These agreements are temporary
and may be terminated or changed at any time.

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------
Annual Advisory Fee Rates
(as a percentage of the fund's average net assets)

Contractual advisory fee Current expense limitation
<S> <C> <C>
Crossover Bond Fund 0.40% 0.05%
---------------------------------------------------------------------------------------------
Opportunistic High Yield Fund 0.40% 0.05%
---------------------------------------------------------------------------------------------
Opportunistic Emerging 0.50% 0.05%
Markets Debt Fund
---------------------------------------------------------------------------------------------
</TABLE>

Investment Adviser

Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111-2662

Standish Crossover Bond, Opportunistic High
13 Yield and Emerging Markets Debt Funds
<PAGE>

Investment and Account Information
--------------------------------------------------------------------------------

How to purchase shares

Minimum initial investment: $100,000

Minimum subsequent investment: $5,000

Minimum investments may be waived by the distributor for investors in omnibus
accounts and clients and employees of Standish and their immediate families.

All orders to purchase shares received by the distributor or its agent before
the close of regular trading on the New York Stock Exchange will be executed at
that day's share price. Orders recieved 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.

Good form means that you have provided the following information with your
request: Name of the fund; account number (if an existing account); dollar
amount or number of shares to be purchased (or exchanged or redeemed); and the
signature of each owner exactly as the account is registered in the case of a
redemption request.

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 specified deadline.

The distributor's address is: Wire instructions:

Standish Fund Distributors, L.P. Investors Bank & Trust Company
P.O. 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 Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt 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. Please read
the prospectus of the Standish fund into which you are exchanging before
requesting an 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 (see below).

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 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 specified deadline.

Standish Crossover Bond, Opportunistic High
15 Yield and Emerging Markets Debt 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 writing 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 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. International Fixed Income Fund
calculates the NAV of each class separately. If the exchange closes early, the
funds accelerate calculation of NAV and transaction deadlines to that time.

Each fund values the securities in its portfolio on the basis of market
quotations and valuations provided by independent pricing services. If
quotations are not readily available, or the value of a security has been
materially affected by events occurring after the closing of a foreign exchange,
each fund may value its assets by a method that the trustees believe accurately
reflects fair value. A fund that uses fair value to price securities may value
those securities higher or lower than another 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 distribute dividends from net investment income quarterly. The funds
declare and distribute net capital gains, if any, annually. All dividends and
capital gains are reinvested in shares of the fund that paid them unless the
shareholder elects to receive them in cash. Substantially all of a fund's
distributions will be from net investment income.

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 16
<PAGE>

Fund Details
--------------------------------------------------------------------------------

Taxes
--------------------------------------------------------------------------------
Transactions 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 taxable 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.

The funds' service providers

Principal Underwriter
Standish Fund Distributors, L.P.

Custodian, Transfer Agent and Fund Accountant
Investors Bank & Trust Company

Independent Accountants
PricewaterhouseCoopers LLP

Legal Counsel
Hale and Dorr LLP

Standish Crossover Bond, Opportunistic High
17 Yield and Emerging Markets Debt Funds
<PAGE>

Standish Crossover Bond, Opportunistic High
Yield and Emerging Markets Debt Funds 18
<PAGE>

Standish Crossover Bond, Opportunistic High
19 Yield and Emerging Markets Debt Funds
<PAGE>

For More Information
--------------------------------------------------------------------------------

Standish, Ayer & Wood, Inc. is an independent investment counseling firm that
manages assets for institutional investors and high net worth individuals, as
well as mutual funds. Standish offers a broad array of investment services that
includes management of domestic and international equity and fixed income
portfolios.

For investors who want more information about the Standish Crossover Bond Fund,
Standish Opportunistic High Yield Fund and Standish Opportunistic Emerging
Markets Debt Fund, the following documents are available free upon request.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the funds and is incorporated
into this prospectus by reference.

Investors can get free copies of reports and SAIs, request other information and
discuss their questions about the funds by contacting the funds at:

Standish Funds
P.O. Box 1407
Boston, MA 02205-1407

Telephone: 1.800.729.0066

Email:
[email protected]

Internet:
http://www.standishonline.com

Investors can review the funds' reports and SAIs at the Public Reference Room of
the Securities and Exchange Commission. Call 202.942.8090 for hours of
operation. Investors can get text-only copies:

o For a fee, by writing the Public Reference Room of the Commission,
Washington, D.C. 20549-6009

o For a fee, by sending an email or electronic request to the Public
Reference Room of the Commissioner at [email protected]

o Free from the Commission's Internet website at http://www.sec.gov

[LOGO] STANDISH FUNDS(R)
One Financial Center
Boston, MA 02111-2662
800.729.0066

Investment Company Act
file number (811-4813)

00-316

<PAGE>

January 1, 2001

[STANDISH LOGO]

STANDISH, AYER & WOOD INVESTMENT TRUST

One Financial Center
Boston, Massachusetts 02111
(800) 729-0066

STATEMENT OF ADDITIONAL INFORMATION

Standish Crossover Bond Fund
Standish Opportunistic High Yield Fund
Standish Opportunistic Emerging Markets Debt 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 1, 2001, as amended and/or supplemented
from time to time, of Standish Crossover Bond Fund (Crossover Bond Fund),
Standish Opportunistic High Yield Fund (High Yield Fund) and Standish
Opportunistic Emerging Markets Debt Fund (Emerging Markets Fund), each a
separate investment series of Standish, Ayer & Wood Investment Trust (the
Trust). The SAI should be read in conjunction with the funds' prospectus.

---------------------------------

Contents

INVESTMENT OBJECTIVES AND POLICIES...........................................2
INVESTMENT RESTRICTIONS.....................................................25
CALCULATION OF PERFORMANCE DATA.............................................27
MANAGEMENT..................................................................28
PURCHASE AND REDEMPTION OF SHARES...........................................33
PORTFOLIO TRANSACTIONS......................................................33
DETERMINATION OF NET ASSET VALUE............................................34
THE FUNDS AND THEIR SHARES..................................................35
TAXATION....................................................................36
ADDITIONAL INFORMATION......................................................40
EXPERTS AND FINANCIAL STATEMENTS............................................40
<PAGE>

INVESTMENT OBJECTIVES AND POLICIES

The prospectus describes the investment objective and policies of each
fund. The following discussion supplements the description of the funds'
investment policies in the prospectus.

Adviser. Standish, Ayer & Wood, Inc. ("Standish" or the "Adviser") is the
investment adviser to each fund.

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.

Credit Quality. Investment grade securities are those that are rated Baa
or higher by Moody's Investors Service, Inc. ("Moody's") or BBB or higher by
Standard & Poor's Ratings Group ("Standard & Poors"), Duff and Phelps ("Duff")
or Fitch IBCA International ("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, A or P-1 by
Moody's or AAA, AA, A, A-1 or Duff-1 by Standard & Poor's, Duff or Fitch).
Securities rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by Standard &
Poor's, Duff or Fitch are generally considered medium grade obligations and have
some speculative characteristics. Adverse changes in economic conditions or
other circumstances are more likely to weaken the medium grade issuer's
capability to pay interest and repay principal than is the case for high grade
securities.

Fixed income securities rated Ba and below by Moody's or BB and below by
Standard & Poor's, Duff or Fitch, or, if unrated, determined by the adviser to
be of comparable credit quality are considered below investment grade
obligations. Below investment grade securities, commonly referred to as "junk
bonds," carry a higher degree of risk than medium grade securities and are
considered speculative by the rating agencies. When the funds invest in
non-investment grade fixed income securities, the adviser attempts to select
those fixed income securities that have the potential for upgrade.

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. In the case of unrated sovereign and
subnational debt of foreign countries, the adviser may take into account, but
will not rely entirely on, the ratings assigned to the issuers of such
securities. If the rating of a security held by a fund is downgraded below the
minimum rating required for the particular fund, the adviser will determine
whether to retain that security in the fund's portfolio.

Maturity and Duration. Each fund will generally maintain an average dollar
weighted effective portfolio maturity of 5 to 13 years. However, each fund may
purchase individual securities with effective maturities that are outside of
these ranges. The effective maturity of an individual portfolio security in
which a fund invests is defined as the period remaining until the earliest date
when the fund can recover the principal amount of such security through
mandatory redemption or prepayment by the issuer, the exercise by the fund of a
put option, demand feature or tender option granted by the issuer or a third
party or the payment of the principal on the stated maturity date. The effective
maturity of variable rate securities is calculated by reference to their coupon
reset dates. Thus, the effective maturity of a security may be substantially
shorter than its final stated maturity. Prepayment rates are influenced by
changes in current interest rates and a variety of economic, geographic, social
and other factors and cannot be predicted with certainty. In general,
securities, such as mortgage-backed securities, may be subject to greater
prepayment rates in a declining interest rate environment. Conversely, in an
increasing interest rate environment, the rate of prepayment may be expected to
decrease. A higher than anticipated rate of

2
<PAGE>

unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to a fund than was
anticipated at the time the securities were purchased. A fund's reinvestment of
unscheduled prepayments may be made at rates higher or lower than the rate
payable on such security, thus affecting the return realized by the fund.

Duration of an individual portfolio security is a measure of the
security's price sensitivity taking into account expected cash flow and
prepayments under a wide range of interest rate scenarios. In computing the
duration of its portfolio, a fund will have to estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
Each fund may use various techniques to shorten or lengthen the option-adjusted
duration of its portfolio, including the acquisition of debt obligations at a
premium or discount, and the use of mortgage swaps and interest rate swaps,
caps, floors and collars.

Securities. The funds invest primarily in all types of fixed income
securities. In addition, each fund may purchase shares of other investment
companies and real estate investment trusts ("REITs"). Each fund may also enter
into repurchase agreements and forward dollar roll transactions, may purchase
zero coupon and deferred payment securities and may buy securities on a
when-issued or delayed delivery basis. Please refer to each fund's specific
investment objective and policies and "Description of Securities and Related
Risks" for a more comprehensive list of permissible securities and investments.

Crossover Bond Fund

The fund invests, under normal circumstances, at least 80% of assets in
fixed income securities issued by U.S. and foreign governments, companies and
banks, as well as preferred stocks, warrants and tax-exempt bonds. The fund's
assets are primarily invested in below investment grade fixed income securities.
At the time of purchase, at least 90% of the fund's assets must be rated BB-/Ba3
or higher.

Opportunistic High Yield Fund

Opportunistic Emerging Markets Debt Fund

The fund invests, under normal circumstances, at least 65% of assets in
lower quality fixed income securities issued by governments, companies and banks
of emerging market countries, as well as preferred stocks, warrants and
tax-exempt bonds.

Country Selection. Although there is no limit on the number of countries
in which issuers of the fund's investments are located, the fund intends to
invest in no fewer than three different countries. The fund limits its
investments in securities of issuers located in any one developed country
(excluding the U.S.) to 15% of its total assets. These limitations do not apply
to investments denominated or quoted in the euro.

3
<PAGE>

Description of Securities and Related Risks

General Risks of Investing

The Prospectus discusses the principal risk of investing in each fund. The
following discussion provides additional information on the risks associated
with an investment in a fund. Each fund invests primarily in fixed income
securities and is subject to risks associated with investments in such
securities. These risks include interest rate risk, default risk and call and
extension risk. The funds are also subject to risks associated with direct
investments in foreign securities as described under the "Specific Risks"
section.

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. This risk is higher for
investments in below investment grade fixed income securities.

Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
its right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and a fund will suffer from having to reinvest
in lower yielding securities. Extension risk exists when the issuer may exercise
its right to pay principal on an obligation later than scheduled which would
cause cash flows to be returned later than expected. This typically results when
interest rates have increased and a fund will suffer from the inability to
invest in higher yield securities.

Specific Risks

The following sections include descriptions of specific risks that are
associated with a fund's purchase of a particular type of security or the
utilization of a specific investment technique.

Below Investment Grade Fixed Income Securities. Each fund invests
primarily in non-investment grade securities. Non-investment grade fixed income
securities are considered predominantly speculative by traditional investment
standards. In some cases, these securities may be highly speculative and have
poor prospects for reaching investment grade standing. Non-investment grade
fixed income securities and unrated securities of comparable credit quality are
subject to the increased risk of an issuer's inability to meet principal and
interest obligations. These securities, also referred to as high yield
securities or "junk bonds", may be subject to greater price volatility due to
such factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the high yield markets generally and less secondary
market liquidity.

The amount of high yield, fixed income securities proliferated in the
1980s and 1990s as a result of increased merger and acquisition and leveraged
buyout activity. Such securities are also issued by less-established
corporations desiring to expand. Risks associated with acquiring the securities
of such issuers generally are greater than is the case with higher rated
securities because such issuers are often less creditworthy companies or are
highly leveraged and generally less able than more established or less leveraged
entities to make scheduled payments of principal and interest.

4
<PAGE>

The market values of high yield, fixed income securities tend to reflect
individual corporate developments to a greater extent than do those of higher
rated securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of such high yield securities may not be able to make
use of more traditional methods of financing and their ability to service debt
obligations may be more adversely affected than issuers of higher rated
securities by economic downturns, specific corporate developments or the
issuers' inability to meet specific projected business forecasts. These
non-investment grade securities also tend to be more sensitive to economic
conditions than higher-rated securities. Negative publicity about the high yield
bond market and investor perceptions regarding lower rated securities, whether
or not based on the funds' fundamental analysis, may depress the prices for such
securities.

Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which the funds invest, the
yields and prices of such securities may tend to fluctuate more than those for
higher rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities market, resulting in greater
yield and price volatility.

Another factor which causes fluctuations in the prices of fixed-income
securities is the supply and demand for similarly rated securities. In addition,
the prices of fixed-income securities fluctuate in response to the general level
of interest rates. Fluctuations in the prices of portfolio securities subsequent
to their acquisition will not affect cash income from such securities but will
be reflected in a fund's net asset value.

The risk of loss from default for the holders of high yield, fixed-income
securities is significantly greater than is the case for holders of other debt
securities because such high yield, fixed-income securities are generally
unsecured and are often subordinated to the rights of other creditors of the
issuers of such securities.

The secondary market for high yield, fixed-income securities is dominated
by institutional investors, including mutual fund portfolios, insurance
companies and other financial institutions. Accordingly, the secondary market
for such securities is not as liquid as and is more volatile than the secondary
market for higher-rated securities. In addition, the trading volume for high
yield, fixed-income securities is generally lower than that of higher rated
securities and the secondary market for high yield, fixed-income securities
could contract under adverse market or economic conditions independent of any
specific adverse changes in the condition of a particular issuer. These factors
may have an adverse effect on the funds' ability to dispose of particular
portfolio investments. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating a fund's net asset value. A less liquid secondary market also may
make it more difficult for a fund to obtain precise valuations of the high yield
securities in its portfolio.

Federal legislation could adversely affect the secondary market for high
yield securities and the financial condition of issuers of these securities. The
form of any proposed legislation and the probability of such legislation being
enacted is uncertain.

Non-investment grade or high yield, fixed-income securities also present
risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the issuer to call
or repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, a fund may have to replace such security with
a lower yielding security, resulting in a decreased return for investors. A fund
may also incur additional expenses to the extent that it is required to seek
recovery upon a default in the payment of principal or interest on a portfolio
security.

5
<PAGE>

Credit ratings issued by credit rating agencies are designed to evaluate
the safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in non-investment grade
and comparable unrated obligations will be more dependent on the adviser's
credit analysis than would be the case with investments in investment-grade debt
obligations. The adviser employs its own credit research and analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. The adviser continually
monitors the investments in each fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.

Corporate Debt Obligations. Each fund may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
companies, including obligations of industrial, utility, banking and other
financial issuers. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

U.S. Government Securities. Each fund may invest in U.S. Government
securities. Generally, these securities include U.S. Treasury obligations and
obligations issued or guaranteed by U.S. Government agencies, instrumentalities
or sponsored enterprises which are supported by (a) the full faith and credit of
the U.S. Treasury (such as the Government National Mortgage Association
("GNMA")), (b) the right of the issuer to borrow from the U.S. Treasury (such as
securities of the Student Loan Marketing Association ("SLMA")), (c) the
discretionary authority of the U.S. Government to purchase certain obligations
of the issuer (such as the Federal National Mortgage Association ("FNMA") and
Federal Home Loan Mortgage Corporation ("FHLMC")), or (d) only the credit of the
agency. No assurance can be given that the U.S. Government will provide
financial support to U.S. Government agencies, instrumentalities or sponsored
enterprises in the future. U.S. Government securities also include Treasury
receipts, zero coupon bonds, U.S. Treasury 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 ("STRIPs").

Foreign Securities. Each fund may invest in foreign securities. Investing
in the securities of foreign issuers involves risks that are not typically
associated with investing in U.S. dollar-denominated securities of domestic
issuers. Investments in foreign issuers may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to such
investments and in exchange control regulations (e.g., currency blockage). A
decline in the exchange rate of the currency (i.e., weakening of the currency
against the U.S. dollar) in which a portfolio security is quoted or denominated
relative to the U.S. dollar would reduce the value of the portfolio security. In
addition, if the exchange rate for the currency in which a fund receives
interest payments declines against the U.S. dollar before such income is
distributed as dividends to shareholders, the fund may have to sell portfolio
securities to obtain sufficient cash to enable the fund to pay such dividends.
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.

6
<PAGE>

Foreign issuers are not generally subject to uniform accounting, auditing
and financial reporting standards comparable to those applicable to U.S.
issuers. There may be less publicly available information about a foreign issuer
than about a U.S. issuer. In addition, there is generally less government
regulation of foreign markets, companies and securities dealers than in the U.S.
Most foreign securities markets may have substantially less trading volume than
U.S. securities markets and securities of many foreign issuers are less liquid
and more volatile than securities of comparable U.S. issuers. Furthermore, with
respect to certain foreign countries, there is a possibility of nationalization,
expropriation or confiscatory taxation, imposition of withholding or other taxes
on dividend or interest payments (or, in some cases, capital gains), limitations
on the removal of funds or other assets, political or social instability or
diplomatic developments which could affect investments in those countries.

Investing in Emerging Markets. The Emerging Markets Fund may also invest
in securities of issuers in emerging markets, including issuers in Asia, Eastern
Europe (including Russia), Latin America, the Middle East and Africa. The fund
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 risks may be
related to (i) restrictions on foreign investment and repatriation of capital;
(ii) differences in size, liquidity and volatility of, and the degree and manner
of regulation of, the securities markets of the emerging market countries
compared to the U.S. securities markets; (iii) economic, political and social
factors; and (iv) foreign exchange matters such as fluctuations in exchange
rates between the U.S. dollar and the currencies in which a fund's portfolio
securities are quoted or denominated, exchange control regulations and costs
associated with currency exchange. The fund's purchase and sale of portfolio
securities in certain emerging market countries may be constrained by
limitations as to daily changes in the prices of listed securities, periodic
trading or settlement volume and/or limitations on aggregate holdings of foreign
investors. In certain cases, such limitations may be computed based upon the
aggregate trading by or holdings of the fund, the adviser and its affiliates and
their respective clients and other service providers. The fund may not be able
to sell securities in circumstances where price, trading or settlement volume
limitations have been reached. These limitations may have a negative impact on
the fund's performance and may adversely affect the liquidity of the fund's
investment to the extent that it invest certain 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 the 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. Such
restrictions may affect the market price, liquidity and rights of securities
that may be purchased by the fund. From time to time, the adviser may determine
that investment and repatriation restrictions in certain emerging market
countries negate the advantages of investing in such countries and no fund is
required to invest in any emerging market country.

In addition, certain countries may restrict or prohibit investment
opportunities in issuers or industries deemed important to national interests.
The adviser may determine from time to time to invest in the securities of
emerging market countries which may impose restrictions on foreign investment
and repatriation that cannot currently be predicted. 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 fund to the
extent that they invest in emerging market countries.

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Market Characteristics. 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.

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. 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 developed countries such as the United States and Western
Europe. Such instability may result from, among other things: (i) authoritarian
governments or military involvement in political and economic decision-making,
including changes or attempted changes in government through
extra-constitutional means; (ii) popular unrest associated with demands for
improved economic, political and social conditions; (iii) internal insurgencies;
(iv) hostile relations with neighboring countries; and (v) ethnic, religious and
racial disaffection and conflict. Such economic, political and social
instability could significantly disrupt financial markets of emerging market
countries and adversely affect the value of a fund's assets so invested.

Few emerging market countries have fully democratic governments. Some
governments in the region are authoritarian in nature or are influenced by armed
forces which have been used to control civil unrest. During the course of the
last 25 years, governments of certain emerging market countries have been
installed or removed as a result of military coups, while governments in other
emerging market countries have periodically used force to suppress civil
dissent. Disparities of wealth, the pace and success of democratization, and
ethnic, 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

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<PAGE>

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 affect on market prices of securities and payment of dividends.

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 these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of a fund's
assets quoted in those currencies. However, under normal market conditions, at
least 95% of the Crossover Bond Fund's and High Yield Fund's and 65% of Emerging
Markets Debt Fund's total assets, adjusted to reflect the fund's net currency
exposure after giving effect to currency transactions and positions, are
denominated in or hedged (including cross-hedged) to the U.S. dollar. Exchange
rates are generally affected by the forces of supply and demand in the
international currency markets, the relative merits of investing in different
countries and the intervention or failure to intervene of U.S. or foreign
governments and central banks. Some emerging market countries also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets may restrict the free conversion of their currencies
into other currencies. Any devaluations in the currencies in which a fund's
securities are denominated may have a detrimental impact on the fund's net asset
value except to the extent such foreign currency exposure is subject to hedging
transactions. Each fund may utilize various investment strategies to seek to
minimize the currency risks described above. These strategies include the use of
currency transactions such as currency forward and futures contracts, cross
currency forward and futures contracts, currency swaps and currency options.
Each fund's use of currency transactions may expose it to risks independent of
its securities positions. See "Strategic Transactions" within the "Investment
Techniques and Related Risks" section for a discussion of the risks associated
with such strategies.

Economic and Monetary Union (EMU). EMU occurred 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 now subject to each
country's commitment to avoid "excessive deficits" and other more specific
budgetary criteria. A European Central Bank is responsible for setting the
official interest rate to maintain price stability within the euro zone.

EMU is driven by the expectation of a number of economic benefits,
including lower transaction costs, reduced exchange risk, greater competition,
and a broadening and deepening of European financial markets. However, there are
a number of significant risks associated with EMU. Monetary and economic union
on this scale has never been attempted before. There is a significant degree of
uncertainty as to whether participating countries will remain committed to EMU
in the face of changing economic conditions. This uncertainty may increase the
volatility of European markets and may adversely affect the prices of securities
of European issuers in the fund's portfolios.

Sovereign Debt Obligations. Each fund may invest in sovereign debt
obligations, which involve special risks that are not present in corporate debt
obligations. The foreign issuer of the sovereign debt or the foreign
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and a fund may have limited
recourse in the event of a default.

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<PAGE>

During periods of economic uncertainty, the market prices of sovereign debt, and
the fund's net asset value, to the extent it invests in such securities, may be
more volatile than prices of debt obligations of U.S. issuers. In the past,
certain foreign countries have encountered difficulties in servicing their debt
obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debt.

The Emerging Markets Fund may invest in sovereign debt securities of
emerging market governments, including Brady Bonds. The occurrence of political,
social or diplomatic changes in one or more of the countries issuing sovereign
debt could adversely affect the fund's investments. Emerging markets are faced
with social and political issues and some of them have experienced high rates of
inflation in recent years and have extensive internal debt. Among other effects,
high inflation and internal debt service requirements may adversely affect the
cost and availability of future domestic sovereign borrowing to finance
governmental programs, and may have other adverse social, political and economic
consequences. Political changes or a deterioration of a country's domestic
economy or balance of trade may affect the willingness of countries to service
their sovereign debt. Although the Adviser intends to manage the fund in a
manner that will minimize the exposure to such risks, there can be no assurance
that adverse political changes will not cause the fund to suffer a loss of
interest or principal on any of its holdings. In recent years, some of the
emerging market countries in which the fund may invest have encountered
difficulties in servicing their sovereign debt obligations. Some of these
countries have withheld payments of interest and/or principal of sovereign debt.
These difficulties have also led to agreements to restructure external debt
obligations, typically by rescheduling principal payments, reducing interest
rates and extending new credits to finance interest payments on existing debt.
In the future, holders of emerging market sovereign debt securities may be
requested to participate in similar rescheduling of such debt. At times certain
emerging market countries have declared moratoria on the payment of principal
and interest on external debt; such a moratorium is currently in effect in
certain emerging market countries. There is no bankruptcy proceeding by which a
creditor may collect in whole or in part sovereign debt on which an emerging
market government has defaulted.

The ability of emerging market governments to make timely payments on
their sovereign debt securities is likely to be influenced strongly by a
country's balance of trade and its access to trade and other international
credits. A country whose exports are concentrated in a few commodities could be
vulnerable to a decline in the international prices of one or more of such
commodities. Increased protectionism on the part of a country's trading partners
could also adversely affect its exports. Such events could diminish a country's
trade account surplus, if any. To the extent that a country receives payment for
its exports in currencies other than hard currencies, its ability to make hard
currency payments could be affected.

Investors should also be aware that certain sovereign debt instruments in
which the fund may invest involve great risk. As noted above, most sovereign
debt obligations issued by emerging market governments generally are deemed to
be the equivalent in terms of quality to securities rated below

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investment grade. Such securities are regarded as predominantly speculative with
respect to the issuer's capacity to pay interest and repay principal in
accordance with the terms of the obligations and involve major risk exposure to
adverse conditions. Some of such securities, with respect to which the issuer
currently may not be paying interest or may be in payment default, may be
comparable to securities rated D by S&P or C by Moody's. The fund may have
difficulty disposing of and valuing certain sovereign debt obligations because
there may be a limited trading market for such securities. Because there is no
liquid secondary market for many of these securities, the fund anticipates that
such securities could be sold only to a limited number of dealers or
institutional investors.

Brady Bonds. Each fund may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings. Brady Bonds have been issued by many
governments including Argentina, Brazil, Bulgaria, Mexico, Nigeria, the
Philippines, Russia and Venezuela. In light of the history of defaults of
countries issuing Brady Bonds on their commercial bank loans, investments in
Brady Bonds may be viewed as speculative. Brady Bonds may be fully or partially
collateralized or uncollateralized, are issued in various currencies (but
primarily in U.S. dollars) and are actively traded in OTC secondary markets.
Incomplete collateralization of interest or principal payment obligations
results in increased credit risk. U.S. dollar-denominated collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized by U.S. Treasury zero coupon bonds having the same maturity as
the Brady Bonds.

Obligations of Supranational Entities. Each fund may invest in obligations
of supranational entities designated or supported by governmental entities to
promote economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the European Coal
and Steel Community, the Asian Development Bank and the Inter-American
Development Bank. Each supranational entity's lending activities are limited to
a percentage of its total capital (including "callable capital" contributed by
its governmental members at the entity's call), reserves and net income. There
is no assurance that participating governments will be able or willing to honor
their commitments to make capital contributions to a supranational entity.

Eurodollar and Yankee Dollar Investments. Each fund may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars generally held in banks outside the United States, primarily in Europe.
Yankee Dollar instruments are U.S. dollar denominated bonds typically issued in
the U.S. by foreign governments and their agencies and foreign banks and
corporations. Each of the funds may invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued
by foreign branches of domestic banks; ETDs are U.S. dollar-denominated deposits
in a foreign branch of a U.S. bank or in a foreign bank; and Yankee CDs are U.S.
dollar-denominated certificates of deposit issued by a U.S. branch of a foreign
bank and held in the U.S. These investments involve risks that are different
from investments in securities issued by U.S. issuers, including potential
unfavorable political and economic developments, foreign withholding or other
taxes, seizure of foreign deposits, currency controls, interest limitations or
other governmental restrictions which might affect payment of principal or
interest.

Mortgage-Backed Securities. Each fund may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by the U.S. Government or any of its agencies, instrumentalities or sponsored
enterprises, including, but not limited to, GNMA, FNMA or FHLMC. Mortgage-backed
securities represent direct or indirect participations in, or are collateralized
by and payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or

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<PAGE>

principal on their mortgages whenever they choose. Therefore, mortgage-backed
securities are often subject to more rapid repayment than their stated maturity
date would indicate as a result of principal prepayments on the underlying
loans. This can result in significantly greater price and yield volatility than
is the case with traditional fixed income securities. During periods of
declining interest rates, prepayments can be expected to accelerate, and thus
impair a fund's ability to reinvest the returns of principal at comparable
yields. Conversely, in a rising interest rate environment, a declining
prepayment rate will extend the average life of many mortgage-backed securities,
increase a fund's exposure to rising interest rates and prevent a fund from
taking advantage of such higher yields.

GNMA securities are backed by the full faith and credit of the U.S.
Government, which means that the U.S. Government guarantees that the interest
and principal will be paid when due. FNMA securities and FHLMC securities are
not backed by the full faith and credit of the U.S. Government; however, these
enterprises have the ability to obtain financing from the U.S. Treasury.

Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended (the "Code"), and invests in
certain mortgages principally secured by interests in real property and other
permitted investments. The funds do not intend to purchase residual interests in
REMICs.

Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, a fund may fail to recoup fully its initial
investment in these securities. Although the markets for SMBS and CMOs are
increasingly liquid, certain SMBS and CMOs may not be readily marketable and
will be considered illiquid for purposes of each fund's limitation on
investments in illiquid securities. The market value of the class consisting
entirely of principal payments generally is unusually volatile in response to
changes in interest rates. The yields on a class of SMBS that receives all or
most of the interest from mortgage loans are generally higher than prevailing
market yields on other mortgage-backed securities because their cash flow
patterns are more volatile and there is a greater risk that the initial
investment will not be fully recouped.

Life of Mortgage-Related Obligations. The average life of mortgage-related
obligations is likely to be substantially less than the stated maturities of the
mortgages in the mortgage pools underlying such securities. Prepayments or
refinancing of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of principal invested long before the
maturity of the mortgages in the pool.

As prepayment rates of individual mortgage pools will vary widely, it is
not possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.

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<PAGE>

Asset-Backed Securities. Each fund may invest in asset-backed securities.
The principal and interest payments on asset-backed securities are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Such asset pools are
securitized through the use of special purpose trusts or corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance. Like mortgage-backed securities, asset-backed securities are subject
to more rapid prepayment of principal than indicated by their stated maturity
which may greatly increase price and yield volatility. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets and there is the possibility that recoveries on
repossessed collateral may not be available to support payments on these
securities.

Loan Participations and Assignments. Each fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign entity and one or more financial institutions ("Lenders"). The majority
of the funds' investments in Loans is expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in the
fund having a contractual relationship only with the Lender, not with the
borrower government. The fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, the fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation.

In the event of the insolvency of the Lender selling a Participation, the
fund may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the borrower. Each fund will acquire
Participations only if the Lender interpositioned between the fund and the
borrower is determined by the Adviser to be creditworthy. When the fund
purchases Assignments from Lenders, the fund will acquire direct rights against
the borrower on the Loan. However, since Assignments are arranged through
private negotiations between potential assignees and assignors, the rights and
obligations acquired by the fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.

The funds may have difficulty disposing of Assignments and Participations.
The liquidity of such securities is limited and the funds anticipate that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on a fund's ability to dispose of particular Assignments
or Participations when necessary to meet the fund's liquidity needs or in
response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for a fund to
assign a value to those securities for purposes of valuing the fund's portfolio
and calculating its net asset value.

Convertible Securities. Each fund may invest in convertible securities
consisting of bonds, notes, debentures and preferred stocks. Convertible debt
securities and preferred stock acquired by a fund entitle the fund to exchange
such instruments for common stock of the issuer at a predetermined rate.
Convertible securities are subject both to the credit and interest rate risks
associated with debt obligations and to the stock market risk associated with
equity securities.

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<PAGE>

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.

Common Stocks. The High Yield Fund may invest up to 10% of assets in
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.

Investments in Other Investment Companies. Each fund is permitted to
invest up to 10% of its total assets in shares of investment companies and up to
5% of its total assets in any one investment company as long as that investment
does not represent more than 3% of the total voting stock of the acquired
investment company. Investments in the securities of other investment companies
may involve duplication of advisory fees and other expenses. A fund may invest
in investment companies that are designed to replicate the composition and
performance of a particular index. For example, World Equity Benchmark Series
("WEBS") are exchange traded shares of open-end investment companies designed to
replicate the composition and performance of publicly traded issuers in
particular countries. Investments in index baskets involve the same risks
associated with a direct investment in the types of securities included in the
baskets.

Real Estate Investment Trusts. Each fund may invest in REITs. REITs 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 on distributed
amounts under the Code.

Inverse Floating Rate Securities. Each fund may invest in inverse floating
rate securities. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.

Zero Coupon and Deferred Payment Securities. Each fund may invest in zero
coupon and deferred payment securities. Zero coupon securities are securities
sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. A fund is required to accrue income with
respect to these securities prior to the receipt of cash payments. Because a
fund will distribute this accrued income to shareholders, to the extent that
shareholders elect to receive dividends in cash rather than reinvesting such
dividends in additional shares, the fund will have fewer assets with which to
purchase income producing securities. Deferred payment securities are securities
that remain zero coupon securities until a predetermined date, at which time the
stated coupon rate becomes effective and interest becomes payable at regular
intervals. Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.

Structured or Hybrid Notes. Each fund may invest in structured or hybrid
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable

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<PAGE>

on the note is based on the performance of a benchmark asset or market other
than fixed income securities or interest rates. Examples of these benchmarks
include stock prices, currency exchange rates and physical commodity prices.
Investing in a structured note allows the fund to gain exposure to the benchmark
asset while fixing the maximum loss that it may experience in the event that the
security does not perform as expected. Depending on the terms of the note, the
fund may forego all or part of the interest and principal that would be payable
on a comparable conventional note; the fund's loss cannot exceed this foregone
interest and/or principal. In addition to the risks associated with a direct
investment in the benchmark asset, investments in structured and hybrid notes
involve the risk that the issuer or counterparty to the obligation will fail to
perform its contractual obligations. Certain structured or hybrid notes may also
be leveraged to the extent that the magnitude of any change in the interest rate
or principal payable on the benchmark asset is a multiple of the change in the
reference price. Leverage enhances the price volatility of the security and,
therefore, a fund's net asset value. Further, certain structured or hybrid notes
may be illiquid for purposes of the funds' limitations on investments in
illiquid securities. The funds have no limit on investments in structured or
hybrid notes. However, it is expected that not more than 5% of each fund's net
assets will be at risk as a result of such investments.

Investment Techniques and Related Risks

Strategic Transactions. Each fund may, but is not required to, utilize
various investment strategies to seek to hedge market risks (such as interest
rates, currency exchange rates and broad or specific fixed income market
movements), to manage the effective maturity or duration of fixed-equity, or to
seek 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 and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; enter into
various interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
cross-currency future contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). Strategic Transactions may be used to seek to
protect against possible changes in the market value of securities held in or to
be purchased for a fund's portfolios resulting from securities markets or
currency exchange rate fluctuations, to seek to protect a fund's unrealized
gains in the value of their portfolio securities, to facilitate the sale of such
securities for investment purposes, to seek to manage effective maturity or
duration, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved although each fund will attempt to limit its net loss
exposure resulting from Strategic Transactions entered into for such purposes to
not more than 3% of net assets at any one time 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 short-term interest rates as indicated in the forward yield curve are too
high, a fund may take a short position in a near-term Eurodollar futures
contract and a long position in a longer-dated Eurodollar futures contract.
Under such circumstances, any unrealized loss in the near-term Eurodollar
futures position would be netted against any unrealized gain in the longer-dated
Eurodollar futures position (and vice versa) for purposes of calculating the
fund's net loss exposure.

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<PAGE>

The ability of a fund to utilize Strategic Transactions successfully will
depend on the adviser's ability to predict pertinent market and interest rate
movements, which cannot be assured. Each fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. The funds' activities involving Strategic Transactions may be
limited in order to enable the funds to satisfy the requirements of Subchapter M
of the Code for qualification as a regulated investment company.

Risks of Strategic Transactions. Strategic Transactions have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the adviser's view as to certain
market or interest rate movements is incorrect, the risk that the use of such
Strategic Transactions could result in losses greater than if they had not been
used. The writing of put and call options may result in losses to a fund, force
the purchase or sale, respectively, of portfolio securities at inopportune times
or for prices higher than (in the case of purchases due to the exercise of put
options) or lower than (in the case of sales due to the exercise of call
options) current market values, limit the amount of appreciation a fund can
realize on its investments or cause a fund to hold a security it might otherwise
sell or sell a security it might otherwise hold. The use of currency
transactions can result in a fund incurring losses as a result of a number of
factors including the imposition of exchange controls, suspension of
settlements, or the inability to deliver or receive a specified currency. The
use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
fund creates the possibility that losses on the hedging instrument may be
greater than gains in the value of the fund's position. The writing of options
could significantly increase the fund's portfolio turnover rate and, therefore,
associated brokerage commissions or spreads. In addition, futures and options
markets may not be liquid in all circumstances and certain OTC options may have
no markets. As a result, in certain markets, a fund might not be able to close
out a transaction without incurring substantial losses, if at all. Although the
use of futures and options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the same
time, in certain circumstances, they tend to limit any potential gain which
might result from an increase in value of such position. The loss incurred by a
fund in writing options on futures and entering into futures transactions is
potentially unlimited; however, as described above, each fund will attempt to
limit its net loss exposure resulting from Strategic Transactions entered into
for non-hedging purposes. Futures markets are highly volatile and the use of
futures may increase the volatility of a fund's net asset value. Finally,
entering into futures contracts would create a greater ongoing potential
financial risk than would purchases of options where the exposure is limited to
the cost of the initial premium. Losses resulting from the use of Strategic
Transactions would reduce net asset value and the net result may be less
favorable than if the Strategic Transactions had not been utilized.

General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of a fund's assets in special accounts, as
described below under "Use of Segregated Accounts."

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option is exercised), the underlying instrument at the exercise price. A fund
may purchase a call option on a security, futures contract, index, currency or
other instrument to seek to protect the fund against an increase in the price of
the underlying instrument that it intends to purchase in the future by fixing
the price at which it may purchase such instrument. An American style put or
call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. Each fund is authorized to purchase and
sell exchange listed options and OTC options. Exchange listed options are issued
by a regulated intermediary such as the Options Clearing Corporation ("OCC"),
which guarantees the performance of the obligations of the parties to such
options. The discussion below uses the OCC as an example, but is also applicable
to other financial intermediaries.

With certain exceptions, exchange listed options generally settle by
physical delivery of the underlying security or currency, although in the future
cash settlement may become available. Index options and Eurodollar instruments
are cash settled for the net amount, if any, by which the option is in-the-money
(i.e., where the value of the underlying instrument exceeds, in the case of a
call option, or is less than, in the case of a put option, the exercise price of
the option) at the time the option is exercised. Frequently, rather than taking
or making delivery of the underlying instrument through the process of
exercising the option, listed options are closed by entering into offsetting
purchase or sale transactions that do not result in ownership of the new option.

A fund's ability to close out its position as a purchaser or seller of an
exchange listed put or call option is dependent, in part, upon the liquidity of
the option market. There is no assurance that a liquid option market on an
exchange will exist. In the event that the relevant market for an option on an
exchange ceases to exist, outstanding options on that exchange would generally
continue to be exercisable in accordance with their terms.

The hours of trading for listed options may not coincide with the hours
during which the underlying financial instruments are traded. To the extent that
the option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. A fund will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the fund to require the Counterparty to sell the option back to the
fund at a formula price within seven days. OTC options purchased by a fund, and
portfolio securities "covering" the amount of a fund's obligation pursuant to an
OTC option sold by it (the cost of the sell-back plus the in-the-money amount,
if any) are subject to each fund's restriction on illiquid securities, unless
determined to be liquid in accordance with procedures adopted by the Boards of
Trustees. For OTC options written with "primary dealers" pursuant to an
agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price. The funds expect generally to enter into OTC options that have
cash settlement provisions, although they are not required to do so.

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each such Counterparty or any guarantor or credit enhancement of the
Counterparty's credit to determine the likelihood that the terms of the OTC
option will be satisfied. A fund will engage in OTC option transactions only
with U.S. Government securities dealers recognized by the Federal Reserve Bank
of New York as "primary dealers," or broker-dealers, domestic or foreign banks
or other financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poors or Moody's or
an equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO") or the debt of which is determined to be of equivalent
credit quality by the adviser.

If a fund sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the fund's income. The sale (writing) of put options
can also provide income.

Each fund may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities, asset
backed securities, foreign sovereign debt, corporate debt securities, equity
securities (including convertible securities) and Eurodollar instruments that
are traded on U.S. and foreign securities exchanges and in the OTC markets, and
on securities indices, currencies and futures contracts. All calls sold by a
fund must be covered (i.e., the fund must own the securities or the futures
contract subject to the call) or must meet the asset segregation requirements
described below as long as the call is outstanding. In addition, each fund may
cover a written call option or put option by entering into an offsetting forward
contract and/or by purchasing an offsetting option or any other option which, by
virtue of its exercise price or otherwise, reduces the fund's net exposure on
its written option position. Even though the fund will receive the option
premium to help offset any loss, the fund may incur a loss if the exercise price
is below the market price for the security subject to the call at the time of
exercise. A call sold by a fund also exposes the fund during the term of the
option to possible loss of opportunity to realize appreciation in the market
price of the underlying security or instrument and may require the fund to hold
a security or instrument which it might otherwise have sold.

A fund may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage backed securities, asset backed
securities, foreign sovereign debt, corporate debt securities, equity securities
(including convertible securities) and Eurodollar instruments (whether or not it
holds the above securities in its portfolio), and on securities indices,
currencies and futures contracts. A fund will not sell put options if, as a
result, more than 50% of the fund's assets would be required to be segregated to
cover its potential obligations under such put options other than those with
respect to futures and options thereon. In selling put options, there is a risk
that a fund may be required to buy the underlying security at a price above the
market price.

Options on Securities Indices and Other Financial Indices. Each fund may
also purchase and sell (write) call and put options on securities indices and
other financial indices. Options on securities indices and other financial
indices are similar to options on a security or other instrument except that,
rather than settling by physical delivery of the underlying instrument, they
settle by cash settlement. For example, an option on an index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the index upon which the option is based exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the differential between the closing
price of the index and the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated, in return
for the premium received, to make delivery of this amount upon exercise of the
option. In addition to the methods described above, each fund may cover call
options on a securities index by owning securities whose price changes are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities

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without additional cash consideration (or for additional cash consideration held
in a segregated account by its custodian) upon conversion or exchange of other
securities in its portfolio.

General Characteristics of Futures. Each fund may enter into financial
futures contracts or purchase or sell put and call options on such futures.
Futures are generally bought and sold on the commodities exchanges where they
are listed and involve payment of initial and variation margin as described
below. All futures contracts entered into by a fund are traded on U.S. exchanges
or boards of trade that are licensed and regulated by the Commodity Futures
Trading Commission ("CFTC") or on certain foreign exchanges.

The sale of futures contracts creates a firm obligation by a fund, as
seller, to deliver to the buyer the specific type of financial instrument called
for in the contract at a specific future time for a specified price (or, with
respect to index futures and Eurodollar instruments, the net cash amount). The
purchase of futures contracts creates a corresponding obligation by a fund, as
purchaser to purchase a financial instrument at a specific time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position, if the option is exercised.

A fund's use of financial futures and options thereon will in all cases be
consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that a fund may use commodity
futures and option positions (i) for bona fide hedging purposes without regard
to the percentage of assets committed to margin and option premiums, or (ii) for
other purposes permitted by the CFTC to the extent that the aggregate initial
margin and option premiums required to establish such non-hedging positions (net
of the amount that the positions were "in the money" at the time of purchase) do
not exceed 5% of the net asset value of a fund's portfolio, after taking into
account unrealized profits and losses on such positions. Typically, maintaining
a futures contract or selling an option thereon requires the fund to deposit,
with its custodian for the benefit of a futures commission merchant, or directly
with the futures commission merchant, as security for its obligations an amount
of cash or other specified assets (initial margin) which initially is typically
1% to 10% of the face amount of the contract (but may be higher in some
circumstances). Additional cash or assets (variation margin) may be required to
be deposited directly with the futures commission merchant thereafter on a daily
basis as the value of the contract fluctuates. The purchase of an option on
financial futures involves payment of a premium for the option without any
further obligation on the part of the fund. If a fund exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.

Currency Transactions. Each fund may engage in currency transactions with
Counterparties to seek to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value or to enhance
potential gain. Currency transactions include currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. A fund may enter
into over-the-counter currency transactions with Counterparties which have
received, combined with any

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credit enhancements, a long term debt rating of A by Standard & Poors or
Moody's, respectively, or that have an equivalent rating from a NRSRO or (except
for OTC currency options) whose obligations are determined to be of equivalent
credit quality by the adviser.

Each fund's transactions in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will
generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of a fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.

The funds 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 non-hedging transactions or 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
government bond 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, each fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of a fund's portfolio securities are or
are expected to be denominated, and to buy U.S. dollars. The amount of the
contract would not exceed the value of the portfolio securities denominated in
linked currencies. For example, if the adviser considers that the Korean won is
linked to the Japanese yen, and a portfolio contains securities denominated in
won and the adviser believes that the value of won will decline against the U.S.
dollar, the adviser may enter into a contract to sell yen and buy dollars. Proxy
hedging involves some of the same risks and considerations as other transactions
with similar instruments. Currency transactions can result in losses to a fund
if the currency being hedged fluctuates in value to a degree or in a direction
that is not anticipated. Further, there is the risk that the perceived linkage
between various currencies may not be present or may not be present during the
particular time that a fund is engaging in proxy hedging. If a fund enters into
a currency hedging transaction, it will comply with the asset segregation
requirements described below.

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<PAGE>

generally. Further, settlement of a currency futures contract for the purchase
of most currencies must occur at a bank based in the issuing nation. Trading
options on currency futures is relatively new, and the ability to establish and
close out positions on such options is subject to the maintenance of a liquid
market which may not always be available. Currency exchange rates may fluctuate
based on factors extrinsic to that country's economy.

Combined Transactions. Each fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions, multiple
currency transactions including forward currency contracts and multiple interest
rate transactions, structured notes and any combination of futures, options,
currency and interest rate transactions ("component transactions"), instead of a
single Strategic Transaction, as part of a single or combined strategy when, in
the opinion of the adviser, it is in the best interests of the funds to do so. A
combined transaction will usually contain elements of risk that are present in
each of its component transactions. Although combined transactions are normally
entered into based on the adviser's judgment that the combined strategies will
reduce risk or otherwise more effectively achieve the desired portfolio
management goal, it is possible that the combination will instead increase such
risks or hinder achievement of the portfolio management objective.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which the funds may enter are interest rate, currency and index swaps and the
purchase or sale of related caps, floors and collars. The funds expect to enter
into these transactions primarily for hedging purposes, including, but not
limited to, preserving a return or spread on a particular investment or portion
of a fund's portfolio, protecting against currency fluctuations, as a duration
management technique or protecting against an increase in the price of
securities a fund anticipates purchasing at a later date. Swaps, caps, floors
and collars may also be used to enhance potential gain in circumstances where
hedging is not involved although, as described above, each fund will attempt to
limit its net loss exposure resulting from swaps, caps, floors and collars and
other Strategic Transactions entered into for such purposes. Each fund will
attempt to limit net loss exposure from Strategic Transactions entered into for
non-hedging purposes to not more than 3% of net assets.

A fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the fund may be
obligated to pay. Interest rate swaps involve the exchange by the fund with
another party of their respective commitments to pay or receive interest (i.e.,
an exchange of floating rate payments for fixed rate payments with respect to a
notional amount of principal). A currency swap is an agreement to exchange cash
flows on a notional amount of two or more currencies based on the relative value
differential among them and an index swap is an agreement to swap cash flows on
a notional amount based on changes in the values of the reference indices. The
purchase of a cap entitles the purchaser to receive payments on a notional
principal amount from the party selling such cap to the extent that a specified
index exceeds a predetermined interest rate or amount. The purchase of a floor
entitles the purchaser to receive payments on a notional principal amount from
the party selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.

Each fund will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument) with the fund receiving or paying, as the case may
be, only the net amount of the two payments. A fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poors or Moody's or has
an equivalent rating from an NRSRO or the Counterparty issues debt that is
determined to be of equivalent credit quality by the adviser. If there is a
default by the Counterparty, the fund may have contractual remedies pursuant to
the agreements related to the

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transaction. The swap market has grown substantially in recent years with a
large number of banks and investment banking firms acting both as principals and
as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of a fund's policy regarding illiquid securities, unless it is determined, based
upon continuing review of the trading markets for the specific security, that
such security is liquid. The Board of Trustees of the Trust have adopted
guidelines and delegated to the adviser the daily function of determining and
monitoring the liquidity of swaps, caps, floors and collars. The Boards of
Trustees, however, retain oversight focusing on factors such as valuation,
liquidity and availability of information and are ultimately responsible for
such determinations. The Staff of the SEC currently takes the position that
swaps, caps, floors and collars are illiquid, and are subject to each fund's
limitation on investing in illiquid securities.

Risks of Strategic Transactions Outside the United States. The funds may
use strategic transactions to seek to hedge against currency exchange rate
risks. When conducted outside the United States, Strategic Transactions may not
be regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in a fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (iii) the imposition of different exercise and settlement terms and
procedures and margin requirements than in the United States, (iv) lower trading
volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic Transactions may offer advantages
such as trading in instruments that are not currently traded in the United
States or arbitrage possibilities not available in the United States.

Use of Segregated Accounts. Each fund will hold securities or other
instruments whose values are expected to offset its obligations under the
Strategic Transactions. Each fund will cover Strategic Transactions as required
by interpretive positions of the SEC. A fund will not enter into Strategic
Transactions that expose the fund to an obligation to another party unless it
owns either (i) an offsetting position in securities or other options, futures
contracts or other instruments or (ii) cash, receivables or liquid securities
with a value sufficient to cover its potential obligations. A fund may have to
comply with any applicable regulatory requirements for Strategic Transactions,
and if required, will set aside cash and other 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 obligation 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.

"When-Issued", "Delayed Delivery" and "Forward Commitment" Securities.
Each fund places no limit on investments in when-issued or delayed delivery
securities. Delivery and payment for securities purchased on a when-issued or
delayed delivery basis will normally take place 15 to 45 days after the date of
the transaction. The payment obligation and interest rate on the securities are
fixed at the time that a fund enters into the commitment, but interest will not
accrue to the fund until delivery of and payment for the securities. Although a
fund will only make commitments to purchase "when-issued" and "delayed delivery"
securities with the intention of actually acquiring the securities, each fund
may sell the securities before the settlement date if deemed advisable by the
adviser.

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Unless a fund has entered into an offsetting agreement to sell the
securities purchased on a when-issued or forward commitment basis, the fund will
segregate, on its records or with its custodian, cash or liquid obligations with
a market value at least equal to the amount of the fund's commitment. If the
market value of these securities declines, additional cash or securities will be
segregated daily so that the aggregate market value of the segregated securities
is at least equal to the amount of the fund's commitment.

Securities purchased on a "when-issued", "delayed delivery" or "forward
commitment" basis may have a market value on delivery which is less than the
amount paid by a fund. Changes in market value may be based upon the public's
perception of the creditworthiness of the issuer or changes in the level of
interest rates. Generally, the value of "when-issued", "delayed delivery" and
"forward commitment" securities will fluctuate inversely to changes in interest
rates, i.e., they will appreciate in value when interest rates fall and will
depreciate in value when interest rates rise.

Repurchase Agreements. Each fund places no limit on investments in
repurchase agreements. A repurchase agreement is an agreement under which a fund
acquires money market instruments (generally U.S. Government securities) from a
commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally the next business day). The resale price
reflects an agreed-upon interest rate effective for the period the instruments
are held by the fund and is unrelated to the interest rate on the instruments.
The instruments acquired by a fund (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
fund's custodian bank until they are repurchased. In evaluating whether to enter
into a repurchase agreement, the adviser will carefully consider the
creditworthiness of the seller pursuant to procedures reviewed and approved by
the Board of Trustees of the Trust.

The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
a fund at a time when their market value has declined, the fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a fund are collateral for a loan by the fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a fund may not be able to substantiate its interest in the
instruments it acquires. While the trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.

Forward Roll Transactions. Each fund places no limit on investments in
forward roll transactions. In a forward roll transaction, a fund sells a
mortgage-backed security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase a similar security from
the institution at a later date at an agreed-upon price. The mortgage-backed
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories than those sold. During the period between the
sale and repurchase, the fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term instruments, such as repurchase agreements or other short-term
securities, and the income from these investments, together with any additional
fee income received on the sale and the amount gained by repurchasing the
securities in the future at a lower price, will generate income and gain for the
fund which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the fund may decline below the repurchase price of those securities. At the time
that a fund enters into a forward roll transaction, it will place cash or liquid
assets in a segregated account that is marked to market daily having a value
equal to the repurchase price (including accrued interest).

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<PAGE>

Leverage. The use of forward roll transactions and reverse repurchase
agreements involves leverage. Leverage allows any investment gains made with the
additional monies received (in excess of the costs of the forward roll
transaction or reverse repurchase agreement) to increase the net asset value of
a fund faster than would otherwise be the case. On the other hand, if the
additional monies received are invested in ways that do not fully recover the
costs of such transactions to a fund, the net asset value of the fund would fall
faster than would otherwise be the case.

Short Sales. Each fund may engage in short sales and short sales against
the box. In a short sale, a fund sells a security it does not own in
anticipation of a decline in the market value of that security. In a short sale
against the box, a fund either owns or has the right to obtain at no extra cost
the security sold short. The broker holds the proceeds of the short sale until
the settlement date, at which time the fund delivers the security (or an
identical security) to cover the short position. The fund receives the net
proceeds from the short sale. When a fund enters into a short sale other than
against the box, the fund must first borrow the security to make delivery to the
buyer and must segregate cash or liquid assets on its records or in a segregated
account with the fund's custodian that is marked to market daily. Short sales
other than against the box involve unlimited exposure to loss. No securities
will be sold short if, after giving effect to any such short sale, the total
market value of all securities sold short would exceed 5% of the value of each
funds net assets.

Restricted and Illiquid Securities. Each fund may invest up to 15% of its
net assets in illiquid securities. Illiquid securities are those that are not
readily marketable, repurchase agreements maturing in more than seven days, time
deposits with a notice or demand period of more than seven days, certain SMBS,
swap transactions, certain OTC options and certain restricted securities. Based
upon continuing review of the trading markets for a specific restricted
security, the security may be determined to be eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933 and,
therefore, to be liquid. Also, certain illiquid securities may be determined to
be liquid if they are found to satisfy relevant liquidity requirements.

The Boards of Trustees have adopted guidelines and delegated to the
advisers the function of determining and monitoring the liquidity of portfolio
securities, including restricted and illiquid securities. The Boards of
Trustees, however, retain oversight and are ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.

Money Market Instruments and Repurchase Agreements. Money market
instruments include short-term U.S. and foreign Government securities,
commercial paper (promissory notes issued by corporations to finance their
short-term credit needs), negotiable certificates of deposit, non-negotiable
fixed time deposits, bankers' acceptances and repurchase agreements.

U.S. Government securities include securities which are direct obligations
of the U.S. Government backed by the full faith and credit of the United States
and securities issued by agencies and instrumentalities of the U.S. Government
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal Farm
Credit Bank, the Central Bank for Cooperatives, Federal Intermediate Credit
Banks, Federal Home Loan Banks and the Federal National Mortgage Association.

Each fund may invest in commercial paper rated P-1 or P-2 by Moody's, A-1
or A-2 by S&P, Duff-1 or Duff-2 by Duff, or in commercial paper that is unrated.
In determining whether securities are

24
<PAGE>

of equivalent quality, the adviser may take into account, but will not rely
entirely on, ratings assigned by foreign rating agencies.

Temporary Defensive Investments. Each fund may maintain cash balances and
purchase money market instruments for cash management and liquidity purposes.
Each fund may adopt a temporary defensive position during adverse market
conditions by investing without limit in high quality money market instruments,
including short-term U.S. Government securities, negotiable certificates of
deposit, non-negotiable fixed time deposits, bankers' acceptances, commercial
paper, floating-rate notes and repurchase agreements.

Portfolio Turnover. It is not the policy of any of the funds to purchase
or sell securities for trading purposes. However, each fund places no
restrictions on portfolio turnover and it may sell any portfolio security
without regard to the period of time it has been held. A fund may therefore
generally change its portfolio investments at any time in accordance with the
adviser's appraisal of factors affecting any particular issuer or market, or the
economy in general. A rate of turnover of 100% would occur if the value of the
lesser of purchases and sales of portfolio securities for a particular year
equaled the average monthly value of portfolio securities owned during the year
(excluding short-term securities). A high rate of portfolio turnover (100% or
more) involves a correspondingly greater amount of brokerage commissions and
other costs which must be borne directly by a fund and thus indirectly by its
shareholders. It may also result in the realization of larger amounts of net
short-term capital gains, distributions of which are taxable to a fund's
shareholders as ordinary income.

Portfolio Diversification and Concentration. Each fund is non-diversified
which means that, with respect to 50% of its total assets (i) no more than 5% of
its total assets may be invested in the securities of a single issuer and (ii)
it will purchase no more than 10% of the outstanding voting securities of a
single issuer. Investing a significant amount of a fund's assets in the
securities of a small number of issuers will cause the fund's net asset value to
be more sensitive to events affecting those issuers. None of the funds will
concentrate (invest 75% 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 have adopted the following fundamental policies. Each fund's
fundamental policies cannot be changed unless the change is approved by the
"vote of a majority of the outstanding voting securities" of the fund, which
phrase as used herein means the lesser of (i) 67% or more of the voting
securities of the fund present at a meeting, if the holders of more than 50% of
the outstanding voting securities of the fund are present or represented by
proxy, or (ii) more than 50% of the outstanding voting securities of the fund.

As a matter of fundamental policy, each fund may not:

1. Issue senior securities. For purposes of this restriction, borrowing money
in accordance with paragraph 2 below, making loans in accordance with
paragraph 6 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 5 below, are not deemed to be senior
securities.

2. 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

25
<PAGE>

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.

3. 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.

4. 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.

5. 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.

6. 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.

7. With respect to at least 50% of its total assets, invest more than 5% in
the securities of any one issuer (other than the U.S. Government, its
agencies or instrumentalities) or acquire more than 10% of the outstanding
voting securities of any issuer..

8. Invest more than 25% of its total assets in the securities of one or more
issuers conducting their principal business activities in the same
industry (excluding the U.S. Government or its agencies or
instrumentalities). For the purposes of this restriction, state and
municipal governments and their agencies, authorities and
instrumentalities are not deemed to be industries; telephone companies are
considered to be a separate industry from water, gas or electric
utilities; 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. This restriction does not apply to investments in municipal
securities which have been pre-refunded by the use of obligations of the
U.S. Government or any of its agencies or instrumentalities.

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. Each fund may not:

a. 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).

26
<PAGE>

b. 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.

c. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.

d. Invest more than 15% of its net assets in securities which are illiquid.

e. Purchase additional securities if the fund's borrowings exceed 5% of its
net assets.

******

Notwithstanding any fundamental or non-fundamental policy listed above,
each fund may invest all of their assets (other than assets which are not
"investment securities" (as defined in the 1940 Act) or are excepted by the SEC)
in an open end management investment company with substantially the same
investment objective as the respective 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 the fund's
assets will not constitute a violation of the restriction.

CALCULATION OF PERFORMANCE DATA

As indicated in the Prospectus, each fund may, from time to time,
advertise certain total return and yield information. The average annual total
return of a fund for a period is computed by subtracting the net asset value per
share at the beginning of the period from the net asset value per share at the
end of the period (after adjusting for the reinvestment of any income dividends
and capital gain distributions), and dividing the result by the net asset value
per share at the beginning of the period. In particular, the funds' average
annual total return ("T") is computed by using the redeemable value at the end
of a specified period of time ("ERV") of a hypothetical initial investment of
$1,000 ("P") over a period of time ("n") according to the formula P(1+T)n=ERV.

The funds' yield is computed by dividing the net investment income per
share earned during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of the period. For the purpose of
determining net investment income, the calculation includes, among expenses of
the funds, all recurring fees that are charged to all shareholder accounts and
any non-recurring charges for the period stated. In particular, yield is
determined according to the following formula:

Yield = 2[(((A - B)/CD) + 1)^6 - 1]

Where:

A=interest earned during the period; B=net expenses accrued for the
period; C=the average daily number of shares outstanding during the period that
were entitled to receive dividends; D=the maximum offering price per share (net
asset value) on the last day of the period.

The funds may also quote non-standardized yield, such as yield-to-maturity
("YTM"). YTM represents the rate of return an investor will receive if a
long-term, interest bearing investment, such as a bond, is held to its maturity
date. YTM does not take into account purchase price, redemption value, time to
maturity, coupon yield and the time between interest payments.

With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"),

27
<PAGE>

the funds account for gain or loss attributable to actual monthly pay downs as
an increase or decrease to interest income during the period.

In addition, each fund may elect (i) to amortize the discount or premium
remaining on a security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if the weighted average maturity date is not available, or
(ii) not to amortize the discount or premium remaining on a security.

Each fund's performance may be compared in sales literature and
advertisements to the performance of other mutual funds and separately managed
discretionary accounts (including private investment companies) having similar
objectives or to standardized indices or other measures of investment
performance. The Crossover Bond Fund and High Yield Fund may compare their
performance to the Lehman Brothers Aggregate Index which is composed of
securities from the Lehman Brothers Government/Corporate Bond Index, Mortgage
Backed Securities Index and Yankee Bond Index, and is generally considered to be
representative of all unmanaged, domestic, dollar denominated, fixed rate
investment grade bonds. Those funds may also compare their performance to the
Lehman Brothers High Yield Index which covers the universe of fixed rate,
non-investment grade debt. All bonds included in the index must be U.S.
dollar-denominated and non-convertible. Pay-in-kind (PIK) bonds, Eurobonds, and
debt issues from countries designated as emerging markets are excluded, but
Yankee and global bonds (SEC registered) of issuers in countries with developed
markets are included. All three funds may also compare their performance to the
JP Morgan Emerging Markets Index Global, which is a broad based index for
emerging market debt instruments. The index includes 27 countries across Latin
America, Asia, Europe, the Middle East and Africa and represents a market value
of approximately $200 billion.

Comparative performance may also be expressed by reference to a ranking
prepared by a mutual fund monitoring service or by one or more newspapers,
newsletters or financial periodicals. Performance comparisons may be useful to
investors who wish to compare a fund's past performance to that of other mutual
funds and investment products. Of course, past performance is not a guarantee of
future results.

MANAGEMENT

Trustees and Officers of the Trust

The Board of Trustees has established the investment objective and
policies which govern each fund'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
according to its objective and policies and requirements of the federal
securities laws. The trustees and executive officer of the Trust are listed
below. All executive officers of the Trust are affiliates of Standish, Ayer &
Wood, Inc.

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation 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 02451 Trustee, Cornell University; Director,
CareGroup Inc.
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Benjamin M. Friedman, 8/5/44 Trustee William Joseph Maier,
c/o Harvard University Professor of Political Economy,
Cambridge, MA 02138 Harvard University

John H. Hewitt, 4/11/35 Trustee Trustee, The Peabody Foundation; Trustee,
P.O. Box 233 Mertens House, Inc.
New London, NH 03257

Thomas P. Sorbo, 1/9/61 Trustee Principal, Director and Chief Operating
c/o Standish, Ayer & Wood, Inc. Officer of Standish, Ayer & Wood, Inc.;
One Financial Center Director of Standish International
Boston, MA 02111 Management Company, LLC; Trustee and Chief
Operating Officer, SAW Trust

*Edward H. Ladd, 1/3/38 Trustee and Vice President Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. Managing Director, Standish, Ayer & Wood,
One Financial Center Inc.;
Boston, MA 02111 Director of Standish International
Management Company, LLC; Trustee and Vice
President, SAW Trust

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
Beverly, MA 01915 Company; 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, Chief Executive Officer and
c/o Standish, Ayer & Wood, Inc. Vice President Managing Director, Standish, Ayer & Wood,
One Financial Center Inc.;
Boston, MA 02111 Executive Vice President and Director,
Standish International Management Company,
LLC; Trustee and President, SAW Trust

James E. Hollis III, 11/21/48 Executive Vice President Principal and Vice President, Standish,
c/o Standish, Ayer & Wood, Inc. Ayer & Wood, Inc.; Trustee and Vice
One Financial Center President, SAW Trust
Boston, MA 02111

Anne P. Herrmann, 1/26/56 Vice President and Secretary Assistant Vice President and
c/o Standish, Ayer & Wood, Inc. Senior Fund Administration Manager,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
--------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paul G. Martins, 3/10/56 Vice President and Treasurer Vice President of Finance, Standish, Ayer
c/o Standish, Ayer & Wood, Inc. & Wood, Inc. since October 1996; formerly
One Financial Center Senior Vice President, Treasurer and Chief
Boston, MA 02111 Financial Officer of Liberty Financial
Bank Group

Beverly E. Banfield, 7/6/56 Vice President Principal, Vice President and Chief
c/o Standish, Ayer & Wood, Inc. Compliance Officer, Standish, Ayer & Wood,
One Financial Center Inc.; Trustee and Vice President, SAW Trust
Boston, MA 02111

Denise B. Kneeland, 8/19/51 Vice President Vice President and Manager, Mutual Funds
c/o Standish, Ayer & Wood, Inc. Operations,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111

Tami M. Pester, 10/29/67 Vice President Assistant Vice President, Assistant
c/o Standish, Ayer & Wood, Inc. Compliance Manager and Compliance Officer,
One Financial Center Standish, Ayer & Wood, Inc. since 1998;
Boston, MA 02111 Compliance Officer, State Street Global
Advisors

Rosalind J. Lillo, 2/6/38 Vice President Broker/Dealer Administrator
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since October
One Financial Center 1995.
Boston, MA 02111

Deborah Rafferty-Maple, 1/4/69 Vice President Assistant Vice President, Financial
c/o Standish, Ayer & Wood, Inc. Planner and Registered Investment Networks
One Financial Center Marketing Manager, Standish, Ayer & Wood,
Boston, MA 02111 Inc.

Lisa Kane, 6/25/70 Vice President Client Service Professional,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Steven M. Anderson, 7/14/65 Vice President Mutual Funds Controller,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since 1996;
One Financial Center formerly Independent Consultant for
Boston, MA 02111 Banking and Financial Services
</TABLE>

* Indicates that trustee is an interested person of the Trust for purposes of
the 1940 Act.

Compensation of Trustees and Officers

The Trust does not pay compensation to the trustees of the Trust that are
affiliated with Standish or to the Trust's officers. None of the trustees or
officers have engaged in any financial transactions (other than the purchase or
redemption of the fund's shares) with the Trust or the advisers during the year
ended December 31, 1999, except that certain trustees and officers who are
directors and shareholders of Standish, may from time to time, purchase
additional shares of common stock of Standish.

30
<PAGE>

The following table sets forth all compensation estimated to be paid to
the Trust's trustees as of the funds' initial fiscal year ending December 31,
2001:

Aggregate Compensation from the Funds

<TABLE>
<CAPTION>
Pension or
Retirement
Opportunistic Benefits Total Compensation
Emerging Accrued as from Funds and
Crossover Opportunistic Markets Debt Part of Funds' Portfolio & Other
Name of Trustee Bond Fund High Yield Fund Fund Expenses Funds in Complex*
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Samuel C. Fleming $3,000 $3,000 $1,500 $0 $67,125

Benjamin M. Friedman $3,000 $3,000 $1,500 $0 $67,125

John H. Hewitt $3,150 $3,150 $1,575 $0 $72,525

Edward H. Ladd $0 $0 $0 $0 $0

Caleb Loring, III $3,000 $3,000 $1,500 $0 $67,125

Thomas P. Sorbo $0 $0 $0 $0 $0

Richard S. Wood $0 $0 $0 $0 $0
</TABLE>

* As of the date of this Statement of Additional Information there were 28 funds
in the fund complex.

Investment Adviser.

Standish serves as the adviser to the fund pursuant to a written
investment advisory agreement. Standish is a Massachusetts corporation organized
in 1933 and is registered under the Investment Advisers Act of 1940. The
following constitute all of the Directors of Standish: Caleb F. Aldrich, David
H. Cameron, Maria D. Furman, Raymond J. Kubiak, George W. Noyes, Howard B.
Rubin, Thomas P. Sorbo, Ralph S. Tate, and Richard S. Wood. All of the
outstanding stock of Standish is owned by SAW Trust, a Massachusetts business
trust. SAW Trust is owned entirely by its thirty-seven trustees, all of whom are
officers of Standish. Nine of the thirty-seven trustees are the Directors of
Standish listed above. The remaining seventeen trustee/shareholders are: Beverly
E. Banfield, Katherine S. Bowes, Karen K. Chandor, Lavinia B. Chase, Susan B.
Coan, W. Charles Cook, Joseph M. Corrado, Richard R. Davis, Richard C. Doll,
Dolores S. Driscoll, Steven L. Gold, James E. Hendrickson, James E. Hollis III,
David M. Horsfall, Edward H. Ladd, Phillip D. Leonardi, Laurence A. Manchester,
Nevin G. Markwart, John R. McNichols, Jennifer A. Pline, Catherine A. Powers,
Christine H. Psyhogeos, Austin C. Smith, Marc P. Seidner, David C. Stuehr, Ellen
K. Thurmond, Michael W. Thompson and Edward R. Walter. All of the
trustee/shareholders of SAW Trust are Standish controlling persons.

Subject to the supervision and direction of the trustees of the Trust, the
funds. In addition to those services, the adviser provides the funds with office
space for managing their affairs, with the services of required executive
personnel, and with certain clerical services and facilities. Under the
investment advisory agreements, the adviser is paid a fee based upon a
percentage of the applicable fund's average daily net asset value computed as
set forth below. The advisory fees are payable monthly.

31
<PAGE>

Fund Contractual Advisory Fee Rate
---- -----------------------------
Crossover Bond Fund .40%

Opportunistic High Yield Fund .40%

Opportunistic Emerging Markets .50%
Debt Fund

Pursuant to the investment advisory agreements, each fund bears the
expenses of its operations other than those incurred by the adviser pursuant to
the investment advisory agreement. Among other expenses, the funds will pay
share pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and trustees' fees and expenses.

Unless terminated as provided below, the investment advisory agreement
continues in full force and effect for an initial two year period and thereafter
from year to year but only so long as each such continuance is approved annually
(i) by the trustees of the Trust or by the "vote of a majority of the
outstanding voting securities" of the funds and, in either event (ii) by vote of
a majority of the trustees of the Trust who are not parties to the investment
advisory agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. Each investment advisory agreement may be terminated at any time
without the payment of any penalty by vote of the trustees of the Trust or by
the "vote of a majority of the outstanding voting securities" of the funds or by
the adviser, on sixty days' written notice to the other parties. The investment
advisory agreements terminate in the event of their assignment as defined in the
1940 Act.

In an attempt to avoid any potential conflict with portfolio transactions
for the funds, the Trust, the adviser and the Principal Underwriter have each
adopted a Code of Ethics which are designed to maintain a high standard of
personal conduct by directing that all personnel place the interests of the
funds and their shareholders ahead of their own when effecting personal
securities transactions. While the codes do permit personnel to invest in
securities for their own accounts, the codes impose extensive restrictions on
personal securities trading including the pre-clearance of all personal
securities transactions and a prohibition of purchasing during initial public
offerings of securities. Each code is on public file with, and is available
from, the SEC.

Distributor of the Funds

Standish Fund Distributors, L.P. (the "Principal Underwriter"), an
affiliate of the adviser, serves as the Trust's exclusive principal underwriter
and holds itself available to receive purchase orders for 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

32
<PAGE>

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, with respect to a fund, by a vote of the
holders of a majority of the applicable fund's outstanding shares, in any case
without payment of any penalty on not more than 60 days' written notice to the
other party. The offices of Standish Fund Distributors are located at One
Financial Center, 26th Floor, Boston, Massachusetts 02111.

PURCHASE AND REDEMPTION OF SHARES

Detailed 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 a fund purchased through authorized brokers and
dealers may be subject to transaction fees on purchase or redemption, no part of
which will be received by the funds, Standish Fund Distributors or Standish.

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 distributed 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 each fund's portfolio transactions
and will do so in a manner deemed fair and reasonable to the funds 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 respective fund. 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

33
<PAGE>

research services provided by such broker, a fund 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, (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 funds 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 funds generating the soft dollar credits. The investment
advisory fees paid by the funds under the investment advisory agreements will
not be reduced as a result of the adviser's receipt of research services.

The adviser also places portfolio transactions for other advisory
accounts. The adviser will seek to allocate portfolio transactions equitably
whenever concurrent decisions are made to purchase or sell securities for a fund
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 funds.
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. To the extent permitted by law,
securities to be sold or purchased for a fund may be aggregated with those to be
sold or purchased for other investment clients of the adviser and the adviser's
personnel in order to obtain best execution.

DETERMINATION OF NET ASSET VALUE

Each fund's net asset value is calculated each business day on which the
New York Stock Exchange is open. Currently, the New York Stock Exchange 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. The net asset value of a fund's shares is determined as of the close
of regular trading on the New York Stock Exchange (normally 4:00 p.m., New York
time). If the New York Stock Exchange closes early, the calculation of net asset
value will be accelerated to the actual closing time. Net asset value is
computed by dividing the value of all securities and other assets of the fund
less all liabilities by the number of shares outstanding, and adjusting to the
nearest cent per share. Expenses and fees, including the investment advisory
fee, are accrued daily and taken into account for the purpose of determining net
asset value.

Portfolio securities are valued at the last sales 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.

Portfolio securities that are fixed income securities (other than money
market instruments) for which accurate market prices are readily available are
valued at their current market value on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities. Fixed
income securities for which accurate market prices are not readily available and
other assets are valued at

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fair value as determined in good faith by the adviser in accordance with
procedures approved by the trustees, which may include the use of yield
equivalents or matrix pricing.

Money market instruments with less than sixty days remaining to maturity
when acquired by a fund are valued on an amortized cost basis. If the fund
acquires a money market instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day prior to
maturity and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that amortized
cost does not represent fair value.

Generally, trading in securities on foreign exchanges is substantially
completed each day at various times prior to the close of regular trading on the
New York Stock Exchange. If a security's primary exchange is outside the U.S.,
the value of such security used in computing the net asset value of a fund's
shares is determined as of such times. Foreign currency exchange rates are also
generally determined prior to the close of regular trading on the New York Stock
Exchange. Occasionally, events which affect the values of such securities and
such exchange rates may occur between the times at which they are determined and
the close of regular trading on the New York Stock Exchange and will therefore
not be reflected in the computation of the funds' net asset values. 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.

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 represents an equal proportionate interest in the respective 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. 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 investible assets in a single open-end
investment company that has substantially the same investment objectives,
policies and restrictions as the fund.

All fund shares have equal rights with regard to voting, and shareholders
of a fund have the right to vote as a separate class with respect to matters as
to which their interests are not identical to those of shareholders of other
classes of the Trust, including the approval of an investment advisory contract
and any change of investment policy requiring the approval of shareholders.

Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims shareholder liability for acts or
obligations of the Trust and requires that notice of this disclaimer be given in
each agreement, obligation or instrument entered into or executed by the Trust
or a trustee. The

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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.

TAXATION

Each series of the Trust, including each fund, is treated as a separate
entity for U.S. federal income tax purposes. Each fund presently has elected to
be treated, has qualified and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Code. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timely distributions of its income to its shareholders, and the
diversification of its assets, each fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gain which
are distributed to shareholders.

In order to qualify as a regulated investment company under Subchapter M,
each fund must, among other things, derive at least 90% of its gross income for
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% Income Test") and satisfy certain annual
distribution and quarterly diversification requirements.

Each fund will be subject to a 4% non deductible federal excise tax on a
portion of its undistributed ordinary income and capital gains if it fails to
meet certain distribution requirements with respect to each calendar year. The
funds intend under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements in a timely manner. Certain
distributions made in order to satisfy the Code's distribution requirements may
be declared by the funds as of a record date in October, November or December of
the year but paid during the following January. Such distributions will be
treated for federal income tax purposes as received by shareholders as if
received on December 31 of the year in which the distributions are declared,
rather than the year in which the distributions are received.

For U.S. federal income tax purposes, all dividends are taxable whether a
shareholder takes them in cash or reinvests them in additional shares in a fund.
Dividends from investment company taxable income, which includes net investment
income, net short-term capital gain in excess of net long-term capital loss, and
certain net foreign exchange gains, are treated as ordinary income. Dividends
from net long-term capital gain in excess of net short-term capital loss ("net
capital gain"), if any, are treated as long-term capital gain for federal income
tax purposes without regard to the length of time shares of the fund have been
held.

If, as anticipated, each fund continues to qualify as regulated investment
companies under the Code, each such fund will not be required to pay any
Massachusetts income, corporate excise or franchise taxes.

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 U.S. federal income tax purposes, a fund is

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<PAGE>

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.

If a fund invests in certain pay-in-kind securities, zero coupon
securities, deferred interest securities or, in general, other securities with
original issue discount (or with market discount if a fund elects to include
market discount in income currently), the fund must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments. However, a fund must distribute, at least
annually, all or substantially all of its net income to shareholders to qualify
as a regulated investment company under the Code and avoid U.S. federal income
and excise taxes. Therefore, a fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash, or may have to
leverage itself by borrowing the cash, to satisfy the distribution requirements.

Certain options, futures contracts or currency forward transactions
entered into by the funds may cause the funds to recognize gains or losses from
marking-to-market even though such options may not have lapsed, been closed out
or exercised or such futures or forward contracts may not have been performed or
closed out. Certain options, futures and forward contracts relating to foreign
currency may be subject to Section 988 of the Code, as described below, and may
accordingly produce ordinary income or loss. Additionally, a fund may be
required to recognize gain if an option, futures contract, 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 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 a fund may receive no corresponding cash amounts, possibly requiring
the disposition of portfolio securities or borrowing to obtain the necessary
cash. Also, losses on certain options, futures or forward contracts and/or
offsetting positions (portfolio securities or other positions with respect to
which a fund's or portfolio's risk of loss is substantially diminished by one or
more options, futures or forward contracts) may also be deferred under the tax
straddle rules of the Code, which may also affect the characterization of
capital gains or losses from straddle positions and certain successor positions
as long-term or short-term. Certain tax elections may be available that would
enable a fund to ameliorate some adverse effects of the tax rules described in
this paragraph. The tax rules applicable to options, futures or forward
contracts and straddles may affect the amount, timing and character of a fund's
distributions to shareholders. Each fund will take into account the special tax
rules applicable to options, futures, forward contracts and constructive sales
in order to minimize any potential adverse tax consequences.

The federal income tax rules applicable to certain structured or hybrid
securities, dollar rolls, currency swaps, and interest rate swaps, caps, floors
and collars are unclear in certain respects, and a fund will limit its
transactions in these instruments so that each can account for these instruments
in a manner that is intended to allow the funds to continue to qualify as
regulated investment companies. Due to possible unfavorable consequences under
present tax law, each fund does not currently intend to acquire "residual"
interests in real estate mortgage investment conduits ("REMICs"), although the
funds may acquire "regular" interests in REMICs.

Foreign exchange gains and losses realized by a 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.
Under future regulations, any such transactions that are not directly related to
a fund's investment in stock or securities, (or the options or futures contracts
with respect to stock or

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securities) may have to be limited in order to enable the fund to satisfy the
90% income test. If the net foreign exchange loss for a year were to exceed a
fund's investment company taxable income (computed without regard to such loss),
the resulting ordinary loss for such year would not be deductible by the funds
or their shareholders in future years.

In some countries, restrictions on repatriation may make it difficult or
impossible for a fund 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.

The funds may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains, with
respect to their investments in foreign securities, which would, if imposed,
reduce the yield on or return from those investments. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes in some cases.
Investors in the funds 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 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.

The funds may meet the 50% threshold referred to in the previous paragraph
for a year and, if one does, it may 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 and
distributions 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.

Qualified foreign taxes generally include taxes that would be treated as
income taxable under U.S. tax regulations but do not include most other taxes,
such as stamp taxes, securities transaction taxes and similar taxes. If a fund
makes this election, shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable holding period
requirements and other limitations, against their U.S. federal income taxes.
Shareholders who do not itemize deductions for federal income tax purposes will
not, however, be able to deduct their pro rata portion of qualified foreign
taxes paid by the fund, although such shareholders will be required to include
their share of such taxes in gross income. Shareholders who claim a foreign tax
credit for such foreign taxes may be required to treat a portion of dividends
received from the applicable fund as a separate category of income for purposes
of computing the limitations on the foreign tax credit. Tax exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that a fund
files the election described above, its shareholders will be notified of the
amount of (i) each shareholder's pro rata share of qualified foreign taxes paid
by the fund and (ii) the portion of fund dividends which represents income from
each foreign country.

If a fund acquires any equity interest (including, under future
regulations, not only stock but also 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"), a fund could be subject to federal income tax and
additional interest charges on "excess distributions" actually or constructively
received from such companies or on gain from the actual or deemed sale of stock
in such companies, even if all income or gain actually realized by a fund is
timely distributed to its shareholders. The funds would not be able to pass
through to their shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election would require the funds to recognize taxable income or gain
(subject to tax distribution requirements) without the concurrent receipt

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<PAGE>

of cash. These investments could also result in the treatment of associated
capital gains as ordinary income. The fund may limit and/or manage their
holdings, if any, in passive foreign investment companies to limit each fund's
tax liability or maximize its return from these investments.

Investment in debt obligations by a fund that are at risk of or in default
presents special tax issues for the applicable fund. Tax rules are not entirely
clear about issues such as when the fund may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by a fund, in the event that it invests in
such securities, in order to seek to ensure that the fund distributes sufficient
income to preserve its status as a regulated investment company and does not
become subject to U.S. federal income or excise tax.

A fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends received deduction, subject
to certain holding period requirements and limitations on debt financing under
the Code, only to the extent a fund earned dividend income from stock
investments in U.S. domestic corporations. The funds are permitted to acquire
stocks of U.S. domestic corporations, and it is therefore possible that a small
portion of a fund's distributions, from the dividends attributable to such
stocks, may qualify for the dividends received deduction. Such qualifying
portion, if any, may affect a corporate shareholder's liability for alternative
minimum tax and/or result in basis reductions and other consequences in certain
circumstances.

At the time of an investor's purchase of fund shares, a portion of the
purchase price may be attributable to undistributed taxable income and/or
realized or unrealized appreciation in the fund's portfolio. Consequently,
subsequent distributions by a fund with respect to 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 the funds 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 or other
disposition may be disallowed under "wash sale" rules to the extent the shares
disposed of are replaced with other shares of the same fund (including those
made pursuant to reinvestment of dividends and/or capital gain distributions)
within a period of 61 days beginning 30 days before and ending 30 days after a
redemption or other disposition of the shares. In such a case, the disallowed
portion of the loss generally would be included in the federal tax basis of the
shares acquired. Any loss realized upon the redemption or other disposition 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
consequences for shareholders who are U.S. persons, i.e., U.S. citizens or
residents and U.S. domestic corporations,

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<PAGE>

partnerships, trusts or estates, and who are subject to U.S. federal income tax.
The discussion does not address special tax rules applicable to certain types of
investors, such as tax-exempt or tax-deferred plans, accounts or entities,
insurance companies, financial institutions, and securities dealers. 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 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.

Federal law requires that each fund withhold (as "backup withholding") 31%
of reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions or repurchases of fund shares paid to shareholders who
have not complied with IRS regulations. In order to avoid this withholding
requirement shareholders must certify on their Account Purchase Applications, or
on separate IRS Forms W-9, that the Social Security Number or other Taxpayer
Identification Number they provide is their correct number and that they are not
currently subject to backup withholding, or that they are exempt from backup
withholding. The fund may nevertheless be required to withhold if it receives
notice from the IRS or a broker that the number provided is incorrect or backup
withholding is applicable as a result of previous underreporting of interest or
dividend income.

Investors other than U.S. person may be subject to different U.S. tax
treatment, including a 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 withholding certificate is on file, to 31% backup withholding
on certain other payments from the fund. Non-U.S. investors should consult their
tax advisers regarding such treatment and the application of foreign taxes to an
investment in the fund.

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 Commission or by accessing the SEC's Web site at
http://www.sec.gov.

EXPERTS AND FINANCIAL STATEMENTS

The funds' financial statements for the fiscal year ending December 31,
2001 will be audited by PricewaterhouseCoopers LLP.

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APPENDIX

MOODY'S RATINGS DEFINITIONS FOR
CORPORATE BONDS AND SOVEREIGN,
SUBNATIONAL AND SOVEREIGN
RELATED ISSUES

Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge." Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.

Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities or fluctuation of protective
elements may be of greater amplitude or there may be other elements present
which make the long term risks appear somewhat larger than in Aaa securities.

A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may be
present which suggest a susceptibility to impairment sometime in the future.

Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.

Ba - Bonds which are rated Ba are judged to have speculative elements.
Their future cannot be considered as well assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.

B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or of
maintenance of other terms of the contract over any long period of time may be
small.

STANDARD & POOR'S RATINGS
DEFINITIONS

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

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A - Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.

BBB - Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher rated categories.

BB - Debt rated BB is regarded, on balance, as predominantly speculative
with respect to capacity to pay interest and repay principal in accordance with
the terms of the obligation. While such debt will likely have some quality and
protective characteristics, these are outweighed by large uncertainties or major
risk exposures to adverse conditions.

B - Debt rated B has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The B rating category is also
used for debt subordinated to senior debt that is assigned an actual or implied
BB or BB- rating.

STANDARD & POOR'S
CHARACTERISTICS OF SOVEREIGN DEBT
OF FOREIGN COUNTRIES

AAA - Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political circumstances

Key players in the global trade and financial system:

- Prosperous and resilient economies, high per capita incomes
- Low fiscal deficits and government debt, low inflation
- Low external debt.

AA - Stable, predictable governments with demonstrated track record of
responding to changing economic and political circumstances

- slightly integrated into global trade and financial system
- Differ from AAAs only to a small degree because:
- Economies are smaller, less prosperous and generally more vulnerable
to adverse external influences (e.g., protection and terms of trade
shocks)
- More variable fiscal deficits, government debt and inflation
- Moderate to high external debt.

A - Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change

- Established trend of integration into global trade and financial
system
- Economies are smaller, less prosperous and generally more vulnerable
to adverse external influences (e.g., protection and terms of trade
shocks), but
- Usually rapid growth in output and per capita incomes
- Manageable through variable fiscal deficits, government debt and
inflation
- Usually low but variable debt

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- Integration into global trade and financial system growing but
untested
- Low to moderate income developing economies but variable performance
and quite vulnerable to adverse external influences
- Variable to high fiscal deficits, government debt and inflation
- Very high and variable debt, often graduates of Brady plan but track
record not well established.

BBB - Political factors a source of significant uncertainty, either
because system is in transition or due to external threats, or both, often in
environment of rapid economic and social change

- Integration into global trade and financial system growing but
untested
- Economies less prosperous and often more vulnerable to adverse
external influences
- Variable to high fiscal deficits, government debt and inflation
- High and variable external debt.

BB - Political factors a source of major uncertainty, either because
system is in transition or due to external threats, or both, often in
environment of rapid economic and social change

- Integration into global trade and financial system growing but
untested
- Low to moderate income developing economies, but variable
performance and quite vulnerable to adverse external influences
- Variable to high fiscal deficits, government debt and inflation
- Very high and variable debt, often graduates of Brady Plan but track
record not well established

In the case of sovereign, subnational and sovereign related issuers, a
fund uses the foreign currency or domestic (local) currency rating depending
upon how a security in the portfolio is denominated. In the case where a fund
holds a security denominated in a domestic (local) currency and one of the
rating services does not provide a domestic (local) currency rating for the
issuer, the fund will use the foreign currency rating for the issuer; in the
case where a fund holds a security denominated in a foreign currency and one of
the rating services does not provide a foreign currency rating for the issuer,
the fund will treat the security as being unrated.

DESCRIPTION OF DUFF & PHELPS

RATINGS FOR CORPORATE BONDS AND
FOR SOVEREIGN, SUBNATIONAL AND
SOVEREIGN RELATED ISSUERS

AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A - Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

BBB - Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

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BB - Below investment grade but deemed likely to meet obligations when
due. Present or prospective financial protection factors fluctuate according to
industry conditions or company fortunes. Overall quality may move up or down
frequently within this category.

B - Below investment grade and possessing risk that obligations will not
be met when due. Financial protection factors will fluctuate widely according to
economic cycles, industry conditions and/or company fortunes. Potential exists
for frequent changes in the rating within this category or into a higher or
lower rating guide.

FITCH IBCA INTERNATIONAL
LONG-TERM CREDIT RATING
DEFINITIONS

AAA - Bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.

AA - Bonds considered to be investment grade and of very high credit
quality. The obligor's ability to pay interest and repay principal is very
strong, although not quite as strong as bonds rated AAA. Because bonds rated in
the AAA and AA categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated F-1+.

A - Bonds considered to be investment grade and of high credit quality.
The obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.

BBB - Bonds considered to be investment grade and of good credit quality.
The obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have adverse impact on these bonds, and therefore impair timely
payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.

BB - Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.

B - Bonds are considered highly speculative. The obligor's ability to pay
interest and repay principal are currently being met, but a limited margin
safety remains. However, capacity for continued payment is contingent upon a
sustained, favorable business and economic environment.

FITCH IBCA LONG-TERM RATINGS FOR
NATIONAL ISSUES

AAA - Obligations for which there is the lowest expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial,
such that adverse changes in business, economic or financial conditions are
unlikely to increase investment risk substantially.

AA - Obligations for which there is a very low expectation of investment
risk. Capacity for timely repayment of principal and interest is substantial.
Adverse changes in business, economic or financial conditions may increase
investment risk, albeit not very significantly.

44
<PAGE>

A - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
strong, although adverse changes in business, economic or financial conditions
may lead to increased investment risk.

BBB - Obligations for which there is currently a low expectation of
investment risk. Capacity for timely repayment of principal and interest is
adequate, although adverse changes in business, economic or financial conditions
are more likely to lead to increased investment risk than for obligations in
other categories.

BB - Obligations for which capacity for timely repayment of principal and
interest is uncertain relative to other obligors in the same country. Within the
context of the country, these obligations are speculative to some degree and
capacity for timely repayment remains susceptible over time to adverse changes
in business, financial or economic conditions.

B - Obligations for which capacity for timely repayment of principal and
interest is uncertain relative to other obligors in the same country. Timely
repayment of principal and interest is not sufficiently protected against
adverse changes in business, economic or financial conditions and these
obligations are more speculative than those in higher rated categories.

45
<PAGE>

[LOGO] STANDISH FUNDS(R)

Prospectus Standish High Yield Bond Fund
-------------------------------------------------------------------
January 1, 2001

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>

[GRAPHIC OMITTED]

Contents
--------------------------------------------------------------------------------

Risk/Return Summary.............................3
High Yield Bond Fund.........................3

The Fund's Investments and Related Risks........5
Additional investment policies...............5

The Investment Adviser..........................7
About Standish(R)............................7
Fund managers................................8
Advisory services and fees...................8

Investment and Account Information..............9
How to purchase shares.......................9
How to exchange shares......................10
How to redeem shares........................10
Transaction and account policies............11
Valuation of shares.........................11
Dividends and distributions.................11

Fund Details...................................12
Taxes.......................................12
The fund's service providers................12

For More Information...........................16

Mutual Fund Risks

An investment in the fund is not a bank deposit and is not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.

Standish High Yield Bond Fund 2
<PAGE>

Risk/Return Summary
--------------------------------------------------------------------------------

High Yield Bond Fund

Investment objective

To maximize total return, consistent with preserving principal, primarily
through the generation of current income and, to a lesser extent, capital
appreciation.

Key investments and strategies

Credit quality

The fund invests at least 65% of assets in below investment grade securities
with an emphasis on those issues that appear likely to be upgraded. Many of
these securities have higher yields and offer a higher level of current income
than U.S. government bonds but at heightened levels of risk. The fund may
realize substantial capital appreciation over time.

Targeted average portfolio credit quality

In the range of BB+/Ba1 to B/B2.

Maturity

The fund generally will maintain an average dollar-weighted effective maturity
of 5 to 13 years but may invest in individual securities of any maturity.

How investments are selected

o Employing top down quantitative and macro-economic analysis to allocate
assets to undervalued sectors in order to maximize investment returns.

o Targeting individual issues that that are rated in the BB and B rating
categories.

o Focusing on securities in areas of the yield curve that offer the most
favorable risk/return characteristics.

Principal risks of investing in the fund

Investors could lose money on their investments in the fund or the fund could
under perform other possible investments if any of the following occurs:

o Interest rates rise, which will make the prices of fixed income securities
and the value of the fund's portfolio go down.

o The adviser's judgment about the attractiveness, relative value or
potential appreciation of a particular sector, security or hedging
strategy proves to be incorrect.

Other risks

3 Standish High Yield Bond Fund
<PAGE>

--------------------------------------------------------------------------------

Total return performance

Because the fund is newly organized, it does not yet have a performance history
which can be shown in a bar chart or total return table.

Fees and expenses of the fund

This table describes the fees and expenses you may pay if you buy and hold
shares of the fund. Other expenses are based on estimates for the current fiscal
year.

High Yield
Bond Fund

Shareholder fees (fees paid
directly from your investment) None

Annual fund operating expenses(1)
(expenses that are deducted
from fund assets)

Management fees 0.40%

Distribution (12b-1) fees None

Other expenses 0.20%

Total annual fund operating
expenses 0.60%

(1)Because Standish has agreed to cap the fund's operating expenses, actual
expenses are estimated to be:

Management fees 0%

Other expenses 0%

Total annual fund
operating expenses 0%

This cap may be changed or eliminated.

Expense example

This example is intended to help you compare the cost of investing in the 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
1 year 3 years

High Yield
Bond Fund $61 $194

Standish High Yield Bond Fund 4
<PAGE>

The Fund's Investments and Related Risks
--------------------------------------------------------------------------------

The fund may invest in a wide range of fixed income securities.

Additional Information About the Fund's Principal Investments

Fixed income investments Fixed income investments include bonds, notes
(including structured notes), mortgage-related securities, asset-backed
securities, bank loans, loan assignments and participations, eurodollar and
Yankee dollar instruments and money market instruments. These fixed income
securities may be issued by U.S. and foreign corporations or entities; U.S. and
foreign banks; U.S. and foreign governments, their agencies, authorities,
instrumentalities; sponsored enterprises or political subdivisions; and state
and municipal governments. These securities may have all types of interest rate
payment and reset terms, including fixed rate, adjustable rate, zero coupon,
contingent, deferred, payment in kind and auction rate features.

Additional Information About the Fund's Other Investment Strategies

The fund may invest 10% of assets in emerging markets generally and 3% of assets
in any single emerging market. The fund will not purchase a security unless, at
the time of purchase, at least 90% of the fund's assets are comprised of
securities denominated in currencies only of countries with advanced or
transition economies as defined by the International Monetary Fund (IMF). The
IMF currently considers the following foreign countries and countries within the
following regions to have advanced or transition economies: Western European
countries, Canada, Australia, New Zealand, Israel, Japan, Hong Kong, Singapore
and Taiwan.

The Fund may invest in sovereign debt securities of emerging market governments,
including Brady Bonds. Investments in such securities involve special risks. The
issuer of the debt or the governmental authorities that control the repayment of
the debt may be unable or unwilling to repay principal or interest when due in
accordance with the terms of such debt. Periods of economic uncertainty may
result in the volatility of market prices of sovereign debt, and in turn the
Fund's net asset value, to a greater extent than the volatility inherent in
domestic fixed income securities.

5 Standish High Yield Bond Fund
<PAGE>

--------------------------------------------------------------------------------

The fund may invest up to 10% of assets in common stocks.

If a security receives "split" (different) ratings from multiple rating
organizations, the fund will treat the security as being rated in the higher
rating category. The fund's credit standards also apply to counterparties to OTC
derivative contracts. The fund may invest in securities of any credit quality,
including securities that are in default as to repayment of principal or
interest.

Defensive investing The 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 the fund takes a temporary defensive position, it may be unable
for a time to achieve its investment objective.

Derivative contracts The fund may, but is not required to, use derivative
contracts for any of the following purposes:

o To hedge against adverse changes in the market value of securities held by
or to be bought for the fund which are caused by changing interest rates
or currency exchange rates.

o As a substitute for purchasing or selling securities.

o To shorten or lengthen the effective maturity or duration of the fund's
portfolio.

o To enhance the fund's potential gain in non-hedging situations.

A derivative contract will obligate or entitle the 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 exposure. Therefore, using
derivatives can disproportionately increase portfolio losses and reduce
opportunities for gains when interest rates or currency exchange rates are
changing. The 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. OTC derivatives can also make the fund's
portfolio less liquid and harder to value, especially in volatile markets.

Impact of high portfolio turnover The 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 The fund's investment objective may be changed by the
fund's trustees without shareholder approval.

Standish High Yield Bond Fund 6
<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, Ayer & Wood, Inc., established in 1933, has remained by choice a
privately held investment management firm over its more than 65 year history.
Ownership is shared by a limited number of employees of the firm. Standish
believes the firm's organizational structure has helped preserve an
entrepreneurial orientation, which reinforces its commitment to investment
performance.

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 utilizing detailed analysis
and thorough adherence to a strict set of disciplines. Standish uses fundamental
research to identify a security sufficiently complex as to have been misvalued
by more traditional analysis. Standish uses sophisticated quantitative
techniques, which may help identify market misvaluations that can be exploited
by their portfolio managers.

--------------------------------------------------------------------------------

Who may want to invest

The fund may be appropriate for investors:

o Looking to diversify a fixed income portfolio with a high level of income.

o Willing to tolerate fluctuation in bond prices due to interest rate
changes.

o Looking for higher returns than an investment grade bond fund and are
willing to tolerate greater volatility.

o Prepared to accept the risks entailed with some foreign investing, which
includes political instability and currency fluctuation.

7 Standish High Yield Bond Fund
<PAGE>

--------------------------------------------------------------------------------

Fund managers
--------------------------------------------------------------------------------
Fund Fund managers Positions during past
five years
--------------------------------------------------------------------------------
High Yield Bond Fund John R. McNichols Associate Director and a
Chartered Financial
Analyst, John is a
portfolio manager for
aggressive core fixed
income accounts and
co-director of global
credit investing. His
prior experience with
Standish includes managing
emerging markets fixed
income investments and
corporate bond research.

Advisory services and fees

Standish provides the fund with portfolio management and investment research
services. The adviser places orders to buy and sell the fund's portfolio
securities and manages the fund's business affairs. The adviser agreed to limit
the fund's total annual operating expenses (excluding brokerage commissions,
taxes and extraordinary expenses). This agreement is temporary and may be
terminated or changed at any time.

--------------------------------------------------------------------------------
Annual Advisory Fee Rate
(as a percentage of the fund's average net assets)

Contractual advisory fee Current expense limitation
--------------------------------------------------------------------------------
High Yield Bond Fund 0.40% 0%
--------------------------------------------------------------------------------

Investment Adviser

Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111-2662

Standish High Yield Bond Fund 8
<PAGE>

Investment and Account Information
--------------------------------------------------------------------------------

How to purchase shares

Minimum initial investment: $100,000

Minimum subsequent investment: $5,000

Minimum investments may be waived by the distributor for investors in omnibus
accounts and clients and employees of Standish and their immediate families.

All orders to purchase shares received by the distributor or its agent before
the close of regular trading on the New York Stock Exchange (generally at 4:00
p.m., New York time) 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. The fund reserves the right to
reject purchase orders or to stop offering its shares without notice to
shareholders.

Shares of the fund 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 specified deadline.

The distributor's address is: Wire instructions:

9 Standish High Yield Bond Fund
<PAGE>

--------------------------------------------------------------------------------

How to exchange shares

You may exchange shares of the fund for the same class of shares of any other
Standish fund, if the registration of both accounts is identical. The 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 (see below).

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 before the close of
regular trading on the New York Stock Exchange (generally at 4:00 p.m., New York
time) 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. The 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 specified deadline.

Standish High Yield Bond Fund 10
<PAGE>

Investment and Account Information
--------------------------------------------------------------------------------

Transaction and account policies

In-kind purchases and redemptions. Securities you own may be used to purchase
shares of the 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. The 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 writing at the telephone
number or address for the fund listed on the back cover of this prospectus.
Standish will begin mailing prospectuses and shareholder reports to you within
30 days after receiving your revocation.

Valuation of shares

The fund offers its shares at the NAV per share of the fund. The 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. If the exchange closes early, the fund accelerates calculation of NAV and
transaction deadlines to that time.

The 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,
the 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 another 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 the fund may change on days when shareholders
cannot purchase or redeem shares.

Dividends and distributions

The fund intends to distribute all or substantially all of its net investment
income and realized capital gains, if any, for each taxable year. The fund
declares and distributes dividends from net investment income quarterly. The
fund declares and distributes net capital gains, if any, annually. All dividends
and capital gains are reinvested in shares of the fund unless the shareholder
elects to receive them in cash. Substantially all of the fund's distributions
will be from net investment income.

11 Standish High Yield Bond Fund
<PAGE>

Fund Details
--------------------------------------------------------------------------------

Taxes
--------------------------------------------------------------------------------
Transactions 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.
Tax rate depends on how long the
fund held the portfolio securities
sold and other factors.

Distributions of short-term capital gain. Taxable as ordinary income.

Dividends from net investment income. Taxable as ordinary income.
--------------------------------------------------------------------------------

Every January, the fund provides information to their shareholders about the
fund's 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 the fund shortly before an
expected taxable 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.

--------------------------------------------------------------------------------

The fund's service providers

Principal Underwriter
Standish Fund Distributors, L.P.

Custodian, Transfer Agent and Fund Accountant
Investors Bank & Trust Company

Independent Accountants
PricewaterhouseCoopers LLP

Legal Counsel
Hale and Dorr LLP

Standish High Yield Bond Fund 12
<PAGE>

--------------------------------------------------------------------------------

13 Standish High Yield Bond Fund
<PAGE>

--------------------------------------------------------------------------------

Standish High Yield Bond Fund 14
<PAGE>

--------------------------------------------------------------------------------

15 Standish High Yield Bond Fund
<PAGE>

For More Information
--------------------------------------------------------------------------------

For investors who want more information about the Standish High Yield Bond Fund,
the following documents are available free upon request.

Statement of Additional Information (SAI)

The SAI provides more detailed information about the fund and is incorporated
into this prospectus by reference.

Investors can get free copies of the SAI, request other information and discuss
their questions about the fund by contacting the fund at:

Standish Funds
P.O. Box 1407
Boston, MA 02205-1407

Telephone: 1.800.729.0066

Email:
[email protected]

Internet:
http://www.standishonline.com

Investors can review the fund's SAI at the Public Reference Room of the
Securities and Exchange Commission. Call 202.942.8090 for hours of operation.
Investors can get text-only copies:

o For a fee, by writing the Public Reference Room of the Commission,
Washington, D.C. 20549-6009

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.org

[LOGO] STANDISH FUNDS(R)
One Financial Center
Boston, MA 02111-2662
800.729.0066

Investment Company Act
file number (811-4813)

00-315 3/00
<PAGE>

January 1, 2001

[STANDISH LOGO]

STANDISH, AYER & WOOD INVESTMENT TRUST

One Financial Center
Boston, Massachusetts 02111
(800) 729-0066

STATEMENT OF ADDITIONAL INFORMATION

Standish High Yield Bond Fund

This Statement of Additional Information (SAI) is not a prospectus. The
SAI expands upon and supplements the information contained in the prospectus
dated January 1, 2001, as amended and/or supplemented from time to time, of
Standish High Yield Bond Fund (High Yield Bond Fund), a separate investment
series of Standish, Ayer & Wood Investment Trust (the Trust). The SAI should be
read in conjunction with the fund's prospectus.

---------------------------------

Contents

INVESTMENT OBJECTIVE AND POLICIES............................................2
INVESTMENT RESTRICTIONS.....................................................24
CALCULATION OF PERFORMANCE DATA.............................................26
MANAGEMENT..................................................................27
PURCHASE AND REDEMPTION OF SHARES...........................................32
PORTFOLIO TRANSACTIONS......................................................33
DETERMINATION OF NET ASSET VALUE............................................33
THE FUND AND ITS SHARES.....................................................34
TAXATION....................................................................35
ADDITIONAL INFORMATION......................................................39
EXPERTS AND FINANCIAL STATEMENTS............................................39
<PAGE>

INVESTMENT OBJECTIVE AND POLICIES

The prospectus describes the investment objective and policies of the
fund. The following discussion supplements the description of the fund's
investment policies in the prospectus.

Adviser. Standish, Ayer & Wood, Inc. ("Standish" or the "Adviser") is the
investment adviser to the fund.

Suitability. The fund is not intended to provide an investment program
meeting all of the requirements of an investor. Notwithstanding the 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 fund.

Fixed income securities rated Ba and below by Moody's or BB and below by
Standard & Poor's, Duff or Fitch, or, if unrated, determined by the adviser to
be of comparable credit quality are considered below investment grade
obligations. Below investment grade securities, commonly referred to as "junk
bonds," carry a higher degree of risk (greater price volatility and greater risk
of loss of principal and interest) than higher rated securities and are
considered speculative by the rating agencies. When investing in non-investment
grade fixed income securities, the adviser attempts to select those fixed income
securities that have the potential for upgrade.

If a security is rated differently by two or more rating agencies, the
adviser uses the highest rating to compute the fund's credit quality and also to
determine the security's rating category. In the case of unrated sovereign and
subnational debt of foreign countries, the adviser may take into account, but
will not rely entirely on, the ratings assigned to the issuers of such
securities. The fund may invest in securities of any credit quality, including
securities that are in default as to repayment of principal or interest.

Maturity and Duration. The fund will generally maintain an average
dollar-weighted effective portfolio maturity of 5 to 13 years. However, the fund
may purchase individual securities with effective maturities that are outside of
this range. The effective maturity of an individual portfolio security in which
the fund invests is defined as the period remaining until the earliest date when
the fund can recover the principal amount of such security through mandatory
redemption or prepayment by the issuer, the exercise by the fund of a put
option, demand feature or tender option granted by the issuer or a third party
or the payment of the principal on the stated maturity date. The effective
maturity of variable rate securities is calculated by reference to their coupon
reset dates. Thus, the effective maturity of a security may be substantially
shorter than its final stated maturity. Prepayment rates are influenced by
changes in current interest rates and a variety of economic, geographic, social
and other factors and cannot be predicted with certainty. In general,
securities, such as mortgage-backed securities, may be subject to greater
prepayment rates in a declining interest rate environment. Conversely, in an
increasing interest

2
<PAGE>

rate environment, the rate of prepayment may be expected to decrease. A higher
than anticipated rate of unscheduled principal prepayments on securities
purchased at a premium or a lower than anticipated rate of unscheduled payments
on securities purchased at a discount may result in a lower yield (and total
return) to the fund than was anticipated at the time the securities were
purchased. The fund's reinvestment of unscheduled prepayments may be made at
rates higher or lower than the rate payable on such security, thus affecting the
return realized by the fund.

Duration of an individual portfolio security is a measure of the
security's price sensitivity taking into account expected cash flow and
prepayments under a wide range of interest rate scenarios. In computing the
duration of its portfolio, the fund will have to estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influence of interest rates on prepayments and coupon flows.
The fund may use various techniques to shorten or lengthen the option-adjusted
duration of its portfolio, including the acquisition of debt obligations at a
premium or discount, and the use of mortgage swaps and interest rate swaps,
caps, floors and collars.

Securities. The fund invests primarily in all types of fixed income
securities.

In addition, the fund may purchase shares of other investment companies
and real estate investment trusts ("REITs") and common stocks. The fund may also
enter into repurchase agreements and forward dollar roll transactions, may
purchase zero coupon and deferred payment securities and may buy securities on a
when-issued or delayed delivery basis. Please refer to the fund's specific
investment objective and policies and "Description of Securities and Related
Risks" for a more comprehensive list of permissible securities and investments.

Description of Securities and Related Risks

General Risks of Investing

The prospectus discusses the principal risk of investing in the fund. The
following discussion provides additional information on the risks associated
with an investment in the fund. The fund invests primarily in fixed income
securities and is subject to risks associated with investments in such
securities. These risks include interest rate risk, default risk and call and
extension risk.

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 the fund to sustain losses on such investments. A default
could impact both interest and principal payments. This risk is higher for
investments in below investment grade fixed securities.

Call Risk and Extension Risk. Fixed income securities may be subject to
both call risk and extension risk. Call risk exists when the issuer may exercise
its right to pay principal on an obligation earlier than scheduled which would
cause cash flows to be returned earlier than expected. This typically results
when interest rates have declined and the fund will suffer from having to
reinvest in lower yielding securities. Extension risk exists when the issuer may
exercise its right to pay principal on an obligation later than scheduled which
would cause cash flows to be returned later than expected. This typically
results when interest rates have increased and the fund will suffer from the
inability to invest in higher yield securities.

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<PAGE>

Specific Risks

The following sections include descriptions of specific risks that are
associated with the fund's purchase of a particular type of security or the
utilization of a specific investment technique.

Below Investment Grade Fixed Income Securities. The fund invests primarily
in non-investment grade fixed income securities. Non-investment grade fixed
income securities are considered predominantly speculative by traditional
investment standards. In some cases, these securities may be highly speculative
and have poor prospects for reaching investment grade standing. Non-investment
grade fixed income securities and unrated securities of comparable credit
quality are subject to the increased risk of an issuer's inability to meet
principal and interest obligations. These securities, also referred to as high
yield securities or "junk bonds", may be subject to greater price volatility due
to such factors as specific corporate developments, interest rate sensitivity,
negative perceptions of the high yield markets generally and less secondary
market liquidity.

The market values of high yield, fixed income securities tend to reflect
individual corporate developments to a greater extent than do those of higher
rated securities, which react primarily to fluctuations in the general level of
interest rates. Issuers of such high yield securities may not be able to make
use of more traditional methods of financing and their ability to service debt
obligations may be more adversely affected than issuers of higher rated
securities by economic downturns, specific corporate developments or the
issuers' inability to meet specific projected business forecasts. These
non-investment grade securities also tend to be more sensitive to economic
conditions than higher-rated securities. Negative publicity about the high yield
bond market and investor perceptions regarding lower rated securities, whether
or not based on the fund's fundamental analysis, may depress the prices for such
securities.

Since investors generally perceive that there are greater risks associated
with non-investment grade securities of the type in which the fund invests, the
yields and prices of such securities may tend to fluctuate more than those for
higher rated securities. In the lower quality segments of the fixed-income
securities market, changes in perceptions of issuers' creditworthiness tend to
occur more frequently and in a more pronounced manner than do changes in higher
quality segments of the fixed-income securities market, resulting in greater
yield and price volatility.

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<PAGE>

The secondary market for high yield, fixed-income securities is dominated
by institutional investors, including mutual fund portfolios, insurance
companies and other financial institutions. Accordingly, the secondary market
for such securities is not as liquid as and is more volatile than the secondary
market for higher-rated securities. In addition, the trading volume for high
yield, fixed-income securities is generally lower than that of higher rated
securities and the secondary market for high yield, fixed-income securities
could contract under adverse market or economic conditions independent of any
specific adverse changes in the condition of a particular issuer. These factors
may have an adverse effect on the fund's ability to dispose of particular
portfolio investments. Prices realized upon the sale of such lower rated or
unrated securities, under these circumstances, may be less than the prices used
in calculating a fund's net asset value. A less liquid secondary market also may
make it more difficult for a fund to obtain precise valuations of the high yield
securities in its portfolio.

Non-investment grade or high yield, fixed-income securities also present
risks based on payment expectations. High yield, fixed-income securities
frequently contain "call" or buy-back features which permit the issuer to call
or repurchase the security from its holder. If an issuer exercises such a "call
option" and redeems the security, a fund may have to replace such security with
a lower yielding security, resulting in a decreased return for investors. The
fund may also incur additional expenses to the extent that it is required to
seek recovery upon a default in the payment of principal or interest on a
portfolio security.

Credit ratings issued by credit rating agencies are designed to evaluate
the safety of principal and interest payments of rated securities. They do not,
however, evaluate the market value risk of non-investment grade securities and,
therefore, may not fully reflect the true risks of an investment. In addition,
credit rating agencies may or may not make timely changes in a rating to reflect
changes in the economy or in the conditions of the issuer that affect the market
value of the security. Consequently, credit ratings are used only as a
preliminary indicator of investment quality. Investments in non-investment grade
and comparable unrated obligations will be more dependent on the adviser's
credit analysis than would be the case with investments in investment-grade debt
obligations. The adviser employs its own credit research and analysis, which
includes a study of existing debt, capital structure, ability to service debt
and to pay dividends, the issuer's sensitivity to economic conditions, its
operating history and the current trend of earnings. The adviser continually
monitors the investments in the fund's portfolio and evaluates whether to
dispose of or to retain non-investment grade and comparable unrated securities
whose credit ratings or credit quality may have changed.

Corporate Debt Obligations. The fund may invest in corporate debt
obligations and zero coupon securities issued by financial institutions and
companies, including obligations of industrial, utility, banking and other
financial issuers. Corporate debt obligations are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

Eurodollar and Yankee Dollar Investments. The fund may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in U.S.
dollars generally held in banks outside the United States, primarily in Europe.
Yankee Dollar instruments are U.S. dollar denominated bonds typically issued in
the U.S. by foreign governments and their agencies and foreign banks and
corporations. The fund may invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee

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<PAGE>

Certificates of Deposit ("Yankee CDs"). ECDs are U.S. dollar-denominated
certificates of deposit issued by foreign branches of domestic banks; ETDs are
U.S. dollar-denominated deposits in a foreign branch of a U.S. bank or in a
foreign bank; and Yankee CDs are U.S. dollar-denominated certificates of deposit
issued by a U.S. branch of a foreign bank and held in the U.S. These investments
involve risks that are different from investments in securities issued by U.S.
issuers, including potential unfavorable political and economic developments,
foreign withholding or other taxes, seizure of foreign deposits, currency
controls, interest limitations or other governmental restrictions which might
affect payment of principal or interest.

Foreign Securities. The fund may invest in securities of foreign issuers,
including issuers located in emerging markets. 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. Foreign issuers are
not generally subject to uniform accounting, auditing and financial reporting
standards comparable to those applicable to U.S. issuers. There may be less
publicly available information about a foreign issuer than about a U.S. issuer.
In addition, there is generally less government regulation of foreign markets,
companies and securities dealers than in the U.S. Most foreign securities
markets may have substantially less trading volume than U.S. securities markets
and securities of many foreign issuers are less liquid and more volatile than
securities of comparable U.S. issuers. Furthermore, with respect to certain
foreign countries, there is a possibility of nationalization, expropriation or
confiscatory taxation, imposition of withholding or other taxes on dividend or
interest payments (or, in some cases, capital gains), limitations on the removal
of funds or other assets, political or social instability or diplomatic
developments which could affect investments in those countries. 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.

Investing in Emerging Markets. The fund may invest in foreign securities
of issuers in emerging markets, including issuers in Asia, Eastern Europe,
Russia, Latin and South America, the Mediterranean and Africa. Investing in the
securities of issuers of emerging market countries involves heightened risks
relative to investments in foreign securities of issuers located in developed
countries. These risks may be related to (i) restrictions on foreign investment
and repatriation of capital; (ii) differences in size, liquidity and volatility
of, and the degree and manner of regulation of, the securities markets of the
emerging market countries compared to the U.S. securities markets and other
developed foreign markets; (iii) economic, political and social factors; and
(iv) foreign exchange matters such as fluctuations in exchange rates between the
U.S. dollar and the currencies in which the issuer derives some or all of its
revenues, exchange control regulations and costs associated with currency
exchange. A fund's purchase and sale of portfolio securities in certain emerging
market countries may be constrained by limitations as to daily changes in the
prices of listed securities, periodic trading or settlement volume and/or
limitations on aggregate holdings of foreign investors. In certain cases, such
limitations may be computed based upon the aggregate trading by or holdings of
the fund, the adviser and its affiliates and their respective clients and other
service providers. The fund may not be able to sell securities in circumstances
where price, trading or settlement volume limitations have been reached. These
limitations may have a negative impact on the fund's performance and may
adversely affect the liquidity of each fund's investment to the extent that it
invest certain emerging market countries.

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<PAGE>

(including price) than securities of such company available for purchase by
nationals. Such restrictions may affect the market price, liquidity and rights
of securities that may be purchased by the fund. 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 the
fund is not required to invest in any emerging market country.

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 fund to the extent that it invests in emerging
market countries.

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 the 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.

Settlement procedures in emerging market countries are less developed and
reliable than those in the United States and in other developed markets, and the
fund may experience settlement delays or other material difficulties. In
addition, significant delays are common in registering transfers of securities,
and the 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.

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.

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<PAGE>

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.

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 these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of a fund's
assets quoted in those currencies. However, under normal market conditions, at
least 95% of the fund's total assets, adjusted to reflect fund's net currency
exposure after giving effect to currency transactions and positions, are
denominated in or hedged (including cross-hedged) to the U.S. dollar. Exchange
rates are generally affected by the forces of supply and demand in the
international currency markets, the relative merits of investing in different
countries and the intervention or failure to intervene of U.S. or foreign
governments and central banks. Some emerging market countries also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets may restrict the free conversion of their currencies
into other currencies. Any devaluations in the currencies in which the fund's
securities are denominated may have a detrimental impact on the fund's net asset
value except to the extent such foreign currency exposure is subject to hedging
transactions. The fund may utilize various investment strategies to seek to
minimize the currency risks described above. These strategies include the use of
currency transactions such as currency forward and futures contracts, cross
currency forward and futures contracts, currency swaps and currency options. The
fund's use of currency transactions may expose it to risks independent of its
securities positions. See "Strategic Transactions" within the "Investment
Techniques and Related Risks" section for a discussion of the risks associated
with such strategies.

Economic and Monetary Union (EMU). EMU occurred on January 1, 1999, when
11 European countries adopted a single currency - the euro. For participating
countries, EMU means sharing a single

8
<PAGE>

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 now 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.

Sovereign Debt Obligations. The fund may invest in sovereign debt
obligations of emerging market governments, including Brady Bonds. Investments
in such securities involve special risks. The issuer of the debt or the
governmental authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due in accordance with the terms
of such debt. Periods of economic uncertainty may result in the volatility of
market prices of sovereign debt, and in turn the fund's net asset value, to a
greater extent than the volatility inherent in domestic fixed income securities.

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 reserves, the availability of
sufficient foreign exchange on the date a payment is due, the relative size of
the debt service burden to the economy as a whole, the sovereign debtor's policy
toward principal international lenders and the political constraints to which a
sovereign debtor may be subject. Emerging market governments could default on
their sovereign debt. Such sovereign debtors also may be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
abroad to reduce principal and interest arrearages on their debt. The commitment
on the part of these governments, agencies and others to make such disbursements
may be conditioned on a sovereign debtor's implementation of economic reforms
and/or economic performance and the timely service of such debtor's obligations.
Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due, may result in the cancellation of such
third parties' commitments to lend funds to the sovereign debtor, which may
further impair such debtor's ability or willingness to timely service its debts.

The occurrence of political, social or diplomatic changes in one or more
of the countries issuing sovereign debt could adversely affect the fund's
investments. Emerging markets are faced with social and political issues and
some of them have experienced high rates of inflation in recent years and have
extensive internal debt. Among other effects, high inflation and internal debt
service requirements may adversely affect the cost and availability of future
domestic sovereign borrowing to finance governmental programs, and may have
other adverse social, political and economic consequences. Political changes or
a deterioration of a country's domestic economy or balance of trade may affect
the willingness of countries to service their sovereign debt. Although the
Adviser intends to manage the fund in a manner that will minimize the exposure
to such risks, there can be no assurance that adverse political changes will not
cause the fund to suffer a loss of interest or principal on any of its holdings.
In recent years, some of the emerging market countries in which the fund may
invest have encountered difficulties in servicing their sovereign debt
obligations. Some of these countries have withheld payments of interest and/or
principal of sovereign debt. These difficulties have also led to agreements to
restructure external debt obligations, typically by rescheduling principal
payments, reducing interest rates and extending new credits to finance interest
payments on existing debt. In the future, holders of emerging market sovereign

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<PAGE>

debt securities may be requested to participate in similar rescheduling of such
debt. At times certain emerging market countries have declared moratoria on the
payment of principal and interest on external debt; such a moratorium is
currently in effect in certain emerging market countries. There is no bankruptcy
proceeding by which a creditor may collect in whole or in part sovereign debt on
which an emerging market government has defaulted.

Investors should also be aware that certain sovereign debt instruments in
which fund may invest involve great risk. As noted above, most sovereign debt
obligations issued by emerging market governments generally are deemed to be the
equivalent in terms of quality to securities rated below investment grade. Such
securities are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal in accordance with the
terms of the obligations and involve major risk exposure to adverse conditions.
Some of such securities, with respect to which the issuer currently may not be
paying interest or may be in payment default, may be comparable to securities
rated D by S&P or C by Moody's. The fund may have difficulty disposing of and
valuing certain sovereign debt obligations because there may be a limited
trading market for such securities. Because there is no liquid secondary market
for many of these securities, the fund anticipates that such securities could be
sold only to a limited number of dealers or institutional investors.

Brady Bonds. The fund may invest in Brady Bonds. Brady Bonds are
securities created through the exchange of existing commercial bank loans to
public and private entities in certain emerging markets for new bonds in
connection with debt restructurings. In light of the history of defaults of
countries issuing Brady Bonds on their commercial bank loans, investments in
Brady Bonds may be viewed as speculative. Brady Bonds may be fully or partially
collateralized or uncollateralized, are issued in various currencies (but
primarily in U.S. dollars) and are actively traded in OTC secondary markets.
Incomplete collateralization of interest or principal payment obligations
results in increased credit risk. U.S. dollar-denominated collateralized Brady
Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally
collateralized by U.S. Treasury zero coupon bonds having the same maturity as
the Brady Bonds.

Obligations of Supranational Entities. The fund may invest in obligations
of supranational entities designated or supported by governmental entities to
promote economic reconstruction or development and of international banking
institutions and related government agencies. Examples include the International
Bank for Reconstruction and Development (the "World Bank"), the European Coal
and Steel Community, the Asian Development Bank and the Inter-American
Development Bank. Each supranational entity's lending activities are limited to
a percentage of its total capital (including "callable capital" contributed by
its governmental members at the entity's call), reserves and net income. There
is no assurance that participating governments will be able or willing to honor
their commitments to make capital contributions to a supranational entity.

U.S. Government Securities. The 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

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<PAGE>

and credit of the U.S. Treasury (such as the Government National Mortgage
Association ("GNMA")), (b) the right of the issuer to borrow from the U.S.
Treasury (such as securities of the Student Loan Marketing Association
("SLMA")), (c) the discretionary authority of the U.S. Government to purchase
certain obligations of the issuer (such as the Federal National Mortgage
Association ("FNMA") and Federal Home Loan Mortgage Corporation ("FHLMC")), or
(d) only the credit of the agency. No assurance can be given that the U.S.
Government will provide financial support to U.S. Government agencies,
instrumentalities or sponsored enterprises in the future. U.S. Government
securities also include Treasury receipts, zero coupon bonds, U.S. Treasury
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 ("STRIPs").

Mortgage-Backed Securities. The fund may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by the U.S. Government or any of its agencies, instrumentalities or sponsored
enterprises, including, but not limited to, GNMA, FNMA or FHLMC. Mortgage-backed
securities represent direct or indirect participations in, or are collateralized
by and payable from, mortgage loans secured by real property. Mortgagors can
generally prepay interest or principal on their mortgages whenever they choose.
Therefore, mortgage-backed securities are often subject to more rapid repayment
than their stated maturity date would indicate as a result of principal
prepayments on the underlying loans. This can result in significantly greater
price and yield volatility than is the case with traditional fixed income
securities. During periods of declining interest rates, prepayments can be
expected to accelerate, and thus impair the fund's ability to reinvest the
returns of principal at comparable yields. Conversely, in a rising interest rate
environment, a declining prepayment rate will extend the average life of many
mortgage-backed securities, increase the fund's exposure to rising interest
rates and prevent the fund from taking advantage of such higher yields.

Multiple class securities include collateralized mortgage obligations
("CMOs") and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended (the "Code"), and invests in
certain mortgages principally secured by interests in real property and other
permitted investments. The fund does not intend to purchase residual interests
in REMICs.

Stripped mortgage-backed securities ("SMBS") are derivative multiple class
mortgage-backed securities. SMBS are usually structured with two different
classes; one that receives 100% of the interest payments and the other that
receives 100% of the principal payments from a pool of mortgage loans. If the
underlying mortgage loans experience prepayments of principal at a rate
different from what was anticipated, the fund may fail to recoup fully its
initial investment in these securities. Although the markets for SMBS and CMOs
are increasingly liquid, certain SMBS and CMOs may not be readily marketable and
will be considered illiquid for purposes of the fund's limitation on investments
in illiquid securities. The market value of the class consisting entirely of
principal payments generally is unusually volatile in response to changes in
interest rates. The yields on a class of SMBS that receives all or most of the
interest from mortgage loans are generally higher than prevailing market yields
on other

11
<PAGE>

mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.

Asset-Backed Securities. The fund may invest in asset-backed securities.
The principal and interest payments on asset-backed securities are
collateralized by pools of assets such as auto loans, credit card receivables,
leases, installment contracts and personal property. Such asset pools are
securitized through the use of special purpose trusts or corporations. Payments
or distributions of principal and interest on asset-backed securities may be
guaranteed up to certain amounts and for a certain time period by a letter of
credit or a pool insurance policy issued by a financial institution; however,
privately issued obligations collateralized by a portfolio of privately issued
asset-backed securities do not involve any government-related guaranty or
insurance. Like mortgage-backed securities, asset-backed securities are subject
to more rapid prepayment of principal than indicated by their stated maturity
which may greatly increase price and yield volatility. Asset-backed securities
generally do not have the benefit of a security interest in collateral that is
comparable to mortgage assets and there is the possibility that recoveries on
repossessed collateral may not be available to support payments on these
securities.

Loan Participations and Assignments. The fund may invest in fixed and
floating rate loans ("Loans") arranged through private negotiations between a
foreign entity and one or more financial institutions ("Lenders"). The majority
of the fund's investments in Loans is expected to be in the form of
participations in Loans ("Participations") and assignments of portions of Loans
from third parties ("Assignments"). Participations typically will result in the
fund having a contractual relationship only with the Lender, not with the
borrower government. The fund will have the right to receive payments of
principal, interest and any fees to which it is entitled only from the Lender
selling the Participation and only upon receipt by the Lender of the payments
from the borrower. In connection with purchasing Participations, the fund
generally will have no right to enforce compliance by the borrower with the
terms of the loan agreement relating to the loan ("Loan Agreement"), nor any
rights of set-off against the borrower, and fund may not directly benefit from
any collateral supporting the Loan in which it has purchased the Participation.
As a result, the fund will assume the credit risk of both the borrower and the
Lender that is selling the Participation.

In the event of the insolvency of the Lender selling a Participation, the
fund may be treated as a general creditor of the Lender and may not benefit from
any set-off between the Lender and the borrower. The fund will acquire
Participations only if the Lender interpositioned between the fund and the
borrower is determined by the Adviser to be creditworthy. When the fund
purchases Assignments from Lenders, the fund will acquire direct rights against
the borrower on the Loan. However, since Assignments are arranged through
private negotiations between potential assignees and assignors, the rights and
obligations acquired by the fund as the purchaser of an Assignment may differ
from, and be more limited than, those held by the assigning Lender.

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<PAGE>

The fund may have difficulty disposing of Assignments and Participations.
The liquidity of such securities is limited and the funds anticipate that such
securities could be sold only to a limited number of institutional investors.
The lack of a liquid secondary market could have an adverse impact on the value
of such securities and on the fund's ability to dispose of particular
Assignments or Participations when necessary to meet the fund's liquidity needs
or in response to a specific economic event, such as a deterioration in the
creditworthiness of the borrower. The lack of a liquid secondary market for
Assignments and Participations also may make it more difficult for a fund to
assign a value to those securities for purposes of valuing the fund's portfolio
and calculating its net asset value.

Convertible Securities. The fund may invest in convertible securities
consisting of bonds, notes, debentures and preferred stocks. Convertible debt
securities and preferred stock acquired by the fund entitle the fund to exchange
such instruments for common stock of the issuer at a predetermined rate.
Convertible securities are subject both to the credit and interest rate risks
associated with debt obligations and to the stock market risk associated with
equity securities.

Warrants. Warrants acquired by the 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. The 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.

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.

Investments in Other Investment Companies. The fund is permitted to invest
up to 10% of its total assets in shares of investment companies and up to 5% of
its total assets in any one investment company as long as that investment does
not represent more than 3% of the total voting stock of the acquired investment
company. Investments in the securities of other investment companies may involve
duplication of advisory fees and other expenses. The fund may invest in
investment companies that are designed to replicate the composition and
performance of a particular index. For example, World Equity Benchmark Series
("WEBS") are exchange traded shares of open-end investment companies designed to
replicate the composition and performance of publicly traded issuers in
particular countries. Investments in index baskets involve the same risks
associated with a direct investment in the types of securities included in the
baskets.

Real Estate Investment Trusts. The fund may invest in REITs. REITs 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 on distributed
amounts under the Code.

Inverse Floating Rate Securities. The fund may invest in inverse floating
rate securities. The interest rate on an inverse floater resets in the opposite
direction from the market rate of interest to which the inverse floater is
indexed. An inverse floater may be considered to be leveraged to the extent that
its interest rate varies by a magnitude that exceeds the magnitude of the change
in the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.

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<PAGE>

Zero Coupon and Deferred Payment Securities. The fund may invest in zero
coupon and deferred payment securities. Zero coupon securities are securities
sold at a discount to par value and on which interest payments are not made
during the life of the security. Upon maturity, the holder is entitled to
receive the par value of the security. The fund is required to accrue income
with respect to these securities prior to the receipt of cash payments. Because
the fund will distribute this accrued income to shareholders, to the extent that
shareholders elect to receive dividends in cash rather than reinvesting such
dividends in additional shares, the fund will have fewer assets with which to
purchase income producing securities. Deferred payment securities are securities
that remain zero coupon securities until a predetermined date, at which time the
stated coupon rate becomes effective and interest becomes payable at regular
intervals. Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.

Structured or Hybrid Notes. The fund may invest in structured or hybrid
notes. The distinguishing feature of a structured or hybrid note is that the
amount of interest and/or principal payable on the note is based on the
performance of a benchmark asset or market other than fixed income securities or
interest rates. Examples of these benchmarks include stock prices, currency
exchange rates and physical commodity prices. Investing in a structured note
allows the fund to gain exposure to the benchmark asset while fixing the maximum
loss that it may experience in the event that the security does not perform as
expected. Depending on the terms of the note, the fund may forego all or part of
the interest and principal that would be payable on a comparable conventional
note; the fund's loss cannot exceed this foregone interest and/or principal. In
addition to the risks associated with a direct investment in the benchmark
asset, investments in structured and hybrid notes involve the risk that the
issuer or counterparty to the obligation will fail to perform its contractual
obligations. Certain structured or hybrid notes may also be leveraged to the
extent that the magnitude of any change in the interest rate or principal
payable on the benchmark asset is a multiple of the change in the reference
price. Leverage enhances the price volatility of the security and, therefore,
the fund's net asset value. Further, certain structured or hybrid notes may be
illiquid for purposes of the fund's limitations on investments in illiquid
securities. The fund has no limit on investments in structured or hybrid notes.
However, it is expected that not more than 5% of the fund's net assets will be
at risk as a result of such investments.

Tax-Exempt Securities. The fund is managed without regard to potential tax
consequences. If the adviser believes that tax-exempt securities will provide
competitive returns, The fund may invest up to 10% of its total assets in
tax-exempt securities. The fund's distributions of interest earned from these
investments will be taxable.

Investment Techniques and Related Risks

Strategic Transactions. The fund may, but is not required to, utilize
various investment strategies to seek to hedge market risks (such as interest
rates, currency exchange rates and broad or specific fixed income market
movements), to manage the effective maturity or duration of fixed income
securities, or to seek to enhance potential gain. Such strategies are generally
accepted as part of modern portfolio management and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
used by the fund may change over time as new instruments and strategies are
developed or regulatory changes occur.

In the course of pursuing their investment objectives, the fund may
purchase and sell (write) exchange-listed and OTC put and call options on
securities, equity and fixed-income indices and other financial instruments;
purchase and sell financial futures contracts and options thereon; and enter
into

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<PAGE>

various interest rate transactions such as swaps, caps, floors or collars; and
enter into various currency transactions such as currency forward contracts,
cross-currency futures contracts, currency futures contracts, currency swaps or
options on currencies or currency futures (collectively, all the above are
called "Strategic Transactions"). Strategic Transactions may be used to seek to
protect against possible changes in the market value of securities held in or to
be purchased for the fund's portfolio resulting from securities markets or
currency exchange rate fluctuations, to seek to protect the fund's unrealized
gains in the value of their portfolio securities, to facilitate the sale of such
securities for investment purposes, to seek to manage effective maturity or
duration, or to establish a position in the derivatives markets as a temporary
substitute for purchasing or selling particular securities. In addition to the
hedging transactions referred to in the preceding sentence, Strategic
Transactions may also be used to enhance potential gain in circumstances where
hedging is not involved although the fund will attempt to limit its net loss
exposure resulting from Strategic Transactions entered into for such purposes to
not more than 3% of net assets at any one time to the extent necessary, the fund
will close out transactions in order to comply with this limitation.
(Transactions such as writing covered call options are considered to involve
hedging for the purposes of this limitation.) In calculating the fund's net loss
exposure from such Strategic Transactions, an unrealized gain from a particular
Strategic Transaction position would be netted against an unrealized loss from a
related Strategic Transaction position. For example, if the adviser believes
that short-term interest rates as indicated in the forward yield curve are too
high, the fund may take a short position in a near-term Eurodollar futures
contract and a long position in a longer-dated Eurodollar futures contract.
Under such circumstances, any unrealized loss in the near-term Eurodollar
futures position would be netted against any unrealized gain in the longer-dated
Eurodollar futures position (and vice versa) for purposes of calculating the
fund's net loss exposure.

The ability of the fund to utilize Strategic Transactions successfully
will depend on the adviser's ability to predict pertinent market and interest
rate movements, which cannot be assured. The fund will comply with applicable
regulatory requirements when implementing these strategies, techniques and
instruments. The fund's activities involving Strategic Transactions may be
limited in order to enable the fund to satisfy the requirements of Subchapter M
of the Code for qualification as a regulated investment company.

Risks of Strategic Transactions. Strategic Transactions have risks
associated with them including possible default by the other party to the
transaction, illiquidity and, to the extent the adviser's view as to certain
market or interest rate movements is incorrect, the risk that the use of such
Strategic Transactions could result in losses greater than if they had not been
used. The writing of put and call options may result in losses to the fund,
force the purchase or sale, respectively, of portfolio securities at inopportune
times or for prices higher than (in the case of purchases due to the exercise of
put options) or lower than (in the case of sales due to the exercise of call
options) current market values, limit the amount of appreciation the fund can
realize on its investments or cause the fund to hold a security it might
otherwise sell or sell a security it might otherwise hold. The use of options
and futures transactions entails certain other risks. In particular, the
variable degree of correlation between price movements of futures contracts and
price movements in the related portfolio position of the fund creates the
possibility that losses on the hedging instrument may be greater than gains in
the value of the fund's position. The writing of options could significantly
increase the fund's portfolio turnover rate and, therefore, associated brokerage
commissions or spreads. In addition, futures and options markets may not be
liquid in all circumstances and certain OTC options may have no markets. As a
result, in certain markets, the fund might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use of
futures and options transactions for hedging should tend to minimize the risk of
loss due to a decline in the value of the hedged position, at the same time, in
certain circumstances, they tend to limit any potential gain which might result
from an increase in value of such position. The loss incurred by the fund in
writing options on futures and entering into futures transactions is potentially
unlimited; however, as described above, the fund will attempt to limit its net
loss exposure resulting from Strategic

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<PAGE>

Transactions entered into for non-hedging purposes. Futures markets are highly
volatile and the use of futures may increase the volatility of the fund's net
asset value. Finally, entering into futures contracts would create a greater
ongoing potential financial risk than would purchases of options where the
exposure is limited to the cost of the initial premium. Losses resulting from
the use of Strategic Transactions would reduce net asset value and the net
result may be less favorable than if the Strategic Transactions had not been
utilized.

General Characteristics of Options. Put options and call options typically
have similar structural characteristics and operational mechanics regardless of
the underlying instrument on which they are purchased or sold. Thus, the
following general discussion relates to each of the particular types of options
discussed in greater detail below. In addition, many Strategic Transactions
involving options require segregation of the fund's assets in special accounts,
as described below under "Use of Segregated Accounts."

A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy
(if the option is exercised), the underlying security, commodity, index,
currency or other instrument at the exercise price. For instance, the 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. The fund may purchase a call option
on a security, futures contract, index, currency or other instrument to seek to
protect the fund against an increase in the price of the underlying instrument
that it intends to purchase in the future by fixing the price at which it may
purchase such instrument. An American style put or call option may be exercised
at any time during the option period while a European style put or call option
may be exercised only upon expiration or during a fixed period prior thereto.
The fund is authorized to purchase and sell exchange listed options and OTC
options. Exchange listed options are issued by a regulated intermediary such as
the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.

The 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.

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<PAGE>

OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The fund will
generally sell (write) OTC options that are subject to a buy-back provision
permitting the fund to require the Counterparty to sell the option back to the
fund at a formula price within seven days. OTC options purchased by the fund,
and portfolio securities "covering" the amount of the fund's obligation pursuant
to an OTC option sold by it (the cost of the sell-back plus the in-the-money
amount, if any) are subject to the fund's restriction on illiquid securities,
unless determined to be liquid in accordance with procedures adopted by the
Boards of Trustees. For OTC options written with "primary dealers" pursuant to
an agreement requiring a closing purchase transaction at a formula price, the
amount which is considered to be illiquid may be calculated by reference to a
formula price. The fund expects generally to enter into OTC options that have
cash settlement provisions, although they are not required to do so.

Unless the parties provide for it, there is no central clearing or
guaranty function in an OTC option. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the 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 fund will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New York
as "primary dealers," or broker-dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poors or Moody's or
an equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO") or the debt of which is determined to be of equivalent
credit quality by the adviser.

If the fund sells (writes) a call option, the premium that it receives may
serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the fund's income. The sale (writing) of put options
can also provide income.

The fund may purchase and sell (write) call options on securities
including U.S. Treasury and agency securities, mortgage-backed securities, asset
backed securities, corporate debt securities, equity securities (including
convertible securities) and Eurodollar instruments that are traded on U.S. and
foreign securities exchanges and in the OTC markets, and on securities indices,
currencies and futures contracts. All calls sold by the fund must be covered
(i.e., the fund must own the securities or the futures contract subject to the
call) or must meet the asset segregation requirements described below as long as
the call is outstanding. In addition, the fund may cover a written call option
or put option by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the fund's net exposure on its written
option position. Even though the fund will receive the option premium to help
offset any loss, the fund may incur a loss if the exercise price is below the
market price for the security subject to the call at the time of exercise. A
call sold by the 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.

The fund may purchase and sell (write) put options on securities including
U.S. Treasury and agency securities, mortgage backed securities, asset backed
securities, foreign sovereign debt, corporate

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<PAGE>

debt securities, equity securities (including convertible securities) and
Eurodollar instruments (whether or not it holds the above securities in its
portfolio), and on securities indices, currencies and futures contracts. The
fund will not sell put options if, as a result, more than 50% of the fund's
assets would be required to be segregated to cover its potential obligations
under such put options other than those with respect to futures and options
thereon. In selling put options, there is a risk that the fund may be required
to buy the underlying security at a price above the market price.

Options on Securities Indices and Other Financial Indices. The 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 fund may cover call
options on a securities index by owning securities whose price changes are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities in its
portfolio.

General Characteristics of Futures. The fund may enter into financial
futures contracts or purchase or sell put and call options on such futures.
Futures are generally bought and sold on the commodities exchanges where they
are listed and involve payment of initial and variation margin as described
below. All futures contracts entered into by the fund are traded on U.S.
exchanges or boards of trade that are licensed and regulated by the Commodity
Futures Trading Commission ("CFTC") or on certain foreign exchanges.

The sale of futures contracts creates a firm obligation by the 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 the fund, as
purchaser to purchase a financial instrument at a specific time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position, if the option is exercised.

The fund's use of financial futures and options thereon will in all cases
be consistent with applicable regulatory requirements and in particular the
regulations of the CFTC relating to exclusions from regulation as a commodity
pool operator. Those regulations currently provide that the fund may use
commodity futures and option positions (i) for bona fide hedging purposes
without regard to the percentage of assets committed to margin and option
premiums, or (ii) for other purposes permitted by the CFTC to the extent that
the aggregate initial margin and option premiums required to establish such
non-hedging positions (net of the amount that the positions were "in the money"
at the time of purchase) do not exceed 5% of the net asset value of the fund's
portfolio, after taking into account unrealized profits and losses on such
positions. Typically, maintaining a futures contract or selling an option
thereon requires the fund to deposit, with its custodian for the benefit of a
futures commission merchant, or directly with the futures commission merchant,
as security for its obligations an amount of cash or other specified assets
(initial margin) which initially is typically 1% to 10% of the face amount of
the contract

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<PAGE>

(but may be higher in some circumstances). Additional cash or assets (variation
margin) may be required to be deposited directly with the futures commission
merchant thereafter on a daily basis as the value of the contract fluctuates.
The purchase of an option on financial futures involves payment of a premium for
the option without any further obligation on the part of the fund. If the 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 fund may engage in currency transactions with
Counterparties to seek to hedge the value of portfolio holdings denominated in
particular currencies against fluctuations in relative value or to enhance
potential gain. Currency transactions include currency contracts, exchange
listed currency futures, exchange listed and OTC options on currencies, and
currency swaps. A forward currency contract involves a privately negotiated
obligation to purchase or sell (with delivery generally required) a specific
currency at a future date, which may be any fixed number of days from the date
of the contract agreed upon by the parties, at a price set at the time of the
contract. A currency swap is an agreement to exchange cash flows based on the
notional (agreed upon) difference among two or more currencies and operates
similarly to an interest rate swap, which is described below. The fund may enter
into over-the-counter currency transactions with Counterparties which have
received, combined with any credit enhancements, a long term debt rating of A by
Standard & Poors 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 fund's transactions in forward currency contracts and other currency
transactions such as futures, options, options on futures and swaps will
generally be limited to hedging involving either specific transactions or
portfolio positions. See "Strategic Transactions." Transaction hedging is
entering into a currency transaction with respect to specific assets or
liabilities of the fund, which will generally arise in connection with the
purchase or sale of its portfolio securities or the receipt of income therefrom.
Position hedging is entering into a currency transaction with respect to
portfolio security positions denominated or generally quoted in that currency.

The 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 non-hedging transactions or proxy hedging as
described below.

The 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, the fund may hold a South Korean
government bond 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 fund may also
engage in proxy hedging. Proxy hedging is often used when the currency to which
a fund's portfolio is exposed is difficult to hedge or to hedge against the U.S.
dollar. Proxy hedging entails entering into a forward contract to sell a
currency whose changes in value are generally considered to be linked to a
currency or currencies in which certain of the fund's portfolio

19
<PAGE>

securities are or are expected to be denominated, and to buy U.S. dollars. The
amount of the contract would not exceed the value of the portfolio securities
denominated in linked currencies. For example, if the adviser considers that the
Korean won is linked to the Japanese yen, and a portfolio contains securities
denominated in won and the adviser believes that the value of won will decline
against the U.S. dollar, the adviser may enter into a contract to sell yen and
buy dollars. Proxy hedging involves some of the same risks and considerations as
other transactions with similar instruments. Currency transactions can result in
losses to a fund if the currency being hedged fluctuates in value to a degree or
in a direction that is not anticipated. Further, there is the risk that the
perceived linkage between various currencies may not be present or may not be
present during the particular time that a fund is engaging in proxy hedging. If
the fund enters into a currency hedging transaction, it will comply with the
asset segregation requirements described below.

Risks of Currency Transactions. Currency transactions are subject to risks
different from those of other portfolio transactions. Because currency control
is of great importance to the issuing governments and influences economic
planning and policy, purchases and sales of currency and related instruments can
be negatively affected by government exchange controls, blockages, and
manipulations or exchange restrictions imposed by governments. These can result
in losses to a fund if they are unable to deliver or receive currency or funds
in settlement of obligations and could also cause hedges they have entered into
to be rendered useless, resulting in full currency exposure as well as incurring
transaction costs. Buyers and sellers of currency futures are subject to the
same risks that apply to the use of futures generally. Further, settlement of a
currency futures contract for the purchase of most currencies must occur at a
bank based in the issuing nation. Trading options on currency futures is
relatively new, and the ability to establish and close out positions on such
options is subject to the maintenance of a liquid market which may not always be
available. Currency exchange rates may fluctuate based on factors extrinsic to
that country's economy.

Combined Transactions. The fund may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions, structured notes and any combination of
futures, options 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.

Swaps, Caps, Floors and Collars. Among the Strategic Transactions into
which the fund may enter are interest rate and index swaps and the purchase or
sale of related caps, floors and collars. The fund expects to enter into these
transactions primarily for hedging purposes, including, but not limited to,
preserving a return or spread on a particular investment or portion of the
fund's portfolio, protecting against currency fluctuations, as a duration
management technique or protecting against an increase in the price of
securities the fund anticipates purchasing at a later date. Swaps, caps, floors
and collars may also be used to enhance potential gain in circumstances where
hedging is not involved although, as described above, the fund will attempt to
limit its net loss exposure resulting from swaps, caps, floors and collars and
other Strategic Transactions entered into for such purposes. The fund will
attempt to limit net loss exposure from Strategic Transactions entered into for
non-hedging purposes to not more than 3% of net assets.

The fund will not sell interest rate caps or floors where it does not own
securities or other instruments providing the income stream the fund may be
obligated to pay. Interest rate swaps involve

20
<PAGE>

the exchange by the fund with another party of their respective commitments to
pay or receive interest (i.e., an exchange of floating rate payments for fixed
rate payments with respect to a notional amount of principal). The purchase of a
cap entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.

The fund will usually enter into swaps on a net basis (i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument) with the fund receiving or paying, as the case may
be, only the net amount of the two payments. The fund will not enter into any
swap, cap, floor or collar transaction unless, at the time of entering into such
transaction, the unsecured long-term debt of the Counterparty, combined with any
credit enhancements, is rated at least A by Standard & Poors or Moody's or has
an equivalent rating from an NRSRO or the Counterparty issues debt that is
determined to be of equivalent credit quality by the adviser. If there is a
default by the Counterparty, the fund may have contractual remedies pursuant to
the agreements related to the transaction. The swap market has grown
substantially in recent years with a large number of banks and investment
banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid.
Caps, floors and collars are more recent innovations for which standardized
documentation has not yet been fully developed. Swaps, caps, floors and collars
are considered illiquid for purposes of the fund's policy regarding illiquid
securities, unless it is determined, based upon continuing review of the trading
markets for the specific security, that such security is liquid. The Boards of
Trustees of the Trust have adopted guidelines and delegated to the adviser the
daily function of determining and monitoring the liquidity of swaps, caps,
floors and collars. The Board of Trustees, however, retains oversight focusing
on factors such as valuation, liquidity and availability of information and are
ultimately responsible for such determinations. The Staff of the SEC currently
takes the position that swaps, caps, floors and collars are illiquid, and are
subject to the fund's limitation on investing in illiquid securities.

Risks of Strategic Transactions Outside the United States. The fund may
use strategic transactions to seek to hedge against currency exchange rate
risks. When conducted outside the United States, Strategic Transactions may not
be regulated as rigorously as in the United States, may not involve a clearing
mechanism and related guarantees, and are subject to the risk of governmental
actions affecting trading in, or the prices of, foreign securities, currencies
and other instruments. The value of such positions also could be adversely
affected by: (i) lesser availability than in the United States of data on which
to make trading decisions, (ii) delays in the fund's ability to act upon
economic events occurring in foreign markets during non-business hours in the
United States, (iii) the imposition of different exercise and settlement terms
and procedures and margin requirements than in the United States, (iv) lower
trading volume and liquidity, and (v) other complex foreign political, legal and
economic factors. At the same time, Strategic Transactions may offer advantages
such as trading in instruments that are not currently traded in the United
States or arbitrage possibilities not available in the United States.

Use of Segregated Accounts. The fund will hold securities or other
instruments whose values are expected to offset its obligations under the
Strategic Transactions. The fund will cover Strategic Transactions as required
by interpretive positions of the SEC. The 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. The 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

21
<PAGE>

market value of these securities declines or the fund's obligation 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 the fund's assets could impede portfolio management or the fund's
ability to meet redemption requests or other current obligations.

"When-Issued", "Delayed Delivery" and "Forward Commitment" Securities. The
fund places no limit on investments in when-issued or delayed delivery
securities. Delivery and payment for securities purchased on a when-issued or
delayed delivery basis will normally take place 15 to 45 days after the date of
the transaction. The payment obligation and interest rate on the securities are
fixed at the time that the fund enters into the commitment, but interest will
not accrue to the fund until delivery of and payment for the securities.
Although the fund will only make commitments to purchase "when-issued" and
"delayed delivery" securities with the intention of actually acquiring the
securities, the fund may sell the securities before the settlement date if
deemed advisable by the adviser.

Unless the fund has entered into an offsetting agreement to sell the
securities purchased on a when-issued or forward commitment basis, the fund will
segregate, on its records or with its custodian, cash or liquid obligations with
a market value at least equal to the amount of the fund's commitment. If the
market value of these securities declines, additional cash or securities will be
segregated daily so that the aggregate market value of the segregated securities
is at least equal to the amount of the fund's commitment.

Securities purchased on a "when-issued", "delayed delivery" or "forward
commitment" basis may have a market value on delivery which is less than the
amount paid by the fund. Changes in market value may be based upon the public's
perception of the creditworthiness of the issuer or changes in the level of
interest rates. Generally, the value of "when-issued", "delayed delivery" and
"forward commitment" securities will fluctuate inversely to changes in interest
rates, i.e., they will appreciate in value when interest rates fall and will
depreciate in value when interest rates rise.

Repurchase Agreements. The fund places no limit on investments in
repurchase agreements. A repurchase agreement is an agreement under which the
fund acquires money market instruments (generally U.S. Government securities)
from a commercial bank, broker or dealer, subject to resale to the seller at an
agreed-upon price and date (normally the next business day). The resale price
reflects an agreed-upon interest rate effective for the period the instruments
are held by the fund and is unrelated to the interest rate on the instruments.
The instruments acquired by the fund (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
fund's custodian bank until they are repurchased. In evaluating whether to enter
into a repurchase agreement, the adviser will carefully consider the
creditworthiness of the seller pursuant to procedures reviewed and approved by
the Board of Trustees of the Trust.

The use of repurchase agreements involves certain risks. For example, if
the seller defaults on its obligation to repurchase the instruments acquired by
the fund at a time when their market value has declined, the fund may incur a
loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by the fund are collateral for a loan by the fund and
therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that the fund may not be able to substantiate its interest in the
instruments it acquires. While the trustees acknowledge these risks, it is
expected that they can be controlled through careful documentation and
monitoring.

22
<PAGE>

Forward Roll Transactions. To seek to enhance current income, the fund
places no limit on investments in forward roll transactions involving
mortgage-backed securities. In a forward roll transaction, the fund sells a
mortgage-backed security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase a similar security from
the institution at a later date at an agreed-upon price. The mortgage-backed
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories than those sold. During the period between the
sale and repurchase, the fund will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term instruments, such as repurchase agreements or other short-term
securities, and the income from these investments, together with any additional
fee income received on the sale and the amount gained by repurchasing the
securities in the future at a lower price, will generate income and gain for the
fund which is intended to exceed the yield on the securities sold. Forward roll
transactions involve the risk that the market value of the securities sold by
the fund may decline below the repurchase price of those securities. At the time
that the fund enters into a forward roll transaction, it will place cash or
liquid assets in a segregated account that is marked to market daily having a
value equal to the repurchase price (including accrued interest).

Leverage. The use of forward roll transactions involves leverage. Leverage
allows any investment gains made with the additional monies received (in excess
of the costs of the forward roll transaction) to increase the net asset value of
the fund faster than would otherwise be the case. On the other hand, if the
additional monies received are invested in ways that do not fully recover the
costs of such transactions to the fund, the net asset value of the fund would
fall faster than would otherwise be the case.

Short Sales. The fund may engage in short sales and short sales against
the box. In a short sale, the fund sells a security it does not own in
anticipation of a decline in the market value of that security. In a short sale
against the box, the 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 the 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 segregate cash or liquid assets on its records or in a segregated
account with the fund's custodian that is marked to market daily. Short sales
other than against the box involve unlimited exposure to loss. No securities
will be sold short if, after giving effect to any such short sale, the total
market value of all securities sold short would exceed 5% of the value of the
fund's net assets.

Restricted and Illiquid Securities. The fund may invest up to 15% of its
net assets in illiquid securities. Illiquid securities are those that are not
readily marketable, repurchase agreements maturing in more than seven days, time
deposits with a notice or demand period of more than seven days, certain SMBS,
swap transactions, certain OTC options and certain restricted securities. Based
upon continuing review of the trading markets for a specific restricted
security, the security may be determined to be eligible for resale to qualified
institutional buyers pursuant to Rule 144A under the Securities Act of 1933 and,
therefore, to be liquid. Also, certain illiquid securities may be determined to
be liquid if they are found to satisfy relevant liquidity requirements.

23
<PAGE>

The fund may invest in commercial paper rated P-1 or P-2 by Moody's or A-1
or A-2 by Standard & Poors or Duff-1 or Duff-2 by Duff, or in commercial paper
that is unrated. In determining whether securities are of equivalent quality,
the adviser may take into account, but will not rely entirely on, ratings
assigned by foreign rating agencies.

Temporary Defensive Investments. The fund may maintain cash balances and
purchase money market instruments for cash management and liquidity purposes.
The fund may adopt a temporary defensive position during adverse market
conditions by investing without limit in high quality money market instruments,
including short-term U.S. Government securities, negotiable certificates of
deposit, non-negotiable fixed time deposits, bankers' acceptances, commercial
paper, floating-rate notes and repurchase agreements.

Portfolio Turnover. It is not the policy of the fund to purchase or sell
securities for trading purposes. However, the fund places no restrictions on
portfolio turnover and it may sell any portfolio security without regard to the
period of time it has been held. The fund may therefore generally change its
portfolio investments at any time in accordance with the adviser's appraisal of
factors affecting any particular issuer or market, or the economy in general. A
rate of turnover of 100% would occur if the value of the lesser of purchases and
sales of portfolio securities for a particular year equaled the average monthly
value of portfolio securities owned during the year (excluding short-term
securities). A high rate of portfolio turnover (100% or more) involves a
correspondingly greater amount of brokerage commissions and other costs which
must be borne directly by the fund and thus indirectly by its shareholders. It
may also result in the realization of larger amounts of net short-term capital
gains, distributions of which are taxable to the fund's shareholders as ordinary
income.

Portfolio Diversification and Concentration. The fund is non-diversified
which means that, with respect to 50% of its total assets (i) no more than 5% of
its total assets may be invested in the securities of a single issuer and (ii)
it will purchase no more than 10% of the outstanding voting securities of a
single issuer. Investing a significant amount of the fund's assets in the
securities of a small number of issuers will cause the fund's net asset value to
be more sensitive to events affecting those issuers. The fund will not
concentrate (invest 25% or more of its total assets) in the securities of
issuers in any one industry. The fund's policies concerning diversification and
concentration are fundamental and may not be changed without shareholder
approval.

INVESTMENT RESTRICTIONS

The fund has adopted the following fundamental policies. The fund's
fundamental policies cannot be changed unless the change is approved by the
"vote of a majority of the outstanding voting

24
<PAGE>

securities" of the fund which phrase as used herein means the lesser of (i) 67%
or more of the voting securities of the fund present at a meeting, if the
holders of more than 50% of the outstanding voting securities of the fund are
present or represented by proxy, or (ii) more than 50% of the outstanding voting
securities of the fund.

High Yield Bond Fund

As a matter of fundamental policy, the fund may not:

2. 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 and (iii) in
order to fulfill commitments or plans to purchase additional securities
pending the anticipated sale of other portfolio securities or assets,
except that 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.

25
<PAGE>

a. 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).

b. 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.

c. Purchase the securities of any other investment company except to
the extent permitted by the 1940 Act.

d. Invest more than 15% of its net assets in securities which are
illiquid.

e. Purchase additional securities if the fund's borrowings exceed 5% of
its net assets.

******

Notwithstanding any fundamental or non-fundamental policy, the fund may
invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an open
end management investment company with substantially the same investment
objective as the fund. If any percentage restriction described above is adhered
to at the time of investment, a subsequent increase or decrease in the
percentage resulting from a change in the value of the fund's assets will not
constitute a violation of the restriction.

CALCULATION OF PERFORMANCE DATA

As indicated in the prospectus, the fund may, from time to time, advertise
certain total return and yield information. The average annual total return of
the 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 fund's average annual
total return ("T") is computed by using the redeemable value at the end of a
specified period of time ("ERV") of a hypothetical initial investment of $1,000
("P") over a period of time ("n") according to the formula P(1+T)^n=ERV.

The fund's yield is computed by dividing the net investment income per
share earned during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of the period. For the purpose of
determining net investment income, the calculation includes, among expenses of
the fund, all recurring fees that are charged to all shareholder accounts and
any non-recurring charges for the period stated. In particular, yield is
determined according to the following formula:

26
<PAGE>

Yield = 2[(((A - B)/CD) + 1)^6 - 1]

Where:

The fund may also quote non-standardized yield, such as yield-to-maturity
("YTM"). YTM represents the rate of return an investor will receive if a
long-term, interest bearing investment, such as a bond, is held to its maturity
date. YTM does not take into account purchase price, redemption value, time to
maturity, coupon yield and the time between interest payments.

With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the fund accounts for gain or
loss attributable to actual monthly pay downs as an increase or decrease to
interest income during the period.

In addition, the fund may elect (i) to amortize the discount or premium
remaining on a security, based on the cost of the security, to the weighted
average maturity date, if such information is available, or to the remaining
term of the security, if the weighted average maturity date is not available, or
(ii) not to amortize the discount or premium remaining on a security.

In addition to average annual return quotations, the fund may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis as follows:

These performance quotations should not be considered as representative of
the fund's performance for any specified period in the future. The fund's
performance may be compared in sales literature and advertisements to the
performance of other mutual funds and separately managed discretionary accounts
(including private investment companies) having similar objectives or to
standardized indices or other measures of investment performance. In particular
the fund may compare its performance to the Lehman Brothers High Yield Index
which covers the universe of fixed rate, non-investment grade debt. All bonds
included in the index must be U.S. dollar-denominated and non-convertible.
Pay-in-kind (PIK) bonds, Eurobonds, and debt issues from countries designated as
emerging markets are excluded, but Yankee and global bonds (SEC registered) of
issuers in countries with developed markets are included.

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 the fund's past performance to that of other
mutual funds and investment products. Of course, past performance is not a
guarantee of future results.

MANAGEMENT

Trustees and Officers of the Trust

The Board of Trustees has established the investment objective and
policies which govern the fund's operation. The Board has appointed officers of
the Trust who conduct the day-to-day business of the fund. The Board, however,
remains responsible for ensuring that the fund is operating consistently
according to its objective and policies and requirements of the federal
securities laws. The trustees and

27
<PAGE>

executive officer of the Trust are listed below. All executive officers of the
Trust are affiliates of Standish, Ayer & Wood, Inc.

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation 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 02451 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;
P.O. Box 233 Trustee, Mertens House, Inc.
New London, NH 03257

Thomas P. Sorbo, 1/9/61 Trustee Principal, Director and Chief
c/o Standish, Ayer & Wood, Inc. Operating Officer of Standish,
One Financial Center Ayer & Wood, Inc.; Director of
Boston, MA 02111 Standish International Management
Company, LLC; Trustee and Chief
Operating Officer, SAW Trust

*Edward H. Ladd, 1/3/38 Trustee and Vice Chairman of the Board and
c/o Standish, Ayer & Wood, Inc. President Managing Director, Standish, Ayer
One Financial Center & Wood, Inc.;
Boston, MA 02111 Director of Standish International
Management Company, LLC; Trustee
and Vice President, SAW Trust

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
Beverly, MA 01915 Company; Director, Carter Family
Corporation; Board Member,
Gordon-Conwell Theological
Seminary; Chairman of the Advisory
Board, Salvation Army; Chairman,
Vision New England
</TABLE>

28
<PAGE>

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
*Richard S. Wood, 5/21/54 Trustee and President, Chief Executive Officer
c/o Standish, Ayer & Wood, Inc. Vice President and Managing Director, Standish,
One Financial Center Ayer & Wood, Inc.;
Boston, MA 02111 Executive Vice President and
Director, Standish International
Management Company, LLC; Trustee
and President, SAW Trust

James E. Hollis III, 11/21/48 Executive Vice President Principal and Vice President,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.;
One Financial Center Trustee and Vice President, SAW Trust
Boston, MA 02111

Anne P. Herrmann, 1/26/56 Vice President and Assistant Vice President and
c/o Standish, Ayer & Wood, Inc. Secretary Senior Fund Administration
One Financial Center Manager, Standish, Ayer & Wood, Inc.
Boston, MA 02111

Paul G. Martins, 3/10/56 Vice President and Vice President of Finance,
c/o Standish, Ayer & Wood, Inc. Treasurer Standish, Ayer & Wood, Inc. since
One Financial Center October 1996; formerly Senior Vice
Boston, MA 02111 President, Treasurer and Chief
Financial Officer of Liberty
Financial Bank Group

Beverly E. Banfield, 7/6/56 Vice President Principal, Vice President and
c/o Standish, Ayer & Wood, Inc. Chief Compliance Officer,
One Financial Center Standish, Ayer & Wood, Inc.;
Boston, MA 02111 Trustee and Vice President, SAW Trust

Denise B. Kneeland, 8/19/51 Vice President Vice President and Manager, Mutual
c/o Standish, Ayer & Wood, Inc. Funds Operations,
One Financial Center Standish, Ayer & Wood, Inc.
Boston, MA 02111

Tami M. Pester, 10/29/67 Vice President Assistant Vice President,
c/o Standish, Ayer & Wood, Inc. Assistant Compliance Manager and
One Financial Center Compliance Officer, Standish, Ayer
Boston, MA 02111 & Wood, Inc. since 1998;
Compliance Officer, State Street
Global Advisors

Rosalind J. Lillo, 2/6/38 Vice President Broker/Dealer Administrator
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Deborah Rafferty-Maple, 1/4/69 Vice President Assistant Vice President,
c/o Standish, Ayer & Wood, Inc. Financial Planner and Registered
One Financial Center Investment Networks Marketing
Boston, MA 02111 Manager, Standish, Ayer & Wood, Inc.
</TABLE>

29
<PAGE>

<TABLE>
<CAPTION>
Name, Address and Date of Birth Position Held With Trust Principal Occupation During Past 5 Years
----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Lisa Kane, 6/25/70 Vice President Client Service Professional,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111

Steven M. Anderson, 7/14/65 Vice President Mutual Funds Controller,
c/o Standish, Ayer & Wood, Inc. Standish, Ayer & Wood, Inc. since
One Financial Center April 1, 1998; formerly
Boston, MA 02111 Independent Consultant for Banking
and Financial Services
</TABLE>

* Indicates that trustee is an interested person of the Trust for purposes
of the 1940 Act.

Compensation of Trustees and Officers

The following table sets forth all compensation estimated to be paid to
the Trust's trustees as of the fund's initial fiscal year ending December 31,
2001:

Aggregate Compensation from the Funds

<TABLE>
<CAPTION>
Name of Trustee High Yield Bond Pension or Retirement Total Compensation from Funds and Other
Fund* Benefits Accrued as Funds in Complex**
Part of Funds' Expenses
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Samuel C. Fleming $1,000 $0 $67,125
Benjamin M. Friedman $1,000 $0 $67,125
John H. Hewitt $1,025 $0 $72,525
Edward H. Ladd $0 $0 $0
Caleb Loring, III $1,000 $0 $65,125
Richard S. Wood $0 $0 $0
Thomas P. Sorbo $0 $0 $0
</TABLE>

----------

* Estimated. The fund is newly organized and has not paid any trustees fees.

** As of the date of this Statement of Additional Information there were 28
funds in the fund complex. Total compensation is presented for the calendar year
ended December 31, 1999.

Investment Adviser.

30
<PAGE>

Sorbo, Ralph S. Tate, and Richard S. Wood. All of the outstanding stock of
Standish is owned by SAW Trust, a Massachusetts business trust. SAW Trust is
owned entirely by its thirty-seven trustees, all of whom are officers of
Standish. Nine of the thirty-seven trustees are the Directors of Standish listed
above. The remaining seventeen trustee/shareholders are: Beverly E. Banfield,
Katherine S. Bowes, Karen K. Chandor, Lavinia B. Chase, Susan B. Coan, W.
Charles Cook, Joseph M. Corrado, Richard R. Davis, Richard C. Doll, Dolores S.
Driscoll, Steven L. Gold, James E. Hendrickson, James E. Hollis III, David M.
Horsfall, Edward H. Ladd, Phillip D. Leonardi, Laurence A. Manchester, Nevin G.
Markwart, John R. McNichols, Jennifer A. Pline, Catherine A. Powers, Christine
H. Psyhogeos, Austin C. Smith, Marc P. Seidner, David C. Stuehr, Ellen K.
Thurmond, Michael W. Thompson and Edward R. Walter. All of the
trustee/shareholders of SAW Trust are Standish controlling persons.

Subject to the supervision and direction of the trustees of the Trust, the
adviser recommends investment decisions and, places orders to purchase and sell
securities for the fund. In addition to those services, the adviser provides the
fund with office space for managing its affairs, with the services of required
executive personnel, and with certain clerical services and facilities. Under
the investment advisory agreement, the adviser is paid a fee at the rate of
0.40% of the fund's average daily net asset value. The advisory fee is payable
monthly. Since the fund expects to commence operations on January 1, 2001, it
did not pay advisory fees during the last three years.

Pursuant to the investment advisory agreement, the fund bears expenses of
its operations other than those incurred by the adviser pursuant to the
investment advisory agreement. Among other expenses, the fund will pay share
pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of prospectuses,
statements of additional information and shareholder reports; registration and
reporting fees and expenses; and trustees' fees and expenses.

Unless terminated as provided below, the investment advisory agreement
continues in full force and effect for an initial two year period and thereafter
from year to year but only so long as each such continuance is approved annually
(i) by the trustees of the Trust or by the "vote of a majority of the
outstanding voting securities" of the fund, and, in either event (ii) by vote of
a majority of the trustees of the Trust who are not parties to the investment
advisory agreement or "interested persons" (as defined in the 1940 Act) of any
such party, cast in person at a meeting called for the purpose of voting on such
approval. The investment advisory agreement may be terminated at any time
without the payment of any penalty by vote of the trustees of the Trust or by
the "vote of a majority of the outstanding voting securities" of the fund or by
the adviser, on sixty days' written notice to the other parties. The investment
advisory agreement terminates in the event of its assignment as defined in the
1940 Act.

In an attempt to avoid any potential conflict with portfolio transactions
for the fund, the Trust, the adviser and the Principal Underwriter have each
adopted a Code of Ethics which are designed to maintain a high standard of
personal conduct by directing that all personnel place the interests of the fund
and its shareholders ahead of their own when effecting personal securities
transactions. While the codes do permit personnel to invest in securities for
their own accounts, the codes impose extensive restrictions on personal
securities trading including the pre-clearance of all personal securities
transactions and a prohibition of purchasing during initial public offerings of
securities. Each code is on public file with, and is available from, the SEC.

Distributor of the Fund

31
<PAGE>

Trust, to solicit and accept orders for the purchase of the fund's 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 fund's 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 the 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 the 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, with respect to
the fund, by a vote of the holders of a majority of the applicable fund's
outstanding shares, in any case without payment of any penalty on not more than
60 days' written notice to the other party. The offices of Standish Fund
Distributors are located at One Financial Center, 26th Floor, Boston,
Massachusetts 02111.

PURCHASE AND REDEMPTION OF SHARES

Detailed information on purchase and redemption of shares is included in
the prospectus.

In addition to Standish Fund Distributors and other agents of the Trust,
the 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 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 fund purchased through authorized brokers and dealers
may be subject to transaction fees on purchase or redemption, no part of which
will be received by the fund, 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 the fund of
securities owned by it or determination by the 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.

32
<PAGE>

PORTFOLIO TRANSACTIONS

The adviser is responsible for placing the fund's portfolio transactions
and will do so in a manner deemed fair and reasonable to the fund 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 respective fund. 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, a fund 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, (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 fund effects its 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 funds generating the soft dollar credits. The investment
advisory fees paid by the funds 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
fund 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 fund.
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. To the extent permitted by law,
securities to be sold or purchased for the fund may be aggregated with those to
be sold or purchased for other investment clients of the adviser and the
adviser's personnel in order to obtain best execution.

Because most of the fund's securities transactions will be effected on a
principal basis involving a "spread" or "dealer mark-up," the fund does not
expect to pay any brokerage commissions.

DETERMINATION OF NET ASSET VALUE

The fund's net asset value is calculated each business day on which the
New York Stock Exchange is open. Currently, the New York Stock Exchange 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. The net asset value of the fund's shares is determined as of the
close of regular trading on the New York Stock Exchange (normally 4:00 p.m., New
York time). If the New York Stock Exchange closes early, the calculation of net
asset value will be accelerated to the actual closing time. Net asset value is
computed by dividing the value of all securities and other assets of the fund
less all liabilities by the number of shares outstanding, and adjusting to the
nearest cent per share.

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<PAGE>

Expenses and fees, including the investment advisory fee, are accrued daily and
taken into account for the purpose of determining net asset value.

Money market instruments with less than sixty days remaining to maturity
when acquired by the fund are valued on an amortized cost basis. If the fund
acquires a money market instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day prior to
maturity and will then be valued at amortized cost based upon the value on such
date unless the trustees determine during such sixty-day period that amortized
cost does not represent fair value.

THE FUND AND ITS SHARES

The 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 the fund. Each
share 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 the 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. Pursuant to the Declaration of Trust and subject to
shareholder approval (if then required by applicable law), the trustees may
authorize the fund to invest all of its investible assets in a single open-end
investment company that has substantially the same investment objectives,
policies and restrictions as the fund.

All fund shares have equal rights with regard to voting, and shareholders
of the fund have the right to vote as a separate class with respect to matters
as to which their interests are not identical to those of shareholders of other
classes of the Trust, including the approval of an investment advisory contract
and any change of investment policy requiring the approval of shareholders.

Under Massachusetts law, shareholders of the Trust could, under certain
circumstances, be held liable for the obligations of the Trust. However, the
Agreement and Declaration of Trust disclaims

34
<PAGE>

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.

TAXATION

Each series of the Trust, including the fund, is treated as a separate
entity for U.S. federal income tax purposes. The fund presently has elected to
be treated, has qualified and intends to continue to qualify as a "regulated
investment company" under Subchapter M of the Code. As such and by complying
with the applicable provisions of the Code regarding the sources of its income,
the timely distributions of its income to its shareholders, and the
diversification of its assets, the fund will not be subject to U.S. federal
income tax on its investment company taxable income and net capital gain which
are distributed to shareholders.

In order to qualify as a regulated investment company under Subchapter M,
the fund must, among other things, derive at least 90% of its gross income for
each taxable year from dividends, interest, payments with respect to securities
loans, gains from the sale or other disposition of stock, securities or foreign
currencies, or other income (including gains from options, futures and forward
contracts) derived with respect to its business of investing in such stock,
securities or currencies (the "90% Income Test") and satisfy certain annual
distribution and quarterly diversification requirements.

The fund will be subject to a 4% non deductible federal excise tax on a
portion of its undistributed ordinary income and capital gains if it fails to
meet certain distribution requirements with respect to each calendar year. The
fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements in a timely manner. Certain
distributions made in order to satisfy the Code's distribution requirements may
be declared by the fund as of a record date in October, November or December of
the year but paid during the following January. Such distributions will be
treated for federal income tax purposes as received by shareholders as if
received on December 31 of the year in which the distributions are declared,
rather than the year in which the distributions are received.

For U.S. federal income tax purposes, all dividends are taxable whether a
shareholder takes them in cash or reinvests them in additional shares in the
fund. Dividends from investment company taxable income, which includes net
investment income and net short-term capital gain in excess of net long-term
capital loss are treated as ordinary income. Dividends from net long-term
capital gain in excess of net short-term capital loss ("net capital gain"), if
any, are treated as long-term capital gain for federal income tax purposes
without regard to the length of time shares of the fund have been held.

If, as anticipated, the fund continues to qualify as regulated investment
company under the Code, the fund will not be required to pay any Massachusetts
income, corporate excise or franchise taxes.

The 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 U.S. federal income tax purposes, a fund is

35
<PAGE>

If the fund invests in certain pay-in-kind securities, zero coupon
securities, deferred interest securities or, in general, other securities with
original issue discount (or with market discount if the fund elects to include
market discount in income currently), the fund must accrue income on such
investments for each taxable year, which generally will be prior to the receipt
of the corresponding cash payments. However, the fund must distribute, at least
annually, all or substantially all of its net income to shareholders to qualify
as a regulated investment company under the Code and avoid U.S. federal income
and excise taxes. Therefore, the fund may have to dispose of its portfolio
securities under disadvantageous circumstances to generate cash, or may have to
leverage itself by borrowing the cash, to satisfy the distribution requirements.

Certain options, futures contracts or currency forward transactions
entered into by the fund may cause the fund to recognize gains or losses from
marking-to-market even though such options may not have lapsed, been closed out
or exercised or such futures or forward contracts may not have been performed or
closed out. The tax rules applicable to these contracts may affect the
characterization of some capital gains and losses realized by a fund as
long-term or short-term. Certain options and futures may be subject to Section
988 of the Code, as described below, and may accordingly produce ordinary income
or loss. Additionally, a fund may be required to recognize gain if an option,
futures contract, 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
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 a fund may receive no
corresponding cash amounts, possibly requiring the disposition of portfolio
securities or borrowing to obtain the necessary cash. Also, losses on certain
options, futures or forward contracts and/or offsetting positions (portfolio
securities or other positions with respect to which a fund's risk of loss is
substantially diminished by one or more options, futures or forward contracts)
may also be deferred under the tax straddle rules of the Code, which may also
affect the characterization of capital gains or losses from straddle positions
and certain successor positions as long-term or short-term. Certain tax
elections may be available that would enable the fund to ameliorate some adverse
effects of the tax rules described in this paragraph. The tax rules applicable
to options, futures or forward contracts and straddles may affect the amount,
timing and character of the fund's distributions to shareholders. The 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, dollar rolls and interest rate swaps, caps, floors and collars are
unclear in certain respects, and the fund will limit its transactions in these
instruments so that each can account for these instruments in a manner that is
intended to allow the fund to continue to qualify as a regulated investment
company. Due to possible unfavorable consequences under present tax law, the
fund does not currently intend to acquire "residual" interests in real estate
mortgage investment conduits ("REMICs"), although the funds may acquire
"regular" interests in REMICs.

Foreign exchange gains and losses realized by a fund or Portfolio in
connection with certain transactions, if any, involving foreign
currency-denominated debt securities, certain foreign currency futures and
options, foreign currency forward contracts, foreign currencies, or payables or
receivables denominated in a foreign currency are subject to Section 988 of the
Code, which generally causes such gains and losses to be treated as ordinary
income and losses and may affect the amount, timing and character of fund
distributions to shareholders. Under future regulations, any such transactions
that are

36
<PAGE>

not directly related to the fund's investment in stock or securities, (or the
options or futures contracts with respect to stock or securities) may have to be
limited in order to enable the fund to satisfy the 90% income test. If the net
foreign exchange loss for a year were to exceed a fund's investment company
taxable income (computed without regard to such loss), the resulting ordinary
loss for such year would not be deductible by the funds or their shareholders in
future years.

In some countries, restrictions on repatriation may make it difficult or
impossible for the fund 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.

The fund may be subject to withholding and other taxes imposed by foreign
countries, including taxes on interest, dividends and capital gains, with
respect to their investments in foreign securities, which would, if imposed,
reduce the yield on or return from those investments. Tax conventions between
certain countries and the U.S. may reduce or eliminate such taxes in some cases.
Investors in the 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 fund's total 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.

The fund may meet the 50% threshold referred to in the previous paragraph
for a year and, if it does, it may 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 and
distributions 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.

Qualified foreign taxes generally include taxes that would be treated as
income taxable under U.S. tax regulations but do not include most other taxes,
such as stamp taxes, securities transaction taxes and similar taxes. If the fund
makes this election, shareholders may then deduct such pro rata portions of
qualified foreign taxes in computing their taxable incomes, or, alternatively,
use them as foreign tax credits, subject to applicable holding period
requirements and other limitations, against their U.S. federal income taxes.
Shareholders who do not itemize deductions for federal income tax purposes will
not, however, be able to deduct their pro rata portion of qualified foreign
taxes paid by the fund, although such shareholders will be required to include
their share of such taxes in gross income. Shareholders who claim a foreign tax
credit for such foreign taxes may be required to treat a portion of dividends
received from the applicable fund as a separate category of income for purposes
of computing the limitations on the foreign tax credit. Tax exempt shareholders
will ordinarily not benefit from this election. Each year (if any) that the 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 the fund acquires any equity interest (including, under future
regulations, not only stock but also 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 fund could be subject to federal income tax and
additional interest charges on "excess distributions" actually or constructively
received from such companies or on gain from the actual or deemed sale of stock
in such companies, even if all income or gain actually realized by the fund is
timely distributed to its shareholders. The fund would not be able to pass
through to its shareholders any credit or deduction for such a tax. Certain
elections may, if available, ameliorate these adverse tax consequences, but any
such election would require the fund to

37
<PAGE>

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 fund may limit
and/or manage its holdings, if any, in passive foreign investment companies to
limit the fund's tax liability or maximize its return from these investments.

Investment in debt obligations by the fund that are at risk of or in
default presents special tax issues for the fund. Tax rules are not entirely
clear about issues such as when the fund may cease to accrue interest, original
issue discount, or market discount, when and to what extent deductions may be
taken for bad debts or worthless securities, how payments received on
obligations in default should be allocated between principal and income, and
whether exchanges of debt obligations in a workout context are taxable. These
and other issues will be addressed by the fund, in the event that it invests in
such securities, in order to seek to ensure that the fund distributes sufficient
income to preserve its status as a regulated investment company and does not
become subject to U.S. federal income or excise tax.

The fund's distributions to its corporate shareholders would potentially
qualify in their hands for the corporate dividends received deduction, subject
to certain holding period requirements and limitations on debt financing under
the Code, only to the extent a fund earned dividend income from stock
investments in U.S. domestic corporations. The fund is permitted to acquire
stocks of U.S. domestic corporations, and it is therefore possible that a small
portion of the fund's distributions, from the dividends attributable to such
stocks, may qualify for the dividends received deduction. Such qualifying
portion, if any, may affect a corporate shareholder's liability for alternative
minimum tax and/or result in basis reductions and other consequences in certain
circumstances.

At the time of an investor's purchase of fund shares, a portion of the
purchase price may be attributable to undistributed taxable income and/or
realized or unrealized appreciation in the fund's portfolio. Consequently,
subsequent distributions by the fund with respect to 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 the 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 or other
disposition may be disallowed under "wash sale" rules to the extent the shares
disposed of are replaced with other shares of the same fund (including those
made pursuant to reinvestment of dividends and/or capital gain distributions)
within a period of 61 days beginning 30 days before and ending 30 days after a
redemption or other disposition of the shares. In such a case, the disallowed
portion of the loss generally would be included in the federal tax basis of the
shares acquired. Any loss realized upon the redemption or other disposition 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.

38
<PAGE>

The foregoing discussion relates solely to U.S. federal income tax law
consequences for shareholders who are U.S. persons, i.e., U.S. citizens or
residents and U.S. domestic corporations, partnerships, trusts or estates, and
who are subject to U.S. federal income tax. The discussion does not address
special tax rules applicable to certain types of investors, such as tax-exempt
or tax-deferred plans, accounts or entities, insurance companies, financial
institutions, and securities dealers. 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, the 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,
as well as the Federal, and any other state or local, tax consequences of
ownership of shares of, and receipt of distributions from, the fund in their
particular circumstances.

Federal law requires that the fund withhold (as "backup withholding") 31%
of reportable payments, including dividends, capital gain distributions and the
proceeds of redemptions or repurchases of fund shares paid to shareholders who
have not complied with IRS regulations. In order to avoid this withholding
requirement shareholders must certify on their Account Purchase Applications, or
on separate IRS Forms W-9, that the Social Security Number or other Taxpayer
Identification Number they provide is their correct number and that they are not
currently subject to backup withholding, or that they are exempt from backup
withholding. The fund may nevertheless be required to withhold if it receives
notice from the IRS or a broker that the number provided is incorrect or backup
withholding is applicable as a result of previous underreporting of interest or
dividend income.

ADDITIONAL INFORMATION

The fund's 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 Commission or by accessing the SEC's Web site at
http://www.sec.gov.

EXPERTS AND FINANCIAL STATEMENTS

The fund's financial statements for the fiscal year ending December 31,
2001 will be audited by PricewaterhouseCoopers LLP.

39
<PAGE>

APPENDIX

MOODY'S RATINGS DEFINITIONS FOR
CORPORATE BONDS AND SOVEREIGN,
SUBNATIONAL AND SOVEREIGN
RELATED ISSUES

STANDARD & POOR'S RATINGS
DEFINITIONS

AAA - Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.

AA - Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.

40
<PAGE>

STANDARD & POOR'S
CHARACTERISTICS OF SOVEREIGN DEBT
OF FOREIGN COUNTRIES

AAA - Stable, predictable governments with demonstrated track record of
responding flexibly to changing economic and political circumstances

Key players in the global trade and financial system:

- Prosperous and resilient economies, high per capita incomes
- Low fiscal deficits and government debt, low inflation
- Low external debt.

AA - Stable, predictable governments with demonstrated track record of
responding to changing economic and political circumstances

A - Politics evolving toward more open, predictable forms of governance in
environment of rapid economic and social change

- Established trend of integration into global trade and financial
system
- Economies are smaller, less prosperous and generally more vulnerable
to adverse external influences (e.g., protection and terms of trade
shocks), but
- Usually rapid growth in output and per capita incomes - Manageable
through variable fiscal deficits, government debt and inflation
- Usually low but variable debt

41
<PAGE>

BBB - Political factors a source of significant uncertainty, either
because system is in transition or due to external threats, or both, often in
environment of rapid economic and social change

BB - Political factors a source of major uncertainty, either because
system is in transition or due to external threats, or both, often in
environment of rapid economic and social change

DESCRIPTION OF DUFF & PHELPS

RATINGS FOR CORPORATE BONDS AND
FOR SOVEREIGN, SUBNATIONAL AND
SOVEREIGN RELATED ISSUERS

AAA - Highest credit quality. The risk factors are negligible, being only
slightly more than for risk-free U.S. Treasury debt.

AA - High credit quality. Protection factors are strong. Risk is modest
but may vary slightly from time to time because of economic conditions.

A - Protection factors are average but adequate. However, risk factors are
more variable and greater in periods of economic stress.

BBB - Below average protection factors but still considered sufficient for
prudent investment. Considerable variability in risk during economic cycles.

42
<PAGE>

FITCH IBCA INTERNATIONAL
LONG-TERM CREDIT RATING
DEFINITIONS

FITCH IBCA LONG-TERM RATINGS FOR
NATIONAL ISSUES

43
<PAGE>

44
<PAGE>

PART C

OTHER INFORMATION

Item 24. Exhibits

(a) Agreement and Declaration of Trust dated
August 13, 1986***

(a1) Certificate of Designation of Standish Fixed Income Fund***

(a2) Certificate of Designation of Standish International Fund***

(a3) Certificate of Designation of Standish Securitized Fund***

(a4) Certificate of Designation of Standish Short-Term Asset Reserve
Fund***

(a5) Certificate of Designation of Standish Marathon Fund***

(a6) Certificate of Amendment dated November 21, 1989***

(a7) Certificate of Amendment dated November 29, 1989***

(a8) Certificate of Amendment dated April 24, 1990***

(a9) Certificate of Designation of Standish Equity Fund***

(a10) Certificate of Designation of Standish International Fixed Income
Fund***

(a11) Certificate of Designation of Standish Intermediate Tax Exempt Bond
Fund***

(a12) Certificate of Designation of Standish Massachusetts Intermediate
Tax Exempt Bond Fund***

(a13) Certificate of Designation of Standish Global Fixed Income Fund***

(a14) Certificate of Designation of Standish Controlled Maturity Fund and
Standish Fixed Income Fund II***

(a15) Certificate of Designation of Standish Tax-Sensitive Small Cap
Equity Fund and Standish Tax-Sensitive Equity Fund***

(a16) Form of Certificate of Designation of Standish Equity Asset Fund,
Standish Small Capitalization Equity Asset Fund, Standish Fixed
Income Asset Fund and Standish Global Fixed Income Asset Fund***

(a17) Form of Certificate of Designation of Standish Small Capitalization
Equity Fund II***
<PAGE>

(a18) Certificate of Designation of Standish Small Capitalization Equity
Asset Fund II, Standish Diversified Income Fund, Standish
Diversified Income Asset Fund*

(a19) Form of Certificate of Designation of Institutional Shares and
Service Shares of Standish Small Capitalization Equity Fund II and
Standish International Fixed Income Fund****

(a20) Form of Certificate of Designation of Standish International Fixed
Income Fund II*****

(a21) Certificate of Designation of Standish Small Cap Value Fund and
Standish International Small Cap Fund******

(a22) 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#

(a23) Amendment to the Agreement and Declaration of Trust dated March 4,
1999*****

(b) Bylaws of the Registrant***

(d1) Form of Investment Advisory Agreement between Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International
Fund***

(d2) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Securitized Fund***

(d3) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Fixed Income
Fund***

(d4) Assignment of Investment Advisory Agreement between the Registrant
and Standish, Ayer & Wood, Inc. relating to Standish International
Fixed Income Fund***

(d5) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Intermediate Tax
Exempt Bond Fund***

(d6) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Massachusetts Intermediate
Tax Exempt Bond Fund***

(d7) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Controlled Maturity Fund***

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<PAGE>

(d8) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Fixed Income Fund II***

(d9) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Small Cap
Tax-Sensitive Equity Fund***

(d10) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Tax-Sensitive
Equity Fund***

(d11) Form of Assignment of Investment Advisory Agreement***

(d12) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish International Fixed
Income Fund II*****

(d13) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Small Cap Value Fund******

(d14) Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish International Small Cap
Fund******

(d15) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Crossover Bond
Fund#

(d16) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Opportunistic High
Yield Fund#

(d17) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish Opportunistic
Emerging Markets Debt Fund#

(d18) Form of Investment Advisory Agreement between the Registrant and
Standish, Ayer & Wood, Inc. relating to Standish High Yield Bond
Fund#

(e1) Underwriting Agreement between the Registrant and Standish Fund
Distributors, L.P.***

(f) Not applicable

(g1) Master Custody Agreement between the Registrant and Investors Bank &
Trust Company***

(g2) Custody Agreement between Registrant with respect to Standish
International Equity Fund and Morgan Stanley Company***

(g3) Master Custody Agreement between the Registrant and Morgan Stanley
Trust Company***

(h1) Transfer Agency and Service Agreement between the Registrant and
Investors Bank & Trust Company***

-3-
<PAGE>

(h2) Most recently dated/filed revised Exhibit A to Transfer Agency and
Service Agreement between the Registrant and Investors Bank & Trust
Company*****

(h3) Master Administration Agreement between the Registrant and Investors
Bank & Trust Company***

(h4) Form of Administrative Services Agreement between Standish, Ayer &
Wood, Inc. and the Registrant***

(h5) Most recently dated/filed revised Exhibit A to Administrative
Services Agreement between Standish, Ayer & Wood, Inc. and the
Registrant***

(h6) Form of Service Plan relating to Standish Small Capitalization
Equity Fund II and Standish International Fixed Income Fund****

(i) Opinion and Consent of Counsel for the Registrant**

(j) Consent of Independent Public Accountants for the Registrant#

(k) Not applicable

(l) Not applicable

(m) Not applicable

(n) Not applicable

(o) Multiple Class Plan pursuant to Rule 18f-3 relating to Standish
Small Capitalization Equity Fund II and Standish International Fixed
Income Fund****

(p1) Code of Ethics for Standish, Ayer & Wood Investment Trust and
Standish, Ayer & Wood Master Portfolio*******

(p2) Code of Ethics for Standish, Ayer & Wood, Inc., Standish
International Management Company, LLC and Standish Fund
Distributors, L.P.*******

(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)^

-4-
<PAGE>

(q8) Power of Attorney for Registrant (Paul G. Martins)**

(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)+

(q11) Power of Attorney for Portfolio Trust (Paul G. Martins)**

--------------------
^ Filed as an exhibit to Registration Statement No. 33-8214 and
incorporated herein by reference thereto.
+ Filed electronically as an exhibit to Registration Statement No.
811-07603 and incorporated herein by reference thereto.
* Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 81) and incorporated herein
by reference thereto.
** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 82) and incorporated herein
by reference thereto.
*** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 88) and incorporated by
reference thereto.
**** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 91) and incorporated by
reference thereto.
***** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post-Effective Amendment No. 93) and incorporated by
reference thereto.
****** Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post Effective Amendment No. 94) and incorporated by
reference thereto.
******* Filed electronically as an exhibit to Registration Statement No.
33-8214 (Post Effective Amendment No. 98) and incorporated by
reference thereto.
# Filed herewith.

Item 24. Persons Controlled by or under Common Control with Registrant

No person is directly or indirectly controlled by or under common control with
the Registrant.

Item 25. Indemnification

Under the Registrant's Agreement and Declaration of Trust, any past or present
Trustee or officer of the Registrant is indemnified to the fullest extent
permitted by law against liability and all expenses reasonably incurred by him
in connection with any action, suit or proceeding to which he may be a party or
is otherwise involved by reason of his being or having been a Trustee or officer
of the Registrant. The Agreement and Declaration of Trust of the Registrant does
not authorize indemnification where it is determined, in the manner specified in
the Declaration, that such Trustee or officer has not acted in good faith in the
reasonable belief that his actions were in the best interest of the Registrant.
Moreover, the Declaration does not authorize indemnification where such Trustee
or officer is liable to the Registrant or its shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of his or her
duties.

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<PAGE>

Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to Trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that, in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a Trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by any such
Trustee, officer or controlling person against the Registrant in connection with
the securities being registered, and the Commission is still of the same
opinion, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification is against public policy
as expressed in the Act and will be governed by the final adjudication of such
issue.

Item 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;

(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 Equity 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 Equity 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

Name with Underwriter with Registrant
---- ---------------- ---------------

James E. Hollis, III Chief Executive Officer Vice President

Beverly E. Banfield Chief Operating Officer Vice President

The General Partner of Standish Fund Distributors, L.P. is Standish, Ayer &
Wood, Inc.

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 13th day of October, 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 October 13, 2000
------------------------ (principal executive officer)
Richard S. Wood

Paul G. Martins* Treasurer (principal October 13, 2000
------------------------- financial and accounting
Paul G. Martins officer)

D. Barr Clayson* Trustee October 13, 2000
------------------------
D. Barr Clayson

Samuel C. Fleming* Trustee October 13, 2000
------------------------
Samuel C. Fleming

Benjamin M. Friedman* Trustee October 13, 2000
------------------------
Benjamin M. Friedman

John H. Hewitt* Trustee October 13, 2000
------------------------
John H. Hewitt

Edward H. Ladd* Trustee October 13, 2000
------------------------
Edward H. Ladd

Caleb Loring III* Trustee October 13, 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 13th day
of October, 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 October 13, 2000
------------------------ (principal executive officer)
Richard S. Wood

Paul G. Martins* Treasurer (principal October 13, 2000
------------------------- financial and accounting
Paul G. Martins officer)

D. Barr Clayson* Trustee October 13, 2000
------------------------
D. Barr Clayson

Samuel C. Fleming* Trustee October 13, 2000
------------------------
Samuel C. Fleming

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<PAGE>

Benjamin M. Friedman* Trustee October 13, 2000
------------------------
Benjamin M. Friedman

John H. Hewitt* Trustee October 13, 2000
------------------------
John H. Hewitt

Edward H. Ladd* Trustee October 13, 2000
------------------------
Edward H. Ladd

Caleb Loring III* Trustee October 13, 2000
------------------------
Caleb Loring III

*By: /s/ Richard S. Wood
----------------------
Richard S. Wood
Attorney-In-Fact

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<PAGE>

EXHIBIT INDEX

Exhibit

(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.

(d15) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Crossover Bond Fund.

(d16) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Opportunistic High Yield Fund.

(d17) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish Opportunistic Emerging Markets Debt
Fund.

(d18) Form of Investment Advisory Agreement between the Registrant and Standish,
Ayer & Wood, Inc. relating to Standish High Yield Bond Fund.

(j) Consent of Independent Public Accountants for the Registrant

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