Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Statements for the Period Ended
September 30, 1997
[LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Chairman's Message
October 31, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
Enclosed you will find the annual statement for the Standish Small Cap Fund II.
Please note that it is a nine-month reporting period for the fiscal year ended
September 30, 1997, as the fund has changed its fiscal year end from December to
September in order to streamline our reporting process.
As of September 1997, Standish, Ayer & Wood managed assets for its clients of
approximately $36.7 billion, including the Standish mutual fund assets of $5.3
billion. The principal clients of the firm are corporate pension trusts, state
and local governmental units, insurance companies, endowments and foundations,
and high net worth individuals. the firm remains independent and is owned by
investment professionals active in the operation of the business.
During the nine months ended September 30, 1997, the financial markets have
generally registered very positive rates of return. The U.S. equity markets as
measured by the Standard & Poor's 500 Index or the Russell 2000 Growth Index
have recorded total rates of return of 29.64% and 23.02%, respectively. Foreign
equity markets, as benchmarked by the Morgan Stanley Capital International
Index, have lagged behind these strong domestic returns with a return of 10.42%.
During the year ended September 30, 1997, we at Standish have continued to add
resources to both investment research and shareholder servicing. We remain
confident that we have the resources and the organization to do a superior
investment management job, and we will be working hard to fulfill your
expectations in the years ahead. We appreciate the opportunity to serve you and
hope you will find the attached information helpful.
Sincerely yours,
/s/ Edward H. Ladd
Edward H. Ladd
Chairman
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Management Discussion & Analysis
The strong performance in small cap stocks which began with a bang in May has
continued to date. We are pleased to report that 1997 is turning out to be an
excellent year for small cap stocks after all. For the period from January 1
through September 30, the Standish Small Capitalization Equity Fund II gained
42.94%, compared to a gain of 23.02% for the Russell 2000 Growth Index, and a
gain of 26.61% for the Russell 2000 Index.
Small caps had been performing poorly for the past four years, with some notable
sharp rallies as exceptions. Currently, there is some evidence that the tone of
the market is more favorable for these stocks. The key to this shift apparently
is in earnings and valuation. Small caps have been improving in terms of
earnings growth and propensity to positively surprise analysts' estimates. In
addition, their price/earnings multiples on average compare well to those of
large cap stocks. Large cap stock earnings are more in question now because of
the age of this business cycle and the challenge of repatriating foreign
earnings that must be translated into a very strong U.S. currency. Large cap
valuations appear extended, and it may be that investors are taking some profits
and marginally gravitating to small cap stocks. It would take very little
increased attention from institutional managers to have a noticeable impact on
small cap stocks. In a marketplace which has been very generous to shareholders,
we believe that the best part of this cycle has been experienced, but prospects
for small caps are still good for the longer term.
The first nine months of 1997 has been again a volatile period for small cap
stocks. After a strong January the stocks languished badly through April, with a
very strong rally beginning in May and continuing to date. Our investments are
oriented toward rapidly growing, high quality companies at the smaller end of
the small cap spectrum, and this has presented a performance challenge for the
last two years. In recent months smallness seems to have ceased as a negative.
Also this has been a better year for value investors compared to growth, and we
are decidedly in the higher growth camp. This past trend again has moderated in
recent months. Our most important value-addition this year has been from stock
selection, while our sector emphasis a neutral influence. While we were helped
by growth sector emphasis in technology in particular, it was offset by the
strong performance in financial stocks, and more recently in the traditionally
cyclical industries; areas in which we typically have very few investments. As a
reminder, our high growth orientation leads us to heavier commitments in the
technology, medical, and business services sectors, with comparatively fewer
investments in the slower growth areas of the economy. We generally seek to
invest in the highest quality companies, and we select stocks based on earnings
and margin dynamics, business position analysis, and an evaluation of
management.
We are very pleased to announce the addition of Jonathan Stone to the Standish
Small Cap Team. Jonathan joins Drew Beja, Melissa Dane and me after several
years as an effective and distinguished analyst with a regional research and
brokerage firm where he covered technology stocks. He is an experienced,
seasoned analyst who has already had considerable impact in stock selection as
well as portfolio management. He is clearly an important addition to our
capabilities.
In closing, it is important to remind you of the volatility of small cap
investments, where we do not expect a diminution of this volatility in the
future. We remain, however, optimistic about the outlook for small cap stocks
and view the category as having important potential over the long term. We are
very appreciative of your support and thank you for your interest in the
Standish Small Capitalization Equity Fund II.
Sincerely,
/s/ Nicholas S. Battelle /s/ Andrew L. Beja
Nicholas S. Battelle Andrew L. Beja
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Comparison of Change in Value of $100,000 Investment in
Standish Samll Fund II,
the S&P 500 Index, the Russell 2000 Index, and the Russell 2000 Growth Index
[GRAPHIC OMITTED]
[The following table was represented as a line graph in the printed materials.]
Standish Small
Capitalization Russell S&P 500 Russell 2000
Equity Fund II 2000 Index Index Growth Index
-------------- ---------- ----- ------------
Inception 12/23/96 100000 100000 100000 100000
12/31/96 101900 102020 99170 102396
1/31/97 106850 104061 105369 104954
2/28/97 98950 101538 106195 98616
3/31/97 93000 96746 101831 91656
4/30/97 93900 97016 107901 90593
5/31/97 110800 108814 114472 104209
6/30/97 108850 112439 119600 107742
7/31/97 126500 117668 129120 113258
8/31/97 131550 120362 121890 116656
9/30/97 145651 129173 128569 125965
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Small Capitalization Equity Portfolio II
("Portfolio"), at value (Note 1A) $ 6,296,360
Receivable for Fund shares sold 38,400
Other assets 700
-----------
Total assets 6,335,460
Liabilities
Distribution payable $ 167
Payable to investment advisor (Note 3) 8,285
Accrued accounting, custody and transfer agent fees 5,111
Accrued expenses and other liabilities 8,339
-----------
Total liabilities 21,902
-----------
Net Assets $ 6,313,558
===========
Net Assets consist of:
Paid-in capital $ 5,010,315
Accumulated net realized gain 129,163
Undistributed net investment income 6,541
Net unrealized appreciation 1,167,539
-----------
Total Net Assets $ 6,313,558
===========
Shares of beneficial interest outstanding 216,818
===========
Net Asset Value, Offering and Redemption Price Per Share
(Net assets/Shares outstanding) $ 29.12
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1997
--------------------- ---------------------
<S> <C> <C>
Investment Income (Note 1B)
Dividend income allocated from Portfolio $ 1,471 $ --
Interest income allocated from Portfolio 7,017 198
------------- -------
Net investment income from Portfolio 8,488 198
Expenses
Registration fees 28,950 --
Accounting, custody and transfer agent fees 18,413 672
Legal and audit services 13,463 6,790
Miscellaneous 813 126
----------- --------
Total expenses 61,639 7,588
Deduct:
Reimbursement of Fund operating expenses (61,639) (7,588)
-------
Net expenses -- --
----------- -------
Net investment income 8,488 198
----------- -------
Realized and Unrealized Gain
Net realized gain allocated from Portfolio on:
Investment security transactions 129,163 --
----------- --------
Net realized gain 129,163 --
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investment securities 1,158,569 8,970
----------- -------
Change in net unrealized appreciation (depreciation) 1,158,569 8,970
----------- -------
Net realized and unrealized gain on investments 1,287,732 --
----------- -------
Net increase in net assets resulting from operations $ 1,296,220 $ 9,168
=========== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
-------------------------- -------------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 8,488 $ 198
Net realized gain 129,163 --
Change in net unrealized appreciation
(depreciation) 1,158,569 8,970
---------- ---------
Net increase in net assets from operations 1,296,220 9,168
---------- ---------
Distributions to Shareholders
From net investment income (2,145) --
---------- ---------
Fund share (principal) Transactions (Note 5)
Net proceeds from sale of shares 5,177,545 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared 1,978 --
Cost of shares redeemed (644,208) --
---------- ---------
Increase in net assets from Fund share
transactions 4,535,315 475,000
---------- ---------
Net increase in net assets 5,829,390 484,168
Net Assets
At beginning of period 484,168 --
---------- ---------
At end of period (including undistributed net
investment income of $6,541 and $198,
respectively) $6,313,558 484,168
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Nine Months For the period
Ended December 23, 1996
September 30, 1997 (commencement of operations)
(Note 1E) to December 31, 1996
-------------------- -------------------------------
<S> <C> <C>
Net asset value, beginning of period $20.39 $20.00
------ -------
Income from operations:
Net investment income * 0.03 --
Net realized and unrealized gain on investments 8.71 0.39
------ -------
Total from investment operations 8.74 0.39
------ -------
Less distributions declared to shareholders
From net investment income (0.01) --
Net asset value, end of period $29.12 $20.39
====== =======
Total return 42.94% --(1)
Ratios (to average daily net assets)/Supplemental Data
Net assets, end of period (000's omitted) $6,314 $ 484
Expenses * (2) 0.00%+ --(1)
Net investment income * (2) 0.49%+ --(1)
</TABLE>
* For the nine months ended September 30, 1997 and for the period December
23, 1996 (commencement of operations) to December 31, 1996, the investment
adviser waived its investment advisory fee for the Portfolio and
reimbursed the Portfolio and Fund for all of its operating expenses. If
this voluntary action had not been taken, the net invesment income per
share and the ratios would have been:
<TABLE>
<S> <C> <C>
Net investment loss per share $(0.25) --(1)
Ratios (to average daily net assets):
Expenses (2) 3.56%+ --(1)
Net investment income (3.07)%+ --(1)
</TABLE>
- ----------
(1)Amounts are not meaningful due to the short period of operations.
(2)Includes the Fund's share of the Portfolio's allocated expenses for the nine
months ended September 30, 1997 and for the period December 23, 1996
(commencement of operations) to December 31, 1996.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund II (the "Fund") is a
separate diversified investment series of the Trust.
The Fund invests all of its investable assets in the interests of
Standish Small Capitalization Equity Portfolio II (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, and has the same
investment objective as the Fund. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net
assets of the Portfolio (approximately 100% at September 30, 1997). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
The following is a summary of significant accounting policies followed
by the Fund in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations-
The Fund records its investment in the Portfolio at value. The method
by which the Portfolio values its securities is discussed in Note 1A of
the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
B. Securities transactions and income-
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles.
C. Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the investors in
the Portfolio.
E. Change in fiscal year end-
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Fund from December 31 to September 30, effective September
30, 1997.
(2) Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements
- --------------------------------------------------------------------------------
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
(3) Investment Advisory Fee:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer, & Wood, Inc. ("SA&W") for such services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. For the nine month period ended
September 30, 1997 and for the period from December 23, 1996
(commencement of operations) to December 31, 1996, SA&W voluntarily
agreed to waive and/or reimburse all operating expenses of the Fund and
Portfolio (excluding commissions, taxes and extraordinary expenses).
This agreement is voluntary and temporary and may be discontinued or
revised by SA&W at any time. Pursuant to this agreement, for the nine
months ended September 30, 1997 and for the period from December 23,
1996 (commencement of operations) to December 31, 1996, SA&W
voluntarily reimbursed the Fund for its operating expenses in the
amount of $61,639 and $7,588, respectively. The Trust pays no
compensation directly to its trustees who are affiliated with the SA&W
or to its officers, all of whom receive remuneration for their services
to the Trust from SA&W. Certain of the trustees and officers of the
Trust are directors or officers of SA&W.
(4) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the nine months ended September 30, 1997 aggregated $5,257,507 and
$741,535, respectively. For the period December 23, 1996 to December
31, 1996, increases and decreases in the Fund's investment in the
Portfolio aggregated $475,000 and $0, respectively.
(5) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the Period
December 23,
1996
(commencement of
Nine Months Ended operations) to
September 30, 1997 December 31,1996
------------------- -------------------
<S> <C> <C>
Shares sold.......................................... 222,940 23,750
Shares issued to shareholders in payment of
distributions
declared.......................................... 69 0
Shares redeemed...................................... (29,941) 0
------------------- -------------------
Net increase/(decrease).............................. 193,068 23,750
=================== ===================
</TABLE>
At September 30, 1997, the Fund had three shareholders of record
owning approximately 30%, 13% and 12% of the Fund's outstanding voting
shares.
10
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the
Shareholders of Standish Small Capitalization Equity Fund II:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Small Capitalization
Equity Fund II (the "Fund"), as of September 30, 1997, and the related
statements of operations, the statements of changes in net assets and
financial highlights for the nine months ended September 30, 1997 and
for the period from December 23, 1996 (commencement of operations) to
December 31, 1996. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is
to express an opinion on these financial statements and financial
highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements and financial highlights
referred to above present fairly, in all material respects, the
financial position of Standish, Ayer & Wood Investment Trust: Standish
Small Capitalization Equity Fund II as of September 30, 1997, and the
results of its operations, changes in its net assets and financial
highlights for the nine months ended Sepember 30, 1997, and for the
period from December 23, 1996 (commencement of operations) to December
31, 1996, in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
November 11, 1997
11
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
EQUITIES -- 99.6%
Capital Goods -- 5.9%
BDM International, Inc.* 1,800 $ 45,225
Comfort Systems USA, Inc.* 3,700 70,763
Hagler Bailly* 500 12,688
Power-One, Inc.* 1,300 18,200
Service Experts, Inc.* 2,000 54,125
Tetra Technologies, Inc.* 3,000 69,375
Trailer Bridge, Inc.* 4,000 53,000
Triumph Group, Inc.* 1,400 46,813
------------
370,189
------------
Consumer Stable -- 9.9%
800-Jr Cigar, Inc.* 3,200 111,999
Arbor Drugs, Inc. 2,600 60,450
Aviation Sales Co.* 2,600 78,650
General Cigar Holdings, Inc.* 2,300 66,413
Hughes Supply, Inc. 2,650 79,997
Performance Food Group Co.* 3,800 96,899
Robert Mondavi Corp., Class A* 1,100 60,225
Suiza Foods Corp.* 1,300 66,950
------------
621,583
------------
Early Cyclical -- 1.8%
Aftermarket Technology, Inc.* 3,000 71,250
Hospitality Worldwide Services* 3,000 39,375
------------
110,625
------------
Energy -- 11.0%
Cal Dive International, Inc.* 3,900 145,274
Friede Goldman Intl, Inc.* 2,100 125,999
Global Industries Ltd.* 2,300 91,712
Halter Marine Group, Inc.* 2,100 101,587
Hvide Marine, Inc.* 2,600 83,200
Newpark Resources, Inc.* 1,200 47,175
Patterson Energy, Inc.* 1,900 99,512
------------
694,459
------------
Financial -- 3.1%
American Capital Strategies* 300 6,000
E Trade Group, Inc.* 2,000 93,999
Greater Bay Bancorp. 2,300 98,612
------------
198,611
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Growth Cyclical -- 12.3%
Alliance Gaming Corp.* 12,600 $ 83,475
Apple South, Inc. 4,400 84,700
Atria Communities, Inc.* 3,700 66,600
Central Garden & Pet Co.* 2,000 61,500
Coach USA, Inc.* 2,900 87,181
Gadzooks, Inc.* 3,500 73,500
North Face, Inc.* 700 18,813
Rainforest Cafe, Inc.* 1,300 41,925
Regal Cinemas* 2,000 53,750
Scientific Games Holdings Corp.* 2,700 58,725
Sonic Corp.* 600 16,800
Sunrise Assisted Living, Inc.* 700 25,288
Travel Services, Inc.* 1,700 35,275
Vans, Inc.* 4,200 67,200
------------
774,732
------------
Health Care -- 14.3%
Affymetrix, Inc.* 1,100 50,600
Agouron Pharmaceuticals, Inc.* 600 28,875
Genesis Health Ventures, Inc.* 600 23,363
Guilford Pharmaceuticals, Inc.* 1,800 53,100
Gulf South Medical Supply, Inc.* 1,900 50,825
HCIA, Inc.* 2,700 36,450
Imnet Systems, Inc.* 2,300 61,813
Inhale Therapeutic Systems* 2,400 75,300
Medic Computer Systems, Inc.* 1,700 58,225
Neurogen Corp.* 2,900 78,300
Orthodontic Centers of America* 2,400 48,000
Parexel International Corp.* 300 11,850
Pharmaceutical Product Development* 3,400 69,275
Physician Sales & Service* 3,900 76,050
Sepracor, Inc.* 1,900 62,463
Specialty Care Network, Inc.* 4,500 55,688
Vertex Pharmaceuticals, Inc.* 1,600 60,400
------------
900,577
------------
Services -- 17.1%
Abacus Direct Corp.* 1,400 44,975
American Radio Systems Corp.* 700 33,338
Barrett Business Services, Inc.* 3,600 60,300
BET Holdings, Inc.* 1,500 79,313
Central Parking Corp. 1,000 47,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Services (continued)
Compdent Corporation* 1,300 $ 32,500
Computer Task Group, Inc. 1,200 50,325
Corporate Family Solutions* 200 3,375
Devry, Inc.* 1,600 47,800
Gray Communications Systems, Class B 2,400 60,000
Harbinger Corp.* 1,500 54,563
Heftel Broadcasting Corp.* 800 60,600
Inspire Insurance Solutions* 3,600 65,250
LCC International, Inc.* 2,300 50,313
Learning Tree International* 1,500 42,938
M A R C, Inc. 3,000 71,250
Metzler Group, Inc.* 2,200 88,274
Pierce Leahy Corp.* 1,100 29,838
Scandinavian Broadcast Systems Corp.* 2,400 57,600
Scholastic Corp.* 1,500 59,250
Wackenhut Corrections Corp.* 1,200 37,200
------------
1,076,002
------------
Technology -- 24.2%
Advanced Technology Material* 2,700 99,224
Aehr Test Systems* 4,500 79,594
Asyst Technologies, Inc.* 1,000 44,406
Benchmark Electronics, Inc.* 2,400 67,650
C. P. Clare Corp.* 4,200 82,950
CFM Technologies, Inc.* 300 11,756
Dallas Semiconductor Corp. 1,300 58,175
Dupont Photomasks, Inc.* 700 50,838
Exar Corp.* 1,900 50,350
Galileo Technology* 1,000 33,000
Gasonics Intl Corp.* 3,500 72,844
Hadco Corp.* 1,100 59,572
Helix Technology Corp. 1,300 80,478
HNC Software, Inc.* 2,200 87,450
Hyperion Software Corp.* 1,500 46,781
Kulicke & Soffa Industries* 1,400 64,838
Lecroy Corp.* 900 39,825
Level One Communications, Inc.* 1,800 72,450
P-Com, Inc.* 2,800 67,025
PCD, Inc.* 1,300 32,175
Periphonics Corp.* 1,900 20,306
Photronics, Inc.* 600 36,338
PRI Automation, Inc.* 1,100 64,350
Radiant Systems, Inc.* 3,600 75,600
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Shares (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Technology (continued)
Semtech Corp.* 800 $ 55,300
Star Telecommunications, Inc.* 3,200 73,600
------------
1,526,875
------------
TOTAL EQUITIES (COST $5,106,088) 6,273,653
------------
TOTAL INVESTMENTS-- 99.6% (COST $5,106,088) $ 6,273,653
Other Assets, Less Liabilities-- 0.4% 22,837
============
NET ASSETS-- 100% $ 6,296,490
============
</TABLE>
Notes to the Schedule of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
September 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $5,106,088) $ 6,273,653
Cash 178,391
Interest and dividends receivable 2,179
Deferred organization costs (Note 1E) 26,005
-----------
Total assets 6,480,228
Liabilities
Payable for investments purchased $ 142,575
Payable to investment advisor (Note 2) 15,692
Accrued accounting and custody fees 9,115
Accrued expenses and other liabilities 16,356
-----------
Total liabilities 183,738
-----------
Net Assets (applicable to investors' beneficial interests) $ 6,296,490
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statements of Operations
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of
Ended operations) to
September 30, 1997 December 31, 1996
=================== ==================
<S> <C> <C>
Investment Income (Note 1C)
Dividend income $ 1,471 $ --
Interest income 7,017 198
----------- ----------
Total income 8,488 198
Expenses
Investment advisory fee (Note 2) 10,209 62
Accounting and custody fees 29,683 1,002
Legal and audit services 28,934 14,500
Amortization of organization cost (Note 1E) 4,597 94
Miscellaneous 323 126
----------- ---------
Total expenses 73,746 15,784
----------- ---------
Deduct:
Waiver of investment advisory fee (Note 2) (10,209) (62)
Reimbursement of Portfolio operating expenses (63,537) (15,722)
----------- ---------
Total waiver of investment advisory fee and
reimbursement of operating expenses (73,746) (15,784)
----------- ---------
Net expenses -- --
----------- ---------
Net investment income 8,488 198
Realized and Unrealized Gain
Net realized gain
Investment security transactions 129,166 --
----------- ---------
Net realized gain 129,166 --
Change in unrealized appreciation (depreciation)
Investment securities 1,158,595 8,970
----------- ---------
Change in net unrealized appreciation (depreciation) 1,158,595 8,970
----------- ---------
Net realized and unrealized gain 1,287,761 --
----------- ---------
Net increase in net assets from operations $ 1,296,249 $ 9,168
=========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
(commencement of
Nine Months Ended operations) to
September 30, 1997 December 31, 1996
--------------------- ---------------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 8,488 $ 198
Net realized gain 129,166 --
Change in net unrealized appreciation
(depreciation) 1,158,595 8,970
---------- ---------
Net increase in net assets from operations 1,296,249 9,168
---------- ---------
Capital transactions
Contributions 5,257,608 475,000
Withdrawals (741,535) --
---------- ---------
Increase in net assets resulting from
capital transactions 4,516,073 475,000
---------- ---------
Total increase in net assets 5,812,322 484,168
Net Assets
At beginning of period 484,168 --
---------- ---------
At end of period $6,296,490 $484,168
========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
December 23, 1996
Nine Months (commencement of operations)
Ended to
September 30, 1997 December 31, 1996
---------------------- -------------------------------
<S> <C> <C>
Ratios (to average daily net assets)
Expenses * 0.00%+ --(1)
Net investment income 0.50%+ --(1)
Portfolio turnover 122% 0
Average broker commission per share (2) $0.0768 $0.2000
Net assets, end of period (000's omitted) $ 6,296 $ 484
* The investment adviser did not impose any of its investment advisory fee and reimbursed the Portfolio for
all of its operating expenses for the nine months ended September 30, 1997 and for the period December 23,
1996 (commencement of operations) to December 31, 1996. If these voluntary actions had not been taken, the
ratios would have been:
Ratios (to average daily net assets):
Expenses 4.33%+ --(1)
Net investment income (loss) (3.84)%+ --(1)
</TABLE>
- --------------------------
+ Computed on an annualized basis.
(1) Amounts are not meaningful due to the short period of operations.
(2) Amount represents the average commission per share paid to brokers on the
purchase and sale of equity securities.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio II (the "Portfolio") is
a separate diversified investment series of the Portfolio Trust. As of
September 30, 1997, the Standish Small Capitalization Equity Fund II's
proportionate interest in the net assets of the Portfolio was
approximately 100%.
The following is a summary of significant accounting policies followed
by the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees.
Short-term instruments with less than sixty-one days remaining to
maturity when acquired by the Portfolio are valued on an amortized cost
basis. If the Portfolio acquires a short-term instrument with more than
sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued
at amortized cost based upon the value on such date unless the trustees
determine during such sixty-day period that amortized cost does not
represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Internal Revenue Code) in order for its investors
to satisfy them. The Portfolio will allocate at least annually among
its investors each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss deduction or credit.
20
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Deferred organizational expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through April 2001.
F. Change in fiscal year end--
The Board of Trustees voted on July 12, 1997 to change the fiscal year
end of the Portfolio from December 31 to September 30, effective
September 30, 1997.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc.
("SA&W") for overall investment advisory and administrative services is
paid monthly at the annual rate of 0.60% of the Portfolio's average
daily net assets. For the nine month period ended September 30, 1997
and for the period from December 23, 1996 (commencement of operations)
to December 31, 1996, SA&W voluntarily agreed to waive and/or reimburse
all of the Portfolio's total annual operating expenses (excluding
brokerage commissions, taxes, and extraordinary expenses). This
agreement is voluntary and temporary and may be discontinued or revised
by SA&W at any time. For the nine months ended September 30, 1997 and
for the period from December 23, 1996 (commencement of operations) to
December 31, 1996, SA&W voluntarily waived its investment advisory fee
of $10,209 and $62, respectively, and reimbursed the Portfolio for its
operating expenses of $63,537 and $15,722, respectively. The Portfolio
Trust pays no compensation directly to its trustees who are affiliated
with SA&W or to its officers, all of whom receive remuneration for
their services to the Portfolio Trust from SA&W. Certain of the
trustees and officers of the Portfolio Trust are directors or officers
of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations were as follows:
<TABLE>
<CAPTION>
For the Period
December 23, 1996
Nine Months Ended (commencement of operations)
September 30, 1997 to December 31, 1996
----------------------------- --------------------------------
<S> <C> <C> <C> <C>
Purchases Sales Purchases Sales
-------------- ------------- --------------- ---------------
U.S. Government Securities.............. $ 0 $ 0 $ 0 $ 0
============== ============= =============== ===============
Investments (non-U.S. Government
Securities)... $ 7,131,297 $ 2,725,584 $ 456,074 $ 0
============== ============= =============== ===============
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 1997, as computed on a
federal income tax basis, were as follows:
<TABLE>
<S> <C>
Aggregate Cost....................................................... $ 5,119,573
===========
Gross unrealized appreciation........................................ $ 1,202,913
Gross unrealized depreciation........................................ $ (48,833)
-----------
Net unrealized appreciation (depreciation)........................... $ 1,154,080
===========
</TABLE>
21
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The nature, risks and objectives of these investments are set forth
more fully in Parts A and B of the Master Portfolio registration
statement.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and
buying calls tend to increase the Portfolio's exposure to the
underlying instrument. Buying puts and writing calls tend to decrease
the Portfolio's exposure to the underlying instrument, or hedge other
portfolio investments. Options, both held and written by the Portfolio,
are reflected in the accompanying Statement of Assets and Liabilities
at market value. The underlying face amount at value of any open
purchased options is shown in the schedule of investments. This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparties do not perform under the
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are
exercised or are closed are added to or offset against the proceeds or
amount paid on the transaction to determine the realized gain or loss.
If a put option written by the Portfolio is exercised, the premium
reduces the cost basis of the securities purchased by the Portfolio.
Realized gains and losses on purchased options are included in realized
gains and losses on investment securities, except purchased options on
foreign currency which are included in realized gains and losses on
foreign currency transactions. The Portfolio, as a writer of an option,
has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. The Portfolio entered into no such transactions during the nine
months ended September 30, 1997.
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in value of the hedged
investments. Buying futures tends to increase the Portfolio's exposure
to the underlying instrument, while selling futures tends to decrease
the Portfolio's exposure to the underlying instrument or hedge other
portfolio investments. In addition, there is the risk that the
Portfolio may not be able to enter into a closing transaction because
of an illiquid secondary market. Losses may arise if there is an
illiquid secondary market or if the counterparties do not perform under
the contract's terms. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. Gains and losses
are realized upon the expiration or closing of the futures contracts.
The Portfolio had no open financial futures contracts at September 30,
1997.
22
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and the
Investors of Standish Small Capitalization Equity Portfolio II:
We have audited the accompanying statement of assets and liabilities of
Standish Small Capitalization Equity Portfolio II, including the
schedule of investments as of September 30, 1997, and the related
statements of operations, the statements of changes in net assets and
the supplementary data for the nine months ended September 30, 1997 and
for the period from December 23, 1996 (commencement of operations)
through December 31, 1996. These financial statements and supplementary
data are the responsibility of the Portfolio's management. Our
responsibility is to express an opinion on these financial statements
and supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that
we plan and perform the audits to obtain reasonable assurance about
whether the financial statements and financial highlights are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as
of September 30, 1997, by correspondence with the custodian and
brokers; where replies were not received from brokers we performed
other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates by management, as
well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and supplementary data present
fairly, in all material respects, the financial position of Standish
Small Capitalization Equity Portfolio II as of September 30, 1997, and
the results of its operations, changes in its net assets and
supplementary data for the respective stated periods, in conformity
with United States generally accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
November 11, 1997
23
<PAGE>
[Logo] Standish, Ayer & Wood, Inc.
One Financial Center
Boston, Massachusetts 02111-2662
(617) 350-6100
