Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Financial Statements for the Year Ended
December 31, 1997
[STANDISH LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
February 23, 1998
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of developments at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust.
Investment returns were generally quite favorable during 1997. U.S. large
capitalization stocks as measured by the Standard & Poor's 500 Index registered
a return in 1997 of more than 33%, bringing the five-year annual average returns
for that Index to over 20%. During the last year, both U.S. bonds as reflected
in the Lehman Aggregate Index and hedged international bonds as reported by the
J.P. Morgan Non-U.S.Hedged Index recorded returns in the vicinity of 10-11%. It
has generally been an exceedingly favorable period for investors.
Standish, Ayer & Wood has also had a successful year. Our assets under
management grew from $30.6 billion at the beginning of the year to about $39.3
billion at the end of 1997. This growth reflected new assets under management,
market appreciation, and the absence of any significant turnover of existing
clients. The Standish Funds grew from $4.2 billion to $5.7 billion during the
year. We were particularly pleased that 75% of the mutual fund purchases during
the year represented additions from our existing clients.
We have also grown significantly as an enterprise. At the end of 1997, our
organization had 232 employees versus 213 at the beginning of the year. Our 82
investment officers have average experience of 16 years. Of the 82 officers, 46
hold advanced degrees (typically an MBA) and 55 have some advanced professional
accreditation (virtually all Chartered Financial Analysts).
While the corporate structure remains unchanged, a number of important
developments among new directors took place during the year. In March 1997, Jim
Sweeney elected to take early retirement. In November, Tom Sorbo joined Standish
as a shareholder/director in order to head up our marketing and sales
activities. Tom had previously served with distinction at Travelers and Stein,
Roe & Farnham.
Four other changes in our shareholders and directors were effective at the end
of 1997. Walter Cabot reached the age at which he must step down as a
shareholder, but we are pleased that he will continue as our Senior Advisor. We
elected three new shareholder/directors, namely Chuck Cook of our international
fixed income team, Joe Corrado as director of equity research, and Mike
Thompson, one of the senior members of our insurance company investment
management effort. We also elected six new associate directors, eighteen new
vice presidents, and twelve new assistant vice presidents.
During 1997 we introduced a number of new products including "diversified
income" portfolios that combine higher yielding domestic bonds, emerging market
bonds, and higher grade international bonds. By the end of the year, we managed
a number of separate accounts as well as the Standish Diversified Income Fund
with assets of about $27 million. We have also developed a growth equity
strategy and a global small cap discipline to complement the highly successful
start up on our international small cap style. Some of the disciplines we
introduced in 1996, such as duration neutral bonds and Small Cap Equity Fund II,
continue to be successful.
1
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As we look ahead, there are ample numbers of challenges for investors and
investment managers. We believe that we have a good understanding of what has
produced our past business and investment success and a clear vision of our
future. We consider that we have a set of competitive advantages that includes:
o A long history of stability of ownership, personnel, investment
philosophy, and clientele.
o Critical mass to enable us to provide risk control, compliance,
technology, and deep investment research.
o An exclusive focus on investment management and a dedication to
serving our existing clients.
o A team effort which ensures our clients are receiving not just the
work of one individual but the benefits of Standish as an
organization.
o Well-defined and disciplined investment philosophies which have
historically added reasonably consistent increments of return.
o A dedication to in-depth communication with our clients.
We remain confident that we have the people, resources, investment technology,
and organizational stability to succeed. We are working hard to fulfill your
expectations in the years ahead, and we are optimistic that we can achieve our
mutual objectives.
Sincerely yours,
/s/ Ted Ladd
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
2
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Management Discussion
The inception date of the Standish Diversified Income Fund was June 2, 1997.
Fixed Income markets globally performed very well from June through December
1997, but high grade and lower grade securities performed quite differently
through this time period. The Fund's medium grade and emerging market bond
exposure provided extremely good relative returns from June through September
with the Diversified Income Fund posting a total return of 6.05% (after expense
reimbursement) versus 4.56% for the higher quality Lehman Aggregate Bond Index.
With the onslaught of the Asian crisis, widening spreads across the lower
quality fixed income spectrum, especially in emerging markets, caused the Fund
to materially lag the Index with a .14% return vs. 2.95% in the fourth quarter
of the year. Since inception, the Diversified Income Fund has returned 6.20% vs.
7.64% for the index.
The bulk of the relative underperformance occurred in the month of October as
yield spreads on lower quality and emerging market bonds widened dramatically,
the result of a dramatic flight to quality into U.S. Treasuries. Emerging market
bonds were particularly hard hit, and the Fund's exposure to emerging markets
negatively impacted performance. The Fund was reasonably well positioned at the
end of the third quarter as emerging market exposure was lowered from 33% during
the summer to as low as 23% just prior to the turmoil in late October. In
addition, we had minimal exposure to Asia and none to the high-risk areas of
Korea and Thailand. During the quarter, we modestly increased exposure to Asia
as extremely low prices were reached on some securities. Although the market has
yet to stabilize, our higher quality focus has served us well. We remain
convinced of the underlying and now more significant long term value in emerging
markets especially Latin America and certain high quality Asian names.
Although dented somewhat in the fourth quarter, the high yield market provided
investors in 1997 with one of the best returns in the fixed income markets.
Ideal conditions-strong buyer demand generated from pension fund
allocations--"cross-over" institutional managers and CBOs (Collateralized Bond
Obligations), a steady supply of large mutual fund inflows (11% increase over
1996) and stable to improving credit fundamentals predominated throughout the
year. Bonds friendly events such as credit enhancing merger news and/or tender
offers helped diminish the potential negative impact of record new supply.
During the year, the high yield market experienced two correction periods - in
March when the Federal Reserve raised interest rates and in October when
concerns about Asia predominated.
Several positive elements that favorably impacted the high yield market in 1997
have become more mixed. The likelihood of a slower pace of economic growth,
stable (at best) credit fundamentals, ongoing Asian volatility and a heavy new
issuance calendar suggest an environment less ideal than 1997. Although we are
cautious and do not expect credit spreads to tighten soon, the new higher levels
of yields are quite attractive longer term.
The fund is a feeder fund in the master-feeder fund structure and does not
invest directly in securities. Instead, the Fund invests its assets in a master
fund that has the same investment objective and policies as the Fund. The
foregoing Management's Discussion applies to investments by the master fund.
We are pleased to have you as charter shareholders in the Standish Diversified
Income Fund and will do our best to earn your confidence.
Sincerely,
/s/ Dolores S. Driscoll
Dolores S. Driscoll
3
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Comparison of Change in Value of $100,000 Investment in Standish
Diversified Income Fund and Lehman Aggregate Index
[The following table was represented as a mountain graph in the printed
material.]
Lehman
Aggregate Diversified
Index Income Fund
----- -----------
Inception 6/2/97 100000 100000
6/30/97 101500 101190
7/31/97 104400 103922
8/31/97 103950 103039
9/30/97 106049 104564
10/31/97 103919 106080
11/30/97 105238 106568
12/31/97 107644 106200
4
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Diversified Income Portfolio ("Portfolio"),
at value (Note 1A) $ 27,784,237
Receivable from investment adviser (Note 3) 3,763
Deferred organization cost (Note 1D) 15,971
------------
Total assets 27,803,971
Liabilities
Distributions payable $ 229,658
Payable for Fund shares redeemed 137,971
Accrued expenses and other liabilities 38,678
-----------
Total liabilities 406,307
------------
Net Assets $ 27,397,664
============
Net Assets consist of:
Paid-in capital $ 27,706,832
Accumulated net realized gain 4,724
Undistributed net investment income 64,032
Net unrealized depreciation (377,924)
============
Total Net Assets $ 27,397,664
============
Shares of beneficial interest outstanding 1,336,114
============
Net asset value, offering and redemption price per share
(Net assets/Shares outstanding) $ 20.51
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Statement of Operations
For the period June 2, 1997
(commencement of operations) to
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 665,243
Dividend income allocated from Portfolio (net of withholding taxes, $76) 79,562
Expenses allocated from Portfolio 0
---------
Net investment income allocated from Portfolio 744,805
Expenses
Legal and audit services $ 15,664
Accounting and transfer agent fees 9,588
Registration fees 9,514
Amortization of organization cost (Note 1D) 2,086
Miscellaneous 6,087
---------
Total expenses 42,939
Deduct:
Reimbursement of fund operating expenses (Note 3) (42,939)
---------
Net expenses 0
---------
Net investment income 744,805
---------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions $ (2,449)
Financial futures contracts 126,565
Written options transactions 2,132
Foreign currency transactions and forward foreign currency exchange contracts 5,870
---------
Net realized gain 132,118
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investment securities (446,408)
Financial futures contracts (8,285)
Written options 7,026
Foreign currency and forward foreign currency exchange contracts 69,743
---------
Change in net unrealized depreciation (377,924)
---------
Net realized and unrealized loss on investments (245,806)
---------
Net increase in net assets resulting from operations $ 498,999
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period June 2, 1997
(commencement of operations)
to December 31, 1997
-------------------------------
<S> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 744,805
Net realized gain 132,118
Change in net unrealized depreciation (377,924)
-----------
Net increase in net assets from operations 498,999
-----------
Distributions to Shareholders (Note 2)
From net investment income (678,973)
From net realized gain (129,194)
-----------
Total distributions to shareholders (808,167)
-----------
Fund share (principal) transactions (Note 5)
Net proceeds from sale of shares 27,390,426
Net asset value of shares issued to shareholders in payment
of distributions declared 454,376
Cost of shares redeemed (137,970)
-----------
Increase in net assets from Fund share transactions 27,706,832
-----------
Net increase in net assets 27,397,664
Net Assets
At beginning of period --
-----------
At end of period (including undistributed net investment
income of $64,032) $27,397,664
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Financial Highlights
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<TABLE>
<CAPTION>
For the period June 2, 1997
(commencement of operations)
to December 31, 1997 (1)
--------------------------------
<S> <C>
Net asset value, beginning of period $ 20.00
-------
Income from operations:
Net investment income * 0.98
Net realized and unrealized gain on investments 0.26
-------
Total from investment operations 1.24
-------
Less distributions declared to shareholders:
From net investment income (0.63)
From net realized gain on investments (0.10)
-------
Total distributions (0.73)
-------
Net asset value, end of period $ 20.51
=======
Total return 6.20%
Ratios (to average daily net assets)/Supplemental Data
Net assets, end of period (000 omitted) $27,398
Expenses * (2) --+
Net investment income * 8.07%+
</TABLE>
- ----------
* For the period June 2, 1997 (commencement of operations) to December 31,
1997, the investment adviser voluntarily agreed not to impose its advisory
fee on the Portfolio and reimbursed the Fund and the Portfolio for their
operating expenses. If this voluntary action had not been taken, the
Fund's net investment income per share and the ratios would have been:
Net investment income per share $ 0.74
Ratios (to average daily net assets):
Expenses (2) 1.96%+
Net investment income 6.11%+
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's shares of Standish Diversified Income Portfolio's
allocated expenses for the period from June 2, 1997 to December 31, 1997.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
8
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Notes to Financial Statements
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(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 Diversified Income Fund (the "Fund") is a separate
diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest of the
Standish Diversified Income Portfolio (the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio
(approximately 100% at December 31, 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. 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.
At December 31, 1997, the Fund, for federal income tax purposes had a
post-October loss deferral of $2,281.
D. Deferred organization expense
Costs incurred by the Fund in connection with its organization and initial
registration are being amortized on a straight-line basis trough June
2002. These costs were paid for by the investment adviser and will be
reimbursed by the Fund.
E. Other
All net investment income and realized and unrealized gains and losses of
the Portfolio are allocated pro rata among the respective investors in the
Portfolio.
(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
The accompanying notes are an integral part of the financial statements.
9
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
of the Fund unless a shareholder elects to receive them in cash. Income
and capital gain distributions are determined in accordance with income
tax regulations which may differ from generally accepted accounting
principles. The differences are primarily due to differing treatments for
foreign currency, forward foreign currency exchange contracts, options and
financial 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 gain (loss).
(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 International Management Company, L.P. ("SIMCO") for
such services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. For the year ended December
31, 1997, SIMCO voluntarily agreed to limit the operating expenses of the
Fund and the Portfolio (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.00% of the Fund's average daily net assets.
Pursuant to this agreement, SIMCO voluntarily reimbursed the Fund for
$42,939 of operating expenses for the period ended December 31, 1997. The
Trust pays no compensation directly to its trustees who are affiliated
with the investment adviser or to its officers, all of whom receive
remuneration for their services to the Trust from SIMCO. Certain of the
trustees and officers of the Trust are limited partners or officers of
SIMCO.
(4) Investment Transactions:
Increases and decrease in the Fund's investment in the Portfolio for the
period from June 2, 1997 (commencement of operations) to December 31, 1997
aggregated $27,429,604 and $144,366, 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 June 2, 1997
(commencement of operations)
to December 31, 1997
---------------------------------
<S> <C>
Shares sold 1,320,752
Shares issued to shareholders in payment of distributions
declared 22,092
Shares redeemed (6,730)
---------------------------------
Net increase 1,336,114
=================================
</TABLE>
At December 31, 1997, three shareholders were record owners of
approximately 33%, 27% and 20%, respectively, of the Fund's outstanding
shares.
- --------------------------------------------------------------------------------
Supplemental Tax Information (Unaudited)
The Fund paid distributions of $0.0354 from long term capital gains during
the period June 2, 1997 (commencement of operations) to December 31, 1997.
Pursuant to section 852 of the Internal Revenue Code, the Fund designates
$46,878 as capital gain dividends for the period June 2, 1997
(commencement of operations) to December 31, 1997. All of this amount
represents a 20% tax rate gain distribution.
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Diversified Income Fund:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Diversified Income Fund (the
"Fund"), as of December 31, 1997, and the related statement of operations, the
statement of changes in net assets and the financial highlights for the period
stated therein. 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
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned at December 31, 1997 by
correspondence with the custodian. 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
audit provides 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 Diversified Income Fund as of
December 31, 1997, the results of its operations, the changes in its net assets
and the financial highlights for the period stated therein, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998
11
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Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Schedule of Investments -December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 77.2%
Asset Backed -- 0.8%
GE Capital Mortgage Services Inc. 6.500% 01/25/2024 261,723 $ 226,710
-------------
Total Asset Backed (Cost $224,427) 226,710
-------------
Corporate -- 36.6%
Basic Industry -- 1.1%
Building Materials Corp. 144A 8.000% 10/15/2007 300,000 298,500
-------------
Capital Goods -- 1.1%
Kaufman & Broad Home Corp.+ 7.750% 10/15/2004 300,000 297,375
-------------
Consumer -- 0.9%
Southland Corp.+ 4.500% 06/15/2004 300,000 243,000
-------------
Consumer Durable -- 1.1%
Exide Corp. 2.900% 12/15/2005 460,000 308,200
-------------
Consumer Stable -- 2.0%
Revlon Worldwide+ 0.000% 03/15/2001 800,000 548,000
-------------
Financial -- 10.8%
Albank Capital 9.270% 06/06/2027 125,000 138,243
Amresco, Inc.+ 10.000% 03/15/2004 175,000 183,033
Bank United Corp.+ 8.875% 05/01/2007 425,000 455,813
Bayview Capital Corp.+ 9.125% 08/15/2007 75,000 77,348
Constitution Capital Trust 9.150% 04/15/2027 175,000 197,019
Contifinancial Corp.+ 8.375% 08/15/2003 100,000 101,960
First Nationwide+ 12.500% 04/15/2003 150,000 170,250
First Nationwide Holdings+ 10.625% 10/01/2003 275,000 307,313
First Palm Beach Notes 10.350% 06/30/2002 100,000 103,500
Imperial Credit Capital Trust 10.250% 06/14/2002 50,000 49,750
Markel Capital Trust I+ 8.710% 01/01/2046 175,000 188,563
Matrix Capital Corp. Notes+ 11.500% 09/30/2004 300,000 300,000
Ocwen Federal Capital Notes+ 10.875% 08/01/2027 50,000 54,250
Ocwen Financial+ 11.875% 10/01/2003 150,000 169,500
Phoenix Re-Insurance Capital Trust+ 8.850% 02/01/2027 175,000 188,003
United Companies Financial Corp.+ 8.375% 07/01/2005 225,000 217,217
Webster Financial Capital 9.360% 01/29/2027 100,000 114,371
-------------
3,016,133
-------------
Health Care -- 7.1%
Extendicare Health Systems 9.350% 12/15/2007 250,000 255,625
Genesis Eldercare 9.000% 08/01/2007 175,000 171,719
Integrated Health 9.250% 01/15/2008 500,000 510,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Schedule of Investments -December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Health Care (continued)
Sun Healthcare Group Inc. 9.500% 07/01/2007 300,000 $ 307,500
Tenet Healthcare Corp.+ 8.625% 12/01/2003 100,000 104,375
Tenet Healthcare Corp.+ 8.000% 01/15/2005 375,000 381,563
Vencor Inc+ 8.625% 07/15/2007 250,000 250,000
-------------
1,980,782
-------------
Media -- 6.8%
Adelphia Communications 9.250% 10/01/2002 300,000 306,000
Paxson Communication+ 11.625% 10/01/2002 250,000 268,125
Salem Communications 144A Notes 9.500% 10/01/2007 325,000 331,500
Sinclair Broadcast 9.000% 07/15/2007 225,000 229,500
Sinclair Broadcast Group 8.750% 12/15/2007 175,000 174,125
Viacom, Inc.+ 7.750% 06/01/2005 300,000 305,127
Westinghouse Credit Corp.+ 8.875% 06/14/2014 250,000 277,705
-------------
1,892,082
-------------
Real Estate -- 1.7%
Tanger Properties L.P.+ 7.875% 10/24/2004 450,000 458,550
-------------
Services -- 4.0%
Call-Net Enterprises 0.000% 08/15/2007 300,000 203,250
Regal Cinemas Inc. 8.500% 10/01/2007 150,000 151,500
Speedway Motorsports Inc.+ 8.500% 08/15/2007 350,000 356,125
Stage Stores, Inc. 8.500% 07/15/2005 100,000 101,750
Toll Corp.+ 7.750% 09/15/2007 300,000 298,875
-------------
1,111,500
-------------
Total Corporate (Cost $10,026,277) 10,154,122
-------------
Government/Other -- 30.9%
Argentina -- 3.5%
Bonos DEL Tesoro+ 8.750% 05/09/2002 400,000 379,000
City of Buenos Aires 10.500% 05/28/2004 125,000 108,125
Cointel 10.375% 08/01/2004 575,000 487,313
-------------
974,438
-------------
Australia -- 0.3%
News America Holdings 8.625% 02/07/2014 125,000 84,159
-------------
Denmark -- 0.3%
Denmark Nykredit 7.000% 10/01/2026 571,000 85,031
-------------
Germany -- 4.1%
Deutschland Republic+ 6.500% 07/15/2003 300,000 178,729
Exide Holding Europe 144A 9.125% 04/15/2004 400,000 226,894
United Mexican States 10.375% 01/29/2003 1,150,000 719,469
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Schedule of Investments -December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
-------------
1,125,092
-------------
Jamaica -- 1.5%
Jamaica Gov't 144A Notes 9.625% 07/02/2002 450,000 $ 425,250
-------------
Mexico -- 0.9%
Petroleos Mexicanos 8.850% 09/15/2007 250,000 247,188
-------------
New Zealand -- 0.2%
Fletcher Challenge 10.000% 04/30/2005 110,000 67,843
-------------
United Kingdom -- 2.6%
Northern Rock Building Society 9.375% 10/17/2021 190,000 378,082
P & O Steam Navigation 11.500% 07/03/2014 120,000 270,701
UK Treasury 7.750% 09/08/2006 40,000 71,620
-------------
720,403
-------------
Yankee Bonds -- 17.5%
APP International Finance+ 11.750% 10/01/2005 200,000 182,176
Asia Pulp And Paper Glb 144A 2.000% 07/25/2000 125,000 105,000
Azteca Holdings 11.000% 06/15/2002 425,000 436,258
Brazil C Bond 8% Cap 8.000% 04/15/2014 798,182 625,575
Guandong Enterprises 8.875% 05/22/2007 625,000 540,513
Lukinter Finance Cvt 144A 1.000% 11/03/2003 525,000 435,750
Peru FLIRB 3.250% 03/07/2017 1,250,000 735,938
Pindo Deli Fin 10.250% 10/01/2002 600,000 516,132
Republic of Panama+ 8.875% 09/30/2027 950,000 888,250
Taiwan Semiconductor 0.000% 07/03/2002 100,000 106,500
Tata Engineering & Locomotive 144A Notes 7.875% 07/15/2007 325,000 276,292
-------------
4,848,384
-------------
Total Government/Other (Cost $9,178,706) 8,577,788
-------------
Non-Agency -- 0.8%
Pass Thru Securities -- 0.8%
GE Capital Mortgage 1996-11 B3 7.500% 07/25/2026 246,943 232,050
-------------
232,050
-------------
Total Non-Agency (Cost $223,291) 232,050
-------------
U.S. Treasury Obligations -- 8.1%
Treasury Notes -- 3.5%
U.S. Treasury Note+ 5.625% 11/30/1998 415,000 415,000
U.S. Treasury Note+ 6.000% 06/30/1999 100,000 100,500
U.S. Treasury Note+ 6.500% 08/15/2005 125,000 130,430
U.S. Treasury Note+ 6.625% 06/30/2001 250,000 256,915
U.S. Treasury Note+ 6.250% 10/31/2001 75,000 76,277
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Schedule of Investments -December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Notes (continued)
-------------
979,122
-------------
U.S. Treasury Bonds -- 4.6%
U.S. Treasury Bond+ 8.125% 08/15/2019 1,015,000 $ 1,270,019
-------------
Total U.S. Treasury Obligations (Cost $2,210,248) 2,249,141
-------------
TOTAL BONDS AND NOTES (COST $21,862,949) 21,439,811
-------------
<CAPTION>
Shares
------------
<S> <C> <C>
PREFERRED STOCKS -- 7.9%
Chancellor Radio Broadcasting 12% 3,300 376,200
El Paso Electric Co. 4,562 504,101
Paxson Communications 128 127,500
Primedia Inc. 5,800 624,950
Time Warner, Inc. 514 575,499
-------------
TOTAL PREFERRED STOCKS (COST $2,219,284) 2,208,250
-------------
<CAPTION>
Contract
PURCHASED OPTIONS -- 0.2% Size
------------
<S> <C> <C>
JPY Put/USD Call, Strike Price 126.50, 5/14/98 53,000 1,903
UST Put 6.125%, Strike Price 100.7187, 2/19/98 5,000 4,922
JGB 2.6% Call, Strike Price 107.357, 1/28/98 13,000,000 104
JPY Put/USD Call, Strike Price 135.00, 12/14/98 1,400,000 27,720
UST Call 6.125%, Strike Price 104.2187, 3/19/98 7,000 4,594
UST Call 5.75%, Strike Price 100.1562, 3/23/98 6,000 3,750
JPY Put/USD Call, Strike Price 129.50, 12/17/98 55,000 1,749
-------------
Total Purchased Options (Cost $56,983) 44,742
-------------
<CAPTION>
SHORT-TERM INVESTMENTS -- 6.4% Par Value(1)
-------------
<S> <C> <C>
COMMERCIAL PAPER -- 6.1%
International Bank Discount, 1/16/98 1,700,000 1,694,248
-------------
U.S. GOVERNMENT AGENCY -- 0.3%
FNMA+, 3/10/98 100,000 98,948
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $1,793,192) 1,793,196
-------------
TOTAL INVESTMENTS -- 91.7% (COST $25,932,408) $ 25,485,999
Other Assets, Less Liabilities -- 8.3% 2,298,343
-------------
NET ASSETS -- 100% $ 27,784,342
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Schedule of Investments -December 31, 1997
- --------------------------------------------------------------------------------
Notes to Schedule of Investments:
144A - Securities exempt from registration under Rule 144A of the Securities Act
of 1933.
These securities may be resold in transactions exempt from registration.
FNMA - Federal National Mortgage Association
FLIRB - Front Loaded Interest Reduction Bond
JPY - Japanese Yen
JGB - Japanese Government Bond
(1) Denominated in United States currency except for foreign country specific
bonds which are denominated in their respective local currency.
+ Denotes all or part of security pledged as a margin deposit on open
financial future contracts (Note 6).
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $25,932,408) $ 25,485,999
Cash 1,739,820
Interest and dividends receivable 549,631
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 79,830
Miscellaneous receivable 18,057
Receivable for daily variation margin on open financial futures contracts (Note 5) 5,297
Deferred organization costs (Note 1E) 5,279
Receivable for investments sold 1,810
------------
Total assets 27,885,723
Liabilities
Options written, at value (premiums received $56,081) (Note 5) $ 49,055
Unrealized depreciation on forward foreign currency exchange contracts (Note
5) 7,515
Accrued trustees' fees (Note 2) 1,328
Payable to investment adviser (Note 2) 1,822
Accrued accounting and custody fees 12,871
Accrued expenses and other liabilities 28,790
-----------
Total liabilities 101,381
------------
Net Assets (applicable to investors' beneficial interests) $ 27,784,342
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Statement of Operations
For the period June 2, 1997
(commencement of operations) to
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1C)
Interest income $ 665,247
Dividend income (net of foreign withholding taxes of $76) 79,562
---------
Total income 744,809
Expenses
Investment advisory fee (Note 2) $ 45,742
Accounting and custody fees 44,197
Legal and audit services 43,990
Amortization of organization expense (Note 1E) 689
Miscellaneous 3,632
---------
Total expenses 138,250
Deduct:
Waiver of investment advisory fee (Note 2) (45,742)
Reimbursement of operating expenses (Note 2) (92,508)
---------
Total waiver of investment advisory fee and reimbursement of operating
expenses (138,250)
---------
Net expenses 0
---------
Net investment income 744,809
---------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities transactions $ (2,449)
Financial futures contracts 126,565
Written options transactions 2,133
Foreign currency transactions and forward foreign currency exchange
contracts 5,871
---------
Net realized gain 132,120
Change in unrealized appreciation (depreciation)
Investment securities (446,409)
Financial futures contracts (8,285)
Written options 7,026
Foreign currency and forward foreign currency exchange contracts 69,743
---------
Change in net unrealized depreciation (377,925)
---------
Net realized and unrealized loss (245,805)
---------
Net increase in net assets from operations $ 499,004
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
June 2, 1997
(commencement of operations)
to December 31, 1997
--------------------------------
<S> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 744,809
Net realized gain 132,120
Change in net unrealized depreciation (377,925)
-----------
Net increase in net assets from operations 499,004
-----------
Capital transactions
Contributions 27,429,704
Withdrawals (144,366)
-----------
Increase in net assets resulting from capital transactions 27,285,338
-----------
Total increase in net assets 27,784,342
-----------
Net Assets
At beginning of period --
-----------
At end of period $27,784,342
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
June 2, 1997
(commencement of operations)
to December 31, 1997
--------------------------------
<S> <C>
Ratios (to average daily net assets):
Expenses* --+
Net investment income* 8.07%+
Portfolio Turnover 25%
Net assets, end of period (000s omitted) $27,784
- ----------
* The investment adviser voluntarily agreed not to impose its investment
advisory fee and reimbursed the Portfolio for all of its operating expenses
for the period ended December 31, 1997. If these voluntary actions had not
been taken, the ratios would have been:
Ratios (to average daily net assets):
Expenses 1.50%+
Net investment income 6.57%+
+ Computed on an annualized basis.
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. Standish
Diversified Income Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
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 primarily using dealer-supplied valuations or at their fair value
as determined in good faith under consistently applied procedures under
the general supervision of the Board of Trustees.
Short-term instruments with less than sixty-one days remaining to maturity
when acquired by the Portfolio are valued on an amortized cost basis. If
the Portfolio acquires a short-term instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost
based upon the value on such date unless the trustees determine during
such sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest income
is determined on the basis of interest accrued. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income Taxes
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all
or substantially all of their assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification
requirements applicable to regulated investment companies (under the
Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio will allocate at least annually among its investors each
investor's distributive share of the Portfolio's net investment income,
net realized capital gains, and any other items of income, gain, loss
deduction or credit.
21
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Deferred Organizational Expenses
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis through
June 2002. These costs were paid for by the investment adviser and will be
reimbursed by the Portfolio.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish Investment Management
Company, L.P. ("SIMCO") for overall investment advisory and administrative
services is paid monthly at the annual rate of 0.50% of the Portfolio's
average daily net assets. For the year ended December 31, 1997, SIMCO
voluntarily agreed to limit the Portfolio's operating expenses (excluding
brokerage commissions, taxes and extraordinary expenses) to 0.00% of the
Portfolio's average daily net assets. Pursuant to this agreement, SIMCO
voluntarily did not impose $45,742 of its investment advisory fee and
reimbursed the Portfolio for its operating expenses of $92,508. The
Portfolio Trust pays no compensation directly to its trustees who are
affiliated with SIMCO or to its officers, all of whom receive remuneration
for their services to the Portfolio Trust from SIMCO. Certain of the
trustees and officers of the Portfolio Trust are limited partners or
officers of SIMCO.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- ------------
<S> <C> <C>
U.S. Government Securities $ 4,971,041 $ 2,716,595
============= ===========
Investments (non-U.S. Government Securities) $ 28,889,378 $ 6,951,026
============= ===========
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1997, as computed on a
federal income tax basis, were as follows:
Aggregate Cost $ 25,933,024
=================
Gross unrealized appreciation $ 275,530
Gross unrealized depreciation (722,555)
-----------------
Net unrealized appreciation (depreciation) $ (447,025)
=================
22
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The nature,
risks and objectives of these investments are set forth more fully in
Parts A and B of the Master Portfolio registration statement.
The Portfolio trades the following financial instruments with off-balance
sheet risk:
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before a
certain date. The Portfolio may use options to seek to hedge against risks
of market exposure and changes in security 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 contracts terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investments securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option. A summary of such
transactions for the period June 2, 1997 (commencement of operations) to
December 31, 1997 is as follows.
<TABLE>
Written Put Option Transactions
--------------------------------------------------------------------------
------------- -------------
Number of
Contracts Premiums
------------- -------------
<S> <C> <C>
Outstanding, beginning of period.................... 0 0
Options written..................................... 6 23,763
Options exercised................................... 0 0
Options expired..................................... 0 0
Options closed...................................... (1) (2,310)
------------- -----------
Outstanding, end of period.......................... 5 $21,453
============= ===========
Written Call Option Transactions
--------------------------------------------------------------------------
------------- -------------
Number of
Contracts Premiums
------------- -------------
Outstanding, beginning of period.................... 0 0
Options written..................................... 7 11,720
Options exercised................................... 0 0
Options expired..................................... (1) (2,415)
Options closed...................................... (2) (3,375)
------------- -----------
Outstanding, end of period.......................... 4 $5,930
============= ===========
</TABLE>
23
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Written Cross Currency Option Transactions
---------------------------------------------------------------------------
------------- -------------
Number of
Contracts Premiums
------------- -------------
<S> <C> <C>
Outstanding, beginning of period....................... 0 0
Options written........................................ 4 29,260
Options exercised...................................... 0 0
Options expired........................................ 0 0
Options closed......................................... (1) (562)
------------- -----------
Outstanding, end of period............................. 3 $28,698
============= ============
</TABLE>
Futures Contracts
The Portfolio may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices at
a fixed price on a future date. The Portfolio is required to deposit
either in cash or securities an amount equal to a certain percentage of
the contract amount. Subsequent payments are made or received by the
Portfolio each day, dependent on the daily fluctuations in the value of
the underlying security, and are recorded for financial statement purposes
as unrealized gains or losses by the Portfolio. There are several risks in
connection with the use of futures contracts as a hedging device. The
change in value of futures contracts primarily corresponds with the value
of their underlying instruments or index, which may not correlate with
changes in value of the hedged investments. Buying futures tends to
increase the Portfolios exposure to the underlying instrument, while
selling futures tends to decrease the Portfolio's exposure to the
underlying instrument or hedge other 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. At December 31, 1997, the Portfolio held the following futures
contracts:
<TABLE>
<CAPTION>
Underlying
Face/amount at Unrealized
Contract Position Expiration Date value Gain/(Loss)
-------------------------------------- -------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
U.S. 5 Year Note (1 Contract) Long 3/20/98 $108,625 $ 271
U.S. Long Bond (28 Contracts) Long 3/20/98 3,373,125 17,251
U.S. 10 Year Bond (37 Contracts) Short 3/20/98 4,149,781 (25,807)
--------------
$ (8,285)
==============
</TABLE>
At December 31, 1997, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
Forward currency exchange contracts
The Portfolio may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign currency
at a fixed price on a future date. Risks may arise upon entering these
contracts from the potential inability of counterparties to meet the terms
of their contracts and from unanticipated movements in the value of a
foreign currency relative to the U.S. dollar and other foreign currencies.
The forward foreign currency and cross currency exchange contracts are
marked to market using the forward foreign currency rate of the underlying
currency and any gains or losses are recorded for financial statement
purposes as unrealized until the contract settlement date or upon the
closing of the contract. Forward currency exchange contracts are used by
the Portfolio primarily to protect the value of the Portfolio's foreign
securities from adverse currency movements. Unrealized appreciation and
depreciation of forward currency exchange contracts is included in the
Statement of Assets and Liabilities.
24
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1997, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
Forward Foreign Currency Contracts
<TABLE>
<CAPTION>
Local U.S.$
Principal Contract U.S.$ Market U.S.$ Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
---------------------------------------------- ----------------- --------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
Argentinian Peso.................. 843,355 10/27-10/28/98 $ 805,910 $ 810,000 $ 4,090
Australian Dollar................. 128,840 2/06-2/10/98 83,984 90,176 6,192
Brazilian Real.................... 17,175 1/29/98 15,190 15,000 (190)
British Pound Sterling............ 442,438 3/10-5/14/98 723,003 733,858 10,855
German Deutsche Mark.............. 2,160,483 1/09-5/29/98 1,203,741 1,234,207 30,466
Danish Krone...................... 522,128 5/06/98 81,096 84,943 3,847
Hong Kong Dollar.................. 4,788,264 12/29/98-10/14/99 583,550 585,000 1,450
New Zealand Dollar................ 118,306 2/13/98 68,394 75,160 6,766
Polish Zloty...................... 100,461 9/18/98 25,310 25,000 (310)
Republic of Korea Won............. 28,320,000 8/03/98 15,806 30,000 14,194
--------------- ---------------- ---------------
$ 3,605,984 $ 3,683,344 $ 77,360
=============== ================ ===============
<CAPTION>
Local U.S.$
Principal Contract U.S.$ Market U.S.$ Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
---------------------------------------------- ------------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark.............. 191,358 2/11-9/18/98 $ 106,963 $ 111,943 $ (4,980)
Irish Punt........................ 426 7/20/98 607 625 (18)
Republic of Korea Won............. 28,320,000 8/03/98 15,806 15,942 (136)
--------------- ----------------- ---------------
$ 123,376 $ 128,510 $ (5,134)
=============== ================= ===============
Forward Foreign Cross Currency Contracts
U.S. $
U.S.$ Market U.S. $ Contract Unrealized
Contracts to Deliver Value In Exchange For Market Value Value Date Gain/(Loss)
-------------------------------- -------------- ------------------ --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Irish Punt........................ $ 3,974 Belgian Franc $ 4,088 7/20/98 $ 113
Irish Punt........................ 9,294 Belgian Franc 9,537 7/20/98 243
Belgian Franc..................... 13,626 Irish Punt 13,077 7/20/98 (549)
Belgian Franc..................... 13,626 Irish Punt 13,065 7/20/98 (561)
Irish Punt........................ 13,278 Belgian Franc 13,626 7/20/98 348
French Franc...................... 16,797 Irish Punt 16,025 7/20/98 (771)
Irish Punt........................ 16,227 French Franc 16,797 7/20/98 569
German Deutsche Mark.............. 24,456 Polish Zloty 25,153 9/18/98 697
------------ ------------- -------------
$ 111,278 $ 111,368 $ 89
============ ============= =============
</TABLE>
25
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Diversified Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Concentration of Risk:
The Portfolio invests in low rated (non-investment grade) and comparable
quality unrated high yield securities. Investments in high yield
securities are accompanied by a greater degree of credit risk and the risk
tends to be more sensitive to economic conditions than higher rated
securities. The risk of loss due to default of an issuer may be
significantly greater for holders of high yield securities, because such
securities are generally unsecured and are often subordinated to other
creditors of the issuer.
There are certain additional considerations and risks associated with
investing in foreign securities and currency transactions that are not
inherent with investments of domestic origin. The Portfolio's investment
in emerging market countries may involve greater risks than investments in
more developed markets and the price of such investments may be volatile.
These risks of investing in foreign and emerging markets may include
foreign currency exchange rate fluctuations, perceived credit risk,
adverse political and economic developments and possible adverse foreign
government intervention.
26
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Diversified Income Portfolio:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Master Portfolio: Standish Diversified Income
Portfolio, including the schedule of investments as of December 31, 1997,
and the related statement of operations and the statement of changes in
net assets and the supplementary data for the period from June 2, 1997
(commencement of operations) to December 31, 1997. 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 audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether
the financial statements and supplementary data are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31,
1997, by correspondence with the custodian and brokers; where replies were
not received from brokers we performed other auditing procedures. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the financial statements and supplementary data referred
to above present fairly, in all material respects, the financial position
of Standish, Ayer & Wood Master Portfolio: Standish Diversified Income
Portfolio as of December 31, 1997, and the results of its operations,
changes in its net assets and supplementary data for the respective stated
period, in conformity with United States generally accepted accounting
principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 19, 1998
27
<PAGE>
[STANDISH LOGO]
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, MA 02111
(800) 221-4795
98-059
