Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Small Capitalization Equity Portfolio II ("Portfolio"),
at value (Note 1A) $ 11,480,804
Other assets 1,439
-------------
Total assets 11,482,243
Liabilities
Payable to investment advisor (Note 3) 8,307
Accrued accounting, custody and transfer agent fees 254
Payable for Fund shares redeemed 738
Accrued trustees' fees (Note 3) 1,893
Accrued expenses and other liabilities 12,738
------------
Total liabilities 23,930
-------------
Net Assets $ 11,458,313
=============
Net Assets consist of:
Paid-in capital $ 9,858,463
Accumulated distributions in excess of net realized gain (54,579)
Undistributed net investment income 12,368
Net unrealized appreciation 1,642,061
=============
Total Net Assets $ 11,458,313
=============
Shares of beneficial interest outstanding 398,735
=============
Net asset value, offering and redemption price per share
(Net assets/Shares outstanding) $ 28.74
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 10,982
Dividend income allocated from Portfolio 7,217
----------
Net investment income from Portfolio 18,199
Expenses
Registration fees $ 19,260
Accounting, custody and transfer agent fees 7,645
Trustees' fees (Note 3) 2,004
---------
Total expenses 28,909
Deduct:
Reimbursement of Fund operating expenses (28,909)
---------
Net expenses --
----------
Net investment income 18,199
----------
Realized and Unrealized Gain
Net realized gain allocated from Portfolio on:
Investment security transactions 366,885
---------
Net realized gain 366,885
Change in unrealized appreciation (depreciation) allocated from Portfolio on:
Investment securities 474,522
---------
Change in net unrealized appreciation (depreciation) 474,522
----------
Net realized and unrealized gain on investments 841,407
----------
Net increase in net assets resulting from operations $ 859,606
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Six Months December 23, 1996
Ended Nine Months (commencement of
March 31, 1998 Ended operations) to
(Unaudited) September 30, 1997 December 31, 1996
-------------- -------------------- --------------------
<S> <C> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 18,199 $ 8,488 $ 198
Net realized gain 366,885 129,163 --
Change in net unrealized appreciation
(depreciation) 474,522 1,158,569 8,970
------------ ----------- ---------
Net increase in net assets from operations 859,606 1,296,220 9,168
------------ ----------- ---------
Distributions to Shareholders
From net investment income (12,372) (2,145) --
From net realized gain (550,627) -- --
------------ ----------- ---------
Total distributions to shareholders (562,999) (2,145) --
------------ ----------- ---------
Fund share (principal) Transactions (Note 5)
Net proceeds from sale of shares 5,007,739 5,177,545 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared 555,593 1,978 --
Cost of shares redeemed (715,184) (644,208) --
------------ ----------- ---------
Increase in net assets from Fund share
transactions 4,848,148 4,535,315 475,000
------------ ----------- ---------
Net increase in net assets 5,144,755 5,829,390 484,168
Net Assets
At beginning of period 6,313,558 484,168 --
------------ ----------- ---------
At end of period (including undistributed net
investment income of $12,368, $6,541and $198, $11,458,313 $6,313,558 $484,168
respectively) ============ =========== =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Six Months December 23, 1996
Ended Nine Months (commencement of
March 31, 1998 Ended operations) to
(Unaudited) September 30, 1997 December 31, 1996
--------------- -------------------- -------------------
<S> <C> <C> <C>
Net asset value, beginning of period $ 29.12 $20.39 $20.00
--------- ------- -------
Income from operations:
Net investment income * 0.05 0.03 --
Net realized and unrealized gain on investments 1.39 8.71 0.39
--------- ------- -------
Total from investment operations 1.44 8.74 0.39
--------- ------- -------
Less distributions declared to shareholders
From net investment income (0.04) (0.01) --
From net realized gain on investments (1.78) -- --
--------- ------- -------
Total distributions (1.82) (0.01) --
--------- ------- -------
Net asset value, end of period $ 28.74 $29.12 $20.39
========= ======= =======
Total return 6.27% 42.94% --(1)
Ratios (to average daily net assets)/Supplemental Data
Net assets, end of period (000's omitted) $ 11,458 $6,314 $ 484
Expenses * (2) --+ --+ --(1)
Net investment income * (2) 0.42%+ 0.49%+ --(1)
</TABLE>
- -------------------
* The investment adviser did not impose a portion of its advisory fee and/or
reimbursed a portion of the Fund's operating expenses. If this voluntary
reduction had not been taken, the net investment income per share and the
ratios would have been:
<TABLE>
<S> <C> <C> <C>
Net investment loss per share $ (0.07) $(0.25) --(1)
Ratios (to average daily net assets):
Expenses (2) 0.66%+ 3.56%+ --(1)
Net investment income (loss) (0.24)%+ (3.07)%+ --(1)
</TABLE>
(1) Amounts are not meaningful due to the short period of operations.
(2) Includes the Fund's share of the Standish Small Capitalization Equity II
Portfolio's allocated expenses for the periods since commencement of
operations.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(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 an interest in 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 March 31, 1998). 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.
(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 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).
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(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 six month period ended March 31, 1998,
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 six months ended March 31, 1998, SA&W voluntarily reimbursed the
Fund for its operating expenses in the amount of $28,909. 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
six months ended March 31, 1998 aggregated $5,056,145 and $731,307,
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
Six Months Ended Nine Months Ended operations) to
March 31, 1998 September 30, 1997 December 31, 1996
--------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Shares sold............................ 187,697 222,940 23,750
Shares issued to shareholders in
payment of distributions declared... 23,472 69 0
Shares redeemed........................ (29,252) (29,941) 0
--------------------- ---------------------- ======================
Net increase/(decrease)................ 181,917 193,068 23,750
===================== ====================== ======================
</TABLE>
At March 31, 1998, the Fund had two shareholders of record owning
approximately 18%, and 11% of the Fund's outstanding voting shares.
7
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 97.2%
Capital Goods -- 9.4%
Aviation Sales Co.* 3,100 $ 127,100
Eagle USA Airfreight, Inc.* 3,400 91,800
Expeditors Intl Wash Inc. 1,800 77,175
Flextronics International Ltd.* 2,600 112,288
Hagler Bailly* 3,300 82,500
Kellstrom Industries, Inc.* 5,000 125,938
Power-One, Inc.* 4,100 69,700
Service Experts, Inc.* 4,000 125,750
Tetra Technologies, Inc.* 3,000 74,250
Triumph Group, Inc.* 4,300 190,812
--------------
1,077,313
--------------
Consumer Stable -- 4.8%
800-Jr Cigar, Inc.* 3,100 62,000
Arbor Drugs, Inc. 3,150 74,222
Beringer Wine Estates* 3,500 180,687
Performance Food Group Co. 2,900 59,813
Robert Mondavi Corp., Class A* 3,000 123,750
Wilmar Industries, Inc.* 2,300 57,213
--------------
557,685
--------------
Early Cyclical -- 3.2%
Aftermarket Technology, Inc.* 5,100 112,838
Atlantic Coast Airlines, Inc.* 1,700 81,600
Hospitality Worldwide Services 10,000 98,125
Midwest Express Holdings 1,600 78,400
--------------
370,963
--------------
Energy -- 4.2%
Cal Dive International, Inc.* 3,900 128,700
Friede Goldman Intl, Inc. 5,500 158,812
Newpark Resources, Inc. 4,000 73,000
Veritas DGC, Inc.* 2,400 121,350
--------------
481,862
--------------
Financial -- 3.1%
Bay View Capital Corp. 2,400 83,400
CCC Information Services Group* 3,800 104,500
First Republic Bank* 3,300 118,800
Friedman Billings Ramsey, Class A 3,200 53,600
--------------
360,300
--------------
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Growth Cyclical -- 11.9%
Alliance Gaming Corp.* 16,900 $ 91,894
American Coin Merchandising* 5,000 100,000
Apple South, Inc. 4,400 65,175
Atria Communities, Inc.* 3,700 71,225
Central Garden & Pet Co.* 3,600 140,625
Coach USA, Inc.* 5,500 239,249
Gadzooks, Inc.* 7,100 158,862
PC Connection, Inc.* 1,600 34,000
Regal Cinemas 3,200 96,000
Scientific Games Holdings Corp.* 4,100 85,844
Stein Mart, Inc.* 2,200 78,375
Travel Services, Inc. 3,300 109,725
Wet Seal, Inc., Class A 2,600 98,313
--------------
1,369,287
--------------
Health Care -- 19.1%
Affymetrix, Inc.* 3,200 111,400
Alkermes, Inc. 3,500 87,063
AXYS Pharmaceuticals, Inc.* 5,800 50,750
Chirex, Inc.* 5,700 107,944
CN Bioscience, Inc.* 5,000 130,000
Coulter Pharmaceutical, Inc.* 6,100 166,987
Endosonics Corp. 6,600 68,475
Guilford Pharmaceuticals, Inc.* 5,200 114,400
HCIA, Inc. 4,600 67,850
Impath, Inc.* 3,000 114,750
Inhale Therapeutic Systems* 3,000 81,375
Ligand Pharmaceuticals, Class B* 7,500 119,531
Neurogen Corp. 2,900 44,588
Novoste Corp.* 4,500 116,719
Pharmaceutical Product Development* 6,900 161,287
Quadramed Corp.* 4,100 136,838
Sepracor, Inc.* 2,100 89,513
Specialty Care Network, Inc.* 9,100 110,906
Transition Systems, Inc.* 5,500 112,063
Vertex Pharmaceuticals, Inc. 2,100 67,069
Vical, Inc.* 8,300 130,725
--------------
2,190,233
--------------
Other -- 1.9%
S&P 400 Mid-Cap Depository Receipt 3,000 213,889
--------------
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Services -- 19.2%
Abacus Direct Corp.* 2,000 $ 104,500
Billing Info Concepts Corp. 4,000 103,750
Computer Horizons Corp. 1,600 80,400
Computer Task Group, Inc. 3,400 140,038
Devry, Inc.* 1,600 54,700
Emmis Broadcasting Corp., Class A* 1,500 79,125
First Consulting Group, Inc. 1,800 37,125
Gray Communications Systems, Class B 5,100 147,900
Harbinger Corp.* 3,300 124,575
Inspire Insurance Solutions* 4,800 159,599
Intelligroup, Inc.* 6,400 103,600
Intl Telecomm Data Systems 3,150 82,294
Metzler Group, Inc.* 2,200 109,450
On Assignment, Inc. 3,000 88,875
Renaissance Worldwide, Inc. 4,200 115,238
Scandinavian Broadcast Systems Corp.* 13,500 445,499
Scholastic Corp.* 2,100 88,725
Telegroup, Inc.* 6,700 135,675
--------------
2,201,068
--------------
Technology -- 20.4%
Aspen Technologies, Inc.* 3,700 152,625
ATMI, Inc.* 8,300 251,074
Benchmarq Microelectronics* 4,800 82,800
Best Software, Inc.* 10,200 154,275
Datastream Systems, Inc. 3,100 68,588
Excite, Inc.* 1,000 50,938
Hyperion Software Corp.* 1,900 84,075
Infinium Software, Inc.* 12,400 247,224
Infoseek Corp.* 3,000 54,188
Lecroy Corp.* 3,000 63,750
Level One Communications, Inc. 2,250 52,875
Lycos, Inc.* 2,400 106,200
Micrel, Inc. 4,200 159,337
N2K, Inc.* 300 8,963
National Computer System, Inc. 4,400 99,000
PCD, Inc.* 4,500 101,250
Photronics, Inc. 4,300 120,400
PRI Automation, Inc.* 3,100 81,181
Radiant Systems, Inc.* 2,400 59,400
Sanmina Corp. 800 55,950
Sawtek, Inc.* 3,100 78,663
Semtech Corp. 3,300 84,150
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Technology (continued)
Walsh International, Inc.* 7,900 $ 122,450
--------------
2,339,356
--------------
TOTAL EQUITIES (COST $9,519,869) 11,161,956
--------------
TOTAL INVESTMENTS-- 97.2% (COST $9,519,869) $ 11,161,956
Other Assets, Less Liabilities-- 2.8% 318,986
--------------
NET ASSETS-- 100% $ 11,480,942
==============
Notes to the Schedule of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
March 31, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $9,519,869) $ 11,161,956
Cash 524,509
Receivable for investments sold 39,026
Interest and dividends receivable 3,290
Deferred organization costs (Note 1E) 22,940
Prepaid expenses 12,701
-------------
Total assets 11,764,422
Liabilities
Payable for investments purchased $ 262,509
Payable to investment advisor (Note 2) 16,145
Accrued accounting and custody fees 2,889
Accrued trustees' fees (Note 2) 1,937
------------
Total liabilities 283,480
-------------
Net Assets (applicable to investors' beneficial interests) $ 11,480,942
=============
</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
Statement of Operations
- --------------------------------------------------------------------------------
For the Six Months Ended March 31, 1998 (Unaudited)
<TABLE>
<S> <C> <C>
Investment Income (Note 1C)
Interest income $ 10,982
Dividend income 7,217
-----------
Total income 18,199
Expenses
Investment advisory fee (Note 2) $ 26,259
Accounting and custody fees 7,663
Amortization of organization cost (Note 1E) 3,065
Miscellaneous 6,760
----------
Total expenses 43,747
----------
Deduct:
Waiver of investment advisory fee (Note 2) (26,259)
Reimbursement of Portfolio operating expenses (17,488)
----------
Total waiver of investment advisory fee and
reimbursement of operating expenses (43,747)
----------
Net expenses --
-----------
Net investment income 18,199
-----------
Realized and Unrealized Gain
Net realized gain
Investment security transactions 366,893
----------
Net realized gain 366,893
Change in unrealized appreciation (depreciation)
Investment securities 474,523
----------
Change in net unrealized appreciation (depreciation) 474,523
-----------
Net realized and unrealized gain 841,416
-----------
Net increase in net assets from operations $ 859,615
===========
</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
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Six Months December 23, 1996
Ended Nine Months Ended (commencement of
March 31, 1998 September 30, 1997 operations) to
(Unaudited) December 31, 1996
--------------- ------------------- ---------------------
<S> <C> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 18,199 $ 8,488 $ 198
Net realized gain 366,893 129,166 --
Change in net unrealized appreciation
(depreciation) 474,523 1,158,595 8,970
------------ ----------- ----------
Net increase in net assets from operations 859,615 1,296,249 9,168
------------ ----------- ----------
Capital transactions
Contributions 5,056,146 5,257,608 475,000
Withdrawals (731,309) (741,535) --
------------ ----------- ----------
Increase in net assets resulting from
capital transactions 4,324,837 4,516,073 475,000
------------ ----------- ----------
Total increase in net assets 5,184,452 5,812,322 484,168
Net Assets
At beginning of period 6,296,490 484,168 --
------------ ----------- ----------
At end of period $11,480,942 $6,296,490 $ 484,168
============ =========== ==========
</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
Supplementary Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Six Months December 23, 1996
Ended Nine Months (commencement of
March 31, 1998 Ended operations) to
(Unaudited) September 30, 1997 December 31, 1996
--------------- -------------------- -------------------
<S> <C> <C> <C>
Ratios (to average daily net assets)
Expenses * 0.00%+ 0.00%+ --(1)
Net investment income 0.41%+ 0.50%+ --(1)
Portfolio turnover 60% 122% --
Average broker commission per share (2) $0.0407 $0.0768 $0.2000
Net assets, end of period (000's omitted) $11,481 $ 6,296 $ 484
</TABLE>
- ----------
* The investment adviser did not impose any of its investment advisory fee and
reimbursed the Portfolio for all of its operating expenses. If these
voluntary actions had not been taken, the ratios would have been:
<TABLE>
<CAPTION>
Ratios (to average daily net assets):
<S> <C> <C> <C>
Expenses 1.00%+ 4.33%+ --(1)
Net investment income (loss) (0.58)%+ (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.
15
<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 March 31,
1998, 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 Sec 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.
16
<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.
(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 six month period ended March 31, 1998, 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 six months ended
March 31, 1998, SA&W voluntarily waived its investment advisory fee of
$26,259, and reimbursed the Portfolio for its operating expenses of
$17,488. 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:
Cost of purchases and proceeds from sales of investments, other than
short-term obligations were as follows:
<TABLE>
<CAPTION>
For the Period
December 23, 1996
Six Months Ended Nine Months Ended (commencement of operations
March 31, 1998 September 30, 1997 to December 31 1996
------------------------- ------------------------- -------------------------
Purchases Sales Purchases Sales Purchases Sales
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government Securities . $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== =========== =========== ===========
Investments (non-U.S
Government Securities) ..... $10,621,658 $ 6,574,006 $ 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 March 31, 1998, as computed on a federal
income tax basis, were as follows:
Aggregate Cost....................................... $ 9,519,869
==============
Gross unrealized appreciation........................ $ 1,920,057
Gross unrealized depreciation........................ $ (277,970)
--------------
Net unrealized appreciation (depreciation)........... $ 1,642,087
==============
17
<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 Portfolio Trust's 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 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 six months ended March 31, 1998.
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. Pursuant to margin requirements, the
Portfolio deposits 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 seek 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 March 31, 1998.
18
