Standish, Ayer & Wood Investment Trust
Standish Fixed 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 Fixed Income Fund
Management Discussion
1997 was a good year for bonds as the major indices returned between 9.5% and
10%, with the second half of the year providing most of the positive results.
Over the course of the year, the yield of the 30-year Treasury declined from
6.64% at the beginning of the year to 5.92% by year end. On a quarterly basis,
bonds had a tough time during the first several months of the year as yields
rose as high as 7.17% amid fears of an overheating U.S. economy finally
triggering inflation. Instead, inflation remained remarkably under control and
bonds began to perform well in the second quarter as investors focused on a low
inflation, moderate growth scenario. This theme was generally accepted through
the second and third quarters which resulted in solid bond market returns. In
October, the Asian crisis added further support to bonds as there was a "flight
to quality" as investors sought the U. S. Treasury market as a "safe haven". The
looming impact of the crisis on the U.S. economy which will surely be negative
to some degree also gave bonds a boost. Against this backdrop, the Fund provided
a return of 9.54%, which slightly underperformed the Lehman Brothers Aggregate
and Government/Corporate indices which garnered returns of 9.68% and 9.75%,
respectively.
On a relative return basis, the Fund performed well through the first three
quarters of the year but had a very difficult fourth quarter when U. S.
Treasuries outperformed all sectors or "spread" product which the Portfolio
overweights relative to the indices. A very small allocation to high quality
Asian corporates negatively impacted the portfolio although we remain confident
of the longer term prospects of the entities. On a more positive note, the
Portfolio's allocation to nondollar bonds performed well as overweight positions
in dollar bloc markets and the U.K. were particularly beneficial. Mortgages also
performed well despite the substantial drop in rates over the course of the
year. During the year, we trimmed mortgages to an underweight position as
pricing in this sector looked full, given conditions in the market. During the
course of the year, options were used in the Fund up to a 6% notional value of
the portfolio. Options allowed us to adjust the duration of the portfolio, given
the prepayment risk of our mortgage position, as well as other hedging
strategies.
As we enter 1998, we have trimmed some of our longer dated corporate holdings as
we believe that the Asian crisis could still negatively impact our markets. We
remain underweighted in mortgages, looking for a good reentry point as mortgage
spreads widen. Currently, we are maintaining our nondollar allocation. We also
are invested in an usually high percentage of U.S. Treasuries for our style,
expecting some continuation of the defensive posture of the base market. As
always, we are committed to intensive research with our sector oriented research
teams.
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 feeder.
In closing, we thank you for your continued confidence as shareholders and hope
that this information is helpful to you in reviewing your overall investment
strategies.
/s/ Caleb F. Aldrich
Caleb F. Aldrich
3
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Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Comparison of Change in Value of $100,000 Investment in Standish Fixed
Income Fund, Lehman Gov't/Corp Index and Lehman Aggregate Index
[The following table was represented as a mountain graph in the printed
material.]
Standish Lehman Lehman
Fixed Gov't/Corp. Aggregate
Inception Income Fund Index Index
3/30/87 100000 100000 100000
4/30/87 98600 97340 97260
5/29/87 97700 96902 96881
6/30/87 98850 98104 98218
7/31/87 98850 97888 98139
8/31/87 98698 97340 97609
9/30/87 96613 95247 95530
10/30/87 98647 98819 98931
11/30/87 99581 99451 99722
12/31/87 100619 100813 101079
1/29/88 104275 104261 104637
2/29/88 105811 105460 105882
3/31/88 105016 104416 104886
4/29/88 104692 103811 104320
5/31/88 104150 103115 103621
6/30/88 106261 105445 106118
7/31/88 105985 104844 105567
8/31/88 106040 105117 105841
9/30/88 108365 107419 108233
10/31/88 110175 109320 110268
11/30/88 109044 108085 108934
12/31/88 109213 108453 109053
1/31/89 110778 109895 110624
2/28/89 110199 109060 109827
3/31/89 110547 109649 110300
4/28/89 112506 111962 112605
5/31/89 115474 114717 115566
6/30/89 118918 118456 119080
7/31/89 121286 120920 121616
8/31/89 119586 119046 119816
9/29/89 120254 119570 120427
10/31/89 122988 122607 123390
11/30/89 123921 123710 124562
12/29/89 124231 123896 124898
1/31/90 122960 122186 123412
2/28/90 123278 122455 123807
3/31/90 123596 122467 123893
4/30/90 122815 121340 122754
5/31/90 126196 124859 126387
6/30/90 128147 126882 128422
7/31/90 130473 128455 130194
8/31/90 128811 126593 128450
9/30/90 129277 127643 129516
10/31/90 130636 129341 131160
11/30/90 133491 132161 133980
12/31/90 135666 134156 136071
1/31/91 137816 135659 137758
2/28/91 139550 136826 138929
3/31/91 139966 137770 139887
4/30/91 141873 139354 141398
5/31/91 142861 140009 142218
6/30/91 142367 139855 142147
7/31/91 144591 141617 144123
8/31/91 147677 144874 147236
9/30/91 151193 147902 150225
10/31/91 153243 149219 151892
11/30/91 154488 150711 153290
12/31/91 159638 155790 157843
1/31/92 157201 153484 155696
2/29/92 158952 154298 156708
3/31/92 158127 153449 155830
4/30/92 158980 154370 156952
5/31/92 162857 157364 159919
6/30/92 165960 159678 162126
7/31/92 168724 163765 165433
8/31/92 170620 165223 167104
9/30/92 171647 167470 169092
10/31/92 168106 164908 166843
11/30/92 167865 164759 166877
12/31/92 170632 167593 169530
1/31/93 174784 171247 172785
2/28/93 179184 174808 175809
3/31/93 180679 175403 176547
4/30/93 182285 176753 177783
5/31/93 182792 176665 178014
6/30/93 186848 180675 181236
7/31/93 189083 181832 182269
8/31/93 193294 186014 185459
9/30/93 193208 186665 185960
10/31/93 195306 187430 186648
11/30/93 193558 185312 185061
12/31/93 195586 186128 186061
1/31/94 198808 188920 188572
2/28/94 193929 184801 185291
3/31/94 187763 180273 180715
4/30/94 185513 178777 179269
5/31/94 184950 178455 179251
6/30/94 184224 178045 178857
7/31/94 187561 181624 182416
8/31/94 187847 181696 182635
9/30/94 185464 178953 179950
10/31/94 185367 178756 179788
11/30/94 184979 178434 179393
12/31/94 186045 179612 180630
1/31/95 189193 183060 184207
2/28/95 193325 187307 188591
3/31/95 194211 188562 189741
4/30/95 197507 191183 192398
5/31/95 204900 199194 199844
6/30/95 205699 200787 201302
7/31/95 206105 200013 200859
8/31/95 208741 202572 203283
9/30/95 210768 204630 205255
10/31/95 214060 207638 207923
11/30/95 217352 211064 211042
12/31/95 220540 214166 213997
1/31/96 222438 215494 215409
2/29/96 218643 210926 211661
3/31/96 217062 209154 210180
4/30/96 216313 207711 209003
5/31/96 215885 207358 208585
6/30/96 218880 210136 211380
7/31/96 219749 210620 211950
8/31/96 219857 210114 211590
9/30/96 224526 213854 215272
10/31/96 229594 218837 220051
11/30/96 234111 222870 223814
12/31/96 232616 220396 221732
1/31/97 233862 220661 222419
2/28/97 235109 221124 222975
3/31/97 232249 218493 220500
4/30/97 235354 221683 223808
5/31/97 237883 223745 225934
6/30/97 240987 226429 228623
7/31/97 247403 233358 234796
8/31/97 245303 230745 232800
9/30/97 249267 234367 236245
10/31/97 251397 238117 239671
11/30/97 252343 239379 240773
12/31/97 254818 241893 243205
4
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Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1997
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<TABLE>
<S> <C> <C>
Assets
Investment in Standish Fixed Income Portfolio (Portfolio), at value (Note 1A) $ 3,325,622,596
Receivable for Fund shares sold 3,510,591
Prepaid expenses 89,188
---------------
Total assets 3,329,222,375
Liabilities
Distributions payable $19,978,655
Payable for Fund shares redeemed 20,751,752
Accrued trustees' fees (Note 3) 2,265
Accrued accounting and transfer agent fees 35,853
Accrued expenses and other liabilities 136,207
-----------
Total liabilities 40,904,732
---------------
Net Assets $ 3,288,317,643
===============
Net Assets consist of:
Paid-in capital $ 3,223,554,659
Accumulated net realized gain 7,600,878
Distributions in excess of net investment income (2,421,313)
Net unrealized appreciation 59,583,419
===============
Total Net Assets $ 3,288,317,643
===============
Shares of beneficial interest outstanding 158,068,105
===============
Net asset value, offering and redemption price per share
(Net assets/Shares outstanding) $ 20.80
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Operations
Year Ended December 31, 1997
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<TABLE>
<S> <C> <C>
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 199,818,078
Dividend income allocated from Portfolio (net of withholding taxes, $55,922) 6,202,602
Expenses allocated from Portfolio (10,313,208)
-------------
Net investment income allocated from Portfolio 195,707,472
Expenses
Registration fees $ 222,866
Accounting and transfer agent fees 190,311
Legal and audit services 100,196
Insurance expense 4,439
Miscellaneous 1,830
-----------
Total expenses 519,642
-------------
Net investment income 195,187,830
-------------
Realized and Unrealized Gain
Net realized gain allocated from Portfolio on:
Investment security transactions 22,188,926
Financial futures contracts 538,852
Written options transactions 1,492,272
Foreign currency transactions and forward foreign currency exchange
contracts 18,727,999
-----------
Net realized gain 42,948,049
Change in unrealized appreciation from Portfolio on:
Investment securities 15,276,383
Financial futures contracts 724,408
Written options 799,071
Foreign currency and forward foreign currency exchange contracts 10,956,745
-----------
Change in net unrealized appreciation 27,756,607
-------------
Net realized and unrealized gain on investments 70,704,656
-------------
Net increase in net assets resulting from operations $ 265,892,486
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1997 1996
------------- --------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 195,187,830 $ 171,135,807
Net realized gain 42,948,049 21,284,879
Change in net unrealized appreciation (depreciation) 27,756,607 (57,299,336)
------------- --------------
Net increase in net assets from operations 265,892,486 135,121,350
------------- --------------
Distributions to Shareholders
From net investment income (217,278,174) (176,422,831)
From net realized gain (17,660,360) --
------------- --------------
Total distributions to shareholders (234,938,534) (176,422,831)
------------- --------------
Fund share (principal) Transactions (Note 5)
Net proceeds from sale of shares 922,120,316 425,224,438
Net asset value of shares issued to shareholders
in payment of distributions declared 187,727,012 130,822,616
Cost of shares redeemed (456,111,906) (178,224,191)
------------- --------------
Increase in net assets from Fund share transactions 653,735,422 377,822,863
------------- --------------
Net increase in net assets 684,689,374 336,521,382
Net Assets
At beginning of year 2,603,628,269 2,267,106,887
------------- --------------
At end of year (including distributions in excess of net investment
income of $2,421,313 and undistributed net investment income of
$5,299,151, respectively) $3,288,317,643 $2,603,628,269
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1997 1996 (1) 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period $ 20.53 $ 20.92 $ 18.91 $ 21.25 $ 20.55
---------- ---------- ---------- ---------- ----------
Income from operations:
Net investment income 1.46 1.46 1.35 1.25 1.50
Net realized and unrealized gain
(loss) on investments 0.45 (0.37) 2.08 (2.29) 1.45
---------- ---------- ---------- ---------- ----------
Total from investment operations 1.91 1.09 3.43 (1.04) 2.95
---------- ---------- ---------- ---------- ----------
Less distributions to shareholders:
From net investment income (1.52) (1.48) (1.42) (1.10) (1.51)
In excess of net investment
income -- -- -- -- (0.04)
From net realized gain on
investments (0.12) -- -- (0.04) (0.70)
From paid-in capital -- -- -- (0.16) --
---------- ---------- ----------- ---------- ----------
Total distributions to shareholders (1.64) (1.48) (1.42) (1.30) (2.25)
---------- ---------- ---------- ---------- ----------
Net asset value, end of period $ 20.80 $ 20.53 $ 20.92 $ 18.91 $ 21.25
========== ========== ========== ========== ==========
Total return 9.54% 5.48% 18.54% (4.86)% 14.64%
Ratios (to average daily net assets)/Supplemental Data
Net assets, end of period
(000's omitted) $3,288,318 $2,603,628 $2,267,107 $1,642,933 $1,307,099
Expenses (2) 0.37% 0.38% 0.38% 0.38% 0.40%
Net investment income 6.76% 7.13% 7.80% 7.25% 7.07%
Portfolio turnover (3) -- 49% 132% 122% 150%
</TABLE>
- ----------
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's shares of Standish Fixed Income Portfolio's allocated
expenses for the year ended December 31, 1997 and for the period from May
3, 1996 to December 31, 1996.
(3) Portfolio turnover represents the rate of portfolio activity for the
period while the Fund was investing directly in securities, including the
period from January 1, 1996 through May 2, 1996. The portfolio turnover
rates for the period since the Fund transferred substantially all of its
investable assets to the Portfolio is shown in the Portfolio's financial
statements which are included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
8
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Standish, Ayer & Wood Investment Trust
Standish Fixed 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 Fixed 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 Fixed 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 investments 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. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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
each Portfolio are allocated pro rata among its respective investors in
the Portfolio.
(2) Distributions to Shareholders:
Dividends from net investment income will be declared and distributed
quarterly. The Fund's dividends from short-term and long-term capital
gains, if any, after reduction by capital losses will be declared and
distributed at least annually. 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 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. These differences are primarily due to
differing treatments for mortgage-backed securities, forward
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
foreign currency exchange contracts and foreign currency 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, 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. SA&W has voluntarily agreed to limit total
annual operating expenses of the Fund and Portfolio (excluding brokerage
commissions, taxes and extraordinary expenses) to 0.38% of the Fund's
average daily net assets. The 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 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
year ended December 31, 1997, aggregated $930,076,128 and $486,977,141,
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>
Year ended Year ended
December 31, 1997 December 31, 1996
------------------------ -----------------------
<S> <C> <C>
Shares sold 43,977,522 20,679,081
Shares issued in payment of distributions declared 9,043,534 6,418,558
Shares redeemed (21,760,201) (8,638,095)
--------------------- -------------------
Net increase 31,260,855 18,459,544
===================== ===================
</TABLE>
- --------------------------------------------------------------------------------
Supplemental Tax Information (Unaudited)
The Fund paid distributions of $0.1020 from long term capital gains during
the year ended December 31, 1997. Pursuant to section 852 of the Internal
Revenue Code, the Fund designates $15,540,080 as capital gain dividends
for the year ended December 31, 1997. Of this amount, $11,204,314,
represents a 20% tax rate gain distribution and $4,335,766 represents a
28% tax rate gain distribution.
10
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund (the "Fund"),
as of December 31, 1997, and the related statement of operations for the year
then ended, the statement of changes in net assets for each of the two years in
the period then ended and the financial highlights for each of the five years in
the period then ended. These financial statements and financial highlights are
the responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 as of
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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund as of
December 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the five years in the period then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998
11
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed 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 -- 88.5%
Asset Backed -- 7.5%
Advanta Home Equity Trust Loan 1991-1A 9.000% 02/25/2006 1,311,308 $ 1,338,354
Advanta Mortgage Loan Trust 97-3 A7 6.920% 10/25/2028 17,650,000 17,965,080
AFC Home Equity Loan Trust 1993-2 A 6.000% 01/20/2013 85,091 83,575
Amresco Communication Mortgage
97-b A1 144A 6.728% 04/15/2014 18,000,000 18,118,125
Chase Credit Card Master Trust 6.777% 05/15/2007 28,475,000 28,528,248
Citicorp Credit Card Trust 1997-6 A 0.000% 08/15/2004 58,450,000 38,777,922
Contimortgage Home Equity 1994-5 A2 9.070% 10/15/2009 2,765,741 2,772,655
Green Tree Acceptance Corp. 97-7 B2 7.590% 01/15/2028 11,050,000 10,936,047
Green Tree Financial 97-7 M1 7.030% 08/15/2027 16,950,000 17,034,750
Greentree Acceptance Corp. 1997-5 M1 6.950% 05/15/2029 25,425,000 25,417,055
Greentree Home Equity 1997-D M2 7.450% 09/15/2028 15,400,000 15,898,094
Nationsbank Clmt 1997-2C 6.369% 09/20/2004 27,000,000 27,097,200
The Money Store Home Equity 1992-B 6.900% 07/15/2007 432,316 433,667
The Money Store Home Equity 1994-DA4 8.750% 09/15/2020 2,500,000 2,578,125
The Money Store Home Equity 1996-B A5 7.180% 02/15/2015 17,488,000 17,622,576
UCFC Home Equity Loan 1996 7.700% 01/15/2004 7,000,000 6,835,920
UCFC Home Equity Loan Trust 1994 B-A6 7.100% 06/10/2023 1,068,392 1,078,075
UCFC Home Equity Loan Trust 1994-D A4 8.775% 02/10/2016 16,162,000 16,596,354
-----------------
Total Asset Backed (Cost $246,689,819) 249,111,822
-----------------
Collateralized Mortgage Obligations -- 0.3%
First Chicago/Lennar Trust 8.120% 05/29/2008 9,720,000 9,680,513
Veterans Affairs 1992-1 Cl D 7.750% 12/15/2014 700,000 708,969
-----------------
Total Collateralized Mortgage Obligations (Cost $10,278,050) 10,389,482
-----------------
Corporate -- 28.8%
Basic Industry -- 2.2%
AK Steel Holding Corp. 10.750% 04/01/2004 16,500,000 17,613,750
Building Materials Corp. 144A 8.000% 10/15/2007 3,400,000 3,383,000
ICI Wilmington Notes 6.950% 09/15/2004 17,600,000 18,105,296
ISP Holdings, Inc. 9.000% 10/15/2003 8,300,000 8,632,000
Toro Co. 7.800% 06/15/2027 5,200,000 5,599,100
U.S. Home Corp. 8.250% 08/15/2004 11,555,000 11,786,100
USA Waste Services 6.500% 12/15/2002 8,000,000 7,989,600
-----------------
73,108,846
-----------------
Consumer -- 0.3%
Southland Corp. 5.000% 12/15/2003 6,500,000 5,590,000
Southland Corp. 4.500% 06/15/2004 7,675,000 6,216,750
-----------------
11,806,750
-----------------
</TABLE>
Consumer Stable -- 0.3%
The accompanying notes are an integral part of the financial statements.
12
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Consumer Stable (continued)
Revlon Worldwide 0.000% 03/15/2001 12,975,000 $ 8,887,875
-----------------
Financial -- 17.3%
Aames Financial Corp. 9.125% 11/01/2003 9,175,000 8,945,625
Advanta Capital Trust I 8.990% 12/17/2026 3,500,000 3,191,419
Advanta Corp. 7.000% 05/01/2001 5,850,000 5,489,406
Albank Capital 9.270% 06/06/2027 8,200,000 9,068,709
Bank United Corp. 8.875% 05/01/2007 5,175,000 5,550,188
Bayview Capital 144A 8.420% 06/01/1999 11,000,000 11,151,800
Bayview Capital Corp. 9.125% 08/15/2007 3,600,000 3,712,680
Bear Stearns Co. 6.500% 08/01/2002 11,775,000 11,814,682
BFC Capital Trust 144A 9.650% 01/15/2027 4,725,000 5,054,898
Centura Capital Trust 8.845% 06/01/2027 14,475,000 15,902,551
Chartwell Holdings 10.250% 03/01/2004 3,058,000 3,288,387
Coast Federal Bank 13.000% 12/31/2002 5,000,000 5,275,000
Commercial Federal 7.950% 12/01/2006 1,750,000 1,749,995
Compass Trust Capital 8.230% 01/15/2027 18,800,000 20,366,040
Conseco Finance Trust 8.700% 11/15/2026 7,450,000 8,269,500
Conseco Finance Trust 8.796% 04/01/2027 10,000,000 11,214,100
Contifinancial Corp. 8.375% 08/15/2003 20,500,000 20,901,800
Dime Bancorp Capital Trust 9.330% 05/06/2027 6,975,000 7,889,841
First Nationwide 12.250% 05/15/2001 13,200,000 14,619,000
First Nationwide 9.125% 01/15/2003 5,500,000 5,775,000
First Nationwide Holdings 10.625% 10/01/2003 27,500,000 30,731,250
First Tennessee Notes 8.070% 01/06/2027 12,950,000 13,801,851
First USA Bank 7.000% 08/20/2001 4,650,000 4,763,553
Florida Windstorm 144A Notes 6.700% 08/25/2004 8,250,000 8,319,015
Goldman Sachs, Inc. 144A 6.375% 06/15/2000 11,350,000 11,432,401
Goldman Sachs, Inc. 144A 6.200% 12/15/2000 16,225,000 16,199,689
Goldman Sachs, Inc., L.P. 144A 6.200% 02/15/2001 15,000,000 14,948,700
Greentree Finance Corp. Med Term Notes 6.500% 09/26/2002 14,700,000 14,481,705
Homeside Corp. 6.875% 06/30/2002 3,000,000 3,055,140
Hubco Capital Trust 8.980% 02/01/2027 4,000,000 4,405,396
Imperial Credit Capital Trust 9.980% 12/31/2026 8,425,000 9,576,551
Interpool Capital Trust 9.875% 02/15/2027 4,500,000 5,178,944
Interpool Inc. 7.350% 08/01/2007 4,175,000 4,249,148
Liberty Mutual Insurance Co. 144A 8.500% 05/15/2025 7,745,000 8,965,070
Liberty Mutual Insurance Co. 144A 7.875% 10/15/2026 5,780,000 6,310,084
Liberty Mutual Insurance Co. 144A 7.697% 10/15/2027 23,975,000 25,204,678
Markel Capital Trust I 8.710% 01/01/2046 4,500,000 4,848,762
MMI Capital Trust Notes 144A 7.625% 12/15/2027 5,225,000 5,234,118
Morgan Stanley Group, Inc. 6.700% 05/01/2001 10,325,000 10,509,405
Orion Capital Trust I 8.730% 01/01/2037 7,200,000 7,671,600
Peoples Heritage 9.060% 02/01/2027 5,000,000 5,551,336
Phoenix Re-Insurance Capital Trust 8.850% 02/01/2027 7,325,000 7,869,248
PNC Financial Capital 144A 8.315% 05/15/2027 9,350,000 10,129,713
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial (continued)
Popular Inc. 6.625% 10/27/2002 4,000,000 $ 4,025,360
Providian 9.525% 02/01/2027 2,500,000 2,753,975
Reliance Group Holdings Corp. 9.000% 11/15/2000 16,500,000 17,201,250
Salomon Brothers, Inc. 7.125% 08/01/1999 1,450,000 1,469,880
Salomon Brothers, Inc. 7.750% 05/15/2000 6,140,000 6,336,296
Salomon Brothers, Inc. 7.250% 05/01/2001 9,190,000 9,431,881
Salomon Brothers, Inc. 7.000% 05/15/1999 2,275,000 2,297,545
Salomon Brothers, Inc. 7.300% 05/15/2002 6,500,000 6,713,730
Salomon Brothers, Inc. 5.994% 04/05/1999 4,300,000 4,267,750
Salomon Brothers, Inc. 6.820% 07/26/1999 8,125,000 8,212,425
Salomon Brothers, Inc. 6.625% 11/30/2000 13,125,000 13,247,456
Signet Bank 9.625% 06/01/1999 3,250,000 3,394,528
Sovereign Capital Trust 9.000% 04/01/2027 8,975,000 9,961,891
Summit Bancorp Capital Trust I 8.400% 03/15/2027 3,250,000 3,552,835
Tig Holdings Capital 144A 8.597% 01/15/2027 4,750,000 5,116,273
Trenwick Capital Trust 8.820% 02/01/2037 9,375,000 10,146,188
Union Planters Trust 8.200% 12/15/2026 11,475,000 12,141,009
United Companies Financial Corp. 9.350% 11/01/1999 10,675,000 11,064,317
United Companies Financial Corp. 7.000% 07/15/1998 5,050,000 5,066,665
United Companies Financial Corp. 8.375% 07/01/2005 2,500,000 2,413,525
Webster Financial Capital 9.360% 01/29/2027 4,975,000 5,689,962
World Financial Properties 144A 6.910% 09/01/2013 17,545,812 18,047,513
-----------------
575,220,232
-----------------
Health Care -- 0.7%
Integrated Health 9.250% 01/15/2008 7,600,000 7,752,000
Tenet Healthcare Corp. 7.875% 01/15/2003 2,150,000 2,176,875
Tenet Healthcare Corp. 8.000% 01/15/2005 12,425,000 12,642,438
-----------------
22,571,313
-----------------
Media -- 2.2%
Adelphia Communications 9.250% 10/01/2002 6,000,000 6,120,000
CBS Inc. 7.125% 11/01/2023 2,900,000 2,631,170
Century Communications 9.500% 08/15/2000 2,700,000 2,804,625
Chancellor Media 144A Notes 8.125% 12/15/2007 5,750,000 5,620,625
Paxson Communication 11.625% 10/01/2002 10,360,000 11,111,100
Salem Communications 144A Notes 9.500% 10/01/2007 5,925,000 6,043,500
Viacom, Inc. 7.750% 06/01/2005 20,280,000 20,626,585
Viacom, Inc. 6.750% 01/15/2003 7,200,000 7,074,576
Viacom, Inc. 7.625% 01/15/2016 5,525,000 5,486,878
Westinghouse Credit Corp. 8.875% 06/14/2014 4,500,000 4,998,690
-----------------
72,517,749
-----------------
Real Estate -- 4.4%
Bradley Operating LP Notes 7.000% 11/15/2004 4,575,000 4,579,895
Crescent Real Estate, REIT 7.125% 09/15/2007 15,525,000 15,884,093
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Real Estate (continued)
Criimi Mae Inc. Notes 9.125% 12/01/2002 15,000,000 $ 15,037,500
Franchise Finance Corp. 7.875% 11/30/2005 3,000,000 3,217,020
Healthcare Properties, REIT 6.500% 02/15/2006 7,375,000 7,220,199
Highwoods Properties, Inc. REIT 6.750% 12/01/2003 14,950,000 15,012,641
Meditrust 7.820% 09/10/2026 5,000,000 5,252,950
Meditrust, REIT 7.114% 08/15/2004 19,950,000 20,287,531
Realty Income Corp. 7.750% 05/06/2007 2,675,000 2,840,529
Shopping Center Associates, REIT 6.750% 01/15/2004 10,000,000 10,029,100
Simon Debartolo Group LP 6.750% 07/15/2004 11,500,000 11,582,110
Simon Debartolo Group LP 6.875% 10/27/2005 6,225,000 6,259,549
Spieker Properties, REIT 6.900% 01/15/2004 10,000,000 10,151,200
Sun Communities, REIT 7.375% 05/01/2001 5,000,000 5,126,450
Tanger Properties L.P. 7.875% 10/24/2004 3,700,000 3,770,300
Taubman Realty Group, REIT 8.000% 06/15/1999 9,000,000 9,201,600
-----------------
145,452,667
-----------------
Services -- 1.4%
Enterprise Corp. 7.000% 06/15/2000 7,725,000 7,879,191
Enterprise Corp. 144A 6.950% 03/01/2004 15,500,000 15,886,725
Mashantucket Pequot Tribe Ser A 6.910% 09/01/2012 9,300,000 9,620,664
Royal Caribbean Cruise Sr Notes 7.500% 10/15/2027 13,375,000 13,620,298
-----------------
47,006,878
-----------------
Total Corporate (Cost $926,119,017) 956,572,310
-----------------
Government/Other -- 13.2%
Argentina -- 0.2%
Bonos DEL Tesoro 8.750% 05/09/2002 6,550,000 6,206,125
City of Buenos Aires 10.500% 05/28/2004 600,000 519,000
-----------------
6,725,125
-----------------
Australia -- 0.9%
Australian Government 9.000% 09/15/2004 11,900,000 9,065,704
Australian Government 8.750% 08/15/2008 8,025,000 6,293,049
Australian Government 10.000% 10/15/2002 4,900,000 3,757,210
Australian Government 9.500% 08/15/2003 9,655,000 7,391,280
FNMA Global Bond 6.500% 07/10/2002 2,200,000 1,468,189
-----------------
27,975,432
-----------------
Denmark -- 0.7%
Denmark Bullet 7.000% 11/15/2007 17,115,000 2,747,096
Denmark Nykredit 7.000% 10/01/2026 30,976,000 4,612,821
Denmark Realkredit 7.000% 10/01/2026 3,079,000 458,512
Kingdom of Denmark 6.000% 12/10/1999 6,100,000 914,532
Kingdom of Denmark 7.000% 12/15/2004 35,500,000 5,652,945
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Denmark (continued)
Kingdom of Denmark 8.000% 11/15/2001 44,800,000 $ 7,226,081
-----------------
21,611,987
-----------------
Finland -- 0.1%
Government of Finland 10.000% 09/15/2001 15,000,000 3,229,412
-----------------
Germany -- 2.0%
Baden Wurttemburg 6.200% 11/22/2013 3,000,000 1,754,471
Deutschland Republic 7.250% 10/21/2002 12,475,000 7,641,649
Deutschland Republic 6.750% 04/22/2003 17,300,000 10,420,215
Deutschland Republic 6.000% 01/04/2007 11,775,000 6,859,255
Deutschland Republic 6.500% 07/04/2027 4,900,000 2,941,580
Die Bundrep Deutschland Dm1000 8.250% 09/20/2001 10,460,000 6,514,959
Federal Republic of Germany 8.375% 05/21/2001 5,100,000 3,161,762
Federal Republic of Germany 8.000% 07/22/2002 17,420,000 10,928,430
Federal Republic of Germany 6.875% 05/12/2005 18,950,000 11,602,686
German Unity Fund 8.500% 02/20/2001 5,400,000 3,338,438
German Unity Fund 8.000% 01/21/2002 3,500,000 2,175,481
-----------------
67,338,926
-----------------
Italy -- 0.0%
Deutsche Finance Notes 0.000% 01/20/2032 1,225,000,000 79,210
Deutsche Finance Notes 0.000% 10/15/2026 2,615,000,000 236,477
Morgan Guaranty Notes 0.000% 01/21/2027 2,460,000,000 217,871
-----------------
533,558
-----------------
Japan -- 0.9%
Austria Republic 5.000% 01/22/2001 500,000,000 4,295,785
Government of Finland 6.000% 01/29/2002 737,000,000 6,727,878
Government of Italy 5.125% 07/29/2003 930,000,000 8,484,023
KFW International Finance 6.000% 11/29/1999 301,000,000 2,536,012
Kingdom of Spain 5.750% 03/23/2002 737,000,000 6,704,723
-----------------
28,748,421
-----------------
New Zealand -- 0.5%
Fernz Capital 9.800% 04/15/2002 3,800,000 2,270,789
Fletcher Challenge 10.000% 04/30/2005 1,500,000 925,129
Fletcher Challenge 11.250% 12/15/2002 3,100,000 1,962,275
FNMA Global 6.750% 10/29/2007 7,000,000 2,035,249
FNMA Global Bond 7.000% 09/26/2000 4,325,000 2,455,633
Government Property Services 7.250% 03/15/1999 4,850,000 2,761,214
International Bank Recon & Dev World Bank 0.000% 08/20/2007 5,100,000 1,481,994
New Zealand Government 7.000% 07/15/2009 5,550,000 3,224,228
-----------------
17,116,511
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Norway -- 0.0%
Vital Forsikring 7.850% 09/22/2003 8,100,000 $ 1,188,920
-----------------
Sweden -- 0.7%
Government of Sweden 5.500% 04/12/2002 22,500,000 2,827,403
Kingdom of Sweden 10.250% 05/05/2000 30,300,000 4,219,751
Kingdom of Sweden 13.000% 06/15/2001 32,700,000 5,063,797
Sweden Government Bond 6.500% 10/25/2006 71,500,000 9,344,525
Swedish Government #1037 8.000% 08/15/2007 18,000,000 2,597,759
-----------------
24,053,235
-----------------
United Kingdom -- 2.1%
Alliance and Leicester Building Society 8.750% 12/07/2006 1,700,000 3,056,069
Bank of Greece 10.750% 09/06/2010 1,450,000 3,003,930
Birmingham Midshires Building Society 9.125% 01/05/2006 1,000,000 1,822,342
CSW Investments 8.875% 09/27/2006 3,000,000 5,364,710
Deutsche Bank 0.000% 02/28/2001 545,000 723,184
FNMA Global Bond 6.875% 06/07/2002 2,800,000 4,614,966
GTD Export Finance Corp 0.000% 09/29/2000 1,280,000 1,746,476
Northern Rock Building Society 9.375% 10/17/2021 2,600,000 5,173,757
P & O Steam Navigation 11.500% 07/03/2014 1,500,000 3,383,762
Smithkline Beecham Corp. 8.125% 11/25/1998 1,500,000 2,467,865
Stagecoach Holdings PLC 7.625% 10/31/2007 1,450,000 2,329,693
UK Gilt Stock 9.500% 10/25/2004 1,400,000 2,681,431
UK Treasury 8.500% 12/07/2005 2,900,000 5,387,567
UK Treasury 6.750% 11/26/2004 1,790,000 2,997,207
UK Treasury 7.750% 09/08/2006 5,305,000 9,498,585
UK Treasury 9.000% 03/03/2000 1,000,000 1,716,535
UK Treasury 8.000% 09/25/2009 1,500,000 2,808,245
UK Treasury 7.250% 12/07/2007 2,535,000 4,456,881
UK Treasury 7.500% 12/07/2006 3,350,000 5,929,338
-----------------
69,162,543
-----------------
Yankee Bonds -- 5.1%
APP International Finance 11.750% 10/01/2005 5,625,000 5,123,700
Brascan Ltd. 7.375% 10/01/2002 12,125,000 12,529,248
Cominco Ltd. 6.875% 02/15/2006 16,950,000 17,085,770
Guandong Enterprises 8.875% 05/22/2007 15,700,000 13,577,674
Guangdong Enterprises 144A 8.750% 12/15/2003 4,000,000 3,617,600
Hutchison Whampoa Finance 7.450% 08/01/2017 28,825,000 26,680,420
Irsa Parcks Cvt 144A, REIT 4.500% 08/02/2003 300,000 306,000
Methanex Corp. 7.400% 08/15/2002 4,000,000 4,142,400
Methanex Corp. 7.750% 08/15/2005 23,185,000 24,553,611
Pindo Deli Fin 10.250% 10/01/2002 5,700,000 4,903,254
Societe Generale Step Up 7.850% 04/29/2049 15,435,000 15,447,348
St. Georges Bank 144A 7.150% 10/15/2005 18,700,000 19,265,114
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Yankee Bonds (continued)
Tata Engineering & Locomotive 144A Notes 7.875% 07/15/2007 24,100,000 $ 20,488,133
Wharf International Finance 7.625% 03/13/2007 3,725,000 3,253,005
-----------------
170,973,277
-----------------
Total Government/Other (Cost $453,441,467) 438,657,347
-----------------
Non-Agency -- 3.8%
Collateralized Mortgage Obligations -- 0.6%
GE Capital Mortgage 1997-10 A5 6.750% 09/25/2012 20,311,028 20,463,361
-----------------
20,463,361
-----------------
Pass Thru Securities -- 3.2%
CSFB 1995-A 144A 7.542% 11/15/2005 10,700,000 10,934,063
Chase Commercial Mortage Sec 6.6 6.600% 12/25/2007 13,419,581 12,941,844
GMAC Mortgage Corp. 1997-C1 E 7.085% 11/15/2010 31,109,000 31,461,407
Lehman Brothers Commercial Conduit
Mortgage Trust 1995-C2 7.054% 09/25/2025 1,930,000 1,956,085
Merrill Lynch Investment Trust 1995-C2 8.189% 06/15/2021 1,634,114 1,646,109
Merrill Lynch Mortgage Investment 1997-C1 D 7.120% 06/18/2029 4,475,000 4,484,789
Midstate Trust II A3 9.350% 04/01/1998 150,000 151,080
Resolution Trust Corp. P-T Ser. 1992-M4 A1 8.000% 09/25/2021 1,250,598 1,253,334
Resolution Trust Corp. 1994-C2 D Al 1 8.000% 04/25/2025 4,512,364 4,612,482
Resolution Trust Corp. 1994 C2 E 8.000% 04/25/2025 5,067,061 5,143,066
Resolution Trust Corp. 1994-1 Cl M2 7.750% 09/25/2029 3,325,511 3,420,080
Resolution Trust Corp. 1995 Cl E 6.900% 02/25/2027 11,597,657 11,282,345
Resolution Trust Corp. 1995-2B1 7.450% 09/15/2025 1,707,235 1,728,042
Structured Asset Security Corp. 1994-C1 D 6.870% 08/25/2026 9,200,000 9,223,359
Structured Asset Security Corp. 1996-CFL C 6.525% 02/25/2028 6,650,000 6,662,988
-----------------
106,901,073
-----------------
Total Non-Agency (Cost $121,885,807) 127,364,434
-----------------
U.S. Government Agency -- 13.6%
Pass Thru Securities -- 13.6%
FHLMC Gold 15 Yr 6.000% 10/01/2010 - 04/01/2011 29,037,759 28,720,085
FHLMC Gold 15Yr TBA Pl #670(2) 6.000% 01/01/2013 39,075,000 38,440,031
FNCI Pool# 250530 6.000% 04/01/2011 2,328,950 2,296,181
FNMA 5.750% 09/05/2000 5,900,000 3,843,774
FNMA 7.000% 11/01/2023 - 12/01/2025 181,430,799 183,480,230
FNMA 6.000% 06/01/2003 - 11/01/2012 60,944,486 60,001,707
FNMA 6.500% 12/01/2025 8,899,165 8,821,296
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
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Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass Thru Securities (continued)
FNMA Global Bond 7.250% 06/20/2002 6,700,000 $ 3,813,172
FNMA P/O Trust 108 5.567% 03/01/2020 1,423,294 1,144,434
GNMA 7.000% 09/15/2022 - 09/15/2024 84,085,949 85,040,389
GNMA 9.000% 11/15/2017 730,934 791,003
World Bank Discount Notes 01/21/1998 - 02/26/1998 36,600,000 36,296,148
-----------------
452,688,450
-----------------
Total U.S. Government Agency (Cost $441,528,015) 452,688,450
-----------------
U.S. Treasury Obligations -- 21.3%
Treasury Bonds -- 5.1%
U.S. Treasury Bond+ 8.125% 08/15/2019 134,530,000 168,330,663
-----------------
Treasury Notes -- 16.2%
U.S. Treasury Note+ 5.625% 11/30/1998 104,775,000 104,775,000
U.S. Treasury Note+ 5.750% 12/31/1998 6,925,000 6,934,764
U.S. Treasury Note 6.625% 04/30/2002 8,550,000 8,830,526
U.S. Treasury Note+ 6.000% 06/30/1999 21,800,000 21,909,000
U.S. Treasury Note 6.250% 06/30/2002 2,925,000 2,983,032
U.S. Treasury Note+ 5.750% 08/15/2003 52,700,000 52,732,674
U.S. Treasury Note+ 6.875% 07/31/1999 3,825,000 3,893,123
U.S. Treasury Note+ 7.125% 02/29/2000 37,775,000 38,867,075
U.S. Treasury Note+ 6.875% 03/31/2000 18,925,000 19,392,258
U.S. Treasury Note+ 6.125% 07/31/2000 56,100,000 56,678,391
U.S. Treasury Note 6.500% 08/15/2005 10,550,000 11,008,292
U.S. Treasury Note+ 5.750% 10/31/2000 8,845,000 8,856,056
U.S. Treasury Note+ 6.375% 03/31/2001 11,225,000 11,435,469
U.S. Treasury Note+ 6.250% 04/30/2001 8,925,000 9,064,409
U.S. Treasury Note+ 6.625% 06/30/2001 72,580,000 74,587,563
U.S. Treasury Note+ 6.250% 10/31/2001 101,790,000 103,523,484
U.S. Treasury Note (Strip)+ 0.000% 11/15/1999 3,605,000 3,247,889
-----------------
538,719,005
-----------------
Total U.S. Treasury Obligations (Cost $700,536,032) 707,049,668
-----------------
TOTAL BONDS AND NOTES (COST $2,900,478,207) 2,941,833,513
-----------------
<CAPTION>
PREFERRED STOCKS -- 2.5% Shares
------------
<S> <C> <C>
Australia & New Zealand Bank 293,350 8,103,794
Bank United of Texas 115,380 3,057,570
California Federal 227,000 5,958,750
Capital Preferred Trust 449,200 11,959,950
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Value
Security Rate Maturity Shares (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Preferred Stocks (continued)
Credit Lyon Capital 144A 244,250 $ 6,442,094
Highwoods Properties, Inc. 8,775 9,602,842
Pinto Totta Intl Finance Non Cumm 6,450 6,745,965
Primedia Inc. 31,000 3,100,000
Time Warner, Inc. 26,470 29,645,860
-----------------
TOTAL PREFERRED STOCKS (COST $78,861,896) 84,616,825
-----------------
<CAPTION>
Contract
PURCHASED OPTIONS -- 0.1% Size
------------
<S> <C> <C>
AUD 10% Call, Strike Price 128.283, 3/4/98 7,475,000 104,755
HKD Put/USD Call, Strike Price 7.75, 2/5/98 3,500,000 16,100
JGB 5.5% Put, Strike Price 113.37, 3/5/98 400,000,000 --
JPY Put/USD Call, Strike Price 120.00, 5/14/98 4,350,000 297,105
JPY Put/NZD Call, Strike Price 73.75, 8/20/98 615,000,000 129,150
DBR 6% Call, Strike Price 105.01, 12/11/98 8,850,000 60,047
DBR 6% Call, Strike Price 105.63, 3/19/98 7,250,000 14,109
DBR 6.5% Call, Strike Price 109.53, 12/11/98 4,410,000 54,446
JGB 2.6% Call, Strike Price 102.52, 3/19/98 645,000,000 7,095
DBR 6% Call, Strike Price 106.00, 3/16/98 9,200,000 24,049
JPY Put/GBP Call, Strike Price 210.00, 10/9/98 3,445,000 190,533
JPY Put/ITL Call, Strike Price 13.50, 9/3/98 611,280,000 118,588
JPY Put/USD Call, Strike Price 120.75, 4/15/98 5,400,000 355,320
JPY Put/USD Call, Strike Price 126.50, 5/14/98 6,600,000 236,940
JPY Put/USD Call, Strike Price 120.00, 10/28/98 8,000,000 509,600
JPY Put/USD Call, Strike Price 130.00, 11/16/98 5,400,000 162,540
USD Put/Dem Call, Strike Price 1.71, 1/30/98 5,275,000 3,693
UST Put 6.125%, Strike Price 100.7187, 2/19/98 580,000 570,936
DBR 6% Call, Strike Price 103.97, 1/30/98 9,500,000 44,907
JGB 2.6% Call, Strike Price 107.095, 1/23/98 675,000,000 10,125
JGB 2.6% Call, Strike Price 107.357, 1/28/98 1,275,000,000 10,200
JGB 2.6% Call, Strike Price 107.35, 1/29/98 620,000,000 8,680
JGB #197 Put, Strike Price 104.583, 5/12/98 684,700,000 52,037
JGB 3.1% Call, Strike Price 108.979, 1/29/98 181,000,000 5,249
ACGB 10% Call, Strike Price 129.577, 2/6/98 8,000,000 69,088
JGB #167 Put, Strike Price 111.536, 5/13/98 684,700,000 61,623
JGB 2.6% Call, Strike Price 106.262, 1/6/98 450,000,000 4,950
JGB 2.6% Call, Strike Price 105.262, 4/6/98 450,000,000 36,450
JGB 2.6% Put, Strike Price 102.189, 3/30/98 1,008,000,000 5,040
JPY Put/USD Call, Strike Price 135.00, 12/14/98 12,600,000 249,480
JPY Put/USD Call, Strike Price 130.00, 12/22/98 4,400,000 113,520
UST Call 6.125% Strike Price 104.21875, 3/19/98 876,500 575,203
UST Call 5.75%, Strike Price 100.1562, 3/23/98 739,000 461,875
-----------------
Total Purchased Options (Cost $5,416,939) 4,563,433
-----------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 8.4%
Commercial Paper -- 3.6%
Abbey National, 2/3/98 5,000,000 $ 4,952,850
Associated Corp. Discount, 1/14/98 25,000,000 24,920,500
Campbell Soup, 1/9/98 1,000,000 997,760
Daimler Benz, 2/5/98 10,000,000 9,926,600
General Electric Corp., 1/12/98 15,200,000 15,148,016
General Electric Corp., 1/8/98 4,650,000 4,640,607
Procter & Gamble, 1/8/98 13,766,000 13,723,738
Procter & Gamble, 2/18/98 6,891,000 6,811,478
Sigma Financial, 1/26/98 25,000,000 24,859,500
Walt Disney, 1/15/98 14,300,000 14,211,542
-----------------
120,192,591
-----------------
U.S. Government -- 4.0%
FHLB, 1/14/98 8,635,000 8,618,334
FHLMC, 1/23/98 37,293,000 37,080,834
FHLMC++, 2/20/98 1,500,000 1,488,360
FHLMC, 3/9/98 15,100,000 14,949,151
FNMA++, 1/30/98 15,000,000 14,932,350
FNMA, 1/16/98 15,000,000 14,965,350
FNMA Discount Note, 1/29/98 1,700,000 1,689,324
FNMA, 1/6/98 1,454,000 1,452,619
FNMA, 1/16/98 38,900,000 38,702,907
-----------------
133,879,229
-----------------
Repurchase Agreements -- 0.8%
Prudential-Bache Repurchase Agreement, dated 12/31/97, due 1/2/98, with a maturity value of
$24,764,000 and an effective yield of 6.07%, collateralized by U.S. Government Agency
Obligations with rates ranging from 6.101% to 7.844%, with maturity dates ranging from 5/1/22
to 12/1/27 and with an aggregate market value of $25,250,845. 24,755,652
-----------------
TOTAL SHORT-TERM INVESTMENTS (COST $279,030,049) 278,827,472
-----------------
TOTAL INVESTMENTS -- 99.5% (COST 3,263,787,091) $ 3,309,841,243
Other Assets, Less Liabilities -- 0.5% 15,781,472
-----------------
NET ASSETS -- 100% $ 3,325,622,715
=================
</TABLE>
Notes to the 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.
REIT Real Estate Investment Trust
FNMA Federal National Mortgage Association
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
FHLMC Federal Home Loan Mortgage Corp.
GNMA Government National Mortgage Association
FHLB Federal Home Loan Bank
ACGB Australian Government Bond
DBR Deutsche Bundes Republik
JGB Japanese Government Bond
UST United States Treasury
AUD Australian Dollar
DEM Deutsche Mark
GBP British Pound Sterling
HKD Hong Kong Dollar
ITL Italian Lira
JPY Japanese Yen
USD United States Dollar
(1) Denominated in United States currency except for foreign country specific
bonds which are denominated in their respective local currency.
(2) Delayed delivery contract (Note 6).
+ Denotes all or part of security pledged as a margin deposit (Note 5).
++ Denotes all or part of security pledged as collateral to cover margin
requirements on open financial futures contracts (Note 5).
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Schedule of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $3,263,787,091) $ 3,309,841,243
Cash 865
Foreign currency, at value (identified cost, $25,357) 25,620
Interest and dividends receivable 45,108,835
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 14,276,915
Receivable for daily variation margin on open financial futures contracts (Note 5) 557,531
Receivable for investments sold 128,704
Deferred organization costs (Note 1F) 49,831
Other assets 121,299
---------------
Total assets 3,370,110,843
Liabilities
Payable for delayed delivery transactions (Note 6) $38,330,133
Options written, at value (premiums received $4,698,912) (Note 5) 3,273,984
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 2,658,501
Accrued accounting and custody fees 92,918
Accrued trustees' fees 20,280
Accrued expenses and other liabilities 112,312
-----------
Total liabilities 44,488,128
---------------
Net Assets (applicable to investors' beneficial interests) $ 3,325,622,715
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Schedule of Operations
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1C)
Interest income $ 199,818,084
Dividend income (net of foreign withholding taxes of $55,922) 6,202,603
-------------
Total income 206,020,687
Expenses
Investment advisory fee (Note 2) $ 9,043,263
Trustees fees (Note 2) 76,582
Accounting and custody fees 849,148
Legal and audit services 209,049
Insurance expense 29,980
Amortization of organization expense (Note 1F) 14,772
Registration fees 13,488
Miscellaneous 76,926
-----------
Total expenses 10,313,208
-------------
Net investment income 195,707,479
-------------
Realized and Unrealized Gain
Net realized gain
Investment securities transactions 22,188,926
Financial futures contracts 538,852
Written options transactions 1,492,272
Foreign currency transactions and forward foreign currency exchange
contracts 18,728,001
-----------
Net realized gain 42,948,051
Change in unrealized appreciation
Investment securities 15,276,385
Financial futures contracts 724,408
Written options 799,071
Foreign currency and forward foreign currency exchange contracts 10,956,746
-----------
Change in net unrealized appreciation 27,756,610
-------------
Net realized and unrealized gain 70,704,661
-------------
Net increase in net assets from operations $ 266,412,140
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
For the period
May 3, 1996
(commencement of
Year Ended operations) to
December 31, 1997 December 31, 1996
-------------------- --------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From operations
Net investment income $ 195,707,479 $ 115,981,747
Net realized gain 42,948,051 1,871,609
Change in net unrealized appreciation 27,756,610 87,004,141
-------------- --------------
Net increase in net assets
from operations 266,412,140 204,857,497
-------------- --------------
Capital transactions
Assets contributed by Standish Fixed
Income Fund at commencement
(including unrealized loss of
$55,177,329) -- 2,294,116,139
Contributions 930,076,128 268,522,894
Withdrawals (486,977,142) (151,384,941)
-------------- --------------
Increase in net assets resulting from
capital transactions 443,098,986 2,411,254,092
-------------- --------------
Total increase in net assets 709,511,126 2,616,111,589
Net Assets
At beginning of period 2,616,111,589 --
-------------- --------------
At end of period $3,325,622,715 $2,616,111,589
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Supplemental Data
- --------------------------------------------------------------------------------
<TABLE>
For the period
May 3, 1996
(commencement of
Year Ended operations) to
December 31, 1997 December 31, 1996
-------------------- --------------------
<S> <C> <C>
Ratios (to average daily net assets):
Expenses 0.36% 0.37%+
Net investment income 6.77% 7.14%+
Portfolio Turnover 89% 69%
Net assets, end of period (000s omitted) $3,325,623 $2,616,112
</TABLE>
- ----------
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed 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
Fixed Income Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
The following is a summary of significant accounting policies consistently
followed by the Portfolio in the preparation of its 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 price, 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 at amortized cost. 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 trade date. Interest income is
determined on the basis of interest accrued, adjusted for amortization of
premium or discount on long-term debt securities when required for federal
income tax purposes. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from securities sold are recorded on the
identified cost basis. The Portfolio does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates on
investments from the fluctuations arising from changes in market prices of
securities held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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.
27
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Foreign currency transactions
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based upon
current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars based
upon currency exchange rates prevailing on the respective dates of such
transactions.
Section 988 of the Internal Revenue Code provides that gains or losses on
certain transactions attributable to fluctuations in foreign currency
exchange rates must be treated as ordinary income or loss. For financial
statement purposes, such amounts are included in net realized gains or
losses.
F. 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 0.40% of the Portfolio's first $250,000,000
of average daily net assets, 0.35% of the next $250,000,000 of average
daily net assets, and 0.30% of the average daily net assets in excess of
$500,000,000. The Portfolio Trust pays no compensation directly to its
trustees who are affiliated with SA&W or to its officers, all of whom
receive remuneration for their services to the Portfolio Trust from SA&W.
Certain of the trustees and officers of the Portfolio Trust are directors
or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, short-term obligations,
were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------------- ----------------
<S> <C> <C>
U.S. Government Securities $ 1,075,584,561 $ 797,417,592
================= ================
Investments (non-U.S. Government Securities) $ 2,275,197,710 $ 1,936,365,460
================= ================
</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 $3,264,774,697
===============
Gross unrealized appreciation $ 73,163,084
Gross unrealized depreciation (28,096,538)
===============
Net unrealized appreciation (depreciation) $ 45,066,546
================
28
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed 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 instruments are set forth more fully in
Parts A & B of the Master Portfolio registration statement.
The Portfolio trades the following financial instruments with off-balance
sheet risk:
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before a
certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in 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 option 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 investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option purchased 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 year ended December 31, 1997 is as follows:
Written Put Option Transactions
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Contracts Premiums
--------------------- ---------------------
<S> <C> <C>
Outstanding, beginning of period 8 $489,040
Options written 26 3,466,418
Options exercised -- --
Options expired (11) (753,833)
Options closed (17) (594,098)
--------------------- ---------------------
Outstanding, end of period 6 $2,607,527
===================== =====================
</TABLE>
29
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Written Call Option Transactions
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Contracts Premiums
-------------------- ---------------------
<S> <C> <C>
Outstanding, beginning of period 4 $58,376
Options written 26 1,584,754
Options exercised (2) (49,739)
Options expired (5) (299,065)
Options closed (18) (568,196)
-------------------- ---------------------
Outstanding, end of period 5 $726,130
==================== =====================
</TABLE>
Written Cross Currency Option Transactions
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number
of Contracts Premiums
-------------------- ---------------------
<S> <C> <C>
Outstanding, beginning of period 10 $534,365
Options written 33 2,527,478
Options exercised (3) (64,420)
Options expired (6) (238,821)
Options closed (20) (1,393,347)
-------------------- ---------------------
Outstanding, end of period 14 $1,365,255
==================== =====================
</TABLE>
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.
At December 31, 1997, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
30
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward Foreign Currency Contracts
<TABLE>
<CAPTION>
Local U.S. $ U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
------------------------------ ---------------- ------------------ -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Argentinian Peso 1,658,900 11/09/98 $ 1,582,601 $ 1,565,000 $ 17,601
Belgian Franc 59,500,000 7/20/98 1,621,441 1,595,877 25,564
Canadian Dollar 5,708,775 2/26-2/27/98 3,999,881 4,032,608 (32,727)
German Deutsche Mark 19,011,683 1/09-9/18/98 10,649,613 10,901,536 (251,923)
Danish Krone 36,866,766 1/12-2/18/98 5,393,273 5,484,109 (90,836)
Spanish Peseta 2,982,000 1/20/98 19,529 20,898 (1,369)
Finnish Markka 117,740 1/21/98 21,639 23,796 (2,157)
British Pound Sterling 15,588 12/30/97 25,620 25,357 263
Greek Drachma 112,989,375 6/03/98 382,790 390,872 (8,082)
Iriah Punt 48,049 7/20/98 68,549 70,554 (2,005)
Italian Lira 15,723,138,060 1/12-5/29/98 8,890,876 8,978,957 (88,081)
Japanese Yen 723,061,000 2/25/98 5,585,740 6,152,925 (567,185)
Republic of Korea Won 3,984,480,000 8/03/98 2,223,896 2,237,432 (13,536)
Norwegian Krone 12,625,000 1/16/98 1,709,568 1,805,428 (95,860)
New Zealand Dollar 19,386,815 1/28-3/16/98 11,203,959 11,851,457 (647,498)
------------- -------------- ------------
$53,378,975 $55,136,806 ($1,757,831)
============= ============== ============
</TABLE>
<TABLE>
<CAPTION>
Local U.S. $ U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
------------------------------ ---------------- ------------------ -------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Argentinian Peso 12,948,050 10/27/98 $12,374,089 $ 12,200,000 $ (174,089)
Australian Dollar 49,561,704 1/08-2/10/98 32,304,138 34,698,174 2,394,036
Brazilian Real 1,849,175 1/29/98 1,635,430 1,615,000 (20,430)
British Pound Sterling 42,536,191 1/06/-5/14/98 69,490,920 70,024,024 533,104
Canadian Dollar 5,708,775 2/26-2/27/98 3,999,881 4,067,383 67,502
Danish Krone 186,498,773 1/12-5/06/98 27,298,135 27,361,119 62,984
European Currency Unit 93,786 1/07/98 103,134 104,252 1,118
Finnish Markka 19,227,600 2/26/98 3,541,366 3,690,518 149,152
German Deutsche Mark 132,150,480 1/09-6/03/98 73,829,268 75,458,945 1,629,677
Greek Drachma 323,000 1/12/98 1,135 1,181 46
Hong Kong Dollar 88,044,182 12/29/98-10/14/99 10,646,705 10,900,000 253,295
Irish Punt 1,106,504 7/20/98 1,578,612 1,595,877 17,265
Italian Lira 20,477,294,140 1/12-5/29/98 11,577,645 11,848,767 271,122
Japanese Yen 4,575,118,616 2/05-3/17/98 35,330,716 38,965,193 3,634,477
Republic of Korea Won 3,984,480,000 8/03/98 2,223,896 4,220,000 1,996,104
Norwegian Krone 21,416,073 1/16/98 2,899,979 2,866,189 (33,790)
New Zealand Dollar 55,438,164 1/28-3/17/98 32,043,740 33,930,787 1,887,047
Polish Zloty 21,498,799 9/18/98 5,416,256 5,350,000 (66,256)
Swedish Krona 192,001,865 1/30-5/29/98 24,275,874 25,125,072 849,198
-------------- ---------------- --------------
$350,570,919 $364,022,481 $13,451,562
============== ================ ==============
</TABLE>
31
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward Foreign Cross Currency Contracts
<TABLE>
<CAPTION>
Market Market Unrealized
U.S. $ U.S. $ Contract U.S. $
Contracts to Deliver Value In Exchange For Value Value Date Gain/(Loss)
------------------------------------------ ------------------------ ------------------ ------------- ---------------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark $ 383,333 Greek Drachma $ 382,790 6/03/98 $ (543)
German Deutsche Mark 768,525 Greek Drachma 765,580 6/03/98 (2,945)
Belgian Franc 1,621,441 Irish Punt 1,556,126 7/20/98 (65,315)
Greek Drachma 1,531,161 German Deutsche Mark 1,486,583 6/03/98 (44,578)
Belgian Franc 1,621,441 Irish Punt 1,554,701 7/20/98 (66,740)
Irish Punt 1,580,063 Belgian Franc 1,621,441 7/20/98 41,378
French Franc 1,721,676 Irish Punt 1,642,610 7/20/98 (79,066)
Irish Punt 1,663,311 French Franc 1,721,676 7/20/98 58,365
Spanish Peseta 1,610,333 German Deutsche Mark 1,581,274 1/20/98 (29,059)
Italian Lira 1,632,050 German Deutsche Mark 1,581,274 1/20/98 (50,776)
German Deutsche Mark 1,581,274 Italian Lira 1,610,940 1/20/98 29,666
German Deutsche Mark 1,581,274 Spanish Peseta 1,590,804 1/20/98 9,530
Greek Drachma 3,313,674 French Franc 3,158,633 1/12/98 (155,041)
Belgian Franc 3,160,976 German Deutsche Mark 3,157,029 4/24/98 (3,947)
Finnish Markka 3,186,530 German Deutsche Mark 3,229,559 1/21/98 43,029
French Franc 3,158,633 Greek Drachma 3,314,809 1/12/98 156,176
German Deutsche Mark 3,229,559 Finnish Markka 3,164,891 1/21/98 (64,668)
German Deutsche Mark 5,233,522 Polish Zloty 5,382,739 9/18/98 149,217
---------------- ------------------ ---------------
$38,578,776 $38,503,459 ($75,317)
================ ================== ===============
</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 indices, which may not correlate with
changes in the value of 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 contacts' terms. The Portfolio enters into financial
futures transactions primarily to manage its exposure to certain markets
and to changes in security 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 financial futures
contract:
<TABLE>
<CAPTION>
Underlying
Face/amount at Unrealized
Contract Position Expiration Date value Gain/(Loss)
-------------------------------------- -------------- ---------------- ------------------- -----------------
<S> <C> <C> <C> <C>
U.S. Long Bond CBT (1,089 contracts) Long 3/20/98 $131,190,470 $903,903
U.S. 10 Year Bond (285 contracts) Short 3/20/98 32,176,807 (212,276)
-----------------
$691,627
=================
</TABLE>
32
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(6) Delayed Delivery Transactions:
The Portfolio may purchase securities on a when-issued or forward
commitment basis. Payment and delivery may take place a month or more
after the date of the transactions. The price of the underlying securities
and the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. The Portfolio instructs its
custodian to segregate securities having a value at least equal to the
amount of the purchase commitment.
At December 31, 1997, the Fund had entered into the following delayed
delivery transactions:
<TABLE>
<CAPTION>
Type Security Settlement Date Amount
------- ---------------------------------- ----------------- -------------
<S> <C> <C> <C>
Buy........................FHLMC Gold 15yr TBA PL #670 1/20/98 $38,330,133
</TABLE>
33
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Fixed Income Portfolio:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Master Portfolio: Standish Fixed Income Portfolio,
including the schedule of investments as of December 31, 1997, and the
related statement of operations for the year then ended and the statements
of changes in net assets and the supplementary data for the year ended
December 31, 1997 and for the period from May 3, 1996 (commencement of
operations) to December 31, 1996. These financial statements and
supplementary data are the responsibility of the Portfolio's management.
Our responsibility is to express an opinion on these financial statements
and supplementary data based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the 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 audits provide 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 Fixed Income Portfolio
as of December 31, 1997, and the results of its operations for the year
then ended and the changes in its net assets and supplementary data for
the respective stated periods, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 19, 1998
34
<PAGE>
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Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, MA 02111
(800) 221-4795
98-054
