STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
Financial Statements for the Year Ended
December 31, 1998
[LOGO]
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
February 25, 1999
Dear Standish, Ayer and Wood Investment Trust Shareholder:
We are writing to provide you with a review of developments at Standish, Ayer &
Wood, as they relate to the activities of the Investment Trust.
The financial markets had a wild year in 1998. Following the disarray in Asia
and, more directly, the de facto Russian default in mid-August, a large part of
the world's financial markets simply shut down. Many sectors of the U.S. markets
were paralyzed. Spurred by a second easing of monetary policy by the Federal
Reserve in mid-October, the markets reopened and staged a dramatic recovery.
Performance within subsets of the major asset classes varied greatly. Bonds
generally produced positive returns, but less liquid issues with any degree of
perceived credit risk underperformed. Emerging market securities were
eviscerated during the third quarter spasm and recovered only partially in the
fourth. By far the best returns in the U.S. equity markets were registered by a
relatively narrow group of higher price/earnings ratio, larger capitalization
stocks. The disparity in return between the larger cap stocks and smaller cap
stocks, as measured by the Standard & Poor's 500 and the Russell 2000 indexes
was an astounding 31%!
While some funds managed by Standish did well relative to their benchmarks and
most funds produced good absolute returns, too many underperformed their
benchmarks in 1998. In bonds, our holdings of corporate credits and mortgages
underperformed U.S. Treasury securities, the latter representing a significant
portion of the major indexes. In equities, our preference for lower
price/earnings ratios led to an overweighting in mid cap stocks that suffered
relative to larger cap stocks with significantly higher valuations.
We have expended considerable time and effort trying to learn the correct
lessons from 1998. We have determined that much of the underperformance was
generic to our style and that 1998 was an aberrant year, with valuation on
holiday in many sectors. We are deeply committed to the view that valuation is
extremely important in making investment judgments. We are dedicated to our
philosophy and unalterably convinced that our strategy of buying securities that
are inexpensive relative to their fundamentals is an excellent path to
sustainable excess returns over the long term.
Notwithstanding the chaotic markets, we are pleased that Standish has benefited
from extraordinary stability of both our clients and our professional team. At
the end of 1998, total assets under management for our clients were $46.2
billion, compared with $39.3 billion at the end of 1997. We have experienced
growth in virtually all asset categories, especially equities. The Standish
Funds increased assets from $5.7 billion to $6.5 billion during the year, with
about 75% of the growth representing additions from existing clients.
The Standish team has also grown significantly, from 232 members at the
beginning of 1998 to 276 members at the end of the year. Our 97 investment
officers have average investment experience of 15 years. Fifty-six officers have
advanced degrees (typically an MBA) and 65 have some advanced professional
accreditation (virtually all Chartered Financial Analysts). There have been no
changes in the 24 individuals (all with CFAs) who own Standish, Ayer & Wood.
1
<PAGE>
At the end of 1998, the Standish Board of Directors elected four new associate
directors: Susan Coan, one of the key managers in our taxable client group;
David Horsfall, head of our large bond trading operation; Phil Leonardi, a major
contributor to expanding our equity assets; and Jennifer Pline, who holds major
responsibilities for serving large, fixed income clients. We have elected 13 new
vice presidents and 17 new assistant vice presidents of Standish, Ayer & Wood.
In this environment, there are no shortages of challenges and opportunities. Our
first priority remains to produce superior long-term investment performance for
our clients. We believe we have the investment disciplines and the professional
team to achieve that goal. In those asset classes in which our returns were
subpar in 1998, we have a special impetus to produce superior results in the
future. With our portfolios attractively priced compared to the relevant
benchmarks, we see potential for significant excess return when the markets
become more focused on investment value.
We believe that we are in partnership with our clients. We would like to assure
you of our dedication to fulfilling your needs while expressing our great
appreciation for your confidence in Standish.
Sincerely yours,
/s/ Ted Ladd /s/ George Noyes
Edward H. Ladd, Chairman George W. Noyes, President
2
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
Management Discussion and Analysis
The year just ended may go down in history as one of the most volatile periods
in recent history. While the market environment was difficult during the first
half of the year, the global crisis hit the markets in full force in August,
when Russia defaulted on its debt. This led to a complete crisis of confidence
in the markets, with a severe liquidity crunch and a flight to quality that
affected virtually every sector of the market. Confidence was gradually restored
only when the Federal Reserve stepped in to lower interest rates in two moves
based on concerns about market psychology. In this environment, the best
performing sector of the bond market was the safest and most liquid--U.S.
Treasuries. These securities make up substantial portions of the Lehman
Aggregate Index and resulted in strong returns for the year: 8.67%. This return
is attractive on a stand-alone basis but is even more impressive against the
backdrop of an economy in which we have had inflation of less than 2% for the
year. The Fund's performance versus the index was disappointing, a return of
5.25% for 1998.
On a relative return basis, the Fund performed fairly well during the first half
of the year, but as the flight to quality unfolded, particularly during the
August-October period, our performance lagged substantially. We cut back our
corporate bond exposure during the first half of the year based on our opinion
that yield spreads were relatively narrow on a historical basis. In hindsight,
this was the right move, but we did not cut enough. We also reduced our mortgage
exposure generally throughout the year, and these securities underperformed as
interest rates fell substantially and fears of increased prepayments proved to
be true. On the positive side, our exposure to the international markets was
generally a positive for performance, as the non-U.S. markets performed quite
well. We also maintained a duration longer than the index for much of the year,
lengthening the Fund's duration further at the height of the crisis, which
served us well in a falling interest rate environment. We used option strategies
throughout the year to improve the portfolio's positioning in the volatile
environment.
In late 1998, we began to add to corporate bonds, mortgages and commercial
mortgage-backed securities. Our belief at that time was that these sectors
offered attractive values on a historical basis and if we were able simply to
earn the yield spread above Treasuries, it would be positive for the Fund. We
entered 1999 with a substantial yield spread advantage over the Lehman Aggregate
Index, one of the highest levels in recent history. We anticipate maintaining
our allocation to the international markets for the forseeable future, based on
our current outlook.
Although this was a difficult and disappointing year, we are confident that the
Fund is well positioned to take advantage of the market environment in 1999. We
want to assure you that we are working diligently to meet your expectations for
the year and thank you for your continued confidence as a shareholder.
Sincerely yours,
/s/ Caleb F. Aldrich
Caleb F. Aldrich
3
<PAGE>
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 originally a line chart in the printed materials.]
Standish Lehman Lehman
Fixed Gov't/Corp. Aggregate
Income Fund Index Index
- ------------------------------------------------------------------------------
Inception 3/30/1987 100000 100000 100000
- ------------------------------------------------------------------------------
Apr-1987 98600 97340 97260
- ------------------------------------------------------------------------------
May-1987 97700 96902 96881
- ------------------------------------------------------------------------------
Jun-1987 98850 98104 98218
- ------------------------------------------------------------------------------
Jul-1987 98850 97888 98139
- ------------------------------------------------------------------------------
Aug-1987 98698 97340 97609
- ------------------------------------------------------------------------------
Sep-1987 96613 95247 95530
- ------------------------------------------------------------------------------
Oct-1987 98647 98819 98931
- ------------------------------------------------------------------------------
Nov-1987 99581 99451 99722
- ------------------------------------------------------------------------------
Dec-1987 100619 100813 101079
- ------------------------------------------------------------------------------
Jan-1988 104275 104261 104637
- ------------------------------------------------------------------------------
Feb-1988 105811 105460 105882
- ------------------------------------------------------------------------------
Mar-1988 105016 104416 104886
- ------------------------------------------------------------------------------
Apr-1988 104692 103811 104320
- ------------------------------------------------------------------------------
May-1988 104150 103115 103621
- ------------------------------------------------------------------------------
Jun-1988 106261 105445 106118
- ------------------------------------------------------------------------------
Jul-1988 105985 104844 105567
- ------------------------------------------------------------------------------
Aug-1988 106040 105117 105841
- ------------------------------------------------------------------------------
Sep-1988 108365 107419 108233
- ------------------------------------------------------------------------------
Oct-1988 110175 109320 110268
- ------------------------------------------------------------------------------
Nov-1988 109044 108085 108934
- ------------------------------------------------------------------------------
Dec-1988 109213 108453 109053
- ------------------------------------------------------------------------------
Jan-1989 110778 109895 110624
- ------------------------------------------------------------------------------
Feb-1989 110199 109060 109827
- ------------------------------------------------------------------------------
Mar-1989 110547 109649 110300
- ------------------------------------------------------------------------------
Apr-1989 112506 111962 112605
- ------------------------------------------------------------------------------
May-1989 115474 114717 115566
- ------------------------------------------------------------------------------
Jun-1989 118918 118456 119080
- ------------------------------------------------------------------------------
Jul-1989 121286 120920 121616
- ------------------------------------------------------------------------------
Aug-1989 119586 119046 119816
- ------------------------------------------------------------------------------
Sep-1989 120254 119570 120427
- ------------------------------------------------------------------------------
Oct-1989 122988 122607 123390
- ------------------------------------------------------------------------------
Nov-1989 123921 123710 124562
- ------------------------------------------------------------------------------
Dec-1989 124231 123896 124898
- ------------------------------------------------------------------------------
Jan-1990 122960 122186 123412
- ------------------------------------------------------------------------------
Feb-1990 123278 122455 123807
- ------------------------------------------------------------------------------
Mar-1990 123596 122467 123893
- ------------------------------------------------------------------------------
Apr-1990 122815 121340 122754
- ------------------------------------------------------------------------------
May-1990 126196 124859 126387
- ------------------------------------------------------------------------------
Jun-1990 128147 126882 128422
- ------------------------------------------------------------------------------
Jul-1990 130473 128455 130194
- ------------------------------------------------------------------------------
Aug-1990 128811 126593 128450
- ------------------------------------------------------------------------------
Sep-1990 129277 127643 129516
- ------------------------------------------------------------------------------
Oct-1990 130636 129341 131160
- ------------------------------------------------------------------------------
Nov-1990 133491 132161 133980
- ------------------------------------------------------------------------------
Dec-1990 135666 134156 136071
- ------------------------------------------------------------------------------
Jan-1991 137816 135659 137758
- ------------------------------------------------------------------------------
Feb-1991 139550 136826 138929
- ------------------------------------------------------------------------------
Mar-1991 139966 137770 139887
- ------------------------------------------------------------------------------
Apr-1991 141873 139354 141398
- ------------------------------------------------------------------------------
May-1991 142861 140009 142218
- ------------------------------------------------------------------------------
Jun-1991 142367 139855 142147
- ------------------------------------------------------------------------------
Jul-1991 144591 141617 144123
- ------------------------------------------------------------------------------
Aug-1991 147677 144874 147236
- ------------------------------------------------------------------------------
Sep-1991 151193 147902 150225
- ------------------------------------------------------------------------------
Oct-1991 153243 149219 151892
- ------------------------------------------------------------------------------
Nov-1991 154488 150711 153290
- ------------------------------------------------------------------------------
Dec-1991 159638 155790 157843
- ------------------------------------------------------------------------------
Jan-1992 157201 153484 155696
- ------------------------------------------------------------------------------
Feb-1992 158952 154298 156708
- ------------------------------------------------------------------------------
Mar-1992 158127 153449 155830
- ------------------------------------------------------------------------------
Apr-1992 158980 154370 156952
- ------------------------------------------------------------------------------
May-1992 162857 157364 159919
- ------------------------------------------------------------------------------
Jun-1992 165960 159678 162126
- ------------------------------------------------------------------------------
Jul-1992 168724 163765 165433
- ------------------------------------------------------------------------------
Aug-1992 170620 165223 167104
- ------------------------------------------------------------------------------
Sep-1992 171647 167470 169092
- ------------------------------------------------------------------------------
Oct-1992 168106 164908 166843
- ------------------------------------------------------------------------------
Nov-1992 167865 164759 166877
- ------------------------------------------------------------------------------
Dec-1992 170632 167593 169530
- ------------------------------------------------------------------------------
Jan-1993 174784 171247 172785
- ------------------------------------------------------------------------------
Feb-1993 179184 174808 175809
- ------------------------------------------------------------------------------
Mar-1993 180679 175403 176547
- ------------------------------------------------------------------------------
Apr-1993 182285 176753 177783
- ------------------------------------------------------------------------------
May-1993 182792 176665 178014
- ------------------------------------------------------------------------------
Jun-1993 186848 180675 181236
- ------------------------------------------------------------------------------
Jul-1993 189083 181832 182269
- ------------------------------------------------------------------------------
Aug-1993 193294 186014 185459
- ------------------------------------------------------------------------------
Sep-1993 193208 186665 185960
- ------------------------------------------------------------------------------
Oct-1993 195306 187430 186648
- ------------------------------------------------------------------------------
Nov-1993 193558 185312 185061
- ------------------------------------------------------------------------------
Dec-1993 195586 186128 186061
- ------------------------------------------------------------------------------
Jan-1994 198808 188920 188572
- ------------------------------------------------------------------------------
Feb-1994 193929 184801 185291
- ------------------------------------------------------------------------------
Mar-1994 187763 180273 180715
- ------------------------------------------------------------------------------
Apr-1994 185513 178777 179269
- ------------------------------------------------------------------------------
May-1994 184950 178455 179251
- ------------------------------------------------------------------------------
Jun-1994 184224 178045 178857
- ------------------------------------------------------------------------------
Jul-1994 187561 181624 182416
- ------------------------------------------------------------------------------
Aug-1994 187847 181696 182635
- ------------------------------------------------------------------------------
Sep-1994 185464 178953 179950
- ------------------------------------------------------------------------------
Oct-1994 185367 178756 179788
- ------------------------------------------------------------------------------
Nov-1994 184979 178434 179393
- ------------------------------------------------------------------------------
Dec-1994 186045 179612 180630
- ------------------------------------------------------------------------------
Jan-1995 189193 183060 184207
- ------------------------------------------------------------------------------
Feb-1995 193325 187307 188591
- ------------------------------------------------------------------------------
Mar-1995 194211 188562 189741
- ------------------------------------------------------------------------------
Apr-1995 197507 191183 192398
- ------------------------------------------------------------------------------
May-1995 204900 199194 199844
- ------------------------------------------------------------------------------
Jun-1995 205699 200787 201302
- ------------------------------------------------------------------------------
Jul-1995 206105 200013 200859
- ------------------------------------------------------------------------------
Aug-1995 208741 202572 203283
- ------------------------------------------------------------------------------
Sep-1995 210768 204630 205255
- ------------------------------------------------------------------------------
Oct-1995 214060 207638 207923
- ------------------------------------------------------------------------------
Nov-1995 217352 211064 211042
- ------------------------------------------------------------------------------
Dec-1995 220540 214166 213997
- ------------------------------------------------------------------------------
Jan-1996 222438 215494 215409
- ------------------------------------------------------------------------------
Feb-1996 218643 210926 211661
- ------------------------------------------------------------------------------
Mar-1996 217062 209154 210180
- ------------------------------------------------------------------------------
Apr-1996 216313 207711 209003
- ------------------------------------------------------------------------------
May-1996 215885 207358 208585
- ------------------------------------------------------------------------------
Jun-1996 218880 210136 211380
- ------------------------------------------------------------------------------
Jul-1996 219749 210620 211950
- ------------------------------------------------------------------------------
Aug-1996 219857 210114 211590
- ------------------------------------------------------------------------------
Sep-1996 224526 213854 215272
- ------------------------------------------------------------------------------
Oct-1996 229594 218837 220051
- ------------------------------------------------------------------------------
Nov-1996 234111 222870 223814
- ------------------------------------------------------------------------------
Dec-1996 232616 220396 221732
- ------------------------------------------------------------------------------
Jan-1997 233862 220661 222419
- ------------------------------------------------------------------------------
Feb-1997 235109 221124 222975
- ------------------------------------------------------------------------------
Mar-1997 232249 218493 220500
- ------------------------------------------------------------------------------
Apr-1997 235354 221683 223808
- ------------------------------------------------------------------------------
May-1997 237883 223745 225934
- ------------------------------------------------------------------------------
Jun-1997 240987 226429 228623
- ------------------------------------------------------------------------------
Jul-1997 247403 233358 234796
- ------------------------------------------------------------------------------
Aug-1997 245303 230745 232800
- ------------------------------------------------------------------------------
Sep-1997 249267 234367 236245
- ------------------------------------------------------------------------------
Oct-1997 251397 238117 239671
- ------------------------------------------------------------------------------
Nov-1997 252343 239379 240773
- ------------------------------------------------------------------------------
Dec-1997 254818 241893 243205
- ------------------------------------------------------------------------------
Jan-1998 257635 245303 246318
- ------------------------------------------------------------------------------
Feb-1998 257390 244813 246121
- ------------------------------------------------------------------------------
Mar-1998 259109 245572 246958
- ------------------------------------------------------------------------------
Apr-1998 260476 246807 248247
- ------------------------------------------------------------------------------
May-1998 262713 249458 250593
- ------------------------------------------------------------------------------
Jun-1998 264545 252002 252723
- ------------------------------------------------------------------------------
Aug-1998 264292 257132 257377
- ------------------------------------------------------------------------------
Sep-1998 268606 264486 263399
- ------------------------------------------------------------------------------
Oct-1998 262580 262608 262003
- ------------------------------------------------------------------------------
Nov-1998 267837 264184 263497
- ------------------------------------------------------------------------------
Dec-1998 268195 264818 264287
- ------------------------------------------------------------------------------
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Fixed Income Portfolio ("Portfolio"), at value (Note 1A) $ 3,416,447,877
Receivable for Fund shares sold 471,736
Prepaid expenses 824
----------------
Total assets 3,416,920,437
Liabilities
Distributions payable $17,554,044
Payable for Fund shares redeemed 6,635,026
Accrued trustees' fees and expenses (Note 3) 1,001
Accrued accounting, custody and transfer agent fees 13,546
Accrued expenses and other liabilities 147,192
------------
Total liabilities 24,350,809
----------------
Net Assets $ 3,392,569,628
================
Net Assets consist of:
Paid-in capital $ 3,438,744,756
Accumulated net realized gain 1,650,702
Accumulated undistributed net investment income 5,803,081
Net unrealized depreciation (53,628,911)
----------------
Total Net Assets $ 3,392,569,628
================
Shares of beneficial interest outstanding 168,534,473
================
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 20.13
================
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1B)
Interest income allocated from Portfolio $ 231,697,454
Dividend income allocated from Portfolio (net of withholding taxes, $17,006) 5,753,502
Expenses allocated from Portfolio (11,831,171)
--------------
Net investment income allocated from Portfolio 225,619,785
Expenses
Legal and audit services $ 277,368
Registration fees 189,856
Accounting and transfer agent fees 132,557
Insurance expense 4,046
Trustees fees and expenses (Note 3) 2,045
Miscellaneous 88,250
-------------
Total expenses 694,122
--------------
Net investment income 224,925,663
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions 49,271,098
Financial futures contracts (857,924)
Written options transactions 7,674,374
Foreign currency transactions and forward foreign currency exchange
contracts 7,112,114
-------------
Net realized gain 63,199,662
Change in unrealized appreciation (depreciation) from Portfolio on:
Investment securities (91,409,163)
Financial futures contracts (706,985)
Written options (2,636,022)
Foreign currency and forward foreign currency exchange contracts (18,460,160)
-------------
Change in net unrealized appreciation (depreciation) (113,212,330)
--------------
Net realized and unrealized loss on investments (50,012,668)
--------------
Net Increase in Net Assets from Operations $ 174,912,995
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
-------------- --------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income $ 224,925,663 $ 195,187,830
Net realized gain 63,199,662 42,948,049
Change in net unrealized appreciation (depreciation) (113,212,330) 27,756,607
-------------- --------------
Net increase in Net Assets from Investment Operations 174,912,995 265,892,486
-------------- --------------
Distributions to Shareholders
From net investment income (226,127,502) (217,278,174)
From net realized gain (59,722,110) (17,660,360)
-------------- --------------
Total distributions to shareholders (285,849,612) (234,938,534)
-------------- --------------
Fund Share (principal) Transactions (Note 5)
Net proceeds from sale of shares 721,049,156 922,120,316
Value of shares issued to shareholders in payment of distributions
declared 239,600,910 187,727,012
Cost of shares redeemed (745,461,464) (456,111,906)
-------------- --------------
Increase in Net Assets from Fund share transactions 215,188,602 653,735,422
-------------- --------------
Total Increase in Net Assets 104,251,985 684,689,374
Net Assets
At beginning of year 3,288,317,643 2,603,628,269
-------------- --------------
At end of year (including distributions in excess of net investment
income of $5,803,081 and $2,421,313, respectively) $3,392,569,628 $3,288,317,643
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1998 (1) 1997 1996 (1) 1995 1994
----------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 20.80 $ 20.53 $ 20.92 $ 18.91 $ 21.25
----------- ----------- ----------- ------------ -----------
Investment Operations:
Net investment income 1.37 1.46 1.46 1.35 1.25
Net realized and unrealized
gain (loss) on investments (0.30) 0.45 (0.37) 2.08 (2.29)
----------- ----------- ----------- ------------ -----------
Total from investment operations 1.07 1.91 1.09 3.43 (1.04)
----------- ----------- ----------- ------------ -----------
Less distributions to shareholders:
From net investment income (1.38) (1.52) (1.48) (1.42) (1.10)
From net realized gain
on investments (0.36) (0.12) -- -- (0.04)
From paid-in capital -- -- -- -- (0.16)
----------- ----------- ----------- ------------ -----------
Total distributions to
shareholders (1.74) (1.64) (1.48) (1.42) (1.30)
----------- ----------- ----------- ------------ -----------
Net Asset Value, End of Year $ 20.13 $ 20.80 $ 20.53 $ 20.92 $ 18.91
=========== =========== =========== ============ ===========
Total Return 5.25% 9.54% 5.48% 18.54% (4.86)%
Ratios/Supplemental Data
Expenses (to average daily net
assets) (2) 0.36% 0.37% 0.38% 0.38% 0.38%
Net investment income (to
average daily net assets) 6.54% 6.76% 7.13% 7.80% 7.25%
Portfolio turnover (3) -- -- 49% 132% 122%
Net assets, end of year
(000's omitted) $3,392,570 $3,288,318 $2,603,628 $2,267,107 $1,642,933
</TABLE>
- -------------------
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of Standish Fixed Income Portfolio's allocated
expenses for the years ended December 31, 1998 and 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
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish 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 99.9% at December 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 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 regulated investment company qualified 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. 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, 1998, aggregated $724,207,866 and
$808,989,702, 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, 1998 December 31, 1997
------------------------ -----------------------
<S> <C> <C>
Shares sold 34,411,735 43,977,522
Shares issued in payment of distributions declared 11,692,563 9,043,534
Shares redeemed (35,637,930) (21,760,201)
========================= =======================
Net increase 10,466,368 31,260,855
========================= =======================
</TABLE>
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
- --------------------------------------------------------------------------------
Supplemental Tax Information (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Fund
designates $17,720,566 as capital gain dividends for the year ended
December 31, 1998. This represents a 20% tax rate gain distribution.
11
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund (the "Fund"),
at December 31, 1998, and the results of its operations, the changes in its net
assets and the financial highlights for each of the periods indicated therein,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (herein referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
12
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Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 89.8%
Asset Backed -- 5.3%
Advanta Home Equity Trust Loan 1991-1A FGIC 9.000% 02/25/2006 888,619 $ 889,591
Advanta Mortgage Loan Trust 1997-3 A7 ERISA 6.920% 10/25/2028 19,850,000 20,219,086
AFC Home Equity Loan Trust 1993-2 A FGIC 6.000% 01/20/2013 57,300 56,888
Chase Credit Card Master Trust
1997-3 A Non-ERISA 6.777% 05/15/2007 28,475,000 28,745,290
Ford Credit Auto Owner 1998-C A4 5.810% 03/15/2002 15,730,000 15,838,065
Green Tree Acceptance Corp. 1997-7 B2 Non-ERISA 7.590% 07/15/2029 11,050,000 9,143,875
Green Tree Acceptance Corp. 1997-7 M1 Non-ERISA 7.030% 07/15/2029 16,950,000 17,061,234
Green Tree Acceptance Corp. 1998-6 M1 6.630% 08/01/2028 8,800,000 8,529,813
Green Tree Acceptance Corp. 1998-7 B1 7.680% 07/01/2030 15,500,000 14,816,426
Green Tree Acceptance Corp. 1998-8 B1 7.690% 09/01/2030 6,265,000 5,846,028
Greentree Acceptance Corp. 1997-5 M1 6.950% 05/15/2029 25,425,000 25,488,563
Greentree Home Equity 1997-D M2 Non-ERISA 7.450% 09/15/2028 15,400,000 15,491,438
World Financial Properties 144A 1996 WFP-B 6.910% 09/01/2013 17,269,861 18,106,370
-------------
Total Asset Backed (Cost $181,880,328) 180,232,667
-------------
Collateralized Mortgage Obligations -- 2.4%
Bear Stearns Mtg 1998-2 B 6.750% 04/30/2030 7,545,144 7,358,873
Bear Stearns Mtg. 1998-2C 6.750% 04/30/2030 24,498,024 23,854,951
FNMA P/O Trust 108 0.000% 03/01/2020 1,178,653 1,012,521
GE Capital Mortgage 1997-10 A6 NAS 6.750% 09/25/2012 19,518,275 19,811,244
Prudential Home Mortgage 1993-B 1B1
144A Non-ERISA 7.843% 04/28/2023 11,948,876 12,083,301
Prudential Home Mortgage 1993-B 3B 144A 7.840% 04/28/2023 18,870,753 19,083,049
Veterans Affairs 1992-1 Cl D 7.750% 12/15/2014 408,043 410,338
-------------
Total Collateralized Mortgage Obligations (Cost $84,286,449) 83,614,277
-------------
Corporate -- 27.5%
Bank Bonds -- 4.3%
Advanta Corp. 7.000% 05/01/2001 5,850,000 4,685,733
Bank United Corp. Notes 8.875% 05/01/2007 5,175,000 5,318,969
Bayview Capital Corp. Sub Notes+ 9.125% 08/15/2007 3,600,000 3,492,000
BFC Capital Trust Notes 9.650% 01/15/2027 4,725,000 5,072,798
Commercial Federal Sub Notes 7.950% 12/01/2006 1,750,000 1,719,587
Dime Bancorp Capital Trust 9.330% 05/06/2027 6,975,000 7,533,558
First Security Bank Sub. Notes 5.875% 11/01/2003 5,000,000 4,996,450
First Union Notes 6.500% 12/01/2028 4,350,000 4,372,577
First USA Bank Notes 7.000% 08/20/2001 4,650,000 4,819,353
GS Escrow Corp. 144A Notes 7.125% 08/01/2005 19,180,000 18,898,438
GS Escrow Corp. 144A Senior Notes 7.000% 08/01/2003 47,895,000 47,238,111
Hubco Capital Trust NC '07 8.980% 02/01/2027 4,000,000 4,326,192
Imperial Credit Capital Trust Notes 9.980% 12/31/2026 8,425,000 9,329,390
North Fork Capital Trust Notes 8.000% 12/15/2027 7,000,000 7,094,661
Peoples Heritage 9.060% 02/01/2027 5,000,000 5,198,160
Popular Inc. Medium Term Notes 6.625% 10/27/2002 4,000,000 4,024,360
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
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Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Bank Bonds (continued)
Providian Corp. Cap 144A Notes 9.525% 02/01/2027 2,500,000 $ 2,547,875
Webster Financial Capital 144A Notes 9.360% 01/29/2027 4,975,000 5,246,625
-------------
145,914,837
-------------
Financial -- 8.3%
Advanta Capital Trust I 8.990% 12/17/2026 3,500,000 1,575,000
Amresco Inc. Corp. Senior Sub Notes 10.000% 03/15/2004 2,175,000 1,522,500
Amresco Inc. Corp. Senior Sub Notes 9.875% 03/15/2005 6,000,000 4,200,000
Bradley Operating LP Notes, REIT 7.000% 11/15/2004 4,575,000 4,345,289
Chartwell Real Estate Holdings Senior Notes 10.250% 03/01/2004 3,058,000 3,221,239
Conseco Finance Trust Cap. Notes+ 8.796% 04/01/2027 26,943,000 24,646,058
Conseco Finance Trust II 8.700% 11/15/2026 17,075,000 15,466,877
Contifinancial Corp. Senior Notes 8.375% 08/15/2003 6,850,000 5,069,000
Crescent Real Estate Notes 7.125% 09/15/2007 15,525,000 13,505,486
Criimi Mae Corp. Notes 9.125% 12/01/2002 15,000,000 9,450,000
Franchise Finance Corp., REIT 7.875% 11/30/2005 3,000,000 2,938,247
Fresenius Medical Capital Trust Notes 7.875% 02/01/2008 485,000 4,845,150
Hutchison Whampoa Finance Hong Kong 144A 7.450% 08/01/2017 9,200,000 7,750,080
Interpool Capital Trust Notes 9.875% 02/15/2027 4,500,000 4,650,129
Interpool Capital Trust Notes 7.350% 08/01/2007 4,175,000 3,623,211
Liberty Mutual Insurance Co. 144A Notes 7.697% 10/15/2097 23,975,000 23,999,934
Markel Capital Trust I Notes 8.710% 01/01/2046 3,025,000 2,919,416
Meditrust, REIT 7.820% 09/10/2026 5,000,000 4,770,100
Meditrust, REIT 144A Notes 7.114% 08/15/2004 19,950,000 17,992,905
MMI Capital Trust Notes 7.625% 12/15/2027 7,225,000 6,252,784
Orion Capital Trust Notes 7.701% 04/15/2028 5,600,000 5,107,088
Phoenix Re-Insurance Corp. NC '07 8.850% 02/01/2027 7,325,000 6,426,003
Pindo Deli Financial Notes 10.250% 10/01/2002 5,700,000 3,363,000
Realty Income Corp. Notes 7.750% 05/06/2007 2,675,000 2,533,618
Reliastar Financial Corp. Notes 6.500% 11/15/2008 7,100,000 7,228,510
Salomon Brothers, Inc. 6.820% 07/26/1999 8,125,000 8,189,431
Salomon Brothers, Inc. 3 Yr. CMT-10 FRN(a) 5.994% 04/05/1999 4,300,000 4,259,709
Shopping Center Associates, REIT 144A 6.750% 01/15/2004 10,000,000 9,837,440
Simon Debartolo Group LP Notes 6.750% 07/15/2004 11,500,000 11,352,685
Spieker Properties, REIT 6.900% 01/15/2004 10,000,000 9,985,900
Sun Communities, Ltd. Senior Notes 7.375% 05/01/2001 5,000,000 5,078,200
TIG Holdings Capital 144A 8.597% 01/15/2027 4,750,000 4,361,903
Trenwick Capital Trust 8.820% 02/01/2037 9,375,000 9,262,584
U.S. Home Corp. 8.250% 08/15/2004 11,555,000 11,583,888
UCFC Home Equity Loan 1996 7.700% 01/15/2004 7,000,000 4,760,000
UCFC Sub Notes 8.375% 07/01/2005 2,500,000 1,250,000
Unum Corp. Notes NCL 6.750% 12/15/2028 15,000,000 15,056,850
-------------
282,380,214
-------------
Industrial Bonds -- 14.9%
Ackerley Group 144A Senior Sub Notes 9.000% 01/15/2009 3,500,000 3,561,250
Adelphia Communications Senior Notes 9.250% 10/01/2002 6,000,000 6,330,000
Allied Waste Industries 144A Notes 7.375% 01/01/2004 5,000,000 5,025,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
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Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Bonds (continued)
Allied Waste Industries 144A Notes 7.625% 01/01/2006 8,275,000 $ 8,337,063
Allied Waste Industries 144A Notes 7.875% 01/01/2009 3,750,000 3,796,875
American Standard Corp. Notes 7.375% 04/15/2005 6,425,000 6,429,353
American Standard Corp. Senior Notes 7.125% 02/15/2003 3,625,000 3,633,338
American Standard Corp. Senior Notes 7.625% 02/15/2010 3,235,000 3,237,265
Aramark Services Inc. 7.000% 07/15/2006 7,000,000 7,163,779
Aramark Services Notes 6.750% 08/01/2004 8,310,000 8,389,784
Building Materials Corp. Senior Notes 8.000% 10/15/2007 3,400,000 3,383,000
Clear Channel 6.875% 06/15/2018 1,545,000 1,501,895
Colt Telecom Group PLC Senior Step Up Notes 0.000% 12/15/2006 5,200,000 4,342,000
Cominco Ltd. Notes+ 6.875% 02/15/2006 16,950,000 14,764,548
Conmed Corp. Notes 9.000% 03/15/2008 4,400,000 4,400,000
CSX Notes 6.250% 10/15/2008 10,185,000 10,333,192
Enterprise Corp. 144A Notes 6.950% 03/01/2004 15,500,000 15,438,595
Enterprise Corp. 144A Notes 7.000% 06/15/2000 7,725,000 7,792,748
Enterprise Corp. Notes 6.375% 05/15/2003 5,000,000 4,903,900
Flag Limited Senior Notes 8.250% 01/30/2008 5,000,000 4,900,000
Foodmaker Inc. Senior Sub Notes 8.375% 04/15/2008 2,075,000 2,075,000
Grove Worldwide Senior Sub Notes 9.250% 05/01/2008 5,750,000 5,175,000
Guandong Enterprises 144A Senior Notes 8.750% 12/15/2003 2,945,000 1,413,600
Guandong Enterprises 144A Senior Notes NCL 8.875% 05/22/2007 16,755,000 8,042,400
Harrahs Operating Co. Inc. Senior Sub Notes 7.875% 12/15/2005 14,675,000 14,675,000
IMC Global Notes 7.625% 11/01/2005 12,025,000 12,217,881
Integrated Health Senior Sub Notes 9.250% 01/15/2008 16,100,000 15,134,000
Loewen Group International Notes 7.600% 06/01/2008 15,955,000 12,764,000
McLeod USA Inc. 144A Senior Notes 9.500% 11/01/2008 4,430,000 4,673,650
McLeod USA Senior Notes 8.375% 03/15/2008 11,845,000 11,785,775
Mcleod USA Senior Step Up Notes 0.000% 03/01/2007 6,400,000 4,896,000
Methanex Corp.+ 7.750% 08/15/2005 23,185,000 23,360,232
Methanex Corp. Notes 7.400% 08/15/2002 4,000,000 4,038,440
News America Inc. Deb Notes 7.300% 04/30/2028 5,775,000 5,921,512
News America Inc. Deb Notes 144A 7.625% 11/30/2028 11,525,000 12,300,172
News America Inc. Deb Notes NCL 7.125% 04/08/2028 14,200,000 14,276,254
Nextlink Communications 144A Notes 10.750% 11/15/2008 3,000,000 3,067,500
Nextlink Communications Step Up Notes 0.000% 04/15/2008 17,200,000 9,890,000
NVR Inc. Senior Notes 8.000% 06/01/2005 3,000,000 2,962,500
Revlon Worldwide Senior Notes+ 0.000% 03/15/2001 41,600,000 23,504,000
Safeway Stores Notes 6.050% 11/15/2003 3,825,000 3,851,240
Salem Communications Corp. Senior Sub Notes 9.500% 10/01/2007 5,925,000 6,147,188
Southland Corp. Deb Notes 4.500% 06/15/2004 7,675,000 6,370,250
Southland Corp. Senior Sub Notes 5.000% 12/15/2003 6,500,000 5,720,000
TCI Communications Inc. 7.125% 02/15/2028 14,750,000 16,069,565
Tenet Healthcare Corp. 144A Senior Notes 7.625% 06/01/2008 7,125,000 7,231,875
Tenet Healthcare Corp. 144A Senior Sub Notes+ 8.125% 12/01/2008 12,800,000 13,120,000
Tenet Healthcare Corp. Notes 8.625% 12/01/2003 2,660,000 2,830,052
Tenet Healthcare Corp. Senior Notes 7.875% 01/15/2003 2,150,000 2,193,000
Tenet Healthcare Corp. Senior Notes 8.000% 01/15/2005 12,425,000 12,611,375
Tenet Healthcare Corp. Sub CVT Notes 6.000% 12/01/2005 5,150,000 4,326,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Industrial Bonds (continued)
Texaco Capital Corp. Notes 9.750% 03/15/2020 10,725,000 $ 14,812,405
Time Warner Inc. Notes 6.625% 05/15/2029 31,000,000 31,541,260
Toro Co. Deb. Notes 7.800% 06/15/2027 5,200,000 4,478,708
Tricon Global Restaurant Inc. Senior Notes 7.450% 05/15/2005 5,825,000 5,954,537
USA Waste Services Inc. Senior Notes 6.500% 12/15/2002 8,000,000 8,140,984
Viacom Inc. Senior Notes 7.750% 06/01/2005 3,000,000 3,277,140
Walt Disney Notes 5.125% 12/15/2003 18,575,000 18,472,095
Westinghouse Credit Corp. Deb Notes 8.875% 06/14/2014 7,000,000 8,056,300
Westinghouse Electric Deb Notes 8.625% 08/01/2012 8,275,000 9,587,415
Westinghouse Electric Deb Notes 7.875% 09/01/2023 5,900,000 6,259,900
-------------
510,887,790
-------------
Total Corporate (Cost $992,044,005) 939,182,841
-------------
Government/Other -- 13.8%
Denmark -- 1.0%
Danske Kredit 5.000% 10/01/2029 7,696,000 1,135,772
Denmark Bullet 7.000% 11/15/2007 28,400,000 5,376,736
Denmark Nykredit 5.000% 10/01/2029 5,400,000 796,929
Denmark Nykredit 7.000% 10/01/2026 25,597,000 4,103,622
Denmark Realkredit 8.000% 10/01/2026 2,000 325
Denmark Realkredit 7.000% 10/01/2026 2,522,000 404,318
Denmark Unikredit Realkredit 6.000% 10/01/2029 30,010,000 4,634,645
Kingdom of Denmark 7.000% 12/15/2004 35,500,000 6,455,105
Kingdom of Denmark 8.000% 11/15/2001 56,300,000 9,848,528
-------------
32,755,980
-------------
EuroDollar -- 0.1%
Bonos DEL Tesoro Notes 8.750% 05/09/2002 1,950,000 1,750,125
-------------
France -- 0.2%
France Oat 6.000% 10/25/2025 13,200,000 2,795,544
France Oat ECU 5.250% 04/25/2008 26,900,000 5,306,407
-------------
8,101,951
-------------
Germany -- 2.7%
Baden Nurttemberg 6.200% 11/22/2013 3,000,000 1,988,841
Bundes Obligation Ser 114 Notes 6.500% 03/15/2000 4,300,000 2,678,858
Bundes Obligation Ser 115 Notes 5.875% 05/15/2000 6,500,000 4,037,737
Bundes Obligation Ser 116 Notes 5.750% 08/22/2000 6,300,000 3,930,886
Depfa Bank 144A Notes 4.750% 07/15/2008 4,700,000 2,925,516
Deutschland Republic 7.375% 01/03/2005 1,000,000 718,803
Deutschland Republic 9.000% 01/22/2001 15,000,000 10,024,298
Deutschland Republic 6.500% 07/04/2027 14,200,000 10,691,745
Die Bundrep Deutschland Dm1000 8.250% 09/20/2001 14,200,000 9,606,383
Federal Republic of Germany 6.875% 05/12/2005 17,450,000 12,333,720
Fresenius Med Global 7.375% 02/01/2008 4,030,000 2,484,296
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Germany (continued)
German Unity Fund 8.000% 01/21/2002 3,500,000 $ 2,380,580
Treuhandanstalt 7.500% 09/09/2004 12,000,000 8,626,350
Treuhandanstalt 7.125% 01/29/2003 9,100,000 6,218,443
Treuhandanstalt 6.500% 04/23/2003 17,500,000 11,766,409
-------------
90,412,865
-------------
Italy -- 0.0%
BTPS 6.000% 05/15/2000 2,100,000,000 1,317,117
-------------
Japan -- 1.4%
Austria Republic 5.000% 01/22/2001 500,000,000 4,805,757
European Investment Bank 4.625% 02/26/2003 235,000,000 2,360,536
Government of Italy 5.125% 07/29/2003 300,000,000 3,095,216
IBRD-Global Bond 5.250% 03/20/2002 255,000,000 2,554,961
IBRD-Global Bond 4.750% 12/20/2004 255,000,000 2,660,294
Italy Euroyen Notes 3.750% 06/08/2005 872,000,000 8,640,804
Italy Euroyen Notes 5.000% 12/15/2004 105,000,000 1,102,760
Kingdom of Spain 5.750% 03/23/2002 737,000,000 7,487,641
OKB 4.300% 02/14/2001 300,000,000 2,851,671
Republic of Finland 6.000% 01/29/2002 737,000,000 7,497,352
Republic of Portugal 4.500% 03/15/2002 300,000,000 2,944,181
South Africa 3.350% 06/17/2004 150,000,000 1,236,956
Spanish Government 4.750% 03/14/2005 120,000,000 1,251,818
-------------
48,489,947
-------------
New Zealand -- 0.4%
Fernz Capital 9.800% 04/15/2002 3,800,000 2,123,646
Fletcher Challenge 11.250% 12/15/2002 3,100,000 1,750,405
Fletcher Challenge CVT 10.000% 04/30/2005 1,500,000 820,904
New Zealand Government 8.000% 04/15/2004 4,675,000 2,750,631
New Zealand Government 10.000% 03/15/2002 4,525,000 2,706,315
New Zealand Government 7.000% 07/15/2009 4,900,000 2,890,832
-------------
13,042,733
-------------
Norway -- 0.0%
Vital Forsikring 7.850% 09/22/2003 8,100,000 1,101,284
-------------
Sweden -- 0.5%
Government of Sweden #1039 5.500% 04/12/2002 22,500,000 2,942,220
Kingdom of Sweden #1030 13.000% 06/15/2001 17,100,000 2,571,988
Sweden Government Bond #1038 6.500% 10/25/2006 71,500,000 10,279,176
Swedish Government Bond #1042 5.000% 01/15/2004 18,500,000 2,412,950
-------------
18,206,334
-------------
United Kingdom -- 1.9%
Alliance and Leicester Building Society 8.750% 12/07/2006 1,700,000 3,283,905
Bank of Greece 10.750% 09/06/2010 1,450,000 3,447,439
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
United Kingdom (continued)
Birmingham Midshires Building Society 9.125% 01/05/2006 1,000,000 $ 1,946,852
Capital Shopping Euro Notes 6.875% 03/05/2013 1,200,000 2,133,267
CSW Investments 8.875% 09/27/2006 3,000,000 5,724,866
Deutsche Bank 0.000% 02/28/2001 545,000 783,603
European Investment Bank 7.625% 12/07/2006 1,380,000 2,657,684
FNMA Global Bond 6.875% 06/07/2002 3,700,000 6,453,649
GTD Export Finance Corp. 0.000% 09/29/2000 1,280,000 1,929,641
IPC Magazines 144A 0.000% 03/15/2008 3,000,000 2,667,831
Northern Rock Building Society 9.375% 10/17/2021 2,600,000 5,976,982
P & O Steam Navigation 11.500% 07/03/2014 1,500,000 3,817,517
Republic of Argentina 11.500% 08/14/2001 420,000 694,633
Stagecoach Holdings PLC 7.625% 10/31/2007 2,175,000 3,910,618
UK Treasury Gilt 9.000% 07/12/2011 1,100,000 2,619,212
UK Treasury Gilt 7.750% 09/08/2006 2,615,000 5,261,189
UK Treasury Gilt 10.000% 09/08/2003 1,300,000 2,656,777
UK Treasury Gilt 8.500% 07/16/2007 4,200,000 8,957,629
-------------
64,923,294
-------------
Yankee Bonds -- 5.6%
Abbey National PLC 7.350% 10/29/2049 13,000,000 13,463,840
Amvescap Senior Notes 6.600% 05/15/2005 25,000,000 24,907,750
Asia Pulp and Paper Global Financial Notes 11.750% 10/01/2005 3,450,000 2,277,000
Edperbrascan Ltd. Notes 7.375% 10/01/2002 12,125,000 12,136,640
Global Crossing Holding Ltd. Notes 9.625% 05/15/2008 16,575,000 17,403,750
ICI Wilmington Notes NCL 6.950% 09/15/2004 17,600,000 17,932,112
Petroleos Mexicanos Notes 8.850% 09/15/2007 4,875,000 4,405,538
Petroleos Mexicanos Notes 9.250% 03/30/2018 975,000 799,500
Republic of Argentina(a) 14.250% 11/30/2002 16,475,000 15,980,750
Republic of Panama 144A Notes 7.875% 02/13/2002 2,305,000 2,201,275
Republic of Panama Notes 8.875% 09/30/2027 11,850,000 11,087,097
Royal Caribbean Cruise Senior Notes 7.500% 10/15/2027 13,375,000 13,248,126
Se Banken Step Up Notes 144A(a) 6.500% 12/29/2049 27,500,000 26,292,475
Societe Generale Step Up 144A NC '07 7.850% 04/29/2049 8,075,000 8,122,400
St. Georges Bank 144A 7.150% 10/15/2005 18,700,000 19,458,715
-------------
189,716,968
-------------
Total Government/Other (Cost $452,319,068) 469,818,598
-------------
Non-Agency -- 4.5%
Pass Thru Securities -- 4.5%
Amresco Communication Mortgage
1997-b A1 144A 6.728% 04/15/2014 17,450,213 17,962,813
Chase Commercial Mortage Sec 6.6
1997-2D Non-ERISA 6.600% 12/25/2007 13,419,581 12,777,957
First Chicago/Lennar Trust 1997-CHL1-D(a) 8.129% 05/29/2008 9,720,000 8,334,900
GMAC Mortgage Corp. 1997-C1 E Non-ERISA 7.085% 11/15/2010 31,109,000 30,642,365
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
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Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass Thru Securities (continued)
Lehman Brothers Commercial Conduit
Mortgage Trust 1995-C2 Non-ERISA 7.088% 05/25/2005 1,930,000 $ 1,939,424
Merrill Lynch Investment Trust 1995-C2 E 8.048% 06/15/2021 1,245,111 1,188,303
Merrill Lynch Mortgage Investment
1997-C1 D Non-ERISA 7.120% 06/18/2029 4,475,000 4,440,039
Morgan Stanley Capital 1998-HF1 E 7.600% 02/15/2008 5,500,000 5,144,219
Morgan Stanley Dean Witter 1998-HF1 A2 6.520% 01/15/2008 30,000,000 31,096,875
Resolution Trust Corp. 1994 C2 E Non-ERISA 8.000% 04/25/2025 4,904,872 4,929,396
Resolution Trust Corp. 1994-1 Cl M2 7.750% 09/25/2029 3,161,850 3,098,613
Resolution Trust Corp. 1994-C2 D Al 1 Non-ERISA 8.000% 04/25/2025 4,452,165 4,466,078
Resolution Trust Corp. 1995 Cl E 6.900% 02/25/2027 11,021,810 10,322,614
Resolution Trust Corp. 1995-2B1 7.450% 09/15/2025 1,292,203 1,307,144
Structured Asset Security Corp.
1994-C1 D Non-ERISA 6.870% 08/25/2026 10,321,414 10,305,690
Structured Asset Security Corp.
1996-CFL C Non-ERISA 6.525% 02/25/2028 7,000,000 6,984,414
-------------
Total Non-Agency (Cost $152,187,293) 154,940,844
-------------
U.S. Government Agency -- 28.1%
Pass Thru Securities -- 28.1%
FHLB 5.770% 12/22/1999 1,875,000 1,889,944
FHLMC 5.750% 07/15/2003 7,600,000 7,795,928
05/01/2028 -
FHLMC Gold+ 7.500% 11/01/2028 63,254,211 64,953,852
FHLMC Gold+ 8.500% 07/01/2028 13,931,543 14,580,195
06/01/2003 -
FNMA 6.000% 05/15/2008 30,224,597 31,895,560
FNMA# 7.000% 01/01/2029 191,750,000 195,584,998
FNMA+ 8.000% 12/01/2012 5,713,797 5,895,953
FNMA+ 8.500% 07/01/2025 36,326,664 38,040,556
FNMA+ 8.500% 11/01/2027 21,661,817 22,683,821
09/15/2022 -
GNMA+ 7.000% 12/15/2027 109,315,068 111,876,115
11/15/2025 -
GNMA+ 7.500% 04/15/2028 50,155,157 51,708,716
01/15/2024 -
GNMA+ 8.000% 12/15/2027 347,695,154 361,384,729
11/15/2017 -
GNMA 9.000% 12/15/2017 40,916,717 43,883,295
GNMA 8.000% 11/15/2026 665,123 691,309
GNMA 8.000% 12/15/2026 544,925 566,379
03/15/2026 -
GNSF 7.500% 06/15/2027 210,336 216,843
Tenneesee Valley Authority Notes 5.375% 11/13/2008 6,650,000 6,697,567
-------------
Total U.S. Government Agency (Cost $956,186,684) 960,345,760
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations -- 8.2%
Treasury Bonds -- 3.7%
U.S. Treasury Bond+ 8.125% 08/15/2019 3,445,000 $ 4,600,694
U.S. Treasury Bond+ 6.625% 02/15/2027 102,555,000 121,303,079
--------------
125,903,773
--------------
Treasury Notes -- 4.5%
U.S. Treasury Inflation Index Note 3.375% 01/15/2007 2,794,608 2,702,037
U.S. Treasury Inflation Index Tip 3.625% 07/15/2002 22,356,791 19,446,032
U.S. Treasury Note+ 6.625% 04/30/2002 7,200,000 7,619,616
U.S. Treasury Note+ 6.625% 05/15/2007 9,000,000 10,120,770
U.S. Treasury Note+ 6.500% 08/15/2005 6,675,000 7,336,226
U.S. Treasury Note+ 6.625% 06/30/2001 16,600,000 17,365,094
U.S. Treasury Note+ 6.250% 10/31/2001 52,610,000 54,812,781
U.S. Treasury Note+ 5.875% 11/15/1999 29,550,000 29,854,661
U.S. Treasury Note (Strip) + 0.000% 11/15/1999 3,605,000 3,465,847
--------------
152,723,064
--------------
Total U.S. Treasury Obligations (Cost $274,539,902) 278,626,837
--------------
TOTAL BONDS AND NOTES (COST $3,093,443,729) 3,066,761,824
--------------
<CAPTION>
Shares
------------
<S> <C> <C>
PREFERRED STOCKS -- 3.3%
Australia & New Zealand Bank 293,350 8,195,466
Bank United of Texas 10.12 115,380 3,050,359
California Federal 9.125 227,000 5,703,375
Credit Lyon Capital 144A 9.5 244,250 5,739,875
Equity Office Properties Trust 144A CVT 748,000 28,517,500
Fuji JGB Inv. L.L.C. Pfd 144A Step Up(a) 24,675,000 17,889,375
Global Crossing PIK Pfd 144A 68,325 6,490,875
Highwoods Properties, Inc. 8.625 8,775 8,024,738
Natexis Ambs Co. Perp Step Up 6,385,000 5,947,884
Pinto Totta Intl Pfd 144A Step Up 6,450 5,914,650
Primedia Inc. 8.625% Pfd 16,000 1,504,000
Societe Generale Preferred Step Up NC '07 18,060,000 16,570,050
--------------
TOTAL PREFERRED STOCKS (COST $127,002,320) 113,548,147
--------------
WARRANTS -- 0.0%
Financial -- 0.0%
Equity Office Properties Warrants 220,000 44,000
--------------
TOTAL WARRANTS(COST $176,000) 44,000
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Contract Value
Security Size (2) (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PURCHASED OPTIONS -- 0.2%
JPY Put/NZD Call, Strike Price 73.50, 4/6/99 10,100,000 $ 4,252
BTP 6.75% Put, Strike Price 105.290, 1/31/00 4,950,000,000 --
BTP 6.75% Put, Strike Price 105.49, 2/3/00 4,950,000,000 --
BTP 6.75% Put, Strike Price 107.69, 2/7/00 9,775,000,000 --
JGB 2.00% Put, Strike Price 99.00, 1/25/99 690,000,000 40,020
JPY Put/USD Call, Strike Price 155.00, 6/15/99 6,600,000 7,260
JPY Put/USD Call, Strike Price 150.00, 6/9/99 3,000,000 4,800
JGB 3.00% Put, Strike Price 110.00, 6/2/99 1,221,000,000 479,853
JPY Put/USD Call, Strike Price 128.00, 11/12/99 2,750,000 59,950
DEM Put/USD Call, Strike Price 1.85, 2/17/99 5,200,000 --
JPY Put/USD Call, Strike Price 150.00, 8/26/99 5,225,000 23,774
BRL Put/USD Call, Strike Price 1.35, 9/9/99 5,450,000 596,775
JPY Put/USD Call, Strike Price 125.00, 10/14/99 3,000,000 71,100
JPY Put/USD Call, Strike Price 127.00, 11/10/99 5,500,000 123,750
JPY Put/USD Call, Strike Price 138.00, 9/8/99 4,075,000 39,801
UST 6.125% Call, Strike Price 110.43, 1/22/99 321,000 581,813
UST 5.500% Call, Strike Price 104.391, 2/25/99 692,000 1,411,031
UST 5.5% Call, Strike Price 113.391, 3/30/99 28,000 7,875
UST 5.5% Call, Strike Price 105.891, 3/1/99 26,000 37,984
UST 5.625% Call, Strike Price 108.125, 4/23/99 262,200 278,588
UST 5.625% Call, Strike Price 110.25, 4/9/99 962,000 420,875
UST 5.625% Call, Strike Price 110.00, 4/9/99 658,500 318,961
UST 5.625% Put, Strike Price 99.258, 2/1/99 26,000 813
DBR 5.625% Call, Strike Price 109.62, 2/22/99 4,725,000 108,288
DBR 4.75% Call, Strike Price 96.12, 4/13/99 4,635,000 127,917
DEM 4.75% Call, Strike Price 94.53, 11/18/99 9,200,000 316,820
DBR 6.00% Call, Strike Price 112.66, 7/4/07 16,000,000 189,104
DBR 6.00% Call, Strike Price 112.88, 10/22/99 9,300,000 103,779
FRF 5.25% Call, Strike Price 108.15, 10/25/99 30,700,000 134,497
DBR 5.625% Call, Strike Price 115.10, 10/1/99 9,300,000 133,353
DEM 5.625% Call, Strike Price 109.10, 11/23/99 4,600,000 143,511
FRF 5.25% Call, Strike Price 106.66, 8/24/99 20,000,000 108,360
OBL 4.5% Call, Strike Price 103.350, 10/26/99 13,840,000 70,584
DBR 4.75% Call, Strike Price 104.90, 11/2/99 9,200,000 113,151
JGB 2.6% Call, Strike Price 120.061, 4/13/99 381,500,000 382
JPY Put, Strike Price 116.95, 12/24/99 5,600,000 243,600
UST 6.125% Call, Strike Price 113.438, 5/31/99 321,000 872,719
DBR 5.25% Call, Strike Price 110.76, 12/15/99 4,700,000 27,636
--------------
TOTAL PURCHASED OPTIONS (COST $12,245,642) $7,202,976
--------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (1) (Note 1A)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 5.9%
COMMERCIAL PAPER -- 3.0%
Archer Daniels 0.000% 02/08/99 5,000,000 $4,966,650
Ciesco 0.000% 01/06/99 25,000,000 24,978,250
General Electric Capital Corp. 0.000% 01/15/99 25,000,000 24,936,250
May Dept Stores Corp. 0.000% 01/11/99 4,500,000 4,490,820
Monsanto 0.000% 02/04/99 10,000,000 9,942,100
Motorola Inc. 0.000% 01/26/99 12,356,000 12,299,780
Sigma 144A 0.000% 02/11/99 2,425,000 2,391,535
Texaco Inc. 0.000% 01/15/99 10,000,000 9,972,200
Transamerica Corp. 0.000% 01/21/99 10,000,000 9,956,000
---------------
103,933,585
---------------
U.S. GOVERNMENT AGENCY -- 2.1%
FHLMC Discount Note 0.000% 01/06/99 36,540,000 36,529,403
FHLMC Discount Note 0.000% 01/07/99 7,053,000 7,049,897
FHLMC Discount Note 0.000% 01/28/99 26,825,000 26,732,990
FNMA Discount Note 0.000% 03/09/99 30,000 29,733
---------------
70,342,023
---------------
REPURCHASE AGREEMENTS -- 0.8%
Prudential-Bache Repurchase Agreement, dated 12/31/98, due 1/4/99, with a
maturity value of $28,760,367 and an effective yield of 3.95%, collateralized by
a U.S. Government Agency Obligation with a rate of 6.149%, a maturity date of
2/01/35 and a market value of $ 29,322,840. 28,747,750
---------------
TOTAL SHORT-TERM INVESTMENTS (COST $203,083,328) 203,023,358
---------------
TOTAL INVESTMENTS -- 99.2% (COST $3,435,951,019) $3,390,580,305
Other Assets, Less Liabilities -- 0.8% 25,881,656
---------------
NET ASSETS -- 100% $3,416,461,961
===============
</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.
DBR - Deutsche Bundes Republik
FNMA, FNCI, - Federal National Mortgage Association
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
GNMA, GNSF - Government National Mortgage Association
IBRD - International Bank for Reconstruction and Development
JGB - Japanese Government Bond
OBL - Bundesobligation
REIT - Real Estate Investment Trust
UST - United States Treasury
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Portfolio
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments (continued):
BRL - Brazilian Real
BTP - British Pound Sterling
DEM - German Mark
FRF - French Franc
JPY - Japanese Yen
NZD - New Zealand Dollar
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) Denominated in United States currency unless otherwise noted. (a) Variable
Rate Security; rate indicated is as of 12/31/98.
# Delayed delivery contract (Note 6).
+ Denotes all or part of security pledged as a margin deposit (Note 5) or
collateral for delayed delivery transactions (Note 6).
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $3,435,951,019) $ 3,390,580,305
Foreign currency, at value (identified cost, $1,362) 1,355
Receivable for investments sold 198,354,521
Interest and dividends receivable 42,447,792
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 2,367,939
Reclaim Receivable 518,212
Deferred organization costs (Note 1F) 34,895
Prepaid expenses 9,957
----------------
Total assets 3,634,314,976
----------------
Liabilities
Payable for delayed delivery transactions (Note 6) $195,448,047
Payable for investments purchased 1,390,281
Options written, at value (premiums received $9,984,188) (Note 5) 11,195,998
Accrued accounting and custody fees 78,224
Payable for daily variation margin on open financial futures contracts 17,594
Unrealized depreciation on forward foreign currency exchange contracts
(Note 5) 9,651,666
Accrued trustees' fees and expenses (Note 2) 17,683
Accrued expenses and other liabilities 53,522
------------
Total liabilities 217,853,015
----------------
Net Assets (applicable to investors' beneficial interests) $ 3,416,461,961
================
</TABLE>
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Operations
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1C)
Interest income $ 231,751,789
Dividend income (net of foreign withholding taxes of $17,007) 5,754,698
--------------
Total income 237,506,487
Expenses
Investment advisory fee (Note 2) $ 10,702,756
Accounting and custody fees 891,842
Legal and audit services 83,129
Trustees' fees and expenses (Note 2) 82,298
Insurance expense 36,460
Licensing fees 20,000
Amortization of organization expense (Note 1F) 14,936
Miscellaneous 2,500
-------------
Total expenses 11,833,921
--------------
Net investment income 225,672,566
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities transactions 49,275,092
Financial futures contracts (858,528)
Written options transactions 7,675,821
Foreign currency transactions and forward foreign currency exchange
contracts 7,110,878
-------------
Net realized gain 63,203,263
Change in unrealized appreciation (depreciation)
Investment securities (91,424,866)
Financial futures contracts (708,138)
Written options (2,636,738)
Foreign currency and forward foreign currency exchange contracts (18,470,057)
-------------
Change in net unrealized appreciation (depreciation) (113,239,799)
--------------
Net realized and unrealized loss (50,036,536)
--------------
Net Increase in Net Assets from Operations $ 175,636,030
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
25
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
------------------- -------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income $ 225,672,566 $ 195,707,479
Net realized gain 63,203,263 42,948,051
Change in net unrealized appreciation (depreciation) (113,239,799) 27,756,610
--------------- ---------------
Net increase in Net Assets from Investment Operations 175,636,030 266,412,140
--------------- ---------------
Capital Transactions
Contributions 726,662,277 930,076,128
Withdrawals (811,459,061) (486,977,142)
--------------- ---------------
Increase (decrease) in net assets resulting from
capital transactions (84,796,784) 443,098,986
--------------- ---------------
Total Increase in Net Assets 90,839,246 709,511,126
Net Assets
At beginning of year 3,325,622,715 2,616,111,589
--------------- ---------------
At end of year $3,416,461,961 $3,325,622,715
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
26
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------
1998 1997 1996(1)
----------- ----------- -----------
<S> <C> <C> <C>
Ratios:
Expenses (to average daily net assets) 0.34% 0.36% 0.37%+
Net investment income (to average
daily net assets) 6.56% 6.77% 7.14%+
Portfolio Turnover 148% 89% 69%
Net assets, end of year (000s omitted) $3,416,462 $3,325,623 $2,616,112
</TABLE>
- ---------------------------------
(1) For the period May 3, 1996 (commencement of operations) through December
31, 1996.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
27
<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.
At December 31, 1998 there are two Funds invested in the Portfolio. The
value of each Fund's investment in the Portfolio reflect the Fund's
proportionate interest in the net assets of the Portfolio. The
proportionate interest at December 31, 1998 of the Standish Fixed Income
Fund and the Standish Fixed Income Asset Fund were approximately 99.9% and
less than 0.1%, respectively.
The following is a summary of significant accounting policies 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
agreements' 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
28
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
satisfy them. The Portfolio allocates 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.
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 organization expense
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 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, other than short-term
obligations, for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
--------------- ---------------
<S> <C> <C>
U.S. Government Securities...................... $4,059,646,072 $3,302,369,409
=============== ===============
Investments (non-U.S. Government Securities).... $1,547,393,262 $1,206,544,665
=============== ===============
</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, 1998, as computed on a federal
income tax basis, were as follows:
Aggregate Cost....................................... $ 3,436,614,514
==================
Gross unrealized appreciation........................ 53,993,019
Gross unrealized depreciation........................ (100,027,228)
------------------
Net unrealized depreciation.......................... $ (46,034,209)
==================
29
<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 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 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, 1998 is as follows:
Written Put Option Transactions
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------------- ---------------
<S> <C> <C>
Outstanding, beginning of period.......................... 6 $ 2,607,527
Options written........................................... 29 8,870,723
Options expired........................................... (8) (4,115,293)
Options closed............................................ (11) (4,146,169)
--------------- ---------------
Outstanding, end of period................................ 16 $ 3,216,788
=============== ===============
</TABLE>
30
<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........................ . 5 $ 726,130
Options written........................................... 27 6,687,325
Options expired........................................... (10) (1,494,355)
Options closed............................................ (8) (1,713,349)
--------------- ---------------
Outstanding, end of period................................ 14 $ 4,205,751
=============== ===============
</TABLE>
Written Cross Currency Option Transactions
---------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Contracts Premiums
--------------- ---------------
<S> <C> <C>
Outstanding, beginning of period.......................... 14 $ 1,365,255
Options written........................................... 24 3,072,273
Options expired........................................... (7) (347,355)
Options closed............................................ (16) (1,528,524)
--------------- ---------------
Outstanding, end of period................................ 15 $ 2,561,649
=============== ===============
</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.
31
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1998, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
Forward Foreign Currency Exchange 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>
Argentinean Peso 2,658,103 1/06/99 $ 2,659,486 $ 2,643,434 $ 16,052
Australian Dollar 4,350,000 3/11/99 2,665,013 3,073,202 (408,189)
Canadian Dollar 4,154,331 11/02-1/29/99 2,716,166 2,736,891 (20,725)
German Deutsche Mark 11,667,075 2/17-4/22/99 7,021,820 6,958,621 63,199
French Franc 15,186,263 2/12/99 2,721,052 2,689,262 31,790
Hong Kong Dollar 28,791,260 10/14/99 3,679,023 3,519,861 159,162
Italian Lira 4,474,436,810 4/29/99 2,720,687 2,711,780 8,907
Japanese Yen 2,149,164,861 1/11-3/9/99 19,082,368 17,965,391 1,116,977
New Zealand Dollar 5,279,508 3/11/99 2,777,901 2,979,628 (201,727)
Polish Zloty 2,876,930 7/24/00 682,708 700,000 (17,292)
------------ ------------- -------------
$46,726,224 $45,978,070 $ 748,154
============ ============= =============
</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>
Argentinean Peso 3,991,253 1/06-4/06/99 $ 3,983,544 $ 3,925,287 $ (58,257)
Australian Dollar 4,350,000 3/11/99 2,665,013 2,915,211 250,198
Canadian Dollar 4,152,260 1/29/99 2,714,812 2,679,742 (35,070)
Danish Krone 215,499,464 1/11-5/06/99 34,027,137 32,844,424 (1,182,713)
French Franc 57,229,961 2/12/99 10,254,380 10,219,636 (34,744)
German Deutsche Mark 151,960,321 1/20-5/06/99 91,520,611 91,428,712 (91,899)
British Pound Sterling 39,616,381 1/20-5/10/99 65,705,352 65,364,578 (340,774)
Greek Drachma 651,563,250 4/22/99 2,284,333 1,986,250 (298,083)
Hong Kong Dollar 44,411,920 10/14/99 5,675,073 5,585,000 (90,073)
Italian Lira 6,799,360,000 4/29/99 4,134,359 4,163,519 29,160
Japanese Yen 5,906,644,994 2/05-3/29/99 52,636,892 45,671,470 (6,965,422)
New Zealand Dollar 33,656,794 2/11-4/15/99 17,709,108 18,034,816 325,708
Norwegian Krone 8,939,580 1/19/99 1,177,720 1,160,608 (17,112)
Polish Zloty 2,876,930 7/24/00 682,708 682,708 0
Swedish Krona 141,967,240 1/19-3/02/99 17,611,308 17,791,425 180,117
------------ ------------- -------------
$312,782,350 $304,453,386 $(8,328,964)
============ ============= =============
</TABLE>
32
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward Foreign Cross Currency Exchange Contracts
<TABLE>
<CAPTION>
U.S.$ U.S. $ U.S. $
Market Market Contract Unrealized
Contracts to Deliver Value In Exchange For Value Value Date Gain/(Loss)
------------------------- ---------------- ----------------------- --------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
German Deutsche Mark $ 6,153,065 Greek Drachma $ 6,624,623 4/22/99 $471,558
British Pound Sterling 2,772,097 New Zealand Dollar 2,707,680 11/05/99 (64,417)
Greek Drachma 4,340,290 German Deutsche Mark 4,230,232 4/22/99 (110,058)
--------------- --------------- --------------
$13,265,452 $13,562,535 $297,083
=============== =============== ==============
</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. 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 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 contracts' terms. The
Portfolio enters into financial futures transactions primarily to seek 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, 1998, the Portfolio held the following financials futures
contracts:
<TABLE>
<CAPTION>
Unrealized
Underlying Face Appreciation/
Contract Position Expiration Date Amount at Value (Depreciation)
----------------------------------- ------------ ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
U.S. Long Bond CBT (446 contracts) Long 3/31/99 $ 56,990,438 $ (974,630)
U.S. 10 Year Note (1,221 contracts) Short 3/31/99 145,489,781 958,119
----------------
$ (16,511)
================
</TABLE>
At December 31, 1998 the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
33
<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, 1998, the Fund had entered into the following delayed
delivery transactions:
<TABLE>
<CAPTION>
Type Security Settlement Date Payable Amount
--------------------- ----------------- ---------------------- ---------------------
<S> <C> <C> <C>
Buy FNMA 1/21/99 $195,448,047
</TABLE>
34
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Master Portfolio and the Investors of
Standish Fixed Income Portfolio:
In our opinion the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplemental data present fairly, in all material
respects, the financial position of Standish Fixed Income Portfolio (the
"Portfolio"), at December 31, 1998, the results of its operations, the changes
in its net assets and the supplemental data for each of the periods indicated
therein, in conformity with generally accepted accounting principles. These
financial statements and supplemental data (herein referred to as "financial
statements") are the responsibility of the Portfolio's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
by management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1998, by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
35
<PAGE>
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36
<PAGE>
[This page intentionally left blank.]
37
<PAGE>
[This page intentionally left blank.]
38
<PAGE>
[LOGO] Standish Funds(R)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
www.standishfunds.com
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Standish,
Ayer & Wood Investment Trust form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Standish Fixed Income Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 3,416,447,877
<RECEIVABLES> 471,736
<ASSETS-OTHER> 824
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,416,920,437
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 24,350,809
<TOTAL-LIABILITIES> 24,350,809
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 3,438,744,756
<SHARES-COMMON-STOCK> 168,534,473
<SHARES-COMMON-PRIOR> 158,068,105
<ACCUMULATED-NII-CURRENT> 5,803,081
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,650,702
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (53,628,911)
<NET-ASSETS> 3,392,569,628
<DIVIDEND-INCOME> 5,753,502
<INTEREST-INCOME> 231,697,454
<OTHER-INCOME> (11,831,171)
<EXPENSES-NET> 694,122
<NET-INVESTMENT-INCOME> 224,925,663
<REALIZED-GAINS-CURRENT> 63,199,662
<APPREC-INCREASE-CURRENT> (113,212,330)
<NET-CHANGE-FROM-OPS> 174,912,995
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 226,127,502
<DISTRIBUTIONS-OF-GAINS> 59,722,110
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 34,411,735
<NUMBER-OF-SHARES-REDEEMED> (35,637,930)
<SHARES-REINVESTED> 11,692,563
<NET-CHANGE-IN-ASSETS> 104,251,985
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,600,878
<OVERDISTRIB-NII-PRIOR> 2,421,313
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 694,122
<AVERAGE-NET-ASSETS> 3,440,173,080
<PER-SHARE-NAV-BEGIN> 20.80
<PER-SHARE-NII> 1.37
<PER-SHARE-GAIN-APPREC> (0.30)
<PER-SHARE-DIVIDEND> (1.38)
<PER-SHARE-DISTRIBUTIONS> (0.36)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.13
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Standish,
Ayer & Wood Investment Trust form N-SAR for the year ended December 31, 1998 and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 3
<NAME> Standish Fixed Income Portfolio
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 3,435,951,019
<INVESTMENTS-AT-VALUE> 3,390,580,305
<RECEIVABLES> 241,320,525
<ASSETS-OTHER> 2,414,146
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 3,634,314,976
<PAYABLE-FOR-SECURITIES> 196,838,328
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 21,014,687
<TOTAL-LIABILITIES> 217,853,015
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 2,769,556,290
<SHARES-COMMON-STOCK> 0
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 646,905,671
<NET-ASSETS> 3,416,461,961
<DIVIDEND-INCOME> 5,754,698
<INTEREST-INCOME> 231,751,789
<OTHER-INCOME> 0
<EXPENSES-NET> 11,833,921
<NET-INVESTMENT-INCOME> 225,672,566
<REALIZED-GAINS-CURRENT> 63,203,263
<APPREC-INCREASE-CURRENT> (113,239,799)
<NET-CHANGE-FROM-OPS> 175,636,030
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 0
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 90,839,246
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 10,702,756
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 11,833,921
<AVERAGE-NET-ASSETS> 3,442,833,200
<PER-SHARE-NAV-BEGIN> 0.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 0.00
<EXPENSE-RATIO> 0.34
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
