STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Financial Statements for the
Six Months Ended March 31, 1999
(Unaudited)
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Financial Statements
Table of Contents
Page
Statements of Assets and Liabilities...........................2
Statements of Operations.......................................3
Statements of Changes in Net Assets............................4
Financial Highlights...........................................5
Notes to Financial Statements..................................6
Schedule of Investments........................................8
Statement of Assets and Liabilities (Portfolio)...............12
Statement of Operations (Portfolio)...........................13
Statement of Changes in Net Assets (Portfolio)................14
Supplemental Data (Portfolio).................................15
Notes to Financial Statements.................................16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investment in Standish Small Capitalization Equity Portfolio II
("Portfolio"), at value (Note 1A) $ 25,974,412
Receivable from investment adviser (Note 3) 2,505
-------------
Total assets 25,976,917
Liabilities
Payable for Fund shares redeemed $ 736,888
Accrued accounting, custody and transfer agent fees 4,009
Accrued trustees' fees and expenses 995
Accrued expenses and other liabilities 3,053
------------
Total liabilities 744,945
-------------
Net Assets $ 25,231,972
=============
Net Assets consist of:
Paid-in capital $ 19,080,857
Accumulated net realized gain 2,339,557
Accumulated net investment loss (56,605)
Net unrealized appreciation 3,868,163
-------------
Total Net Assets $ 25,231,972
=============
Shares of beneficial interest outstanding 759,560
=============
Net Asset Value, offering and redemption price per share
(Net Assets/Shares outstanding) $ 33.22
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Operations
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1B)
Dividend income allocated from Portfolio $ 22,750
Interest income allocated from Portfolio 15,403
Expenses allocated from Portfolio (94,758)
------------
Net investment income from Portfolio (56,605)
Expenses
Accounting, custody and transfer agent fees $ 15,554
Registration fees 7,708
Legal and audit services 6,118
Trustees' fees and expenses (Note 3) 2,027
Miscellaneous 3,236
-----------
Total expenses 34,643
Deduct:
Reimbursement of Fund operating expenses (34,643)
-----------
Net expenses --
------------
Net investment loss (56,605)
------------
Realized and Unrealized Gain
Net realized gain allocated from Portfolio on:
Investment security transactions 2,724,215
-----------
Net realized gain 2,724,215
Change in unrealized appreciation (depreciation) allocated from
Portfolio on:
Investment securities 4,990,794
-----------
Change in net unrealized appreciation (depreciation) 4,990,794
------------
Net realized and unrealized gain 7,715,009
------------
Net Increase in Net Assets from Operations $ 7,658,404
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999 Year Ended
(Unaudited) September 30, 1998
----------------------- ----------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment loss $ (56,605) $ (25,722)
Net realized gain 2,724,215 36,806
Change in net unrealized appreciation
(depreciation) 4,990,794 (2,290,170)
------------- ------------
Net increase (decrease) in Net Assets from
Investment Operations 7,658,404 (2,279,086)
------------- ------------
Distributions to Shareholders (Note 2)
From net investment income -- (12,372)
From net realized gain -- (165,969)
In excess of net realized gain -- (384,658)
------------- ------------
Total distributions to shareholders -- (562,999)
------------- ------------
Fund Share (principal) Transactions (Note 5)
Net proceeds from sale of shares 7,869,434 9,955,084
Value of shares issued to shareholders in
payment of distributions declared -- 555,593
Cost of shares redeemed (2,239,849) (2,038,167)
------------- ------------
Increase in Net Assets from Fund share
transactions 5,629,585 8,472,510
------------- ------------
Total Increase in Net Assets 13,287,989 5,630,425
Net Assets
At beginning of period 11,943,983 6,313,558
------------- ------------
At end of period (including accumulated net
investment loss of $56,605 and $0,
respectively) $25,231,972 $11,943,983
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Six Months Nine Months December 23, 1996
Ended March Year Ended Ended (commencement of
31, 1999 September 30, September operations) to
(Unaudited) 1998 (1) 30, 1997 December 31, 1996
--------------- --------------- -------------- -------------------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 22.22 $ 29.12 $20.39 $20.00
-------- -------- ------- -------
Investment Operations:
Net investment loss * (0.07) (0.07) 0.03 --
Net realized and unrealized
gain (loss) on investments 11.07 (5.01) 8.71 0.39
-------- -------- ------- -------
Total from investment operations 11.00 (5.08) 8.74 8.74
-------- -------- ------- -------
Less distributions declared to shareholders
From net investment income -- (0.04) (0.01) --
From net realized gain on
investments -- (0.54) -- --
In excess of net realized gain
on investments -- (1.24) -- --
-------- -------- ------- -------
Total distributions -- (1.82) (0.01) --
-------- -------- ------- -------
Net Asset Value, End of Period $ 33.22 $ 22.22 $29.12 $20.39
======== ======== ======= =======
Total Return 49.37% (17.84)% 42.94% --(2)
Ratios/Supplemental Data
Expenses (to average daily net
assets)* (3) 1.00%+ 0.58% 0.00%+ --(2)
Net investment loss (to average
daily net assets)* (0.60)%+ (0.25)% 0.49%+ --(2)
Net assets, end of period
(000's omitted) $25,232 $11,944 $6,314 $ 484
</TABLE>
- -------------------
* For the periods indicated, the investment adviser voluntarily agreed not
to impose all or a portion of its advisory fee on the Portfolio and
reimbursed the Portfolio for a portion of its operating expenses and
reimbursed the Fund for all of its operating expenses. If these voluntary
actions had not been taken, the net investment income per share and the
ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment loss per share $ (0.12) $ (0.42) $(0.25) $ 0.00(2)
Ratios (to average daily net assets):
Expenses (3) 1.36%+ 1.94% 3.56%+ --(2)
Net investment income (loss) (0.96)%+ (1.61)% (3.07)%+ --(2)
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Amounts are not meaningful due to the short period of operations.
(3) Includes the Fund's share of the Standish Small Capitalization Equity II
Portfolio's allocated expenses for the periods since commencement of
operations.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Small Capitalization Equity Fund II (the "Fund") is a
separate diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest in
Standish Small Capitalization Equity Portfolio II (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, and has the same
investment objective as the Fund. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net
assets of the Portfolio (approximately 100% at March 31, 1999). The
performance of the Fund is directly affected by the performance of the
Portfolio. The financial statements of the Portfolio are included
elsewhere in this report and should be read in conjunction with the
Fund's financial statements.
The following is a summary of significant accounting policies followed
by the Fund in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations
The Fund records its investment in the Portfolio at value. The method
by which the Portfolio values its securities is discussed in Note 1A of
the Portfolio's Notes to Financial Statements, which are included
elsewhere in this report.
B. Securities transactions and income
Securities transactions are recorded as of the trade date. Currently,
the Fund's net investment income consists of the Fund's pro rata share
of the net investment income of the Portfolio, less all actual and
accrued expenses of the Fund determined in accordance with generally
accepted accounting principles.
C. Federal taxes
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. Other
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the investors in
the Portfolio.
(2) Distributions to Shareholders:
The Fund's dividends from short-term and long-term capital gains, if
any, after reduction of capital losses will be declared and distributed
at least annually, as will dividends from net investment income. In
determining the amounts of its dividends, the Fund will take into
account its share of the income, gains or losses, expenses, and any
other tax items of the Portfolio. Dividends from net investment income
and capital gains distributions, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Income and capital gain distributions are determined in
accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences are primarily due to
differing treatments for futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income, and accumulated net realized gains (losses).
6
<PAGE>
(3) Investment Advisory Fee:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer, & Wood, Inc. ("SA&W") for such services.
See Note 2 of the Portfolio's Notes to Financial Statements which are
included elsewhere in this report. SA&W has voluntarily agreed to limit
the aggregate annual operating expenses and its pro-rata share of
expenses allocated from the Portfolio (excluding commissions, taxes and
extraordinary expenses) to 1.00% of the Fund's average daily net assets
for the period October 1, 1998 to March 31, 1999. This agreement is
voluntary and temporary and may be discontinued or revised by SA&W at
any time. Pursuant to this agreement, for the six months ended March
31, 1999, SA&W voluntarily reimbursed the Fund for its operating
expenses in the amount of $34,643. The Trust pays no compensation
directly to its trustees who are affiliated with the SA&W or to its
officers, all of whom receive remuneration for their services to the
Trust from SA&W. Certain of the trustees and officers of the Trust are
directors or officers of SA&W.
(4) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the six months ended March 31, 1999 aggregated $7,740,666 and
$1,347,459, respectively.
(5) Shares of Beneficial Interest:
The Declaration of Trust permits the Trust 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>
Six Months Ended Year Ended
March 31, 1999 September 30, 1998
------------------------ ----------------------
<S> <C> <C>
Shares sold.......................................... 296,209 373,288
Shares issued to shareholders in payment of
distributions declared............................ -- 23,472
Shares redeemed...................................... (74,251) (75,976)
------------------------ ----------------------
Net increase......................................... 221,958 320,784
======================== ======================
</TABLE>
At March 31, 1999, the Fund had two shareholders of record owning
approximately 13% and 11% of the Fund's outstanding voting shares.
7
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 97.3%
Capital Goods -- 6.3%
Eagle USA Airfreight, Inc.* 15,500 $ 503,750
Heico Corp. 8,100 194,400
Kellstrom Industries, Inc.* 11,200 177,800
Kroll-Ogara Co.* 13,800 374,325
Superior Services, Inc.* 19,100 378,419
--------------
1,628,694
--------------
Consumer Stable -- 1.0%
United Natural Foods, Inc.* 11,000 257,125
--------------
Early Cyclical -- 3.3%
Atlantic Coast Airlines, Inc.* 12,900 362,813
Midwest Express Holdings* 7,800 229,125
Safeguard Scientifics, Inc.* 4,000 271,250
--------------
863,188
--------------
Energy -- 4.1%
Cal Dive International, Inc.* 11,400 237,975
Cooper Cameron Corp.* 6,400 216,800
Dril-Quip* 16,200 357,413
Newpark Resources, Inc.* 34,200 247,950
--------------
1,060,138
--------------
Financial -- 2.9%
First Sierra Financial, Inc.* 40,800 367,200
Telebanc Financial Corp.* 4,700 374,825
--------------
742,025
--------------
Growth Cyclical -- 7.1%
Cinar Corp.* 18,900 434,700
Coach USA, Inc.* 14,400 396,000
Papa Johns Intl, Inc.* 5,200 229,450
ResortQuest International, Inc.* 11,000 176,000
Stein Mart, Inc.* 19,500 195,000
Wet Seal, Inc., Class A* 11,300 416,688
--------------
1,847,838
--------------
Health Care -- 10.5%
Alkermes, Inc.* 13,800 376,050
Chirex, Inc.* 11,700 286,650
Coulter Pharmaceutical, Inc.* 9,800 213,150
Cytyc Corp.* 15,100 209,513
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Health Care (continued)
Healtheon Corp.* 4,000 $ 170,125
Henry Schein, Inc.* 3,700 93,425
Impath, Inc.* 6,700 164,150
Inhale Therapeutic Systems* 5,700 154,613
Pharmacyclics, Inc.* 16,400 270,600
Sepracor, Inc.* 2,600 291,850
Transkaryotic Therapies, Inc.* 7,800 247,650
Vical, Inc.* 24,000 246,000
--------------
2,723,776
--------------
Other -- 3.0%
Nasdaq-100 Shares* 7,400 776,999
--------------
Services -- 24.4%
Abacus Direct Corp.* 7,800 639,599
Bright Horizons, Inc.* 10,000 218,750
Central Parking Corp. 6,200 213,900
CN Maximus, Inc.* 6,500 189,313
Concentric Network Corp.* 6,200 463,450
Devry, Inc.* 17,500 507,499
Diamond Tech Partners, Inc.* 11,400 262,913
Doubleclick, Inc.* 2,100 382,331
Entercom Communications Corp.* 5,300 187,488
Exodus Communications, Inc.* 3,100 416,950
F.Y.I., Inc.* 10,300 329,600
Gray Communications Systems, Class B 5,750 76,906
Inspire Insurance Solutions* 14,850 282,150
Metro Networks, Inc.* 10,800 593,999
NCO Group, Inc.* 3,100 114,700
On Assignment, Inc.* 6,000 153,750
Scandinavian Broadcast Systems* 21,900 703,537
Superior Consultant Holdings* 4,400 150,150
Wilmar Industries, Inc.* 17,600 260,700
Ziff Davis, Inc.* 9,000 193,500
--------------
6,341,185
--------------
Technology -- 34.7%
ATMI, Inc.* 25,700 513,999
Bea Systems, Inc.* 16,300 254,688
Best Software, Inc.* 22,300 301,050
C-Net, Inc.* 4,700 432,988
CMG Information Services, Inc.* 600 109,838
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------
Technology (continued)
Dallas Semiconductor Corp. 5,400 $ 208,575
Datastream Systems, Inc.* 9,600 82,800
Digital River, Inc.* 5,600 224,000
Earthweb Inc.* 3,100 169,919
Entrust Technologies, Inc.* 8,400 283,500
Infoseek Corp.* 5,100 377,400
Infospace.com, Inc.* 5,700 504,806
Intervu, Inc.* 6,700 297,313
Level One Communications, Inc.* 7,900 384,138
National Computer System, Inc. 9,400 230,300
National Instruments Corp.* 4,000 114,000
New Era Of Networks, Inc. 5,500 372,625
Onemain.com Inc.* 10,800 391,500
Photronics, Inc.* 25,200 469,350
PRI Automation, Inc.* 19,400 407,400
Qlogic Corp.* 6,600 443,025
Rowecom Inc.* 13,000 567,124
Sanmina Corp.* 2,000 127,500
SDL, Inc.* 2,200 199,650
Security First Technologies* 3,700 271,950
TheGlobe.com, Inc.* 3,600 187,650
Transaction Systems Archit, Class A* 4,900 176,400
TSI International Software Ltd.* 5,400 263,588
Verisign, Inc.* 2,600 400,400
VerticalNet, Inc.* 2,400 249,300
--------------
9,016,776
--------------
TOTAL EQUITIES (COST $21,389,556) 25,257,744
--------------
Value
Security (Note 1A)
- --------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 0.6%
Repurchase Agreements -- 0.6%
Prudential-Bache Repurchase Agreement, dated 3/31/99, due
4/1/99, with a maturity value of $164,141 and an effective
yield of 4.15%, collateralized by a U.S. Government Agency
Obligation with a rate of 5.75%, a maturity date of 4/15/03
and a market value of $172,374. 164,122
--------------
Total Repurchase Agreements (Cost $164,122) 164,122
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $164,122) 164,122
--------------
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Schedule of Investments - March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
Value
(Note 1A)
- --------------------------------------------------------------------------------
TOTAL INVESTMENTS -- 97.9% (COST $21,553,678) $ 25,421,866
Other Assets, Less Liabilities -- 2.1% 552,697
==============
NET ASSETS -- 100% $ 25,974,563
==============
Notes to the Schedule of Investments:
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $21,553,678) $ 25,421,866
Cash 151,995
Receivable for investments sold 1,596,862
Interest and dividends receivable 2,832
Deferred organization costs (Note 1E) 12,967
Prepaid expenses 532
-------------
Total assets 27,187,054
Liabilities
Payable for investments purchased $ 1,193,329
Accrued accounting and custody fees 6,514
Payable to investment adviser (Note 2) 2,588
Accrued trustees' fees and expenses (Note 2) 1,217
Accrued expenses and other liabilities 8,843
------------
Total liabilities 1,212,491
-------------
Net Assets (applicable to investors' beneficial interests) $ 25,974,563
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Operations
For the Six Months Ended March 31, 1999 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income (Note 1C)
Dividend income $ 22,750
Interest income 15,403
-------------
Total income 38,153
Expenses
Investment advisory fee (Note 2) $ 56,793
Accounting and custody fees 25,253
Trustees' fees and expenses (Note 2) 2,107
Legal and audit services 8,176
Amortization of organization cost (Note 1E) 2,368
Miscellaneous 61
-----------
Total expenses 94,758
-------------
Net investment loss (56,605)
-------------
Realized and Unrealized Gain
Net realized gain
Investment security transactions 2,724,233
-----------
Net realized gain 2,724,233
Change in unrealized appreciation (depreciation)
Investment securities 4,990,820
-----------
Change in net unrealized appreciation (depreciation) 4,990,820
-------------
Net realized and unrealized gain 7,715,053
-------------
Net Increase in Net Assets from Operations $ 7,658,448
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999 Year Ended
(Unaudited) September 30, 1998
----------------------- ---------------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income (loss) $ (56,605) $ (25,722)
Net realized gain 2,724,233 36,810
Change in net unrealized appreciation
(depreciation) 4,990,820 (2,290,197)
------------ -------------
Net increase (decrease) in Net Assets
from Investment Operations 7,658,448 (2,279,109)
------------ -------------
Capital Transactions
Contributions 7,740,666 9,663,712
Withdrawals (1,347,459) (1,758,185)
------------ -------------
Increase in Net Assets resulting from
capital transactions 6,393,207 7,905,527
------------ -------------
Total Increase in Net Assets 14,051,655 5,626,418
Net Assets
At beginning of period 11,922,908 6,296,490
------------ -------------
At end of period $25,974,563 $11,922,908
============ =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Ratios/Supplemental Data
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the period
Nine Months December 23, 1996
Six Months Ended Year Ended Ended (commencement of
March 31, 1999 September 30, September 30, operations) to
(Unaudited) 1998 1997 December 31, 1996
------------------ ----------------- --------------- -------------------
<S> <C> <C> <C> <C>
Ratios:
Expenses (to average net assets) * 1.00%+ 0.58% 0.00%+ --(1)
Net investment loss (to average net
assets)* (0.60)%+ (0.25)% 0.50%+ --(1)
Portfolio turnover 115% 147% 122% --
Net assets, end of period (000's omitted) $ 25,975 $ 11,923 $ 6,296 $ 484
</TABLE>
- -----------------------------
* For the periods indicated, the investment adviser did not impose a portion of
its investment advisory fee and/or reimbursed the Portfolio for a portion of
its operating expenses. If these voluntary actions had not been taken, the
ratios would have been:
Ratios (to average daily net assets):
<TABLE>
<S> <C> <C> <C> <C>
Expenses -- 1.39% 4.33%+ --(1)
Net investment income (loss) -- (1.06)% (3.84)%+ --(1)
</TABLE>
+ Computed on an annualized basis.
(1) Amounts are not meaningful due to the short period of operations.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio II (the "Portfolio") is
a separate diversified investment series of the Portfolio Trust. As of
March 31, 1999, the Standish Small Capitalization Equity Fund II's
proportionate interest in the net assets of the Portfolio was
approximately 100%.
The following is a summary of significant accounting policies followed
by the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees.
Short-term instruments with less than sixty-one days remaining to
maturity when acquired by the Portfolio are valued on an amortized cost
basis. If the Portfolio acquires a short-term instrument with more than
sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued
at amortized cost based upon the value on such date unless the trustees
determine during such sixty-day period that amortized cost does not
represent fair value.
B. Repurchase agreements
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. Income taxes
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio's investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the Internal Revenue Code) in order for its investors
to satisfy them. The Portfolio will allocate at least annually among
its investors each investor's distributive share of the Portfolio's net
investment income, net realized capital gains, and any other items of
income, gain, loss deduction or credit.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
E. Deferred organizational expenses
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through December, 2001.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc.
("SA&W") for overall investment advisory and administrative services is
paid monthly at the annual rate of 0.60% of the Portfolio's average
daily net assets. The Portfolio Trust pays no compensation directly to
its trustees who are affiliated with SA&W or to its officers, all of
whom receive remuneration for their services to the Portfolio Trust
from SA&W. Certain of the trustees and officers of the Portfolio Trust
are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Cost of purchases and proceeds from sales of investments, other than
short-term obligations were as follows:
<TABLE>
<CAPTION>
Six Months Ended
March 31, 1999
------------------------------
Purchases Sales
-------------- --------------
<S> <C> <C>
U.S. Government Securities $ -- $ --
============== ==============
Investments (non-U.S. Government Securities) $ 28,276,671 $ 21,979,593
============== ==============
</TABLE>
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at March 31, 1999, as computed on a federal
income tax basis, were as follows:
Aggregate Cost................................. $ 21,553,678
=================
Gross unrealized appreciation.................. $ 4,954,882
Gross unrealized depreciation.................. (1,086,694)
=================
Net unrealized appreciation.................... $ 3,868,188
=================
17
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Portfolio II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved.
The nature, risks and objectives of these investments are set forth
more fully in Parts A and B of the Portfolio Trust's registration
statement.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to seek to hedge against
risks of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and
buying calls tend to increase the Portfolio's exposure to the
underlying instrument. Buying puts and writing calls tend to decrease
the Portfolio's exposure to the underlying instrument, or hedge other
portfolio investments. Options, both held and written by the Portfolio,
are reflected in the accompanying Statement of Assets and Liabilities
at market value. The underlying face amount at value of any open
purchased options is shown in the schedule of investments. This amount
reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the
underlying instruments, if there is an illiquid secondary market for
the contracts, or if the counterparties do not perform under the
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are
exercised or are closed are added to or offset against the proceeds or
amount paid on the transaction to determine the realized gain or loss.
If a put option written by the Portfolio is exercised, the premium
reduces the cost basis of the securities purchased by the Portfolio.
Realized gains and losses on purchased options are included in realized
gains and losses on investment securities, except purchased options on
foreign currency which are included in realized gains and losses on
foreign currency transactions. The Portfolio, as a writer of an option,
has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option. The Portfolio entered into no such transactions during the six
months ended March 31, 1999.
Futures contracts
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. Pursuant to margin
requirements, the Portfolio deposits either in cash or securities an
amount equal to a certain percentage of the contract amount. Subsequent
payments are made or received by the Portfolio each day, dependent on
the daily fluctuations in the value of the underlying security, and are
recorded for financial statement purposes as unrealized gains or losses
by the Portfolio. There are several risks in connection with the use of
futures contracts as a hedging device. The change in value of futures
contracts primarily corresponds with the value of their underlying
instruments or indices, which may not correlate with changes in value
of the hedged investments. Buying futures tends to increase the
Portfolio's exposure to the underlying instrument, while selling
futures tends to decrease the Portfolio's exposure to the underlying
instrument or hedge other portfolio investments. In addition, there is
the risk that the Portfolio may not be able to enter into a closing
transaction because of an illiquid secondary market. Losses may arise
if there is an illiquid secondary market or if the counterparties do
not perform under the contract's terms. The Portfolio enters into
financial futures transactions primarily to seek to manage its exposure
to certain markets and to changes in securities prices and foreign
currencies. Gains and losses are realized upon the expiration or
closing of the futures contracts. The Portfolio had no open financial
futures contracts at March 31, 1999.
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