Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
In sharp contrast to the stellar returns of 1995, the bond market had a tough
year in 1996 as fears of an overheating economy made many fixed income investors
nervous. Over the course of the year, the yield of the 30-year Treasury rose
from its low of 5.95% at the beginning of the year to a high in early July of
7.20%, ending in mid range at 6.64%. With shorter maturities holding up best,
the broad domestic bond market indices provided disappointing total returns of
roughly 2% to 4%. Against this backdrop, the Standish Fixed Income Fund provided
a good relative return of 5.48% versus 3.61% and 2.91% for the Lehman Brothers
Aggregate and Government/Corporate Indices, respectively.
1996 started off on a weak note. The first and second quarters for the U.S.
Treasury market were very difficult as investors reacted to economic reports
that suggested a rapidly expanding economy. Consumer confidence, auto and
housing sales, new orders and the much anticipated employment reports all
contributed to the sell-off. The second half of the year was much better as
fears of a runaway economy subsided, inflation statistics continued to show very
little to worry about, and the election preserved the status quo. Above all, the
Federal Reserve did not raise the discount rate. The overseas bond markets were
much more investor friendly as weakening economies and increasing unemployment
across Europe and Japan led to solid returns all year.
The fund's positive relative return was the result of a number of strategies
that worked well throughout the year. Most importantly, the fund's allocation to
nondollar bonds was maintained for the entire year and contributed significantly
to outperformance. The strategy of focusing on the higher yielding countries
proved especially beneficial as the political commitment to European Monetary
Union (EMU) resulted in a convergence of yield spreads to Germany. Our
proclivity to hedge currencies also added to performance as the dollar
appreciated.
An overweighting in corporate bonds and solid security selection particularly
among medium grade issuers also added to results. The mortgage sector performed
well during the first half of the year and finished well despite a rallying
market. We started to trim our mortgage allocation as the year ended in favor of
U.S.
Treasuries and corporate bonds.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Fixed
Income Fund have been invested in a "Portfolio" having substantially the same
investment objective, policies and restrictions as the corresponding fund. The
fund in which you are invested is now considered a "Spoke," sharing in the
activities of the Portfolio proportionately according to its relative size.
As always, we thank you for your continued confidence as shareholders and hope
that this information is helpful to you in reviewing your overall investment
strategies.
Caleb F. Aldrich
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund Series
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 is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Fixed Income
Fund compared with the Lehman Gov't/Corp Index and Lehman Aggregate Index for
the period March 30, 1987 to December 31, 1996, based upon a $100,000
investment. Also included are the average annual total returns for one year,
five year, and since inception.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets:
<S> <C> <C>
Investment in Standish Fixed Income Portfolio (Portfolio) at value (Note 1A) $ 2,616,111,481
Receivable for Fund shares sold 11,189,329
Other assets 65,572
-----------------
Total assets 2,627,366,382
Liabilities
Distribution payable $ 17,828,221
Payable for Fund shares redeemed 5,885,122
Accrued expenses and other liabilities 24,770
---------------
Total liabilities 23,738,113
-----------------
Net Assets $ 2,603,628,269
=================
Net Assets consist of:
Paid-in capital $ 2,567,721,565
Undistributed net investment income (loss) 5,299,151
Accumulated net realized gain (loss) (1,219,259)
Net unrealized appreciation (depreciation) 31,826,812
=================
Total $ 2,603,628,269
=================
Shares of beneficial interest outstanding 126,807,250
=================
Net asset value, offering price and redemption price per share $ 20.53
=================
(Net assets / shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B):
Interest income $ 57,577,069
Dividend income (net of withholding tax expense of $8,394) 669,192
Interest income allocated from Portfolio 118,492,713
Dividend income allocated from Portfolio 3,449,029
Expenses allocated from Portfolio (5,959,995)
---------------
Total income 174,228,008
Expenses -
Investment Advisory Fee (Note 3) $ 2,493,743
Trustee fees 50,635
Accounting, custody, and transfer agent fees 231,955
Legal and audit fees 204,942
Insurance 20,524
Miscellaneous 90,402
----------------
Total expenses 3,092,201
---------------
Net investment income (loss) 171,135,807
---------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment security transactions 13,818,375
Financial futures (77,350)
Written option transactions 1,799,333
Foreign currency and forward foreign currency contracts 3,872,910
Net realized gain (loss) from Portfolio on:
Investment security transactions (2,396,986)
Financial futures 459,448
Written option transactions 5,492,345
Foreign currency and forward foreign currency contracts (1,683,196)
----------------
Net realized gain (loss) 21,284,879
Change in unrealized appreciation (depreciation) of investments from:
Investment security transactions (145,526,933)
Financial futures 14,559
Written option transactions 560,849
Foreign currency and forward foreign currency contracts 648,048
From Portfolio 87,004,141
----------------
Net change in unrealized appreciation (depreciation) (57,299,336)
Net realized and unrealized gain (loss) (36,014,457)
---------------
Net increase (decrease) in net assets resulting from operations $ 135,121,350
===============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- -----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 171,135,807 $ 145,836,911
Net realized gain (loss) 21,284,879 23,525,323
Change in net unrealized appreciation (depreciation) (57,299,336) 166,624,878
----------------------
-----------------------
Net increase (decrease) in net assets from operations $ 135,121,350 $ 335,987,112
---------------------- -----------------------
Distributions to shareholders
From net investment income $ (176,422,831) $ (142,241,343)
---------------------- -----------------------
Fund share (principal) transactions, (Note 6)
Net proceeds from sale of shares $ 425,224,438 $ 569,023,301
Net asset value of shares issued to shareholders
in payment of distributions declared 130,822,616 100,609,209
Cost of shares redeemed (178,224,191) (239,204,674)
----------------------
-----------------------
Increase (decrease) in net assets from Fund share transactions $ 377,822,863 $ 430,427,836
----------------------
-----------------------
Net increase (decrease) in net assets $ 336,521,382 $ 624,173,605
Net Assets:
At beginning of period 2,267,106,887 1,642,933,282
----------------------
-----------------------
At end of period (including undistributed net investment income of $ 2,603,628,269 $ 2,267,106,887
====================== =======================
$5,299,151 and $3,798,973 at December 31, 1996 and 1995, respectively)
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------
1996 (3) 1995 1994 1993
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net asset value - Beginning of period $ 20.92 $ 18.91 $ 21.25 $ 20.55
------------- ------------- ------------ -------------
Income from investment operations:
Net investment income $1.46 $1.35 $1.25 $1.50
Net realized and unrealized gain
(loss) on investments (0.37) 2.08 (2.29) 1.45
------------- ------------- ------------ -------------
Total from investment operations $1.09 $3.43 ($1.04) $2.95
------------- ------------- ------------ -------------
Less distributions to shareholders:
From net investment income ($1.48) ($1.42) ($1.10) ($1.51)
In excess of net investment income - - - (0.04)
From net realized gains on investments - - (0.04) (0.70)
From paid-in capital - - (0.16) -
------------ ------------- ------------ -------------
Total distributions declared to shareholders ($1.48) ($1.42) ($1.30) ($2.25)
------------- ------------ -------------
-------------
Net asset value - end of period $ 20.53 $ 20.92 $ 18.91 $ 21.25
============= ============= ============ =============
Total Return 5.48% 18.54% -4.86% 14.64%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.38% 0.38% 0.38% 0.40%
Net investment income 7.13% 7.80% 7.25% 7.07%
Portfolio Turnover (2) 49% 132% 122% 150%
Net assets, end of year (000 omitted) $ 2,603,628 $ 2,267,107 $ 1,642,933 $ 1,307,099
* Audited by other auditors
(1) Includes the Fund's share of Standish Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate 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.
(3) Calculated based on average shares outstanding.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund
Financial Highlights
(continued)
Year Ended December 31,
---------------------------
1992 * 1991
----------- -----------
Net asset value - Beginning of period $ 20.96 $ 19.56
----------- -----------
Income from investment operations:
Net investment income $1.59 $1.68
Net realized and unrealized gain
(loss) on investments (0.18) 1.66
----------- -----------
Total from investment operations $1.41 $3.34
----------- -----------
Less distributions to shareholders:
From net investment income ($1.52) ($1.49)
In excess of net investment income -
From net realized gains on investments (0.30) (0.45)
From paid-in capital -
----------- -----------
Total distributions declared to shareholders ($1.82) ($1.94)
----------- -----------
Net asset value - end of period $ 20.55 $ 20.96
=========== ===========
Total Return 6.88% 17.65%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.41% 0.46%
Net investment income 7.61% 8.28%
Portfolio Turnover (2) 217% 176%
Net assets, end of year (000 omitted) $ 919,909 $ 631,457
* Audited by other auditors
(1) Includes the Fund's share of Standish Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate 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.
(3) Calculated based on average shares outstanding.
</TABLE>
<PAGE>
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.
On May 3, 1996, the Fund contributed substantially all of its
investable assets to 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, in exchange
for an interest in the Portfolio. The Fund invests all of its
investable assets in the interests in the Portfolio, which has the same
investment objective as the Fund. The value of the Fund's investment in
the Portfolio reflects the Fund's proportionate interest in the net
assets of the Portfolio (approximately 100% at December 31, 1996). 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. Valuation
of securities held by the Portfolio is discussed in Note 1 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. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
C...Federal taxes-
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D...Other-
All net investment income and realized and unrealized gains and losses
of each Portfolio are allocated pro rata among its respective investors
in the Portfolio.
(2) Distributions to Shareholders
Dividends from net investment income will be declared and distributed
quarterly. The Fund's dividends from short-term and long-term capital
gains, if any, after reduction by capital losses will be declared and
distributed at least annually. In determining the amounts of its
dividends, the Fund will take into account its share of the income,
gains or losses, expenses, and any other tax items of the Portfolio.
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless 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 mortgage
backed securities 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).
<PAGE>
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid monthly at the annual rate of 0.40% of the
Fund'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. SA&W has voluntarily agreed
to limit total annual operating expenses of the Fund and Portfolio
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.38% of the Fund's average daily net assets. Currently, the Fund pays
no compensation directly to SA&W for such services now performed for
the Portfolio, but indirectly bears its pro rata share of the
compensation paid by the Portfolio to SA&W for such services. See Note
2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. The Fund 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 Fund from SA&W.
Certain of the trustees and officers of the Trust are directors or
officers of SA&W.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
U.S. Government Securities $827,067,931 $716,353,411
================== ==================
Non-U.S. government securities $416,284,103 $379,043,531
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$2,562,639,030 and $151,384,941, respectively.
(6) 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>
Period Ended December 31, 1996
1996 1995
------------------ -------------------
<S> <C> <C>
Shares sold 20,679,081 28,240,659
Shares issued in payment of distributions declared 6,418,558 4,933,561
Shares reacquired (8,638,095) (11,707,017)
================== ===================
Net increase (decrease) 18,459,544 21,467,203
================== ===================
</TABLE>
(7).....Financial Instruments:
Prior to the Fund's contribution of investable assets to the Portfolio
on May 3, 1996, the following instruments were used for hedging
purposes and were used to enhance potential gain in circumstances where
hedging was not involved. The nature, risks and objectives of these
investments are set forth more fully in the Fund's Prospectus and
Statement of Additional Information. The Fund traded the following
financial instruments with off-balance sheet risk:
<PAGE>
.........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 Fund used options to hedge against risks of market
exposure and changes in security prices and foreign currencies, as well
as to enhance returns. Options, both held and written by the Fund are
reflected in the accompanying Statement of Assets and Liabilities at
market value. 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 Fund is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The
Fund, as a writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of
the security underlying the written option. A summary of such
transactions for the period January 1, 1996 through May 3, 1996 is as
follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 5 $41,775
Options written 14 1,458,659
Options exercised (3) (229,294)
Options expired (6) (346,698)
Options closed (1) (37,976)
------------------ ------------------
Outstanding, prior to conversion 9 886,446
Options contributed to Portfolio (9) (886,446)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 4 $824,687
Options written 17 1,687,282
Options exercised 0 0
Options expired (6) (1,066,295)
Options closed (4) (546,547)
------------------ ------------------
Outstanding, prior to conversion 11 899,127
Options contributed to Portfolio (11) (899,127)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Cross Currency Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 3 $327,525
Options written 4 222,641
Options exercised 0 0
Options expired 0 0
Options closed (2) (91,982)
------------------ ------------------
Outstanding, prior to conversion 5 458,184
Options contributed to Portfolio (5) (458,184)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
<PAGE>
.........Forward currency exchange contracts--
Prior to May 3, 1996, the Fund could 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. Forward currency
exchange contracts were used by the Fund primarily to protect the value
of the Fund's foreign securities from adverse currency movements.
.........Futures contracts--
Prior to May 3, 1996, the Fund could enter into financial futures
contracts for the delayed sale or delivery of securities or contracts
based on financial indices at a fixed price on a future date. The Fund
was required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments were
made or received by the Fund 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
Fund. 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. The Fund entered into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
security prices and foreign currencies.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund: We have audited the accompanying statement of
assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish Fixed
Income Fund (the "Fund"), as of December 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years then ended and the financial highlights for each of the
four years in the period then ended. These financial statements and financial
highlights are the responsibility of the Fund's management. Our responsibility
is to express an opinion on these financial statements and financial highlights
based on our audits. The financial highlights for the year ended December 31,
1992, presented herein, were audited by other auditors, whose report, dated
February 12, 1993, expressed an unqualified opinion on such financial
highlights. We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Fixed Income Fund as of December 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years then ended and the financial highlights for each of the four years
in the period then ended, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
BONDS and NOTES - 95.7%
Asset Backed - 2.4%
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.00% 2/25/2006 1,911,107 1,974,935
AFC Home Equity Loan Trust 1993-2 6.00 1/20/2013 118,022 115,403
Contimortgage Home Equity 1994-5 A2 9.07 10/15/2009 12,185,686 12,355,143
Contimortgage Home Equity 1995 IA 8.60 2/15/2010 5,421,347 5,475,560
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.30 9/25/2007 514,344 510,487
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55 11/25/2007 111,947 111,649
The Money Store Home Equity 1992-B 6.90 7/15/2007 588,015 588,015
The Money Store Home Equity 1994-DA4 8.75 9/15/2020 3,250,000 3,392,188
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 18,638,000 18,859,326
UCFC Home Equity Loan Trust 1994 BA-6 7.10 3/10/2023 1,670,922 1,682,409
UCFC Home Equity Loan Trust 1994-D A4 8.78 2/10/2016 16,562,000 17,198,602
-----------------
62,263,717
-----------------
Collateralized Mortgage Obligations - 0.2%
- --------------------------------------------------------------
FNMA P/O Trust 108 0.00 3/01/2020 1,597,535 1,257,450
Merrill Lynch Investment Trust 1995-C2 7.94 6/15/2021 2,784,813 2,640,351
Midstate Trust II A3 9.35 4/01/1998 450,000 459,844
Veterans Affairs 1992-1 Cl D 7.75 12/15/2014 50,000 50,875
-----------------
4,408,520
-----------------
Corporate - 31.3%
- --------------------------------------------------------------
Basic Industry - 1.4%
- --------------------------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 17,575,000 19,112,813
Brascan Ltd. 7.38 10/01/2002 9,475,000 9,493,287
Domtar Inc. 9.50 8/01/2016 6,550,000 7,164,063
-----------------
35,770,163
-----------------
Capital Goods - 1.2%
- --------------------------------------------------------------
American Standard Sr Notes 10.88 5/15/1999 15,350,000 16,251,813
Conseco Finance Trust 8.70 11/15/2026 8,450,000 8,548,612
Washington Reit Notes 7.25 8/13/2006 6,225,000 6,207,321
-----------------
31,007,746
-----------------
Consumer Cyclical - 1.7%
- --------------------------------------------------------------
General Motors Acceptance Corp. 6.50 4/25/2000 5,075,000 5,079,669
General Motors Acceptance Corp. 6.70 4/30/2001 40,535,000 40,648,093
-----------------
45,727,762
-----------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Consumer Stable - 0.8%
- --------------------------------------------------------------
ADT Operations 8.25% 8/01/2000 8,360,000 8,686,960
Southland Corp. 4.50 6/15/2004 8,175,000 6,294,750
Southland Corp. 5.00 12/15/2003 6,500,000 5,305,625
-----------------
20,287,335
-----------------
Energy - 0.4%
- --------------------------------------------------------------
Clark Oil 10.50 12/01/2001 9,325,000 9,698,000
-----------------
Financial - 17.7%
- --------------------------------------------------------------
Aames Financial Corp. 9.13 11/01/2003 10,175,000 10,327,625
Advanta Corp. 7.00 5/01/2001 5,850,000 5,862,402
Anchor Bancorp 8.94 7/09/2003 7,325,000 7,508,125
Bank America Corp. Capital Securities 144A 7.70 12/31/2026 11,400,000 11,088,438
Bank United Corp. 8.05 5/15/1998 10,000,000 9,810,000
Bankboston Capital Trust 144A 8.25 12/15/2026 13,425,000 13,662,623
Barnett Banks Capital Securities 144A 8.06 12/01/2026 9,350,000 9,443,968
Bayview Capital 144A 8.42 6/01/1999 11,000,000 11,206,250
Capital One Bank Co. 5.95 2/15/2001 10,000,000 9,658,400
Capital One Bank Co. 6.39 6/29/1998 250,000 250,035
Capital One Bank Co. 6.84 6/13/2000 8,675,000 8,684,716
Capital One Bank Co. 6.88 4/24/2000 2,550,000 2,556,452
Capital One Bank Co. 7.00 4/30/2001 5,000,000 5,016,100
Capital One Bank Co. 7.35 6/20/2000 6,250,000 6,346,125
Chartwell Re Holdings 10.25 3/01/2004 3,058,000 3,260,593
Coast Federal Bank 13.00 12/31/2002 5,000,000 5,537,500
Commercial Federal 7.95 12/01/2006 2,250,000 2,247,188
Contifinacial Corp. 8.38 8/15/2003 10,225,000 10,469,889
Corestates Capital CFL 144A 8.00 12/15/2026 6,975,000 6,958,888
Enterprise Corp. 7.00 6/15/2000 8,225,000 8,324,523
Equitable Life 6.95 12/01/2005 10,475,000 10,275,766
First Chicago Corp Notes 144A 7.75 12/01/2026 11,825,000 11,703,676
First Nationwide 9.13 1/15/2003 5,500,000 5,589,375
First Nationwide 12.25 5/15/2001 13,200,000 14,850,000
First Nationwide Escrow 144A 10.63 10/01/2003 18,000,000 19,350,000
First USA Bank 5.75 1/15/1999 200,000 197,320
First USA Bank 5.85 2/22/2001 250,000 240,073
First USA Bank 7.00 8/20/2001 4,650,000 4,691,897
Goldman Sachs Inc. 144A 6.20 12/15/2000 16,725,000 16,500,902
Goldman Sachs Inc. 144A 6.38 6/15/2000 11,850,000 11,774,397
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 15,000,000 14,759,487
Hartford National Bank Corp. 9.85 6/01/1999 300,000 321,405
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Financial - (continued)
- --------------------------------------------------------------
Irsa Parcks Cvt 144A 4.50% 8/02/2003 1,050,000 1,039,500
ISP Holdings Inc. 144A 9.00 10/15/2003 8,825,000 8,913,250
Liberty Mutual Insurance Co. 144A 7.88 10/15/2026 11,300,000 11,339,437
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 2,000,000 2,139,440
Meditrust 7.82 9/10/2026 5,000,000 5,180,850
Merrill Lynch & Co 6.00 3/01/2001 9,705,000 9,484,017
Merrill Lynch & Co 6.50 4/01/2001 6,775,000 6,757,046
Merrill Lynch & Co 6.70 8/01/2000 500,000 503,450
Midtlantic Bank 9.88 12/01/1999 75,000 81,549
Morgan Stanley Group Inc. 6.70 5/01/2001 11,825,000 11,840,964
Reliance Group Holdings Corp. 9.00 11/15/2000 17,375,000 17,809,361
Riggs National Corp. 9.65 6/15/2009 125,000 143,625
Salomon Brothers Inc. 6.29 4/05/1999 4,300,000 4,235,500
Salomon Brothers Inc. 6.63 11/30/2000 13,625,000 13,545,021
Salomon Brothers Inc. 6.82 7/26/1999 8,625,000 8,681,925
Salomon Brothers Inc. 7.00 5/15/1999 2,275,000 2,292,973
Salomon Brothers Inc. 7.13 8/01/1999 1,950,000 1,971,879
Salomon Brothers Inc. 7.25 5/01/2001 9,190,000 9,276,937
Salomon Brothers Inc. 7.75 5/15/2000 6,640,000 6,818,151
Signet Bank 9.63 6/01/1999 3,250,000 3,466,613
Smith Barney Holdings 6.63 6/01/2000 300,000 300,711
TIG Holdings Inc. 8.13 4/15/2005 50,000 52,520
Transamerica Capital 144A 7.80 12/01/2026 17,975,000 17,435,750
Travelers Capital II 7.75 12/01/2036 11,355,000 10,948,605
UCFC Home Equity Loan Trust 1996 BA-1 7.70 1/15/2004 7,500,000 7,488,825
Union Planters Corp 144A 8.20 12/15/2026 8,200,000 8,046,824
United Companies Financial 7.00 7/15/1998 5,050,000 5,067,827
United Companies Financial 9.35 11/01/1999 11,175,000 11,885,395
USF&G Corp. 7.00 5/15/1998 50,000 50,439
World Financial Properties 144A 6.91 9/01/2013 16,862,285 16,617,255
-----------------
461,889,777
-----------------
Health Care - 1.2%
- --------------------------------------------------------------
Healthsouth Rehabilitation 9.50 4/01/2001 14,975,000 15,836,063
Highwoods Properties REIT Notes 6.75 12/01/2003 14,950,000 14,666,997
R P Scherer Corp. 6.75 2/01/2004 50,000 48,141
-----------------
30,551,201
-----------------
Real Estate - 1.9%
- --------------------------------------------------------------
Avalon Property REIT 7.38 9/15/2002 175,000 177,847
Duke Realty REIT Investments 7.38 9/22/2005 150,000 149,547
Healthcare Properties REIT 6.50 2/15/2006 7,875,000 7,474,320
Merry Land Co. REIT 7.25 10/01/2002 150,000 152,006
Shopping Center Associates 6.75 1/15/2004 10,000,000 9,738,900
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Real Estate - (continued)
- --------------------------------------------------------------
Spieker Properties 6.65% 12/15/2000 225,000 223,405
Spieker Properties 6.90 1/15/2004 10,000,000 9,737,800
Sun Communities 7.38 5/01/2001 5,425,000 5,466,393
Taubman Realty Group 8.00 6/15/1999 10,025,000 10,241,139
United Dominion Realty Trust 7.95 7/12/2006 5,850,000 6,091,020
Wellsford Residential Property 7.75 8/15/2005 300,000 307,710
-
-----------------
49,760,087
------------------
Services - 4.7%
- --------------------------------------------------------------
Century Communications 9.50 8/15/2000 2,700,000 2,774,250
Comcast Corp. 10.63 7/15/2012 8,950,000 9,744,313
Erac Usa Finance 7.88 3/15/1998 16,775,000 17,098,370
Hertz Corp. 7.00 4/15/2001 35,000 35,448
News America Holdings Corp. 7.70 10/30/2025 5,075,000 4,804,198
News America Holdings Corp. 8.88 4/26/2023 2,400,000 2,564,184
News America Holdings Corp. 9.50 7/15/2024 4,250,000 4,860,130
Time Warner Inc. 6.85 1/15/2026 6,000,000 5,850,180
Time Warner Inc. 9.13 1/15/2013 32,880,000 35,811,252
Viacom Inc. 6.75 1/15/2003 7,200,000 6,891,552
Viacom Inc. 7.63 1/15/2016 5,525,000 4,991,285
Viacom Inc. 7.75 6/01/2005 31,055,000 30,578,927
-
-----------------
126,004,089
------------------
Technology - 0.3%
- --------------------------------------------------------------
Jones Intercable 9.63 3/15/2002 7,950,000 8,347,500
------------------
TOTAL Corporate 819,043,660
------------------
Australia - 0.2% Australian
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
New South Wales Treasury 0.00 9/03/2010 10,730,000 3,025,989
South Australia Government Finance 0.00 12/21/2015 4,700,000 877,415
Treasury Corp. of Victoria 0.00 8/31/2011 5,500,000 1,419,990
-
-----------------
5,323,394
------------------
Canada - 0.0% Canadian
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
Govt. of Canada 7.75 9/01/1999 1,200,000 941,190
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Denmark - 0.5% Danish
- --------------------------------------------------------------
Government Krone
- -------------------------------------------------------------- ----------------
Kingdom of Denmark 8.00% 11/15/2001 9,700,000 1,826,952
------------------
Other
- --------------------------------------------------------------
Denmark Nykredit 7.00 10/01/2026 53,472,000 8,509,158
Denmark Nykredit 8.00 10/01/2026 12,626,000 2,157,091
Denmark Realkredit 7.00 10/01/2026 3,116,000 495,858
-
-----------------
11,162,107
------------------
TOTAL Denmark 12,989,059
------------------
Finland - 0.2% Finnish
- --------------------------------------------------------------
Government Markka
- -------------------------------------------------------------- ----------------
Govt. of Finland 7.25 4/18/2006 18,000,000 4,191,236
------------------
Germany - 0.8% German
- --------------------------------------------------------------
Government Deutschmark
- -------------------------------------------------------------- ----------------
Baden Nurttemberg 6.20 11/22/2013 3,000,000 2,017,644
Deutschland Republic 6.00 1/05/2006 1,170,000 770,051
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 7,100,000 5,271,191
Federal Republic of Germany 5.88 5/15/2000 2,255,000 1,537,586
Federal Republic of Germany 6.25 1/04/2024 1,000,000 614,411
Federal Republic of Germany 6.88 5/12/2005 2,000,000 1,395,910
Federal Republic of Germany 8.00 7/22/2002 920,000 681,953
Federal Republic of Germany 8.38 5/21/2001 5,600,000 4,159,740
Federal Republic of Germany 9.00 10/20/2000 4,450,000 3,343,061
Province of Buenos Aires 10.00 3/05/2001 2,000,000 1,389,159
-
-----------------
21,180,706
------------------
Other
- --------------------------------------------------------------
LKB Global 6.00 1/25/2006 1,150,000 748,079
------------------
TOTAL Germany 21,928,785
------------------
Ireland - 0.4% Irish
- --------------------------------------------------------------
Government Punt
- -------------------------------------------------------------- ----------------
Irish Gilts 6.25 4/01/1999 640,000 1,089,801
Irish Gilts 6.50 10/18/2001 2,810,000 4,837,254
Irish Gilts 8.00 10/18/2000 2,520,000 4,551,417
Irish Gilts 9.25 7/11/2003 415,000 814,899
-
-----------------
11,293,371
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Italy - 1.1% Italian
- --------------------------------------------------------------
Government Lira
- -------------------------------------------------------------- ----------------
Govt. of Italy 8.50% 1/01/1999 7,275,000,000 4,983,782
Govt. of Italy 9.50 5/01/2001 3,640,000,000 2,649,364
Govt. of Italy 10.50 11/01/2000 7,000,000,000 5,196,774
Govt. of Italy 10.50 11/01/2000 3,010,000,000 2,234,613
Govt. of Italy 12.00 9/01/2001 9,200,000,000 7,272,179
-
-----------------
22,336,712
------------------
Other
- --------------------------------------------------------------
Bank Nederlandse 10.50 6/18/2003 1,300,000,000 997,465
Govt. of Italy 12.00 9/01/2001 2,400,000,000 1,897,090
-
-----------------
2,894,555
------------------
TOTAL Italy 25,231,267
------------------
Japan - 0.5% Japanese
- --------------------------------------------------------------
Government Yen
- -------------------------------------------------------------- ----------------
Govt. of Finland 6.00 1/29/2002 250,000,000 2,573,129
Govt. of Italy 5.13 7/29/2003 280,000,000 2,805,184
Kingdom of Spain 5.75 3/23/2002 205,000,000 2,092,349
-
-----------------
7,470,662
------------------
Other
- --------------------------------------------------------------
Interamer Development Bank 6.00 10/30/2001 145,000,000 1,488,007
KFW International Finance 6.00 11/29/1999 301,000,000 2,949,479
Kingdom of Belgium 5.00 12/17/1999 220,000,000 2,102,721
-
-----------------
6,540,207
------------------
TOTAL Japan 14,010,869
------------------
New Zealand - 0.4% New Zealand
- --------------------------------------------------------------
Government Dollar
- -------------------------------------------------------------- ----------------
Government Property Services 7.25 3/15/1999 4,850,000 3,383,411
Housing New Zealand 8.00 11/15/2006 2,500,000 1,771,364
-
-----------------
5,154,775
------------------
Other
- --------------------------------------------------------------
Fernz Capital 9.80 4/15/2002 3,800,000 2,717,872
Fletcher Challenge 10.00 4/30/2005 1,500,000 1,129,923
Fletcher Challenge Cvt 11.25 12/15/2002 3,100,000 2,446,853
-
-----------------
6,294,648
------------------
TOTAL New Zealand 11,449,423
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Norway - 0.4% Norwegian
- --------------------------------------------------------------
Government Krona
- -------------------------------------------------------------- ----------------
Govt. of Norway 7.00% 5/31/2001 34,000,000 5,701,177
Govt. of Norway 9.50 10/31/2002 8,000,000 1,499,043
-
-----------------
7,200,220
------------------
Other
- --------------------------------------------------------------
Union Bank of Norway 12.75 10/26/2002 12,500,000 2,052,759
Vital Forsikring 7.85 9/22/2003 8,100,000 1,338,134
-
-----------------
3,390,893
------------------
-----------------
TOTAL Norway 10,591,113
------------------
Spain - 0.8% Spanish
- --------------------------------------------------------------
Government Peseta
- -------------------------------------------------------------- ----------------
Castilla Junta 8.30 11/29/2001 85,000,000 706,099
Junta de Andalucia 11.10 12/02/2005 690,000,000 6,697,168
Kingdom of Spain 10.10 2/28/2001 650,000,000 5,754,213
Kingdom of Spain 10.30 6/15/2002 520,600,000 4,754,106
Kingdom of Spain 12.25 3/25/2000 421,000,000 3,840,997
-
-----------------
21,752,583
------------------
Sweden - 0.4% Swedish
- --------------------------------------------------------------
Government Krone
- -------------------------------------------------------------- ----------------
Kingdom of Sweden 13.00 6/15/2001 33,500,000 6,307,526
Kingdom of Sweden #1036 10.25 5/05/2000 24,100,000 4,066,569
-
-----------------
10,374,095
------------------
Other
- --------------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 2,357,280 344,869
-
-----------------
TOTAL Sweden 10,718,964
------------------
British
United Kingdom - 1.0% Pound
- --------------------------------------------------------------
Government Sterling
- -------------------------------------------------------------- ----------------
UK Gilt Treasury 6.00 8/10/1999 612,000 1,024,497
UK Gilt Treasury 9.00 3/03/2000 1,000,000 1,800,810
UK Treasury 6.75 11/26/2004 1,790,000 2,942,858
UK Treasury 7.50 12/07/2006 1,530,000 2,616,904
UK Treasury 8.00 12/07/2000 600,000 1,055,769
UK Treasury 8.50 12/07/2005 2,000,000 3,646,560
-
-----------------
13,087,398
------------------
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Other
- --------------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75% 12/07/2006 1,700,000 2,968,608
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 1,000,000 1,764,965
Mepc Plc 12.00 6/30/2006 1,280,000 2,722,765
Northern Rock Building Soc. 9.38 10/17/2021 1,100,000 1,962,294
Smithkline Beecham Corp. 8.13 11/25/1998 1,500,000 2,603,310
Woolwich Building Society 11.63 12/18/2001 600,000 1,171,971
-
-----------------
13,193,913
------------------
TOTAL United Kingdom 26,281,311
------------------
Yankee Bonds - 5.0%
- --------------------------------------------------------------
Cominco Ltd. 6.88 2/15/2006 16,950,000 16,180,640
Doman Industries Limited 8.75 3/15/2004 12,300,000 11,485,125
Falconbridge Case Limited 7.35 11/01/2006 22,050,000 22,276,454
Fletcher Challenge 7.75 6/20/2006 11,150,000 11,587,972
Govt. of Argentina 6.63 3/31/2005 5,292,000 4,604,040
Malette Inc. 12.25 7/15/2004 7,050,000 7,525,875
Methanex Corp. 7.40 8/15/2002 4,500,000 4,590,000
Methanex Corp. 7.75 8/15/2005 23,685,000 24,336,338
Novacor Chemical 6.50 9/22/2000 525,000 520,569
St Georges Bank 144A 7.15 10/15/2005 19,200,000 19,169,664
Tembec Finance Corp. 9.88 9/30/2005 9,400,000 8,883,000
-
-----------------
131,159,677
------------------
U.S. Government Agency - 31.3%
- --------------------------------------------------------------
Pass Thru Securities - 31.3%
- --------------------------------------------------------------
CSFB 1995-A 144A 7.54 11/15/2005 11,150,000 11,076,828
FDIC Remic Trust 1994-C1 2C 8.45 9/25/2025 250,000 260,625
FHLMC 5.25 3/06/1997 4,425,000 4,371,439
FHLMC 5.50 1/15/1997 21,600,000 21,537,300
FHLMC 5.52 1/22/1997 10,000,000 9,960,133
FHLMC 6.50 3/01/2026 - 5/01/2026 36,032,385 34,482,327
FHLMC 7.50 6/01/2026 - 9/01/2026 128,217,772 128,371,733
FNMA 5.53 1/17/1997 5,000,000 4,983,871
FNMA 6.50 12/01/2025 - 5/01/2026 80,229,107 76,577,846
FNMA 7.00 11/01/2023 - 7/01/2026 276,089,336 270,351,449
GNMA 7.00 4/15/2022 - 1/15/2025 93,412,339 91,779,374
GNMA 7.50 12/15/2021 - 5/15/2023 14,827,737 14,900,252
GNMA 9.00 4/15/2016 - 8/15/2026 96,831,245 103,427,228
Lehman Brothers Commercial Conduit Mortgage Trust 1995-C2 7.05 9/25/2025 1,930,000 1,882,353
Resolution Trust Corp. 1994 C2 E 8.00 4/25/2025 5,329,746 5,298,101
Par Value
Security Rate Maturity Value (1) (Note 1A)
- ------------------------------------------------------------ ----- -------------- ----------------- ----------------
Pass Thru Securities - (continued)
- --------------------------------------------------------------
Resolution Trust Corp. 1994-1 Cl M2 7.75% 9/25/2029 3,657,522 3,679,239
Resolution Trust Corp. 1994-C2 D AL 1 8.00 4/25/2025 4,736,749 4,830,004
Resolution Trust Corp. 1995 Cl E 6.90 2/25/2027 13,246,240 11,271,722
Resolution Trust Corp. 1995-2B1 7.45 9/15/2025 2,197,978 2,195,231
Resolution Trust Corp. P-T Ser 1992-M4 A1 8.00 8/25/2023 1,997,141 2,010,871
Structured Asset Security Corp. 1994-C1 D 6.87 8/25/2026 10,000,000 9,640,625
Structured Asset Security Corp. 1996-Cfl C 6.53 2/25/2028 6,700,000 6,545,063
------------------
TOTAL U.S. Government Agency 819,433,614
------------------
U.S. Treasury Obligations - 18.8%
- --------------------------------------------------------------
Treasury Bonds - 6.4%
- --------------------------------------------------------------
U.S. Treasury Bond 6.50 8/15/2005 14,975,000 15,070,990
U.S. Treasury Bond 7.63 2/15/2025 11,075,000 12,301,889
U.S. Treasury Bond 7.88 2/15/2021 3,345,000 3,780,887
U.S. Treasury Bond 8.13 8/15/2019 118,845,000 137,470,388
-
-----------------
168,624,154
------------------
Treasury Notes - 12.4%
- --------------------------------------------------------------
U.S. Treasury Note 5.63 11/30/2000 7,165,000 7,035,099
U.S. Treasury Note 5.75 10/31/2000 8,645,000 8,530,194
U.S. Treasury Note 6.25 4/30/2001 40,975,000 41,064,735
U.S. Treasury Note 6.38 1/15/2000 5,795,000 5,845,706
U.S. Treasury Note 6.38 3/31/2001 24,825,000 24,991,824
U.S. Treasury Note 6.63 6/30/2001 77,975,000 79,229,618
U.S. Treasury Note 6.88 3/31/2000 23,425,000 23,952,063
U.S. Treasury Note 7.13 2/29/2000 39,275,000 40,434,791
U.S. Treasury Note 6.13 7/31/2000 67,600,000 67,600,000
U.S. Treasury Note (Strip) 0.00 11/15/1999 3,605,000 3,040,349
U.S. Treasury Note (Strip) 0.00 8/15/2008 44,095,000 20,618,822
U.S. Treasury Note (Strip) 0.00 8/15/2015 4,965,000 1,404,003
-
-----------------
323,747,204
------------------
TOTAL U.S. Treasury Obligations 492,371,358
------------------
TOTAL BONDS and NOTES (Cost $2,476,654,211) 2,505,383,111
------------------
Preferred Stock - 2.4%
- --------------------------------------------------------------
Australia & New Zealand Bank 358,000 9,710,750
Bank United of Texas 148,380 3,950,618
Capita Preferred Trust 449,200 11,623,050
Credit Lyon Capital 144A 244,250 5,831,469
First Nationwide Bank 8,400 963,900
Fresenius Medical Care* 2,500 2,543,750
Par Value
Security Value (1) (Note 1A)
- --------------------------------------------------------------------- --------------------- -------------------
Preferred Stock - (continued)
- --------------------------------------------------------------
Newscorp Overseas Ltd. Ser B 232,000 5,307,000
Public Service of New Hampshire 73,220 1,845,144
Riggs National Corp. 58,075 1,662,397
Time Warner Inc. 10.25% Ser M 17,158 18,359,256
------------------
TOTAL Preferred Stock (Cost $59,889,391) 61,797,334
------------------
Principal
Amount of
- --------------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- -------------------------------------------------------------- ----------------
BGB 7% Put/ Str 106.29, 4/24/97 112,000,000 36,736
BTPS 9.50% Put/ Str 108.47, 4/30/97 5,700,000,000 17,100
BTPS 9.5% Put/ Str 107.44, 10/08/97 6,200,000,000 0
CAN 7% Call, Str 105.71, 1/16/97 5,000,000 31,365
CHF Put/AUD Call, Str .9725, 9/10/97 2,400,000 141,492
CHF Put/GBP Call, Str 2.26, 9/25/97 5,700,000 115,277
CHF Put/USD Call, Str 1.30, 1/31/97 3,800,000 112,860
DBR 6.25% Call, Str 101.92, 10/20/97 6,300,000 70,894
DBR 6.25% Call, Str 102.33, 5/9/97 7,200,000 57,485
DBR 6.25% Call, Str 94.13, 2/6/97 5,700,000 44,774
DBR 6.25% Call, Str 96.00, 2/28/97 6,700,000 27,832
DEM 8.375% Call, Str 114.62, 1/09/97 7,440,000 4,829
DEM Put/ITL Call, Str 40.0000, 09/08/97 5,900,000 129,452
DEM Put/USD Call, Str 1.5020, 09/05/97 4,800,000 144,000
DEM Put/USD Call, Str 1.550, 4/22/97 3,700,000 46,990
DGB 8% Call, Str 108.84, 3/17/97 20,900,000 47,192
FRF 6.5% Put/ Str 103.65, 4/16/97 21,000,000 41,265
FRF Put/USD Call, Str 5.265, 3/20/97 3,900,000 29,250
FRF Put/USD Call, Str 5.3000, 12/01/97 3,900,000 53,040
ITL 9.5% Call, Str 109.68, 3/6/97 4,500,000,000 36,000
ITL 9.5% Put/ Str 102.07, 1/10/97 5,065,000,000 0
JGB 6.4% Call, Str 120.603, 2/5/97 1,000,000,000 3,000
JPY 4.8% Call, Str 115.912, 2/03/97 950,000,000 9,500
JPY Put/AUD Call, Str 86.0000, 9/10/97 200,000,000 94,800
JPY Put/ITL Call, Str 14.5000, 09/08/97 400,000,000 235,200
JPY Put/USD Call, Str 120.00, 1/05/98 3,900,000 50,310
SPGB 8.40% Call, Str 107.910, 2/19/97 450,000,000 51,750
SPGB 8.40% Put/ Str 105.65, 4/30/97 470,000,000 7,050
UKT 7.5% Call, Str 99.0625, 2/14/97 2,200,000 51,788
USD Put/MXP Call, Str 9.12, 9/30/97 1,600,000 67,520
-
-----------------
Total Purchased Options (Premium Paid $1,617,827) 1,758,751
------------------
Par Value
Security Value (1) (Note 1A)
- --------------------------------------------------------------------- --------------------- -------------------
Repurchase Agreement - 0.4%
- --------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $10,888,941 (Collateralized by
FNMA FNAR with a rate of 7.832% and a maturity date of
8/01/25 with a market value of $11,103,192. (Cost $10,885,482) 10,885,482 10,885,482
------------------
TOTAL INVESTMENTS (Cost $2,549,046,911) - 98.6% 2,579,824,678
Principal
Amount of
- --------------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- -------------------------------------------------------------- ----------------
AUD Put/CHF Call, Str .9060, 9/10/97 2,400,000 (10,030)
AUD Put/JPY Call, Str 79.0000, 9/10/97 200,000,000 (12,200)
DBR 6.25% Call, Str 101.92, 4/18/97 6,300,000 (65,029)
DBR 6.25% Put/ Str 101.60, 4/16/97 6,200,000 (39,444)
DBR 6.25% Put/ Str 101.650, 4/24/97 5,400,000 (36,455)
DBR 8.25% Put/ Str 112.420, 2/19/97 5,400,000 (5,962)
DBR 8.25% Put/ Str 113.57, 4/30/97 5,580,000 (47,452)
DBR 8.25% Put/ Str 113.58, 4/30/97 5,700,000 (57,725)
DEM 6.25% Put/ Str 101.95, 1/08/97 6,200,000 (806)
DGB 8% Call, Str 111.84, 3/17/97 20,900,000 (12,415)
DGB 8% Put/ Str 105.84, 3/17/97 20,900,000 (9,572)
GBP Put/CHF Call, Str 1.835, 9/25/97 4,800,000 (4,301)
ITL 9.5% Call, Str 111.68, 3/6/97 4,500,000,000 (9,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 4,500,000,000 (4,500)
ITL Put/DEM Call, Str 80.0000, 09/08/97 5,900,000 (11,487)
ITL Put/JPY Call, Str 15.1000, 09/08/97 400,000,000 (26,000)
JPY Put/USD Call, Str 105.00, 1/05/98 3,900,000 (50,310)
UKT 7.5% Call, Str 102.0625, 2/14/97 2,200,000 (10,595)
USD Put/CHF Call, Str 1.22, 1/31/97 3,800,000 (1,900)
USD Put/CHF Call, Str 1.42, 3/20/97 3,900,000 (11,700)
USD Put/DEM Call, Str 1.3800, 09/05/97 4,800,000 (20,160)
USD Put/DEM Call, Str 1.425, 4/22/97 3,700,000 (8,880)
-
-----------------
Total Written Options (Premium Received $1,081,780) (455,923)
------------------
Other Assets less Liabilities - 1.4% 36,742,834
------------------
NET ASSETS - 100.0% 2,616,111,589
=================
144A - Securities exempt from registration under Rule 144A of the
Securities Act of 1933. These securities may be resold in
transactions exempt from registration.
(1) - Denominated in United States currency unless otherwise noted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $2,549,046,911) $ 2,579,824,678
Foreign currency, at value (cost, $237,494) 263,220
Receivable for investments sold 19,198,227
Interest and dividends receivable 36,872,639
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 3,529,710
Deferred organizational costs (Note 1F) 85,593
-----------------
Total assets $ 2,639,774,067
Liabilities:
Payable for investments purchased $ 19,979,132
Payable for daily variation margin on open
financial futures contracts (Note 5) 36,718
Written options outstanding, at value (premiums received, $1,081,781) (Note 5) 455,923
Unrealized depreciation on forward foreign currency exchange contracts (Note 5) 2,915,337
Accrued trustee fees 5,824
Payable to Investment Adviser (Note 1F) 100,920
Accrued expenses and other liabilities 168,624
--------------
Total liabilities 23,662,478
-----------------
Net Assets (applicable to investors' beneficial interest) $ 2,616,111,589
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
December 31, 1996
Investment Income:
Interest Income $ 118,492,713
Dividend income 3,449,029
----------------
Total income 121,941,742
Expenses
Investment advisory fee (Note 2) $ 5,121,756
Trustees fees 52,250
Accounting, custody and transfer agent fees 513,352
Legal and audit services 181,791
Insurance expense 67,074
Amortization of organization expense (Note 1F) 10,067
Miscellaneous 13,705
--------------
Total expenses 5,959,995
----------------
Net investment income (loss) 115,981,747
----------------
Realized and Unrealized Gain (Loss)
Net realized gain(loss):
Investment security transactions (2,396,988)
Financial futures 459,448
Written options 5,492,345
Foreign currency and forward foreign
currency exchange contracts (1,683,196)
--------------
Net realized gain (loss) 1,871,609
Change in unrealized appreciation (depreciation):
Investment securities 87,702,505
Financial futures (9,849)
Written options 152,462
Foreign currency transactions and forward foreign
currency contracts (840,977)
--------------
Change in net unrealized appreciation (depreciation) 87,004,141
----------------
Net realized and unrealized gain (loss) 88,875,750
----------------
Net increase (decrease) in net assets from operations $ 204,857,497
================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 115,981,747
Net realized gain (loss) 1,871,609
Change in net unrealized appreciation (depreciation) 87,004,141
-----------------
Net increase (decrease) in net assets from operations 204,857,497
-----------------
Capital transactions
Assets contributed by Standish Fixed Income Fund at commencement
(including unrealized loss of $55,177,329) 2,294,116,139
Contributions 268,522,894
Withdrawals (151,384,941)
-----------------
Increase in net assets resulting from capital transactions 2,411,254,092
-----------------
Total increase (decrease) in net assets 2,616,111,589
Net Assets
At beginning of period -
-----------------
At end of period $ 2,616,111,589
=================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Fixed Income Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.37% *
Net investment income 7.14% *
Portfolio Turnover 69%
* Annualized
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Fixed Income Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies consistently followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued at amortized cost. If the Portfolio acquires a
short term instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon
the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C. Securities transactions and income--
Securities transactions are recorded as of trade date. Interest income
is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Dividend income is recorded
on the ex-dividend date. Realized gains and losses from securities sold
are recorded on the identified cost basis. The Portfolio does not
isolate that portion of the results of operations resulting from
changes in foreign exchange rates on investments from the fluctuations
arising from changes in market prices of securities held. Such
fluctuations are included with the net realized and unrealized gain or
loss from investments.
D. Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the 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.
<PAGE>
E. Foreign currency transactions--
Investment security valuations, other assets, and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions. Section 988 of the Internal Revenue Code provides
that gains or losses on certain transactions attributable to
fluctuations in foreign currency exchange rates must be treated as
ordinary income or loss. For financial statement purposes, such amounts
are included in net realized gains or losses.
F. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April 2001. These costs were paid for by the investment adviser
and will be reimbursed by the Portfolio.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.40% of the Portfolio's first
$250,000,000 of average daily net assets, 0.35% of the next
$250,000,000 of average daily net assets, and 0.30% of the average
daily net assets in excess of $500,000,000. The Portfolio 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 from the investment adviser. Certain of the trustees and
officers of the Portfolio Trust are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, short-term
obligations, were as follows:
Purchases Sales
U.S. Government Securities $ 1,149,839,373 $ 1,107,554,471
================== ===================
Non-U.S. government securities $ 710,165,569 $ 510,341,415
================== ===================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $2,550,487,586
Gross unrealized appreciation $48,492,562
Gross unrealized depreciation (19,155,471)
==================
Net unrealized appreciation (depreciation) $29,337,091
==================
(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 the Funds' Prospectus and Statement of Additional Information.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
<PAGE>
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Options, both held and written
by the Portfolio, are reflected in the accompanying Statement of Assets
and Liabilities at market value. 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 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 period May 3,
1996 through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
<S> <C> <C>
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 9 886,446
Options written 35 3,426,954
Options exercised 0 0
Options expired (18) (3,317,837)
Options closed (17) (786,441)
------------------- -------------------
Outstanding, end of period 9 $ 209,122
=================== ===================
Written Call Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 11 899,127
Options written 17 957,654
Options exercised (5) (366,812)
Options expired 8 (620,798)
Options closed 7 (469,532)
------------------- -------------------
Outstanding, end of period 8 $ 399,639
=================== ===================
Written Cross Currency Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- -------------------
Outstanding, beginning of period 0 $ 0
Contributed by Standish Fixed Income Fund 5 458,184
Options written 12 666,145
Options exercised 0 0
Options expired (2) (28,387)
Options closed (10) (622,922)
------------------- -------------------
Outstanding, end of period 5 $ 473,020
=================== ===================
</TABLE>
<PAGE>
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. Forward currency
exchange contracts are used by the Portfolio primarily to protect the
value of the Portfolio's foreign securities from adverse currency
movements. At December 31, 1996, the Portfolio held the following
forward foreign currency and cross currency exchange contracts:
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Contract Aggregate Market Unrealized
Contracts to Receive Value Date Face Amount Value Gain/(Loss)
- ------------------------------------ --------------- -------------------- ----------------- --------------
<S> <C> <C> <C> <C>
Australian Dollar 02/06/97-02/10/97 2,501,837 2,452,899 (48,938)
Canadian Dollar 02/10/97 1,099,480 1,074,899 (24,581)
German Deutche Mark 08/01/97 6,768,265 6,609,443 (158,822)
Danish Krone 01/10/97-08/04/97 5,261,840 5,275,871 14,031
Finnish Markka 01/08/97 799,475 782,904 (16,571)
Greek Drachma 08/01/97 2,129 2,137 8
Irish Punt 01/17/97 1,635,871 1,695,858 59,987
Italian Lira 01/02/97-08/01/97 6,151,580 6,201,368 49,788
Japanese Yen 02/24/97 4,008,443 3,826,123 (182,320)
Norwegian Krone 01/13/97 874,650 890,165 15,515
-------------------- -----------------
==================== ================= ==============
$29,103,570 $28,811,669 ($291,903)
==================== ================= ==============
U.S. $ U.S. $ U.S. $
Contract Aggregate Market Unrealized
Contracts to Deliver Value Date Face Amount Value Gain/(Loss)
- ------------------------------------ --------------- -------------------- ----------------- --------------
Australian Dollar 02/06/97-02/10/97 7,746,835 7,792,626 (45,791)
Canadian Dollar 02/10/97-02/28/97 2,123,472 2,102,078 21,394
German Deutche Mark 01/09/97-08/01/97 23,612,580 23,474,215 138,365
Danish Krone 01/10/97-08/04/97 18,050,544 17,838,326 212,218
Spanish Peseta 01/29/97-06/20/97 21,846,426 21,542,405 304,022
Finnish Markka 05/19/97-06/03/97 4,797,274 4,764,208 (33,066)
British Pound Sterling 01/21/97-03/27/97 24,454,601 25,494,163 (1,039,562)
Greek Drachma 08/01/97 3,323,273 3,406,979 (83,706)
Irish Punt 01/17/97-02/24/97 12,507,341 12,979,367 (472,026)
Italian Lira 01/02/97-08/01/97 32,787,646 33,058,136 (270,490)
Japanese Yen 02/05/97-03/13/97 20,034,449 18,483,348 1,551,101
Norwegian Krone 01/13/97-07/21/97 11,494,896 11,446,334 48,562
New Zealand Dollar 01/13/97-02/18/97 11,347,684 11,425,010 (77,326)
Swedish Krona 01/08/97-06/05/97 11,677,065 11,479,388 197,677
-------------------- ----------------- --------------
$205,804,086 $205,286,583 $517,505
-------------------- ----------------- --------------
==================== ================= ==============
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Contract Market Contracts Market Unrealized
Contracts to Deliver Date Value to Receive Value Gain/(Loss)
- ------------------------------------ ----------- --------------- -------------------- ----------------- --------------
Swiss Franc 07/21/97 3,021,890 Norwegian Krone 3,394,395 372,505
Swiss Franc 08/04/97 2,747,379 Danish Krone 2,981,552 234,173
German Deutsche Mark 08/01/97 3,263,328 Greek Drachma 3,404,842 141,514
German Deutsche Mark 08/01/97 1,680,746 Italian Lira 1,753,313 72,567
Danish Krone 08/04/97 3,010,970 Swiss Franc 2,747,379 (263,591)
Finnish Markka 01/08/97 782,904 Swedish Krona 825,634 42,730
French Franc 08/27/97 3,372,578 Czech Koruna 3,393,065 20,487
Norwegian Krone 07/21/97 3,253,504 Swiss Franc 3,021,890 (231,614)
--------------- ================= --------------
$21,133,299 $21,522,070 $388,771
--------------- ================= --------------
=============== ==============
</TABLE>
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. 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. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies. At December 31,
1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ------------------------------------------------ ---------- -------------- ------------------- --------------
<S> <C> <C> <C> <C>
U.S. Treasury Note 10 year (47 contracts) Long 03/31/97 $5,128,875 ($32,781)
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient cash and
or securities to cover margin requirements on open futures contracts.
.........Interest rate swap contracts--
Interest rate swaps involve the exchange by the Portfolio with another
party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal. Credit and market risk exist
with respect to these instruments. The Portfolio expects to enter into
these transactions primarily for hedging purposes including, but not
limited to, preserving a return or spread on a particular investment or
portion of its portfolio, protecting against currency fluctuations, as
a duration management technique or protecting against an increase in
the price of securities the Portfolio anticipates purchasing at a later
date. At December 31, 1996, there were no open interest rate swap
contracts.
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Fixed Income Portfolio: We have audited the accompanying statement of
assets and liabilities of Standish Fixed Income Portfolio, including the
portfolio of investments, as of December 31, 1996, and the related statement of
operations, the statement of changes in net assets and the supplementary data
for the period from May 3, 1996 (commencement of operations) to December 31,
1996. These financial statements and supplementary data are the responsibility
of the Portfolio's management. Our responsibility is to express an opinion on
these financial statements and supplementary data based on our audit. We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Fixed Income Portfolio as of December 31, 1996, and the
results of its operations, changes in its net assets and supplementary data for
the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Small capitalization stocks finished 1996 with a short, recovery rally, and
small cap stocks enjoyed a successful year on an absolute basis. The Standish
Small Capitalization Equity Fund net asset value (NAV) at December 31, 1996 was
$ 52.96. Total return for the Fund was 17.36%, while the Russell 2000 Index of
Smaller Companies increased 16.53%.
The most notable characteristics of the small cap equity market in 1996 were: 1)
small caps underperformed large cap stocks significantly, a third consecutive
year of underperformance; 2) the cap effect was very dramatic within the small
cap sector, with smaller caps underperforming large small caps; 3) the year saw
a surge in issuance of new stock by small companies, offset by strong mutual
fund inflows for much of the year, although overwhelming investors' capacity
toward the end of the year; 4) sector strength was led by energy and financial
stocks, with health care very weak and technology strengthening only late in the
year; and 5) earnings momentum and earnings quality for small cap stocks were
both weak compared to large cap stocks.
The Standish Small Capitalization Equity Fund is aggressively oriented toward
small high growth companies. In selecting companies in which to invest, the
emphasis is on strong financial and business positioning, moderate earnings
valuations, and high, sustainable earnings growth. This approach leads to above
average weightings in the high growth sectors of the economy, which include
healthcare, technology, and business services. In 1996 the healthcare sector
posted very weak returns, while business services and technology returns were
similar to the Russell 2000. Energy and finance, the two strongest performing
sectors in 1996, as well as capital goods, afford few high growth investment
opportunities; these sectors were underweighted in the fund. Finally, the fund
suffered from being in the low end of capitalization within small caps. We are
pleased that despite these impediments, the fund's return was in excess of its
benchmark for the year.
During the year the fund was always fully invested, which occasionally involved
the use of Russell 2000 or S&P Midcap Futures. Investment in foreign securities
(including American Depository Receipts) did not approach 5% of the fund assets
at any point in 1996, and it is not expected that such investments, which are
limited to 15% of assets, will be used more broadly in the future.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Small
Capitalization Equity Fund have been invested in a "Portfolio," having
substantially the same investment objective, policies and restrictions as the
corresponding fund. The fund in which you are invested is now considered a
"Spoke," sharing in the activities of the Portfolio proportionately according to
its relative size.
The Standish Small Capitalization Equity Fund closed to new investors on
December 20, 1996, although it remains open to additional investments from
existing shareholders. Its discipline had reached over $500 million in assets
managed by Standish, Ayer & Wood. The Standish Small Capitalization Fund II
opened on December 20, 1996. This fund will be buying stocks in the $400 million
to $1 billion market capitalization range.
Management continues to be committed to investing in high quality, high growth
companies with superb business positions, proven managements, and moderate price
earnings ratios. While the target market cap range of $250 million to $350
million has not been a lead area for market returns in the past two years, it is
an excellent area to find companies early in the power growth part of their
lifecycle, and we remain enthusiastic about investing in that part of the
market. We will continue to use this approach to guide the investments made by
the fund in the future. We sincerely appreciate your continued support and
interest in the Standish Small Capitalization Equity Fund.
Nicholas S. Battelle
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Small Capitalization Equity Fund, the S&P 500 Index, and the Russell
2000 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Small
Capitalization Equity Fund compared with the S&P 500 Index and the Russell 2000
Index for the period September 1, 1990 to December 31, 1996, based upon a
$100,000 investment. Also included are the average annual total returns for one
year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio (Portfolio), at value (Note 1A) $ 246,652,321
Receivable for Fund shares sold 43,945
Other assets 5,407
---------------
Total assets 246,701,673
Liabilities:
Distribution payable $ 2,546,692
Accrued expenses and other liabilities 24,143
---------------
Total liabilities 2,570,835
---------------
Net Assets $ 244,130,838
===============
Net Assets consist of:
Paid-in capital $ 207,857,565
Accumulated net realized gain (loss) 3,952,719
Net unrealized appreciation (depreciation) 32,320,554
===============
Total $ 244,130,838
===============
Shares of beneficial interest outstanding 4,609,813
===============
Net asset value, offering price and redemption price per share $ 52.96
===============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statement of Operations
For the Year Ending December 31, 1996
Investment Income (Note 1B):
Interest income $ 108,348
Dividend income 89,921
Interest income allocated from Portfolio 305,276
Dividend income allocated from Portfolio 153,520
Expenses allocated from Portfolio (1,112,861)
--------------
Total income (455,796)
Expenses:
Investment advisory fee (Note 3) $ 396,796
Accounting, custody and transfer agent fees 76,102
Trustee fees 4,679
Legal and audit services 29,409
Registration fees 11,758
Miscellaneous 10,142
---------------
Total expenses 528,886
Deduct:
Waiver of investment advisory fee (Note 2) (13,118)
---------------
Net expenses 515,768
--------------
Net investment income (loss) (971,564)
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities transactions 15,760,827
Financial futures 87,425
Net realized gain (loss) from Portfolio on:
Investment securities transactions 20,794,956
Financial futures 717,750
---------------
Net realized gain (loss) 37,360,958
Change in unrealized appreciation (depreciation):
Investments securities 20,543,632
Financial futures 82,425
From Portfolio (23,038,475)
---------------
Net change in unrealized appreciation (depreciation) (2,412,418)
--------------
--------------
Net realized and unrealized gain (loss) 34,948,540
--------------
Net increase (decrease) in net assets resulting from operations $ 33,976,976
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Statements of Changes in Net Assets
Year Ending Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment loss $ (971,564) $ (436,289)
Net realized gain (loss) 37,360,958 12,833,607
Change in net unrealized appreciation (depreciation) (2,412,418) 27,572,436
----------------------
----------------------
Net increase (decrease) in net assets from operations 33,976,976 39,969,754
---------------------- ----------------------
Distributions to shareholders
From net realized gains on investments (39,018,707) (4,170,634)
---------------------- ----------------------
Total distributions to shareholders (39,018,707) (4,170,634)
---------------------- ----------------------
Fund share (principal) transactions, (Note 6)
Net proceeds from sale of shares 63,681,602 56,591,350
Net asset value of shares issued to shareholders
in payment of distributions declared 36,043,859 3,924,054
Cost of shares redeemed (31,022,858) (23,435,868)
----------------------
----------------------
Increase (decrease) in net assets from Fund share transactions 68,702,603 37,079,536
----------------------
----------------------
Net increase (decrease) in net assets 63,660,872 72,878,656
Net Assets:
At beginning of period 180,469,966 107,591,310
----------------------
----------------------
At end of period $ 244,130,838 $ 180,469,966
====================== ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund
Financial Highlights
Year Ended December 31,
---------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $53.46 $42.15 $48.97 $39.83 $39.99
------------- ------------- ------------- ------------- -------------
Income from investment operations:
Net investment income (loss) ** - - - (0.07) (0.11)
Net realized and unrealized gain
(loss) on investments 9.29 12.57 (1.84) 11.31 4.00
------------- ------------- ------------- ------------- -------------
Total from investment operations 9.29 12.57 (1.84) 11.24 3.89
------------- ------------- ------------- ------------- -------------
Less distributions to shareholders:
From net realized gains on investments (9.79) (1.26) (4.98) (2.10) (4.05)
------------- ------------- ------------- ------------- -------------
Total distributions declared to shareholders ($9.79) ($1.26) ($4.98) ($2.10) ($4.05)
------------- ------------- ------------- ------------- -------------
Net asset value - end of period $52.96 $53.46 $42.15 $48.97 $39.83
============= ============= ============= ============= =============
Total Return 17.36% 29.83% (3.66%) 28.21% 9.74%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.75% 0.75% 0.79% 0.88% 1.04%
Net investment income (loss) (0.44%) (0.30%) (0.27%) (0.18%) (0.38%)
Portfolio turnover (2) 28% 112% 130% 144% 101%
Average broker commission rate (2) $0.0450 - - - -
Net assets, end of year (000 omitted) $244,131 $180,470 $107,591 $85,141 $50,950
* Audited by other auditors.
** For the period from January 1, 1996 to May 3, 1996, the investment adviser did not impose a portion of its
advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income (loss) per share $ (0.01)
Ratios (to average daily net assets):
Expenses (1) 0.76%
Net Investment income (loss) (0.45%)
(1) Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2) Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate 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.
</TABLE>
<PAGE>
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 Small Capitalization Equity Fund (the "Fund") is a
separate diversified investment series of the Trust. On May 3, 1996,
the Fund contributed substantially all of its investable assets to the
Standish Small Capitalization Equity Portfolio (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, in exchange for an
interest in the Portfolio. The Fund invests all of its investable
assets in the interests in the Portfolio, which has the same investment
objective as the Fund. The value of the Fund's investment in the
Portfolio reflects the Fund's proportionate interest in the net assets
of the Portfolio (approximately 100% at December 31, 1996). 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. Valuation of
securities held by the Portfolio is discussed in Note 1 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. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
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).
<PAGE>
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.60% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.75% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $13,118 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund 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 Fund from SA&W. Certain
of the trustees and officers of the Trust are directors or officers of
SA&W.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
Investments $83,846,246 $54,111,851
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$253,391,982 and $23,335,985, respectively.
(6) 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: Effective December 20, 1996, the Fund was closed to new
investors.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- ----------------------
<S> <C> <C>
Shares sold 1,100,618 1,215,183
Shares issued to shareholders in payment of distributions declared 562,742 73,432
Shares redeemed (531,585) (465,355)
====================== ======================
Net increase (decrease) 1,131,775 823,260
====================== ======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish Small Capitalization Equity Fund (the "Fund"), as of December 31, 1996,
and the related statement of operations for the year then ended, changes in net
assets for each of the two years in the period then ended, and financial
highlights for each of the four years in the period then ended. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits. The financial
highlights for the year ended December 31, 1992, were audited by other auditors,
whose report, dated February 12, 1993, expressed an unqualified opinion on such
financial highlights. We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion. In our opinion, the financial
statements and financial highlights referred to above present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Investment
Trust: Standish Small Capitalization Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Equities - 98.6%
- -------------------------------------------------------------------------
Basic Industry - 1.8%
- -------------------------------------------------------------------------
<S> <C> <C>
Chirex Inc.* 162,000 $ 1,944,000
OM Group Inc. 90,450 2,442,150
-----------------
4,386,150
-----------------
Capital Goods - 10.1%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 160,900 4,364,407
Innotech Inc.* 174,100 1,349,275
LCC International Inc.* 234,100 4,330,850
Newpark Resources Inc.* 89,600 3,337,600
Nichols Research Corp.* 136,050 3,469,275
SBS Technologies Inc.* 85,800 3,174,600
Superior Services Inc.* 93,500 1,905,063
Triumph Group Inc.* 127,400 3,041,675
-----------------
24,972,745
-----------------
Consumer Cyclical - 3.3%
- -------------------------------------------------------------------------
Atlantic Coast Airlines Inc.* 183,800 2,251,550
Midwest Express Holdings* 58,500 2,106,000
NCI Building Systems Inc.* 110,700 3,819,150
-----------------
8,176,700
-----------------
Consumer Stable - 5.7%
- -------------------------------------------------------------------------
Custom Chrome Inc.* 128,100 2,578,013
Hughes Supply Inc. 91,500 3,945,938
Martek Biosciences* 80,600 1,612,000
Natures Sunshine Products Inc. 96,300 1,733,400
Opta Food Ingredients Inc.* 130,900 752,675
Robert Mondavi Corp. Cl A* 91,100 3,325,150
-----------------
13,947,176
-----------------
Financial - 3.5%
- -------------------------------------------------------------------------
CCC Information Services Group* 100,600 1,609,600
Corvel Corp.* 91,500 2,653,500
Rental Service Corp.* 59,300 1,630,750
Texas Regional Bancshares Cl A 83,900 2,852,600
-----------------
8,746,450
-----------------
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Growth Cyclical - 6.4%
- -------------------------------------------------------------------------
Anchor Gaming* 22,800 $ 917,700
Apple South Inc 174,600 2,357,100
Cannondale Corp.* 69,900 1,572,750
Cost Plus Inc* 57,700 1,103,513
Golden Bear Golf Inc.* 109,600 1,233,000
Homegate Hospitality Inc.* 183,800 1,539,325
Logan's Roadhouse Inc.* 90,200 2,119,700
Scientific Games Hldgs Corp.* 110,300 2,950,525
Suburban Lodges of America* 130,100 2,081,600
-----------------
15,875,213
-----------------
Health Care - 26.0%
- -------------------------------------------------------------------------
Alternative Living Services* 77,900 1,129,550
Arbor Health Care Company* 109,800 2,854,800
Arris Pharmaceutical Corp.* 163,300 2,204,550
ARV Assisted Living Inc.* 115,900 1,347,338
Atria Communities Inc.* 130,300 1,335,575
Ballard Medical Products 119,600 2,227,550
CN Bioscience Inc* 122,100 2,228,325
Conmed Corp.* 115,600 2,369,800
Emcare Holdings Inc.* 97,800 2,273,850
Fuisz Technologies Ltd.* 133,800 1,053,675
HCIA Inc.* 94,300 3,253,350
Horizon Mental Health Management* 103,800 2,880,450
Impath Inc.* 105,400 1,976,250
Inphynet Medical Management* 145,500 2,619,000
MDL Information Systems Inc.* 68,700 1,279,538
Medarex Inc.* 188,500 1,319,500
Medcath Inc.* 123,700 1,979,200
Medquist Inc.* 140,000 3,465,000
National Surgery Centers Inc.* 83,450 3,171,100
Neurogen Corp* 51,200 985,600
Oacis Healthcare Holdings* 187,100 1,262,925
Pharmaceutical Product Development* 125,000 3,156,250
Possis Medical, Inc.* 101,700 2,122,988
Protocol Systems Inc.* 121,600 1,580,800
Rochester Medical Corp.* 87,000 1,663,875
Sepracor Inc.* 180,400 2,999,150
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Health Care - (continued)
- -------------------------------------------------------------------------
Sunrise Assisted Living Inc.* 141,300 $ 3,938,738
Superior Consultant Holdings* 42,600 1,054,350
Urologix Inc* 9,800 159,250
Vertex Pharmaceuticals Inc.* 103,400 4,161,850
-----------------
64,054,177
-----------------
Services - 23.9%
- -------------------------------------------------------------------------
Analysts International Corp. 103,200 2,915,400
Barrett Business Services Inc.* 150,700 2,298,175
Bet Holdings Inc. Cl A* 106,600 3,064,750
BTG Inc.* 50,600 1,340,900
Central Parking Corp. 95,300 3,192,550
Coach USA Inc.* 169,600 4,918,400
Computer Horizons Corp.* 69,700 2,683,450
Computer Task Group Inc. 63,200 2,725,500
Cotelligent Group Inc.* 68,900 1,662,213
Data Processing Resources Corp.* 123,800 2,290,300
Emmis Broadcasting Corp. Cl A* 80,600 2,639,650
F.Y.I. Inc* 62,200 1,298,425
Harbinger Corp* 52,500 1,378,125
Healthplan Services Corp.* 107,800 2,277,275
May & Speh Inc.* 184,500 2,260,125
On Assignment Inc.* 64,200 1,893,900
Pacific Gateway Exchange Inc.* 62,600 2,284,900
Personnel Group of America Inc.* 88,200 2,127,825
Remedy Temp Inc.* 81,700 1,409,325
Right Management Consultants* 76,775 1,708,244
Rural/Metro Corp.* 80,000 2,880,000
Scandinavian Broadcast Systems* 146,800 2,550,650
Steiner Leisure Ltd* 115,500 2,324,438
Techforce Corp.* 94,200 706,500
United Dental Care Inc.* 81,500 2,475,563
Viisage Technology Inc.* 109,000 1,580,500
-----------------
58,887,083
-----------------
Technology - 17.9%
- -------------------------------------------------------------------------
Advanced Technology Material* 149,000 2,570,250
Aurum Software Inc.* 21,800 504,125
CFM Technologies Inc* 91,000 1,888,250
Computational Systems Inc.* 78,500 1,511,125
Datastream Systems Inc.* 133,900 2,410,200
Gensym Corp.* 148,400 1,771,525
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- -----------------
Technology -(continued)
- -------------------------------------------------------------------------
Hadco Corporation* 64,900 $ 3,180,100
Indus Group Inc.* 156,000 4,017,000
Lecroy Corp.* 78,200 2,932,500
Natural Microsystems Corp.* 65,600 2,066,400
P-Com Inc.* 53,800 1,593,825
Perceptron Inc.* 81,500 2,791,375
Photronics Inc.* 44,200 1,204,450
PRI Automation Inc.* 26,800 1,219,400
Project Software & Development* 66,200 2,805,225
Quickturn Design Systems Inc.* 131,800 2,701,900
Speedfam International Inc.* 36,000 1,026,000
Stanford Telecommunications* 53,600 1,849,200
TCSI Corp.* 86,800 542,500
Triquint Semiconductor Inc* 58,000 1,529,750
Ultrak Inc.* 91,500 2,790,750
Videoserver Inc.* 26,400 1,122,000
-----------------
44,027,850
-----------------
Total Equities (Cost $210,820,515) 243,073,544
-----------------
Short-Term Obligations - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $5,051,027 (Collateralized by
FNMA FNARM with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $5,150,412. 5,049,423 5,049,423
-----------------
U.S. Government - 0.1% Rate Maturity
- ------------------------------------------------------------------------- ------- ----------
Federal Farm Credit Bank ** 5.46% 1/17/1997 10,000 9,968
FNMA ** 5.40 1/17/1997 200,000 199,130
-----------------
209,098
-----------------
Total Short-Term Obligations (Cost $5,258,521) 5,258,521
-----------------
Total INVESTMENTS (Cost $216,079,036) - 100.7% 248,332,065
Other Assets less Liabilities - -0.7% (1,679,645)
-----------------
NET ASSETS - 100.0% $ 246,652,420
=================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security pledged as a margin deposit (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $216,079,036) $ 248,332,065
Cash 6
Receivable for investments sold 7,800
Interest and dividends receivable 9,105
Deferred organization costs (Note 1E) 85,593
--------------------
Total assets 248,434,569
Liabilities:
Payable for investments purchased $ 1,611,865
Payable for daily variation margin on open
financial futures contracts (Note 5) 20,062
Accrued investment advisory fee (Note 2) 35
Accrued trustee fees 646
Payable to investment adviser (Note 1E) 97,618
Accrued expenses and other liabilities 51,923
-----------------
Total liabilities 1,782,149
--------------------
Net Assets (applicable to investors' beneficial interests) $ 246,652,420
====================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 305,276
Dividend income 153,520
-----------------
Total income 458,796
Expenses
Investment advisory fee (Note 2) $ 920,742
Custody and accounting 125,602
Legal and audit services 32,620
Registration costs 10,067
Insurance 4,839
Miscellaneous 18,991
----------------
Total expenses 1,112,861
Net investment income (loss) (654,065)
-----------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss)
Investment securities 20,794,956
Financial futures 717,750
----------------
Net realized gain (loss) 21,512,706
Change in unrealized appreciation (depreciation)
Investment securities (22,995,625)
Financial futures (42,850)
----------------
Change in net unrealized appreciation (depreciation) (23,038,475)
-----------------
Net realized and unrealized gain (loss) (1,525,769)
-----------------
Net increase (decrease) in net assets from operations $ (2,179,834)
=================
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ (654,065)
Net realized gain (loss) 21,512,706
Change in net unrealized appreciation (depreciation) (23,038,475)
--------------------
Net increase (decrease) in net assets from operations (2,179,834)
--------------------
Capital transactions
Assets contributed by Standish Small Capitalization Equity Fund at
commencement (including unrealized appreciaiton of $55,359,029) 233,108,124
Contributions 39,060,115
Withdrawals (23,335,985)
--------------------
--------------------
Increase in net assets resulting from capital transactions 248,832,254
--------------------
Total increase (decrease) in net assets 246,652,420
Net Assets:
At beginning of period -
--------------------
At end of period $ 246,652,420
====================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.73% *
Net investment income (loss) (0.43%) *
Portfolio turnover 76%
Average broker commission per share $0.0434(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale or portfolio securities.
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New
York on January 18, 1996 and is registered under the Investment Company
Act of 1940, as amended, as an open-end, management investment company.
Standish Small Capitalization Equity Portfolio (the "Portfolio") is a
separate diversified investment series of the Portfolio Trust. The
following is a summary of significant accounting policies followed by
the Portfolio in the preparation of the financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued 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 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.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis
through April 2001. These costs were paid for by the Investment Adviser
and will be reimbursed by the Portfolio.
<PAGE>
(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. SA&W voluntarily agreed to limit the Portfolio's total
annual operating expenses (excluding brokerage commissions, taxes, and
extraordinary expenses) to 1.50% of the Portfolio's average daily net
assets, for the year ended December 31, 1996. The Portfolio 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 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 from May 3, 1996 through
December 31, 1996, were as follows:
Purchases Sales
Investments $193,914,188 $171,786,086
================== ==================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $216,266,037
Gross unrealized appreciation $43,840,116
Gross unrealized depreciation (11,774,088)
===================
Net unrealized appreciation $32,066,028
===================
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
Options--
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Portfolio may use options to hedge against risks of
market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. 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. 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 period May 3, 1996 through December 31, 1996.
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in value of the hedged
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. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio held the following futures contracts:
<TABLE>
<CAPTION>
Underlying Unrealized
Contract Position Expiration Face Amount Appreciation
- ------------------------------------------ -------------- ----------- --------------- --------------
<S> <C> <C> <C> <C>
MIDCAP 400 (28 contracts) Long 03/15/97 $3,592,400 $67,525
=============== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient
securities to cover margin requirements on open future contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer and Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio: We have audited the accompanying
statement of assets and liabilities of Standish Small Capitalization Equity
Portfolio, including the portfolio of investments as of December 31, 1996, and
the related statement of operations, the statement of changes in net assets and
the supplementary data for the period from May 3, 1996 (commencement of
operations) to December 31, 1996. These financial statements and supplementary
data are the responsibility of the Portfolio's management. Our responsibility is
to express an opinion on these financial statements and supplementary data based
on our audit. We conducted our audit in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements and supplementary data are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers; where replies were not received from brokers we
performed other auditing procedures. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion. In our opinion, the financial
statements and supplementary data present fairly, in all material respects, the
financial position of Standish Small Capitalization Equity Portfolio as of
December 31, 1996, and the results of its operations, changes in its net assets
and supplementary data for the respective stated period, in conformity with
United States generally accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Nineteen ninety six was an excellent year for the U.S. equity market with the
S&P 500 enjoying a total return of 22.96% for the full year. For the same
twelve-month period, the Standish Equity Fund enjoyed a total return of 26.84%.
During 1996, there was a marked pattern of performance being differentiated by
capitalization group. Beginning in the late spring of the year, small and medium
capitalization stocks began to trail in terms of relative performance and by
year end a significant performance gap had developed. For the full year, the S&P
Mid-Cap 400 Index showed a total return of 19.20% while the Frank Russell 2000,
an index covering smaller capitalization stocks, showed a gain of only 16.53%.
By industry sector, the best groups within the S&P 500 in 1996 were Financials
and Technology stocks with both groups registering gains of over 30%.
Performance was relatively evenly dispersed, however, with eight of nine sectors
showing a gain of over 15% for the year.
Only the Utility group lagged (with a total return of just over 1%).
Within the Standish Equity Fund, performance was hurt by the fact that our
average capitalization is smaller than that of the S&P 500. Despite this
performance drag arising from our capitalization profile, returns exceeded the
index return due to strong stock selection results. Particularly notable was
performance in Consumer Cyclicals, Technology, and Financials where our results
for the year were ahead of the comparable S&P groups. In addition, we were
helped by modest underweightings in Utilities and Basic Industries - two sectors
where performance lagged that of the broad market.
Our stock selection process is driven by proprietary modeling techniques that
utilize a combination of valuation and earnings growth measures to determine the
relative attractiveness of equity securities. We are committed to the consistent
application of our selection disciplines. In 1996 those disciplines once again
provided us with a very positive starting point for our portfolio construction
process. For the full year, stocks ranked in the top ten percent of our universe
outperformed the universe by over 9.5%. The best performing of our indicators
for the year was the Estimate Trend factor, indicating stocks where estimates
are rising. Our consistent adherence to risk control disciplines and a well
diversified, fully invested fund positioning was also important.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Equity
Fund have been invested in a "Portfolio" entity, having substantially the same
investment objective, policies and restrictions as the corresponding fund. The
fund in which you are invested is now considered a "Spoke," sharing in the
activities of the Portfolio proportionately according to its relative size.
We are very pleased to be able to report another strong year for the Standish
Equity Fund and are grateful to our shareholders for their continuing support.
We remain focused on the Fund's investment success and are pleased to be working
on your behalf.
Ralph S. Tate
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Equity Fund and the S&P 500 Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Equity Fund
compared with the S&P 500 Index for the period January 2, 1991 to December 31,
1996, based upon a $100,000 investment. Also included are the average annual
total returns for one year, five year, and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Equity Portfolio, (Portfolio) at value (Note 1A) $ 106,277,516
Other assets 2,576
----------------
Total assets 106,280,092
Liabilities
Distribution payable $ 285,108
Payable for Fund shares redeemed 125,000
Accrued trustee fees 484
Accrued expenses and other liabilities 14,718
--------------
Total liabilities 425,310
----------------
Net Assets $ 105,854,782
================
Net Assets consist of:
Paid-in capital $ 81,035,794
Undistributed net investment income (loss) 88,950
Accumulated net realized gain (loss) 7,655,446
Net unrealized appreciation (depreciation) 17,074,592
----------------
Total $ 105,854,782
================
Shares of beneficial interest outstanding 2,728,741
================
Net asset value, offering price and redemption price per share $ 38.79
================
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B):
Interest income $ 77,789
Dividend income (net of withholding tax of $3,380) 612,003
Interest income allocated from Portfolio 117,893
Dividend income allocated from Portfolio (net of withholding tax of $1,452) 1,453,073
Expenses allocated from Portfolio (479,297)
--------------
Total income 1,781,461
Expenses
Investment advisory fee (Note 3) $ 163,530
Accounting, custodian, and transfer agency fees 46,088
Trustee fees 1,627
Legal and audit services 32,621
---------------
Total expenses 243,866
Deduct:
Waiver of investment advisory fee (Note 3) (12,085)
---------------
Net expenses 231,781
--------------
Net investment income (loss) 1,549,680
--------------
Realized and Unrealized Gain (Loss):
Net realized gain (loss) from:
Investment securities 3,307,925
Financial futures 164,221
Net realized gain (loss) from Portfolio on:
Investment securities 12,874,303
Financial futures 428,300
---------------
Net realized gain (loss) 16,774,749
Change in unrealized appreciation (depreciation):
Investment securities 3,350,428
Financial futures (58,213)
From Portfolio 3,404,697
---------------
Net change in unrealized appreciation (depreciation) 6,696,912
--------------
Net realized and unrealized gain (loss) 23,471,661
--------------
Net increase (decrease) in net assets resulting from operations $ 25,021,341
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
--------------------------------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 1,549,680 $ 2,196,110
Net realized gain (loss) 16,774,749 21,564,705
Change in net unrealized appreciation (depreciation) 6,696,912 10,229,026
----------------- ----------------------
Net increase (decrease) in net assets from operations 25,021,341 33,989,841
----------------- ----------------------
Distributions to shareholders
From net investment income (1,481,454) (2,203,103)
From net realized gains on investments (11,604,448) (8,605,084)
----------------- ----------------------
Total distributions to shareholders (13,085,902) (10,808,187)
----------------- ----------------------
Fund share (principal) transactions (Note 6)
Net proceeds from sale of shares 21,565,418 32,648,683
Net asset value of shares issued to shareholders
in payment of distributions declared 12,463,945 10,246,215
Cost of shares redeemed (28,642,403) (64,134,926)
----------------- ----------------------
Increase (decrease) in net assets from Fund share transactions 5,386,960 (21,240,028)
----------------- ----------------------
Net increase (decrease) in net assets 17,322,399 1,941,626
Net Assets:
At beginning of period 88,532,383 86,590,757
----------------- ----------------------
At end of period (including undistributed net investment income
of $88,950 and distributions in excess of net investment income of
$20,274 at December 31, 1996 and 1995, respectively) $ 105,854,782 $ 88,532,383
================= ======================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Equity Fund Series
Financial Highlights
Year Ended December 31,
------------------------------------------------------------------------------
1996 1995 1994 1993 1992*
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net asset value - Beginning of period $ 34.81 $ 28.66 $ 30.89 $ 26.28 $ 25.66
------------ ------------- ------------- ------------- -----------
Income from investment operations:
Net investment income ** 0.60 0.76 0.45 0.50 0.56
Net realized and unrealized gain
(loss) on investments 8.52 9.94 (1.62) 5.57 1.81
------------ ------------- ------------- ------------- -----------
Total from investment operations 9.12 10.70 (1.17) 6.07 2.37
------------ ------------- ------------- ------------- -----------
Less distributions to shareholders:
From net investment income (0.56) (0.78) (0.44) (0.47) (0.54)
From net realized gains on investments (4.58) (3.77) (0.62) (0.99) (1.19)
From paid-in capital --- --- --- --- (0.02)
------------ ------------- ------------- ------------- -----------
Total distributions declared to shareholders (5.14) (4.55) (1.06) (1.46) (1.75)
------------ ------------- ------------- ------------- -----------
Net asset value - end of period $ 38.79 $ 34.81 $ 28.66 $ 30.89 $ 26.28
============ ============= ============= ============= ===========
Total Return 26.84% 37.55% (3.78%) 20.79% 9.52%
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) ** 0.71% 0.69% 0.70% 0.80% 0.00%
Net investment income ** 1.53% 2.05% 1.55% 1.29% 2.52%
Portfolio turnover (2) 41% 159% 182% 192% 92%
Average broker commission rate (2) $ 0.0499 $
Net assets, end of period (000's omitted) $ 105,855 $ 88,532 $ 86,591 $ 72,916 $ 14,679
* Audited by other auditors.
** For the year ended December 31, 1996 and the two year period ended December 31, 1993, the investment adviser did not impose
a portion of its advisory fee. If this voluntary reduction had not been undertaken, the net investment income per share
and the ratios would have been:
Net investment income per share $ 0.59 $ 0.47 $ 0.34
Ratios (to average daily net assets):
Expenses (1) 0.72% 0.97% 1.00%
Net Investment income 1.52% 1.12% 1.52%
(1Includes the Fund's share of Portfolio allocated expenses for the period from May 3, 1996 through December 31, 1996
(2Portfolio turnover and average broker commission rate represents activity while the Fund was making investments
directly in securities. The portfolio turnover and average broker commission rate for the period since the Fund transferred
substantially all of its investable assets to the Portfolio are shown in the Portfolio's financial statements
which are included elsewhere in this report.
</TABLE>
<PAGE>
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 Equity Fund (the "Fund") is a separate diversified
investment series of the Trust. On May 3, 1996, the Fund contributed
substantially all of its investable assets to the Standish Equity
Portfolio (the "Portfolio"), a subtrust of Standish, Ayer & Wood Master
Portfolio (the "Portfolio Trust"), which is organized as a New York
trust, in exchange for an interest in the Portfolio. The Fund invests
all of its investable assets in the interests in the Portfolio, which
has the same investment objective as the Fund. The value of the Fund's
investment in the Portfolio reflects the Fund's proportionate interest
in the net assets of the Portfolio (approximately 100% at December 31,
1996). 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. Valuation of
securities held by the Portfolio is discussed in Note 1 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. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis.
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 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).
<PAGE>
(3) ....Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish, Ayer & Wood, Inc. (SA&W) as its
investment adviser. The investment advisory fee paid to SA&W for
overall investment advisory and administrative services, and general
office facilities, was paid quarterly at the annual rate of 0.50% of
the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the aggregate annual operating expenses of the Fund and Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.71% of
the Fund's average daily net assets for the year ended December 31,
1996. SA&W voluntarily waived $12,085 of its investment advisory fee
for the year ended December 31, 1996. Currently, the Fund pays no
compensation directly to SA&W for such services now performed for the
Portfolio, but indirectly bears its pro rata share of the compensation
paid by the Portfolio to SA&W for such services. See Note 2 of the
Portfolio's Notes to Financial Statements which are included elsewhere
in this report. The Fund 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 Fund from SA&W. Certain of the
trustees and officers of the Trust are directors or officers of SA&W.
(4) ....Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than purchased option transactions and
short-term obligations, were as follows:
Purchases Sales
Investments $38,138,153 $37,334,991
================== ==================
(5) ....Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$113,559,410 and $25,080,761, respectively.
(6) ....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, 1996 December 31, 1995
---------------------------------------------
<S> <C> <C>
Shares sold 561,325 932,595
Shares issued to shareholders in payment of distributions declared 325,504 294,939
Shares redeemed (701,269) (1,705,536)
------------------- -----------------------
Net increase (decrease) 185,560 (478,002)
=================== =======================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Equity Fund: We have audited the accompanying statement of assets
and liabilities of Standish, Ayer & Wood Investment Trust: Standish Equity Fund
(the "Fund"), as of December 31, 1996, and the related statement of operations
for the year then ended, changes in the net assets for each of the two years in
the period then ended and financial highlights for each of the four years in the
period then ended. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. The financial highlights for the year ended December 31, 1992, presented
herein, were audited by other auditors, whose report, dated February 12, 1993,
expressed an unqualified opinion on such financial highlights. We conducted our
audits in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Equity Fund as of December 31, 1996, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended and financial highlights for
each of the four years in the period then ended, in conformity with generally
accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Equity Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Equities - 97.8%
- -------------------------------------------------------------------------
Basic Industry - 5.7%
- -------------------------------------------------------------------------
<S> <C> <C>
Avery-Dennison Corp. 44,400 1,570,650
Bemis Co 14,800 545,750
Cleveland-Cliffs Inc. 7,700 349,388
Dexter Corp. 15,500 494,063
Morton International Inc. 12,200 497,150
Oakwood Homes Corp. 22,100 505,538
Potash Corp. of Saskatchewan 7,000 595,000
PPG Industries Inc. 18,100 1,015,863
Southdown Inc. 15,600 485,550
----------------
6,058,952
----------------
Capital Goods - 10.6%
- -------------------------------------------------------------------------
Case Corp. 12,300 670,350
Caterpiller Tractor Inc. 9,700 729,925
Crane Company 16,200 469,800
Deere & Co. 28,600 1,161,875
Dover Corp. 9,600 482,400
Duriron Inc. 12,100 328,213
Harnischfeger Industries Inc. 9,700 466,813
Ingersoll Rand Co 21,400 952,300
JLG Industries Inc 30,600 489,600
McDonnell Douglas Corp. 32,400 2,073,600
Timken Co. 15,900 729,413
Trinity Industries 13,200 495,000
United Technologies Corp. 34,000 2,244,000
----------------
11,293,289
----------------
Consumer Cyclical - 13.2%
- -------------------------------------------------------------------------
AMR Corp.* 10,000 881,250
Black & Decker Corp. 32,600 982,075
Carnival Corp. 55,400 1,828,200
Chrysler Corp. 65,700 2,168,100
Claire's Stores Inc. 32,900 427,700
Dayton-Hudson Corp. 27,600 1,083,300
Jones Apparel Group Inc.* 50,800 1,898,650
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Consumer Cyclical - (continued)
- -------------------------------------------------------------------------
Leggett & Platt Inc. 21,500 744,425
Price/Costco Inc.* 21,300 535,163
Ross Stores Inc. 23,200 1,160,000
TJX Companies Inc. 13,100 620,613
UAL Corp.* 27,700 1,731,250
----------------
14,060,726
----------------
Consumer Stable - 14.4%
- -------------------------------------------------------------------------
Alberto Culver Company, Class B 10,700 513,600
American Stores Co 23,500 960,563
Conagra Inc. 29,500 1,467,625
Dean Foods Company 17,500 564,375
Eastman Kodak Company 18,400 1,476,600
First Brands Corp. 27,100 768,963
Food Lion Inc. 86,800 849,008
Great Atlantic & Pacific Tea Co 14,600 465,375
Kingworld Productions Inc.* 33,600 1,239,000
Omnicom Group 21,500 983,625
Philip Morris Companies, Inc. 15,500 1,745,688
Safeway Inc.* 25,200 1,077,300
Universal Foods Corp 16,500 581,625
Wallace Computer Services 60,000 2,070,000
Washington Post Co. 1,400 469,175
----------------
15,232,522
----------------
Energy - 9.4%
- -------------------------------------------------------------------------
Atlantic Richfield Co. 5,700 755,250
British Petroleum Plc 23,684 3,348,395
Camco International Inc. 12,600 581,175
Phillips Petroleum Co. 36,100 1,597,425
Reading & Bates Corp.* 17,000 450,500
Texaco Inc. 24,400 2,394,250
Unocal Corp. 20,500 832,813
----------------
9,959,808
----------------
Financial - 13.4%
- -------------------------------------------------------------------------
American Bankers Insurance Group 21,900 1,119,638
BankAmerica Corp. 10,400 1,037,400
Cigna Corp. 14,800 2,022,050
Comerica Inc. 23,700 1,241,288
Conseco Inc. 18,400 1,173,000
First Chicago NBD Corp 9,200 494,500
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- --------------- ----------------
Financial - (continued)
- -------------------------------------------------------------------------
First Union Corp (N.E.) 17,000 1,258,000
Mercantile Bankshares 16,600 531,200
Old Republic International Corp. 17,000 454,750
Regions Financial Corp. 19,000 982,063
Reliastar Financial Corp. 22,200 1,282,050
Southtrust Corp. 28,100 979,988
Travelers Group Inc. 34,700 1,574,513
----------------
14,150,440
----------------
Health Care - 9.7%
- -------------------------------------------------------------------------
Abbott Laboratories 24,100 1,223,075
Amgen Inc.* 12,800 696,000
Beckman Instruments Inc. 11,000 422,125
Bristol-Myers Squibb Co 19,300 2,098,875
Coherent Inc.* 24,300 1,026,675
Lincare Holdings Inc.* 25,700 1,053,700
Merck & Co. Inc. 13,400 1,061,950
Schering-Plough Corp. 23,200 1,502,200
Sybron International Corp* 17,400 574,200
Watson Pharmaceutical Inc.* 14,700 660,581
----------------
10,319,381
----------------
Reits - 2.2%
- -------------------------------------------------------------------------
Beacon Properties Corp. 16,700 611,638
General Growth Properties 15,900 512,775
Patriot American Hospitality 11,700 504,563
Starwood Lodging Trust 13,000 716,625
----------------
2,345,601
----------------
Technology - 11.4%
- -------------------------------------------------------------------------
Advanced Technology Labs Inc.* 17,800 551,800
Belden Inc. 9,700 358,900
Cadence Design Systems Inc* 20,600 818,850
Compaq Computer* 9,700 720,225
Computer Associates Intl Inc. 22,400 1,114,400
Dell Computer Corp.* 21,000 1,115,625
Harris Corp.Inc. 25,600 1,756,800
Intel Corp. 15,400 2,016,438
Raychem Corp. 12,900 1,033,613
Sci Sys Inc.* 17,200 767,550
Storage Technology Corp.* 20,800 990,600
Sun Microsystems Corp.* 35,200 904,200
----------------
12,149,001
----------------
Value
Security Rate Maturity Shares (Note 1A)
- ------------------------------------------------------------------------- ------- --------- --------------- ----------------
Utilities - 7.8%
- -------------------------------------------------------------------------
Ameritech Corp. 32,100 1,946,063
Bellsouth Corp 25,800 1,041,675
CMS Energy Corp. 26,900 904,513
DQE Inc. 20,550 595,950
DTE Energy Company 23,900 773,763
FPL Group Inc. 17,000 782,000
Nynex Corp 22,800 1,097,250
Panenergy Corp. 26,300 1,183,500
----------------
8,324,714
----------------
Total Equities (Cost $86,830,426) 103,894,434
----------------
Short-Term Investments - 2.1%
- -------------------------------------------------------------------------
Repurchase Agreements - 2.0%
- -------------------------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $2,108,307 (Collateralized by Par
FNMA FNARM with a rate of 6.084% and a maturity date of Value
-------------
12/01/35 with a market value of $2,149,790. 2,107,637 2,107,637
----------------
U.S. Government Agency - 0.1%
- -------------------------------------------------------------------------
FNMA ** 5.40% 1/17/1997 150,000 149,348
----------------
Total Short-Term Investments (Cost $2,256,985) 2,256,985
----------------
Total INVESTMENTS (Cost $89,087,411) - 99.9% 106,151,419
Other Assets less Liabilities - 0.1% 126,215
----------------
NET ASSETS - 100.0% 106,277,634
================
Notes to the Schedule of Investments:
* Non-income producing security.
** Denotes all or part of security is pledged as collateral for margin deposits (Note 5)
FNMA - Federal National Mortgage Association
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C>
Investments, at value (Note 1A) (identified cost, $89,087,411) $ 106,151,419
Interest and dividends receivable 219,299
Deferred organizational costs (Note 1E) 85,593
----------------
Total assets 106,456,311
Liabilities:
Payable for daily variation margin on open
financial futures contracts (Note 5) $ 99,571
Payable to investment adviser (Note 1E) 40,912
Accrued trustee fees 582
Accrued expenses and other liabilities 37,612
--------------
Total liabilities 178,677
----------------
Net Assets (applicable to investors' beneficial interests) $ 106,277,634
================
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income
Interest Income $ 117,893
Dividend income (net of withholding tax of $1,452) 1,453,074
---------------
Total income 1,570,967
Expenses
Investment advisory fee (Note 2) $ 345,301
Custodian and accounting expenses 81,888
Legal and audit services 23,672
Amortization of organization expense (Note 1E) 10,067
Trustee fees (Note 2) 2,459
Miscellaneous 15,910
---------------
Total expenses 479,297
---------------
Net investment income (loss) 1,091,670
---------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities 12,874,316
Financial futures 428,300
---------------
Net realized gain (loss) 13,302,616
Change in unrealized appreciation (depreciation)
Investment securities 3,338,425
Financial futures 66,274
---------------
Change in net unrealized appreciation (depreciation) 3,404,699
---------------
Net realized and unrealized gain (loss) 16,707,315
---------------
Net increase (decrease) in net assets from operations $ 17,798,985
===============
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 1,091,670
Net realized gain (loss) 13,302,616
Change in net unrealized appreciation (depreciation) 3,404,699
----------------
Net increase (decrease) in net assets from operations 17,798,985
----------------
Capital transactions
Assets contributed by Standish Equity Fund at commencement
(including unrealized gain of $13,669,897) 97,994,616
Contributions 15,564,794
Withdrawals (25,080,761)
----------------
Increase in net assets resulting from capital transactions 88,478,649
----------------
Total increase (decrease) in net assets 106,277,634
Net Assets
At beginning of period ---
----------------
At end of period $ 106,277,634
================
</TABLE>
<PAGE>
Standish Ayer & Wood Master Portfolio
Standish Equity Portfolio
Supplementary Data
Statement of Changes in Net Assets
For the Period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.69 % *
Net investment income 1.58 % *
Portfolio Turnover 78 %
Average broker commission per share $ 0.048(1)
* Annualized
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
<PAGE>
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 Equity Portfolio Series (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued 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 transaction 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 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.
E. Deferred Organizational Expenses--
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis
through April, 2001. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(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 0.50% of the Portfolio's average daily
net assets. The Portfolio 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 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 purchased
option transactions and short-term obligations, were as follows:
Purchases Sales
Investments $75,936,681 $81,731,354
================== ==================
(4) ....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $89,104,533
Gross unrealized appreciation $17,849,184
Gross unrealized depreciation (802,298)
-------------------
Net unrealized appreciation $17,046,886
===================
(5) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Portfolio's Prospectus and Statement of Additional
Information. The Portfolio trades the following financial instruments
with off-balance sheet risk:
<PAGE>
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. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. 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. 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 the following
transactions during the period May 3, 1996 through December 31, 1996:
# of Contracts Premiums
-------------- --------
Written Calls
Outstanding, Beginning of Period 0 $0
Options Written 1 27,974
Options Exercised 0 0
Options Expired 0 0
Options Closed (1) (27,974)
------------------- -------------------
Outstanding, End of Period 0 $0
------------------- -------------------
Futures Contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or index,
which may not correlate with changes in value of the hedged
investments. 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. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in securities prices and foreign currencies. At December 31,
1996, the Portfolio had entered into the following financial futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Gain/(Loss)
- ----------------------------- ------------------------- ------------------------------------ --------------
<S> <C> <C> <C> <C>
S+P 500 (5 Contracts) Long 03/21/97 $1,861,250 $10,588
==================================== ==============
</TABLE>
At December 31, 1996, the Portfolio had segregated sufficient cash
and/or securities to cover margin requirements on open futures
contracts.
<PAGE>
Independent Auditor's Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Equity Portfolio: We have audited the accompanying statement of assets
and liabilities of Standish Equity Portfolio, including the portfolio of
investments as of December 31, 1996, and the related statement of operations,
the statement of changes in net assets and the supplementary data for the period
from May 3, 1996 (commencement of operations) to December 31, 1996. These
financial statements and supplementary data are the responsibility of the
Portfolio's management. Our responsibility is to express an opinion on these
financial statements and supplementary data based on our audit. We conducted our
audit in accordance with auditing standards generally accepted in the United
States of America. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements and
supplementary data are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers;
where replies were not received from brokers we performed other auditing
procedures. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Equity Portfolio as of December 31, 1996, and the results
of its operations, changes in its net assets and supplementary data for the
respective stated period, in conformity with United States generally accepted
accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Global bond markets posted positive returns on average during the year with the
J.P. Morgan Hedged Global Government Bond index returning 8.60%. We are pleased
to report that the strategies employed in the Standish Global Fixed Income Fund
resulted in a return of 13.03%, 443 basis point more than our index.
There was a wide disparity of returns among the major bond markets in 1996 as
prospects for economic growth and inflation diverged. In the U.S., relatively
strong economic growth, a tight labor market, modestly rising wages and the
surging equity market raised the risk that the Federal Reserve would be forced
to raise rates in order to restrain prospective inflation. Yields rose on U.S.
bonds for most of the year but recovered modestly in the fourth quarter as the
pace of growth slowed and inflation failed to materialize. Yields also rose in
the U.K. as that economy strengthened during the year and the Bank of England
raised interest rates.
In other economies, the economic outlook was not as bright. European economic
activity weakened, driving unemployment to record levels and forcing central
banks to reduce rates. The pursuit of monetary union in Europe had a profound
impact on policy decisions, resulting in tighter fiscal policies than would
normally be the ease during a period of economic weakness. European markets
produced the best returns during the year particularly Scandinavian and Southern
European markets. The Japanese economy grew modestly in the year and Japanese
bonds produced meager returns. The dollar continued to appreciate and by
year-end had returned to levels last seen in 1993.
The fund has benefited during the year from our successful country weightings,
longer duration than the index, corporate and mortgages outperformance, and our
use of currency options to increase exposure to high yielding European
currencies relative to the German mark, Swiss franc, and Japanese yen.
Overweight positions in European bonds, particularly in Italy, Spain and Sweden,
an underweight in Japan, and a small underweight in the U.S. added significantly
to our outperformance. Our duration was modestly longer than the index
particularly in Europe due to economic conditions that were generally favorable
for bonds.
In 1996 we emphasized alternatives to government bonds, such as corporates and
mortgages, when we identified attractive opportunities. These bonds in our
portfolio have generally outperformed during the year.
We purchased currency options due to our belief that high yielding European
currencies were attractive relative to the German mark, Swiss franc and Japanese
yen. This was another source of value added during the year.
Since May 3, 1996 -- the date of conversion -- the assets of the Standish Global
Fixed Income Fund have been invested in a "Portfolio" entity, having
substantially the same investment objective, policies and restrictions as the
corresponding fund. The fund in which you are invested is now considered a
"Spoke," sharing in the activities of the Portfolio proportionately according to
its relative size.
Thank you for your support during 1996. We will be working faithfully in the New
Year to produce superior risk adjusted returns. As always, we appreciate your
comments and suggestions and look forward to serving you in 1997.
Richard S. Wood
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish Global Fixed Income Fund
and
the J.P. Morgan Global Hedged Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Global Fixed
Income Fund compared with the J.P. Morgan Global Hedged Index for the period
January 3, 1994 to December 31, 1996, based upon a $100,000 investment. Also
included are the average annual total returns for one year and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statement of Assets and Liabilities
December 31, 1996
Assets
Investment in Standish Global Fixed Income Portfolio,
<S> <C> <C>
(Portfolio) at value (Note 1A) $ 159,814,385
Receivable for Fund shares sold 43,750
Deferred organization expenses (Note 1D) 4,515
Other assets 3,784
----------------
Total assets 159,866,434
Liabilities
Distribution payable $ 4,046,538
Payable for Fund shares redeemed 60,000
Accrued trustee fees 714
Accrued expenses and other liabilities 28,619
--------------
Total liabilities 4,135,871
----------------
Net Assets $ 155,730,563
================
Net Assets consist of
Paid-in capital $ 149,753,799
Undistributed net investment income (loss) 364,160
Accumulated net realized gain (loss) (493,895)
Net unrealized appreciation (depreciation) 6,106,499
================
Total $ 155,730,563
================
Shares of beneficial interest outstanding 7,752,638
================
Net asset value, offering price and redemption price per share $ 20.09
================
(Net Assets/Shares Outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statement of Operations
For the Year Ended December 31, 1996
Investment Income (Note 1B)
Interest income $ 3,750,059
Dividend income (net of withholding tax of $3,425) 12,258
Interest income allocated from Portfolio 7,969,911
Dividend income allocated from Portfolio (net of withholding tax of $3,845) 59,537
Expenses allocated from Portfolio (639,252)
--------------
Total income 11,152,513
Expenses
Investment Advisory Fee (Note 3) $ 198,747
Trustees fees 3,224
Accounting, custody and transfer agent fees 102,790
Legal and audit services 30,698
Registration fees 2,779
Insurance expense 1,672
Amortization of organization expenses (Note 1D) 2,274
Miscellaneous 6,373
--------------
Total expenses 348,557
--------------
Net investment income (loss) 10,803,956
Realized and Unrealized Gain (Loss)
Net realized gain (loss) from:
Investment security transactions 271,414
Financial futures (79,108)
Written option transactions 421,947
Foreign currency and forward foreign currency contracts 1,847,799
Net realized gain (loss) from Portfolio on:
Investment security transactions 4,568,887
Financial futures 58,443
Written option transactions 1,036,044
Foreign currency and forward foreign currency contracts (791,430)
--------------
Net realized gain (loss) 7,333,996
Change in unrealized appreciation (depreciation) from:
Investment securities (6,161,680)
Financial futures 2,296
Written option transactions 189,117
Foreign currency and forward foreign currency contracts 423,157
From Portfolio 6,373,075
--------------
Change in net unrealized appreciation (depreciation) 825,965
--------------
--------------
Net realized and unrealized gain (loss) 8,159,961
--------------
Net increase (decrease) in net assets resulting from operations $ 18,963,917
==============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, 1996 December 31, 1995
---------------------- -----------------------
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 10,803,956 $ 10,692,949
Net realized gain (loss) 7,333,996 1,595,141
Change in net unrealized appreciation (depreciation) 825,965 10,169,602
----------------------
-----------------------
Net increase (decrease) in net assets from operations 18,963,917 22,457,692
---------------------- -----------------------
Distributions to shareholders
From net investment income (14,538,791) (10,692,948)
In excess of net investment income ----- (736,162)
---------------------- -----------------------
Total distributions to shareholders (14,538,791) (11,429,110)
---------------------- -----------------------
Fund share (principal) transactions (Note 6)
Net proceeds from sale of shares 20,121,710 10,989,037
Net asset value of shares issued to shareholders
in payment of distributions declared 7,659,510 6,104,310
Cost of shares redeemed (14,374,805) (25,454,420)
----------------------
-----------------------
Increase (decrease) in net assets from Fund share transactions 13,406,415 (8,361,073)
----------------------
-----------------------
Net increase (decrease) in net assets 17,831,541 2,667,509
Net Assets:
At beginning of period 137,899,022 135,231,513
----------------------
-----------------------
At end of period (including undistributed net investment income
of $364,160 and $424,310 at December 31, 1996 and December 31,
1995, respectively) $ 155,730,563 $ 137,899,022
====================== =======================
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Global Fixed Income Fund Series
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------
1996 (3) 1995 1994 +
--------------- -------------- --------------
<S> <C> <C> <C>
Net asset value - Beginning of period $ 19.53 $ 17.99 $ 20.00
--------------- -------------- --------------
Income from investment operations:
Net investment income $1.42 $1.59 $1.29
Net realized and unrealized gain
(loss) on investments 1.05 1.60 (2.70)
--------------- -------------- --------------
Total from investment operations $2.47 $3.19 ($1.41)
--------------- -------------- --------------
Less distributions to shareholders:
Tax return of capital - - ($0.60)
From net investment income ($1.91) ($1.65) -
--------------- -------------- --------------
Total distributions declared to shareholders ($1.91) ($1.65) ($0.60)
-------------- --------------
---------------
Net asset value - end of period $ 20.09 $ 19.53 $ 17.99
=============== ============== ==============
Total Return 13.03% 18.13% (7.06%)
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) 0.65% 0.62% 0.65%t,*
Net investment income 7.11% 7.69% 7.73%t,*
Portfolio Turnover (2) 73% 163% 140%
Net assets, end of year (000 omitted) $ 155,731 $ 137,889 $ 135,232
* The investment adviser voluntarily waived a portion of its investment advisory fee for
the year ended December 31, 1994. Had these actions not been taken, the net
investment income per share and the ratios would have been:
Net investment income per share $1.27
Ratios (to average daily net assets):
Expenses 0.73% t
Net Investment Income 7.65% t
+ For the period from January 3, 1994 (start of business) to December 31, 1994.
t Annualized
(1) Includes the Fund's share of Standish Global Fixed Income Portfolio's allocated expenses for the
period from May 3, 1996 to December 31, 1996.
(2) Portfolio turnover represents the rate of portfolio activity for the period while the Fund was making
investments directly in securities. The portfolio turnover rate 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.
(3) Calculated based on average shares outstanding.
</TABLE>
<PAGE>
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 Global Fixed Income Fund (the "Fund") is a separate
non-diversified investment series of the Trust. On May 3, 1996, the
Fund contributed substantially all of its investable assets to the
Standish Global Fixed Income Portfolio (the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), which
is organized as a New York trust, in exchange for an interest in the
Portfolio. The Fund invests all of its investable assets in the
interests in the Portfolio, which has the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects
the Fund's proportionate interest in the net assets of the Portfolio
(approximately 100% at December 31, 1996). 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 Portfolio at value. Valuation of
securities held by the Portfolio 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. Prior to the Fund's investment in the
Portfolio, the Fund held its investments directly. For investments held
directly, interest income was determined on the basis of interest
accrued, dividend income was recorded on the ex-dividend date and
realized gains and losses from securities sold were recorded on the
identified cost basis. The Fund does not isolate that portion of the
results of operations resulting from changes in foreign exchange rates
on investments from the fluctuations arising from changes in market
prices of securities held. Such fluctuations are included with the net
realized and unrealized gain or loss from investments.
C. Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year. At December 31, 1996, the Fund, for federal income tax purposes,
had a capital loss carryover which will reduce the Fund's taxable
income arising from future net realized gain on investments, if any, to
the extent permitted by the Internal Revenue Code and thus will reduce
the amount of distributions to shareholders which would otherwise be
necessary to relieve the Fund of any liability for federal income tax.
Such capital loss carryover is $402,973, which expires on December 31,
2002.
D. Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight-line basis
through December, 1998.
E...Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among all of the respective
investors in the Portfolio.
<PAGE>
(2) Distribution 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 of 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 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 foreign
currency and option and futures transactions. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
income and accumulated net realized gain (loss).
(3) Investment Advisory Fee:
Prior to May 3, 1996 (when the Fund transferred substantially all of
its assets to the Portfolio in exchange for an interest in the
Portfolio), the Fund retained Standish International Management
Company, L.P. (SIMCO) as its investment adviser. The investment
advisory fee paid to SIMCO for overall investment advisory and
administrative services, and general office facilities, was paid
quarterly at the annual rate of 0.40% of the Fund's average daily net
assets. Standish, Ayer & Wood, Inc. has voluntarily agreed to limit
total annual operating expenses of the Fund and Portfolio (excluding
brokerage commissions, taxes and extraordinary expenses) to 0.66% of
the Fund's average daily net assets for the year ended December 31,
1996. Currently, the Fund pays no compensation directly to SIMCO for
such services now performed for the Portfolio, but indirectly bears its
pro rata share of the compensation paid by the Portfolio to SIMCO for
such services. See Note 2 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report. The Fund pays
no compensation directly to its trustees who are affiliated with SIMCO
or to its officers, all of whom receive remuneration for their services
to the Fund from the SIMCO. Certain of the trustees and officers of the
Trust are limited partners or officers of SIMCO.
(4) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments from January 1, 1996
through May 3, 1996, other than short-term obligations, were as
follows:
Purchases Sales
U.S. Government Securities $19,228,296 $13,447,972
================== ==================
Non-U.S. government securities $99,130,363 $87,126,072
================== ==================
(5) Investment Transactions:
Increases and decreases in the Fund's investment in the Portfolio for
the period from May 3, 1996 to December 31, 1996 aggregated
$152,810,268 and $11,630,993, respectively.
(6) 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, December 31,
1996 1995
------------------- -------------------
<S> <C> <C>
Shares sold 1,015,265 558,609
Shares issued to shareholders in payment of distributions declared 384,287 317,125
Shares redeemed (706,939) (1,332,915)
=================== ===================
Net increase (decrease) 692,613 (457,181)
=================== ===================
</TABLE>
<PAGE>
(7).....Financial Instruments:
Prior to the Fund's contribution of investable assets to the Portfolio
on May 3, 1996, the following instruments were used for hedging
purposes and were used to enhance potential gain in circumstances where
hedging was not involved. The nature, risks and objectives of these
investments are set forth more fully in the Fund's Prospectus and
Statement of Additional Information. The Fund traded 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 Fund used 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. 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
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as a writer of an option, has no
control over whether the underlying securities may be sold (call) or
purchased (put) and as a result bears the market risk of an unfavorable
change in the price of the security underlying the written option. A
summary of such transactions for the period January 1, 1996 through May
3, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 4 $ 153,696
Options written 11 242,400
Options exercised (2) (34,728)
Options expired (5) (162,292)
Options closed (1) (29,088)
------------------- ------------------
Outstanding, prior to conversion 7 169,988
Options contributed to Portfolio (7) (169,988)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
Written Call Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 2 $ 70,915
Options written 13 377,197
Options exercised 0 0
Options expired (4) (125,990)
Options closed (2) (43,878)
------------------- ------------------
Outstanding, prior to conversion 9 278,244
Options contributed to Portfolio (9) (278,244)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
Written Cross Currency Option Transactions
- -----------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------- ------------------
Outstanding, beginning of period 3 $ 119,867
Options written 4 160,728
Options exercised 0 0
Options expired 0 0
Options closed (2) (66,180)
------------------- ------------------
Outstanding, prior to conversion 5 214,415
Options contributed to Portfolio (5) (214,415)
------------------- ------------------
Outstanding, end of period 0 $ 0
=================== ==================
</TABLE>
<PAGE>
.........Forward currency exchange contracts--
Prior to May 3, 1996, the Fund could 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. Forward currency
exchange contracts were used by the fund primarily to protect the value
of the Fund's foreign securities from adverse currency movements.
.........Futures contracts--
Prior to May 3, 1996, the Fund could enter into financial futures
contracts for the delayed sale or delivery of securities or contracts
based on financial indices at a fixed price on a future date. The Fund
was required to deposit either in cash or securities an amount equal to
a certain percentage of the contract amount. Subsequent payments were
made or received by the Fund each day, dependent on the daily
fluctuations in the value of the underlying security, and were recorded
for financial statement purposes as unrealized gains or losses by the
Fund. 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. The Fund entered into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
security prices and foreign currencies.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Global Fixed Income Fund: We have audited the accompanying statement
of assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Global Fixed Income Fund (the "Fund"), as of December 31, 1996, the related
statement of operations for the year then ended, the statement of changes in net
assets for the two years then ended and financial highlights for the two years
ended December 31, 1996 and the period January 3, 1994 (start of business) to
December 31, 1994. These financial statements and financial highlights are the
responsibility of the Fund's management. Our responsibility is to express an
opinion on these financial statements and financial highlights based on our
audits. We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion. In our opinion, the financial statements and
financial highlights referred to above present fairly, in all material respects,
the financial position of Standish, Ayer & Wood Investment Trust: Standish
Global Fixed Income Fund as of December 31, 1996, the results of its operations
for the year then ended, the changes in its net assets for the two years then
ended, and the financial highlights for the two years then ended and the period
January 3, 1994 (start of business) to December 31, 1994, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Portfolio of Investments
December 31, 1996
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
BONDS and NOTES - 91.0%
Asset Backed - 1.0%
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank Credit Card Master Trust 0.00% 2/07/2003 150,000 $ 115,688
GMAC Mortgage Corp. 96-C1 7.86 11/15/2006 500,000 432,891
The Money Store Home Equity 1995-C A3 6.55 9/15/2021 500,000 491,563
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 525,000 531,234
--
----------------
1,571,376
------------------
Collateralized Mortgage Obligations - 0.3%
- --------------------------------------------------------
UCFC Home Equity Loan Trust 1996 BA-1 6.50 4/15/2016 500,000 495,938
------------------
Corporate - 17.0%
- --------------------------------------------------------
Basic Industry - 1.0%
- --------------------------------------------------------
AK Steel Holding Corp. 10.75 4/01/2004 500,000 543,750
Brascan Ltd. 7.38 10/01/2002 500,000 500,965
Time Warner Entertainment 7.25 9/01/2008 500,000 484,680
--
----------------
1,529,395
------------------
Capital Goods - 0.8%
- --------------------------------------------------------
American Standard Sr Notes 10.88 5/15/1999 500,000 529,375
Conseco Finance Trust 8.70 11/15/2026 250,000 252,918
Trizec Finance 10.88 10/15/2005 500,000 551,250
--
----------------
1,333,543
------------------
Consumer Cyclical - 1.1%
- --------------------------------------------------------
Building Materials 144A 8.63 12/15/2006 250,000 247,813
Exide Corp. 10.00 4/15/2005 500,000 516,250
General Motors Acceptance Corp. 6.70 4/30/2001 1,000,000 1,002,790
--
----------------
1,766,853
------------------
Consumer Stable - 0.6%
- --------------------------------------------------------
Southland Corp. 5.00 12/15/2003 500,000 408,125
Stop & Shop Companies 9.75 2/01/2002 500,000 560,000
--
----------------
968,125
------------------
Energy - 1.0%
- --------------------------------------------------------
Clark Oil 10.50 12/01/2001 1,000,000 1,040,000
Safeway Inc 9.65 1/15/2004 500,000 562,790
--
----------------
1,602,790
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Financial - 8.5%
- --------------------------------------------------------
Aames Financial Corp. 9.13% 11/01/2003 250,000 $ 253,750
Advanta Corp. 7.00 5/01/2001 450,000 450,954
Anchor Bancorp 8.94 7/09/2003 1,000,000 1,025,000
Bank America Corp. Capital Securities 144A 7.70 12/31/2026 300,000 291,801
Barnett Banks Capital Securities 144A 8.06 12/01/2026 250,000 252,513
Capital One Bank Co. 5.95 2/15/2001 500,000 482,917
Corestates Capital CFL 144A 8.00 12/15/2026 600,000 598,614
Enterprise Corp. 7.00 6/15/2000 500,000 506,050
First Chicago Corp Notes 144A 7.75 12/01/2026 300,000 296,922
First Nationwide 9.13 1/15/2003 500,000 508,125
First Nationwide Escrow 144A 10.63 10/01/2003 500,000 537,500
Goldman Sachs Inc. Group L P 144A 6.20 2/15/2001 1,000,000 983,966
Homeside Inc 144A 11.25 5/15/2003 500,000 550,625
Irsa Parcks Cvt 144A 4.50 8/02/2003 840,000 831,600
ISP Holdings Inc. 144A 9.00 10/15/2003 500,000 505,000
Liberty Mutual Insurance Co. Inc. 144A 8.50 5/15/2025 1,000,000 1,069,720
Morgan Stanley Group Inc. 6.70 5/01/2001 900,000 901,215
Reliance Group Holdings Corp. 9.00 11/15/2000 1,500,000 1,537,500
Riggs Capital Trust 144A 8.63 12/31/2026 125,000 123,714
Salomon Brothers Inc. 7.25 5/01/2001 500,000 504,730
Transamerica Capital 144A 7.80 12/01/2026 250,000 242,500
United Companies Financial 9.35 11/01/1999 1,000,000 1,063,570
--
----------------
13,518,286
------------------
Health Care - 0.3%
- --------------------------------------------------------
Healthsouth Rehabilitation 9.50 4/01/2001 500,000 528,750
------------------
Real Estate - 2.0%
- --------------------------------------------------------
Corporate Property 144A 7.88 3/15/2016 500,000 509,110
Equity Residential Property Operating LP 144A 8.50 5/15/1999 500,000 517,795
Taubman Realty Group 8.00 6/15/1999 1,000,000 1,021,560
Wellsford REIT 9.38 2/01/2002 1,000,000 1,090,000
--
----------------
3,138,465
------------------
Services - 1.4%
- --------------------------------------------------------
Century Communications 9.50 8/15/2000 500,000 513,750
Comcast Corp. 10.63 7/15/2012 500,000 544,375
Time Warner Inc. 9.13 1/15/2013 250,000 272,288
Time Warner Inc. 9.15 2/01/2023 150,000 163,160
Viacom Inc. 7.63 1/15/2016 225,000 203,265
Viacom Inc. 7.75 6/01/2005 575,000 566,185
--
----------------
2,263,023
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Technology - 0.3%
- --------------------------------------------------------
Jones Intercable 9.63% 3/15/2002 500,000 $ 525,000
------------------
TOTAL Corporate 27,174,230
------------------
Australia - 2.1%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Australia 10.00 10/15/2007 800,000 751,757
New South Wales Treasury 0.00 9/03/2010 1,300,000 366,616
South Australia Government Finance 0.00 12/21/2015 1,400,000 261,358
Treasury Corp. of Victoria 0.00 8/31/2011 2,000,000 516,360
------------------
1,896,091
------------------
Other
- --------------------------------------------------------
News America Holdings 8.63 2/07/2014 2,000,000 1,482,303
------------------
TOTAL Australia 3,378,394
------------------
Canada - 0.4%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Canada 7.75 9/01/1999 800,000 627,460
------------------
Denmark - 5.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Denmark 8.00 11/15/2001 5,400,000 1,017,066
Kingdom of Denmark 8.00 3/15/2006 8,000,000 1,491,284
Kingdom of Denmark 9.00 11/15/1998 8,000,000 1,476,618
------------------
3,984,968
------------------
Other
- --------------------------------------------------------
Denmark Nykredit 7.00 10/01/2026 19,284,000 3,068,720
Denmark Nykredit 8.00 10/01/2026 9,323,000 1,592,789
Denmark Nykredit 11.00 10/01/2017 12,000 2,281
Denmark Realkredit 7.00 10/01/2026 2,492,000 396,559
------------------
5,060,349
------------------
TOTAL Denmark 9,045,317
------------------
European Currency Unit - 1.0%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Italy (Strip) 0.00 3/07/2005 351,500 263,033
Govt. of Italy (Strip) 0.00 3/07/2010 222,000 111,911
------------------
374,944
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Other
- --------------------------------------------------------
Govt. of Italy (Strip) 0.00% 3/07/1999 1,017,500 $ 1,162,153
------------------
TOTAL European Currency Unit 1,537,097
------------------
Finland - 2.9%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Finland 7.25 4/18/2006 20,000,000 4,656,929
------------------
Germany - 6.3%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Baden Nurttemberg 6.20 11/22/2013 2,000,000 1,345,096
Bundesobligation 5.13 11/21/2000 2,250,000 1,500,000
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 3,900,000 2,895,443
Federal Republic of Germany 8.38 5/21/2001 2,000,000 1,485,622
Federal Republic of Germany 9.00 10/20/2000 1,630,000 1,224,537
Province of Buenos Aires 10.00 3/05/2001 2,000,000 1,389,159
------------------
9,839,857
------------------
Other
- --------------------------------------------------------
LKB Global 6.00 1/25/2006 400,000 260,201
------------------
TOTAL Germany 10,100,058
------------------
Ireland - 4.5%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Irish Gilts 6.25 4/01/1999 640,000 1,089,801
Irish Gilts 6.50 10/18/2001 1,270,000 2,186,232
Irish Gilts 8.00 10/18/2000 1,550,000 2,799,483
Irish Gilts 9.25 7/11/2003 608,000 1,193,877
------------------
7,269,393
------------------
Italy - 6.2%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Italy 9.50 5/01/2001 3,300,000,000 2,401,896
Govt. of Italy 10.50 11/01/2000 2,860,000,000 2,123,253
------------------
4,525,149
------------------
Other
- --------------------------------------------------------
Bank Nederlandse 10.50 6/18/2003 800,000,000 613,825
Govt. of Italy 12.00 9/01/2001 6,200,000,000 4,900,816
------------------
5,514,641
------------------
TOTAL Italy 10,039,790
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Japan - 3.1%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Spain 5.75% 3/23/2002 155,000,000 $ 1,582,020
------------------
Other
- --------------------------------------------------------
Glaxo Holdings 4.30 9/28/1998 50,000,000 473,607
Interamer Development Bank 6.00 10/30/2001 80,000,000 820,970
KFW International Finance 6.00 11/29/1999 133,000,000 1,303,258
Kingdom of Belgium 5.00 12/17/1999 80,000,000 764,626
------------------
3,362,461
------------------
TOTAL Japan 4,944,481
------------------
New Zealand - 5.3%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Government Property Services 7.25 3/15/1999 2,000,000 1,395,221
Housing New Zealand 8.00 11/15/2006 2,000,000 1,417,091
------------------
2,812,312
------------------
Other
- --------------------------------------------------------
Fernz Capital 9.80 4/15/2002 4,100,000 2,932,441
Fletcher Challenge 10.00 4/30/2005 1,000,000 753,282
Fletcher Challenge 14.50 9/30/2000 500,000 420,187
Fletcher Challenge Cvt 11.25 12/15/2002 1,900,000 1,499,684
------------------
5,605,594
------------------
TOTAL New Zealand 8,417,906
------------------
Norway - 2.9%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Govt. of Norway 7.00 5/31/2001 5,500,000 922,249
Govt. of Norway 9.00 1/31/1999 8,000,000 1,363,805
Govt. of Norway 9.50 10/31/2002 7,400,000 1,386,614
------------------
3,672,668
------------------
Other
- --------------------------------------------------------
Vital Forsikring 7.85 9/22/2003 6,000,000 991,210
------------------
TOTAL Norway 4,663,878
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Spain - 5.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Castilla Junta 8.30% 11/29/2001 28,000,000 $ 232,597
Junta de Andalucia 11.10 12/02/2005 248,000,000 2,407,098
Kingdom of Spain 10.10 2/28/2001 330,000,000 2,921,370
Kingdom of Spain 10.30 6/15/2002 270,000,000 2,465,633
Kingdom of Spain 12.25 3/25/2000 111,000,000 1,012,709
------------------
9,039,407
------------------
Sweden - 3.8%
- --------------------------------------------------------
Government
- --------------------------------------------------------
Kingdom of Sweden 13.00 6/15/2001 22,400,000 4,217,569
Kingdom of Sweden #1036 10.25 5/05/2000 9,700,000 1,636,752
------------------
5,854,321
------------------
Other
- --------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 1,473,300 215,543
------------------
TOTAL Sweden 6,069,864
------------------
United Kingdom - 9.7%
- --------------------------------------------------------
Government
- --------------------------------------------------------
UK Gilt Treasury 9.00 3/03/2000 296,000 533,040
UK Treasury 7.50 12/07/2006 660,000 1,128,861
UK Treasury 8.00 12/07/2000 2,100,000 3,695,192
UK Treasury 8.50 12/07/2005 800,000 1,458,624
------------------
6,815,717
------------------
Other
- --------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75 12/07/2006 1,200,000 2,095,488
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 750,000 1,323,724
Inco Ltd. 15.75 7/15/2006 200,000 496,302
Mepc Plc 12.00 6/30/2006 750,000 1,595,370
Northern Rock Building Soc. 9.38 10/17/2021 950,000 1,694,709
Royal Bank of Scotland 9.63 6/22/2015 350,000 644,140
Woolwich Building Society 11.63 12/18/2001 400,000 781,314
------------------
8,631,047
------------------
TOTAL United Kingdom 15,446,764
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Yankee Bonds - 3.6%
- --------------------------------------------------------
Cominco Ltd. 6.88% 2/15/2006 525,000 $ 501,170
Falconbridge Case Limited 7.35 11/01/2006 550,000 555,649
Govt. of Argentina 6.63 3/31/2005 2,891,000 2,515,170
Methanex Corp. 7.40 8/15/2002 250,000 255,008
Methanex Corp. 7.75 8/15/2005 450,000 462,375
Se Banken Perp 10Yr Step Up 8.13 9/06/2049 500,000 515,240
Tembec Finance Corp. 9.88 9/30/2005 1,000,000 945,000
--
----------------
TOTAL Yankee Bonds 5,749,612
------------------
U.S. Government Agency - 3.6%
- --------------------------------------------------------
Pass Thru Securities - 3.6%
- --------------------------------------------------------
FHLMC 6.50 3/01/2026 - 3/01/2026 420,350 402,355
FHLMC 7.00 3/01/2026 - 6/01/2026 3,083,048 3,023,917
FNMA 7.00 5/01/2024 - 9/01/2025 1,224,900 1,200,251
GNMA 9.00 6/15/2016 - 2/25/2027 195,263 209,279
Resolution Trust Corp. 1995 C1 Cl C 6.90 2/25/2027 500,000 488,594
RFC Ser 96 Hs2 Al 7.60 9/15/2012 350,000 355,797
--
----------------
TOTAL U.S. Government Agency 5,680,193
------------------
U.S. Treasury Obligations - 6.0%
- --------------------------------------------------------
Treasury Bonds - 1.4%
- --------------------------------------------------------
U.S. Treasury Bond 6.50 8/15/2005 1,500,000 1,509,615
U.S. Treasury Bond 8.13 8/15/2019 605,000 699,816
--
----------------
2,209,431
------------------
Treasury Notes - 4.6%
- --------------------------------------------------------
U.S. Treasury Note 5.63 1/31/1998 1,000,000 999,530
U.S. Treasury Note 5.63 11/30/2000 2,150,000 2,111,021
U.S. Treasury Note 5.75 8/15/2003 700,000 679,000
U.S. Treasury Note 6.25 2/15/2003 250,000 249,688
U.S. Treasury Note 6.38 3/31/2001 1,075,000 1,082,224
U.S. Treasury Note 6.63 6/30/2001 250,000 254,023
U.S. Treasury Note 6.88 5/15/2006 1,350,000 1,391,135
U.S. Treasury Note 7.13 50,000 51,477
U.S. Treasury Note 6.13 7/31/2000 500,000 500,000
--
----------------
7,318,098
------------------
TOTAL U.S. Treasury Obligations 9,527,529
------------------
TOTAL BONDS and NOTES (Cost $139,643,662) 145,435,616
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Preferred Stock - 0.8%
- --------------------------------------------------------
Fresenius Medical Care 250 $ 254,375
Newscorp Overseas Ltd. Ser B 20,000 457,500
Texaco Capital Llc 14,000 302,750
Time Warner 210 224,253
Wellsford Residential Property 3,000 76,500
--
----------------
TOTAL Preferred Stock (Cost $1,370,251) 1,315,378
------------------
Principal
Purchased Options - 0.8% Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -----------------
BGB 7% Put/ Str 106.29, 4/24/97 90,000,000 29,520
BTPS 9.50% Put/ Str 108.47, 4/30/97 4,500,000,000 13,500
BTPS 9.5% Put/ Str 107.44, 10/08/97 4,600,000,000 0
CAN 7% Call, Str 105.71, 1/16/97 1,000,000 6,273
CHF Put/AUD Call, Str .9725, 9/10/97 1,900,000 112,015
CHF Put/GBP Call, Str 2.26, 9/25/97 4,400,000 88,986
CHF Put/USD Call, Str 1.30, 1/31/97 2,200,000 65,340
DBR 6.25% Call, Str 101.92, 10/20/97 4,800,000 54,014
DBR 6.25% Call, Str 102.33, 5/9/97 4,700,000 37,525
DBR 6.25% Call, Str 94.13, 2/6/97 3,700,000 29,064
DBR 6.25% Call, Str 96.00, 2/28/97 5,100,000 21,185
DEM 8.375% Call, Str 114.62, 1/09/97 6,600,000 4,283
DEM Put/ITL Call, Str 40.0000, 09/08/97 4,500,000 98,735
DEM Put/USD Call, Str 1.5020, 09/05/97 3,800,000 114,000
DEM Put/USD Call, Str 1.550, 4/22/97 3,000,000 38,100
DGB 8% Call, Str 108.84, 3/17/97 13,700,000 30,935
FRF 6.5% Put/ Str 103.65, 4/16/97 16,200,000 31,833
FRF Put/USD Call, Str 5.265, 3/20/97 3,000,000 22,500
FRF Put/USD Call, Str 5.3000, 12/01/97 3,000,000 40,800
ITL 9.5% Call, Str 109.68, 3/6/97 3,700,000,000 29,600
ITL 9.5% Put/ Str 102.07, 1/10/97 4,454,000,000 0
JGB 6.4% Call, Str 120.603, 2/5/97 800,000,000 2,400
JPY 4.8% Call, Str 115.912, 2/03/97 860,000,000 8,600
JPY Put/AUD Call, Str 86.0000, 9/10/97 200,000,000 94,800
JPY Put/ITL Call, Str 14.5000, 09/08/97 300,000,000 176,400
JPY Put/USD Call, Str 120.00, 1/05/98 3,000,000 38,700
SPGB 8.40% Call, Str 107.910, 2/19/97 280,000,000 32,200
SPGB 8.40% Put/ Str 105.65, 4/30/97 370,000,000 5,550
UKT 7.5% Call, Str 99.0625, 2/14/97 1,500,000 35,310
USD Put/MXP Call, Str 9.12, 9/30/97 1,300,000 54,860
--
----------------
Total Purchased Options (Premium Paid $1,249,755) 1,317,028
------------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Short-Term Investments - 5.4%
- --------------------------------------------------------
U.S. Government Agency - 1.9%
- --------------------------------------------------------
FNMA 5.50% 1/15/1997 3,000,000 $ 2,989,917
------------------
Repurchase Agreements - 3.6%
- --------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $5,675,519 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $5,787,191. 5,673,716 5,673,716
------------------
TOTAL Short-Term Investments (Cost $8,663,633) 8,663,633
------------------
TOTAL INVESTMENTS (Cost $150,927,301) - 98.1% 156,731,655
Principal
Written Options - (0.2%) Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -----------------
AUD Put/CHF Call, Str .9060, 9/10/97 1,900,000 (7,940)
AUD Put/JPY Call, Str 79.0000, 9/10/97 200,000,000 (12,200)
DBR 6.25% Call, Str 101.92, 4/18/97 4,800,000 (49,546)
DBR 6.25% Put/ Str 101.60, 4/16/97 4,800,000 (30,538)
DBR 6.25% Put/ Str 101.650, 4/24/97 4,400,000 (29,704)
DBR 8.25% Put/ Str 112.420, 2/19/97 3,400,000 (3,754)
DBR 8.25% Put/ Str 113.57, 4/30/97 4,400,000 (37,418)
DBR 8.25% Put/ Str 113.58, 4/30/97 4,500,000 (45,572)
DEM 6.25% Put/ Str 101.95, 1/08/97 4,700,000 (611)
DGB 8% Call, Str 111.84, 3/17/97 13,700,000 (8,138)
DGB 8% Put/ Str 105.84, 3/17/97 13,700,000 (6,275)
GBP Put/CHF Call, Str 1.835, 9/25/97 3,700,000 (3,315)
ITL 9.5% Call, Str 111.68, 3/6/97 3,700,000,000 (7,400)
ITL 9.5% Put/ Str 107.68, 3/6/97 3,700,000,000 (3,700)
ITL Put/DEM Call, Str 1080.00, 09/08/97 4,500,000 (8,762)
ITL Put/JPY Call, Str 15.1000, 09/08/97 300,000,000 (19,500)
JPY Put/USD Call, Str 105.00, 1/05/98 3,000,000 (38,700)
Principal
Amount of Value
Security Rate Maturity Contracts (Note 1A)
- -------------------------------------------------------- --------- ---------------------- -------------------- ------------------
Written Options - (0.2%)
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- -------------------------------------------------------- -----------------
UKT 7.5% Call, Str 102.0625, 2/14/97 1,500,000 (7,224)
USD Put/CHF Call, Str 1.22, 1/31/97 2,200,000 (1,100)
USD Put/CHF Call, Str 1.42, 3/20/97 3,000,000 (9,000)
USD Put/DEM Call, Str 1.3800, 09/05/97 3,800,000 (15,960)
USD Put/DEM Call, Str 1.425, 4/22/97 3,000,000 (7,200)
--
----------------
Total Written Options (Premium Received $846,428) (353,557)
------------------
Other Assets less Liabilities - 2.2% 3,436,400
------------------
NET ASSETS - 100.0% $ 159,814,498
==================
Notes to the Schedule of Investments:
* Non-income producing security.
144A - Securities exempt from registration under Rule 144A of the AUD Australian Dollar
Securities Act of 1933. These securities may be resold in DEM German Mark
transactions exempt from registration. GBP British Pound Sterling
ITL Italian Lira
FNMA Federal National Mortgage Association JPY Japanese Yen
GNMA Government National Mortgage Association USD United States Dollar
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $150,927,301) $ 156,731,655
Foreign currency, at value (cost, $110,460) 123,265
Unrealized appreciation on interest rate swap contracts (Note 5) 4,236
Unrealized appreciation on forward foreign currency exchange contracts (Note 5) 1,949,833
Receivable for investments sold 1,556,512
Interest and dividends receivable 3,649,745
Deferred organization expenses (Note 1F) 85,593
---------------
Total assets 164,100,839
Liabilities
Payable for investments purchased $ 1,729,890
Unrealized depreciation on forward foreign currency
exchange contracts (Note 5) 2,056,631
Options written, at value (premiums received $848,428) (Note 5) 353,554
Accrued trustee fees 460
Payable to Investment Adviser (Note 1F) 98,922
Accrued expenses and other liabilities 46,884
--------------
Total liabilities 4,286,341
---------------
Net Assets (applicable to investors' beneficial interests) $ 159,814,498
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Operations
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Investment Income (Note 1C)
Interest Income $ 7,969,915
Dividend income (net of withholding tax of $1,890) 59,537
--------------
Total income 8,029,452
Expenses
Investment advisory fee (Note 2) $ 412,216
Custodian and accounting fees 188,499
Legal and audit services 21,197
Amortization of organization expenses (Note 1F) 10,067
Insurance expense 3,957
Trustee fees 3,288
Miscellaneous 28
--------------
Total expenses 639,252
--------------
Net investment income (loss) 7,390,200
--------------
Realized and Unrealized Gain (Loss)
Net realized gain (loss)
Investment securities 4,568,890
Financial futures 58,443
Written options 1,036,045
Foreign currency and forward foreign
currency exchange contracts (791,430)
--------------
Net realized gain (loss) 4,871,948
Change in unrealized appreciation (depreciation)
Investment securities 7,230,451
Financial futures (2,911)
Written options 218,147
Foreign currency transactions and forward foreign
currency contracts (1,072,612)
--------------
Change in net unrealized appreciation (depreciation) 6,373,075
--------------
Net realized and unrealized gain (loss) 11,245,023
--------------
Net increase (decrease) in net assets from operations $ 18,635,223
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Statement of Changes in Net Assets
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Increase (Decrease) in Net Assets:
From operations
Net investment income (loss) $ 7,390,200
Net realized gain (loss) 4,871,948
Change in net unrealized appreciation (depreciation) 6,373,075
----------------
Net increase (decrease) in net assets from operations 18,635,223
----------------
Capital transactions -
Assets contributed by Standish Global Fixed Income Fund at
commencement (including unrealized depreciation of $266,576) 149,438,650
Contributions 3,371,618
Withdrawals (11,630,993)
----------------
Increase in net assets resulting from capital transactions 141,179,275
----------------
Total increase (decrease) in net assets 159,814,498
Net Assets:
At beginning of period -
----------------
At end of period $ 159,814,498
================
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Global Fixed Income Portfolio
Supplementary Data
For the period May 3, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses 0.62% *
Net investment income 7.17% *
Portfolio Turnover 111 %
* Annualized
<PAGE>
Notes to Financial Statements
(1) Significant Accounting Policies:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as 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 Global Fixed Income Portfolio (the "Portfolio") is a separate
non-diversified investment series of the Portfolio Trust. The following
is a summary of significant accounting policies consistently followed
by the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees. Short term instruments with less
than sixty-one days remaining to maturity when acquired by the
Portfolio are valued at amortized cost. If the Portfolio acquires a
short term instrument with more than sixty days remaining to its
maturity, it is valued at current market value until the sixtieth day
prior to maturity and will then be valued at amortized cost based upon
the value on such date unless the trustees determine during such
sixty-day period that amortized cost does not represent fair value.
B. Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase 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. 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 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.
<PAGE>
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. These costs were paid for by the Investment
Adviser and will be reimbursed by the Portfolio.
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company, L.P. (SIMCO) for overall investment advisory and
administrative services is paid monthly at the annual rate of 0.40% of
the Portfolio's average daily net assets. The advisory agreement
provides that if the total annual operating expenses of the Portfolio
(excluding brokerage commissions, taxes and extraordinary expenses) in
any fiscal year exceed 0.65% of the Portfolio's average daily net
assets, the compensation due the adviser shall be reduced by the amount
of the excess. The Portfolio pays no compensation directly to its
trustees who are affiliated with SIMCO or to its officers, all of whom
receive remuneration for their services to the Portfolio from SIMCO.
Certain of the trustees and officers of the Portfolio Trust are limited
partners or officers of SIMCO.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, were as follows:
Purchases Sales
U.S. Government Securities $21,783,105 $18,434,880
================== ==================
Non-U.S. government securities $135,364,765 $142,691,893
================== ==================
(4) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $151,018,224
Gross unrealized appreciation $7,158,802
Gross unrealized depreciation (1,445,371)
===================
Net unrealized appreciation $5,713,431
===================
(5) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Portfolio trades the following financial instruments with
off-balance sheet risk:
<PAGE>
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. Options, both held
and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. 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. The Portfolio, as a
writer of an option, has no control over whether the underlying
securities may be sold (call) or purchased (put) and as a result bears
the market risk of an unfavorable change in the price of the security
underlying the written option. A summary of such transactions for the
period May 3, 1996 through December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Written Put Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
<S> <C> <C>
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 7 169,988
Options written 29 973,706
Options exercised 0 0
Options expired (11) (259,153)
Options closed (16) (465,951)
------------------ -------------------
Outstanding, end of period 9 $ 418,590
================== ===================
Written Call Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 9 278,244
Options written 13 230,699
Options exercised (4) (40,198)
Options expired (6) (215,150)
Options closed (4) (74,936)
------------------ -------------------
Outstanding, end of period 8 $ 178,659
================== ===================
Written Cross Currency Option Transactions
- ------------------------------------------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ -------------------
Outstanding, beginning of period 0 $ 0
Options contributed by Standish Global Fixed Income Fund 5 214,415
Options written 12 538,734
Options exercised 0 0
Options expired (2) (22,296)
Options closed (10) (479,674)
------------------ -------------------
Outstanding, end of period 5 $ 251,179
================== ===================
</TABLE>
<PAGE>
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. Forward currency
exchange contracts are used by the fund primarily to protect the value
of the Portfolio's foreign securities from adverse currency movements.
At December 31, 1996, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
<TABLE>
<CAPTION>
Forward Foreign Currency Contracts
U.S. $ U.S. $ U.S. $
Local Principal Contract Aggregate Market Unrealized
Contracts to Receive Amount Value Date Face Amount Value Gain/(Loss)
- ------------------------------------- -------------- --------------------------- ----------
<S> <C> <C> <C> <C> <C>
Australian Dollar 1,968,624 02/06/97 $1,606,397 $1,562,995 ($43,402)
Canadian Dollar 973,071 02/10/97 727,911 711,637 (16,274)
Deutsche Mark 76,106 08/01/97 51,869 50,123 (1,746)
Danish Krone 26,994,372 1/24-8/04/97 4,584,586 4,602,239 17,653
Finnish Markka 3,000,000 01/08/97 666,229 652,420 (13,809)
British Pound Sterling 170,640 01/21/97 272,301 292,004 19,703
Greek Drachma 330,000 08/01/97 1,289 1,294 5
Italian Lira 8,550,157,352 1/2-08/01/97 5,563,438 5,616,580 53,142
Japanese Yen 357,520,493 03/13/97 3,255,514 3,109,820 (145,694)
Norwegian Krone 4,198,318 01/13/97 647,889 659,381 11,492
Swedish Krona 9,773,094 01/08-5/19/97 1,440,248 1,438,487 (1,761)
============ ============ ==========
Total $18,817,671 $18,696,980 ($120,691)
============ ============ ==========
U.S. $ U.S. $
Local Principal Contract Aggregate Market Unrealized
Contracts to Deliver Amount Value Date Face Amount Value Gain/(Loss)
- ------------------------------------- -------------- --------------------------- ----------
Australian Dollar 5,564,895 2/6 -3/27/97 $4,387,888 $4,418,117 ($30,229)
Canadian Dollar 1,858,940 2/10-2/28/97 1,371,612 1,359,885 11,727
Deutsche Mark 19,221,344 1/9 -8/1/97 12,647,773 12,559,870 87,903
Danish Krone 79,261,348 1/10 -6/16/97 13,696,987 13,515,797 181,190
Spanish Peseta 1,116,304,341 1/29 -6/20/97 9,113,425 8,963,643 149,782
Finnish Markka 21,848,005 1/8 -5/27/97 4,867,736 4,793,148 74,588
British Pound Sterling 8,995,340 1/7 -3/27/97 14,521,450 15,384,265 (862,815)
Irish Punt 4,299,602 1/17 - 2/24/97 7,079,388 7,279,007 (199,619)
Italian Lira 22,211,312,715 1/2 -4/2/97 14,489,880 14,587,898 (98,018)
Japanese Yen 911,375,320 2/5 - 3/13/97 8,530,342 7,911,191 619,151
Norwegian Krone 37,922,644 1/13 - 7/21/97 5,966,992 6,012,291 (45,299)
New Zealand Dollar 11,420,989 1/13 -2/18/97 7,995,744 8,052,466 (56,722)
Swedish Krona 55,515,560 1/8- 6/5/97 8,318,178 8,150,674 167,504
European Currency Unit 1,040,508 1/7 -2/12/97 1,311,016 1,305,547 5,469
------------ ------------ ----------
Total $114,298,414 $114,293,800 $4,612
============ ============ ==========
Forward Foreign Cross Currency Contracts U.S. $ Contract U.S. $
U.S. $ In Exchange Market Value Unrealized
Contracts to Deliver Market Value For Value Date Gain/(Loss)
- ------------------------------------------------------ ------------ ------------ ----------
Swiss Franc $1,712,323 Norwegian Krone $1,923,399 07/21/97 $211,076
Swiss Franc 1,831,586 Danish Krone 1,987,701 08/04/97 156,116
Deutsche Mark 1,017,606 Italian Lira 1,061,541 08/01/97 43,935
Deutsche Mark 1,975,779 Greek Drachma 2,061,458 08/01/97 85,679
Danish Krone 2,007,313 Swiss Franc 1,831,586 08/04/97 (175,727)
French Franc 2,981,555 Czech Koruna 2,999,666 08/27/97 18,111
Greek Drachma 2,062,752 Deutsche Mark 1,975,779 08/01/97 (86,973)
Italian Lira 2,123,083 Deutsche Mark 1,975,779 08/01/97 (147,304)
Norgewian Krone 1,843,564 Swiss Franc 1,712,325 07/21/97 (131,239)
Finnish Markka 652,420 Swedish Krona 688,028 01/08/97 35,608
-------------- ------------ ----------
Total $18,207,981 $18,217,262 $9,282
============== ============ ==========
</TABLE>
<PAGE>
Futures contracts--
The Portfolio may enter into financial futures contracts for the
delayed sale or delivery of securities or contracts based on financial
indices at a fixed price on a future date. The Portfolio is required to
deposit either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations
in the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio.
There are several risks in connection with the use of futures contracts
as a hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. 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. The Portfolio enters into financial futures
transactions primarily to manage its exposure to certain markets and to
changes in security prices and foreign currencies. At December 31,
1996, the Portfolio held no following futures contracts.
Interest rate swap contracts--
Interest rate swaps involve the exchange by the Portfolio with another
party of their respective commitments to pay or receive interest, e.g.,
an exchange of floating rate payments for fixed rate payments with
respect to a notional amount of principal. Credit and market risk exist
with respect to these instruments. The Portfolio expects to enter into
these transactions primarily for hedging purposes including, but not
limited to, preserving a return or spread on a particular investment or
portion of its portfolio, protecting against currency fluctuations, as
a duration management technique or protecting against an increase in
the price of securities the Portfolio anticipates purchasing at a later
date. At December 31, 1996, the Portfolio held an interest rate swap
contract with a notional amount of 2,250,000 Deutsche Marks and an
expiration date of 12/16/2000, which had unrealized appreciation of
$4,236.
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Global Fixed Income Portfolio: We have audited the accompanying
statement of assets and liabilities of Standish Global Fixed Income Portfolio,
including the portfolio of investments, as of December 31, 1996, and the related
statement of operations, the statement of changes in net assets and the
supplementary data for the period from May 3, 1996 (commencement of operations)
to December 31, 1996. These financial statements and supplementary data are the
responsibility of the Portfolio's management. Our responsibility is to express
an opinion on these financial statements and supplementary data based on our
audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements and supplementary data are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. Our procedures included confirmation of
securities owned as of December 31, 1996 by correspondence with the custodian
and brokers; where replies were not received from brokers we performed other
auditing procedures. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the financial statements and
supplementary data present fairly, in all material respects, the financial
position of Standish Global Fixed Income Portfolio as of December 31, 1996, and
the results of its operations, changes in its net assets and supplementary data
for the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Financial Statements for the Period
from December 23, 1996 (Commencement of operations)
to December 31, 1996
<PAGE>
January 27, 1997
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of development at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust. The financial
markets in 1996 provided another very fine year for our clients. Investment
returns were quite favorable. U.S. stocks had another excellent year on top of a
sensational 1995, and U.S. bonds generally earned the coupon, a somewhat
surprising development given the very high bond returns of the previous year.
Selected international stocks and hedged international bonds also recorded very
high returns, the latter benefitting from protection against currency loss as
the dollar appreciated. In addition to the positive market returns, we are
delighted to report that in virtually all of the asset classes in which we
operate, the Standish management efforts added value compared to the relevant
benchmarks.
During this period in which our clients fared exceptionally well, Standish also
had a successful year. Our assets under management grew modestly to $30 billion
as new business offset some account losses. We attribute a slightly higher
attrition of accounts to a wave of corporate mergers and pension fund
restructuring, changes in asset allocation, and higher turnover in public funds
where political considerations are sometimes paramount. Substantial increases in
assets occurred in small capitalization U.S. equities where asset growth has met
our self-imposed limits, management for high net worth individuals through our
private client group, and mutual funds where aggregate assets under management
now total $4.2 billion. One of the distinctive features of Standish is the
longevity of many of our client relationships. We continue to work with three
insurance company clients which retained Standish in 1934, 1940, and 1955,
respectively. And it was with great pleasure that in 1996 we celebrated our
twenty-fifth year of service to American Telephone.
We have also grown significantly as an enterprise. At the end of the year, our
organization had 213 members (versus 198 at the end of 1995). We are
particularly proud that 50 of the staff members are Chartered Financial Analysts
(CFAs) or the equivalent. Our investment team has had only minimal turnover. At
midyear, Dave Murray, a Director and Treasurer, elected to take early retirement
after twenty-two years of distinguished service. With that exception, the
directorship remains unchanged, with 22 of us continuing as owners of the
business.
In our letter a year ago, we mentioned our dissatisfaction with our efforts in
managing international equity portfolios. We are particularly pleased to report
that not only has performance improved, but we have brought aboard Remi Browne
as the leader of our effort. Remi, who was elected Vice President of Standish
and SIMCO in September, has had long experience in adding value to international
equity portfolios at State Street Bank in Boston, and more recently at Ark Asset
Management in New York.
During 1996, we introduced a number of new products. After extensive research,
we began a quantitatively based program to manage international small
capitalization equities. The results have been exceedingly favorable to date. As
our existing Standish International Equity Fund was altered to include stock
selection, we have begun a new investment discipline designed to focus on
country selection. Due to the increasing appetite of investors for absolute
returns, we have introduced a duration neutral bond strategy with the objective
of delivering relatively high returns with very limited volatility by using
derivatives to mitigate interest rate risk. Finally, we had concluded some time
ago that in our style of U.S. small capitalization equities -- particularly
given the focus on "micro caps" -- there is a finite amount we could manage
effectively without risking liquidity or high transaction costs. Accordingly,
having grown close to our asset target, we have closed the Small Cap Fund and
have introduced the Standish Small Capitalization Equity Fund II with the same
management style applied to companies with a median market capitalization of
$500 million.
Fulfilling your objectives as our client must be our first priority. To that
end, we are honing our research and the implementation of what we believe are
solid, durable investment philosophies.
<PAGE>
We are also making efforts to diversify our organization from a dependence on
bond management. Our activities are both internal -- designing new products and
marketing programs - and external -- looking to acquisitions, strategic
partnership relationships, and the acquisition of minority interests. Among
other initiatives designed to diversify our product and client base, we have
begun a partnership relationship as well as an equity interest in Cypress
Investments, Inc., an effort designed to acquire and manage bank-sponsored
mutual funds on a private label basis.
We are confident that we have the people, resources, investment technology, and
organizational stability to succeed. While both the investment world and
Standish are changing at an accelerating pace, the successful business
principles we have applied for many decades are still intact. Most importantly,
we believe that we are in partnership with our clients to meet their financial
needs. We are dedicated to working hard to fulfill your expectations in the
years ahead, and we are confident we can achieve your and our objectives.
Sincerely yours,
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
<PAGE>
Management Discussion
Launched in December, 1996, the Standish Small Capitalization Equity Fund II
focuses on stocks of companies with a market capitalization under $1 billion.
The average market capitalization as of 12/31/96 was $525 million.
The Standish Small Capitalization Equity Fund II is oriented toward high
quality, rapidly growing companies. The emphasis is on investing in firms which
are experiencing accelerating revenue growth and expanding profit margins. We
seek companies with very strong business positions, operating in attractive
industries, which have solid balance sheets. We also look for experienced
management teams motivated by meaningful equity incentives. Finally, there is a
sensitivity to the price at which we buy the stock: we prefer to buy a stock
where the price-to-earnings ratio is less than the company's sustainable
earnings growth rate.
The focus on sustainable rapidly growing companies leads to above average
weightings in technology, healthcare and business services--three sectors which
are likely to be growth leaders over the next 5-10 years.
We sincerely appreciate your interest in the Standish Small Capitalization
Equity Fund II.
Nicholas S. Battelle
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investment in Standish Small Capitalization Equity Portfolio II (Portfolio) at value (Note 1A) $ 484,168
Deferred organization costs (Note 1D) 9,180
Receivable from Investment Adviser (Note 3) 7,588
--------------
Total assets 500,936
Liabilities:
Payable to investment adviser (Note 1D) $ 9,221
Accrued accounting, custody and transfer agent fees 672
Accrued trustees fees 85
Accrued legal and audit fees 6,790
---------------
Total liabilities 16,768
--------------
Net Assets $ 484,168
==============
Net Assets consist of:
Paid-in capital $ 475,000
Undistributed net investment income 198
Net unrealized appreciation 8,970
==============
Total $ 484,168
==============
Shares of beneficial interest outstanding 23,750
==============
Net asset value, offering price and redemption price per share $ 20.39
==============
(Net assets/Shares outstanding)
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statement of Operations
For the period December 23, 1996 (commencement of operations) through
December 31, 1996
Investment Income (Note 1B):
Interest income allocated from Portfolio $ 198
Expenses allocated from Portfolio (net of Portfolio level reimbursement of $15,784) 0
---------------
Total income 198
Expenses:
Accounting, custody and transfer agent fees 672
Legal and audit services 6,790
Amortization of deferred organization costs (Note 1D) 41
Trustees fees 85
--------------
Total expenses 7,588
Deduct:
Reimbursement of Fund operating expenses (7,588)
--------------
Net expenses 0
---------------
Net Investment Income (loss) 198
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation from Portfolio 8,970
---------------
Net increase (decrease) in net assets resulting from operations $ 9,168
===============
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Small Capitalization Equity Fund II
Statements of Changes in Net Assets
For the period December 23, l996 (commencement of operations) through
December 31, l996
Increase (Decrease) in Net Assets:
From operations
Net investment income $ 198
Change in net unrealized appreciation 8,970
---------------
Net increase (decrease) in net assets from operations 9,168
---------------
Fund share transactions, (Note 4)
Net proceeds from sale of shares 475,000
Net asset value of shares issued to shareholders
in payment of distributions declared -
Cost of shares redeemed -
---------------
Increase (decrease) in net assets from Fund share transactions 475,000
---------------
Net increase (decrease) in net assets 484,168
Net Assets:
At beginning of period 0
---------------
At end of period (including undistributed net investment income of $198 at December 31, 1996) $ 484,168
===============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Fund II
Financial Highlights
For the period December 23, 1996
(commencement of operations)
to December 31, 1996
---------------------------
Net asset value-beginning of period $20.00
-----------------
Income from investment Operations
Net investment income (1) 0.00
Net realized and unrealized gain (loss
on investments 0.39
-----------------
Total from investment operations 0.39
-----------------
Net asset value - end of period $20.39
=================
Net Assets at end of period (000 omitted) $484
Ratios (to average daily net assets)/Supplemental Data:
Expenses (1) * N/A (2)
Net Investment income* N/A (2)
* Computed on annualized basis
(1) Includes the Fund's share of Standish Small Capitalization Equity Portfolio II's allocated expenses.
(2) Ratios are not meaningful due to the short period of operations. All expenses were
reimbursed by the investment adviser.
</TABLE>
<PAGE>
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 Small Capitalization Equity Fund II (the "Fund") is a
separate diversified investment series of the Trust. The Fund invests
all of its investable assets an interest of the 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 December 31, 1996). 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. Valuation of
securities held by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements, which are included elsewhere
in this report.
B. .Securities transactions and income--
Securities transactions are recorded as of the trade date. The Fund's
net investment income consists of the Fund's pro rata share of the net
investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted
accounting principles.
C. .Federal taxes--
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
D. .Deferred organization expense--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized on a straight-line basis
through December 2002. These costs were paid for by the investment
adviser and will be reimbursed by the Portfolio.
F. Other-
All net investment income and realized and unrealized gains and losses
of the Portfolio are allocated pro rata among the respective investors
in the Portfolio.
<PAGE>
(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. 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 (SA&W) for such services. See Note 2
of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. For the period ended December 31, 1996, the
investment adviser voluntarily agreed to limit the operating expenses
of the Fund and the Portfolio (excluding brokerage commissions, taxes
and extraordinary expenses) to 0.00% of the Fund's average daily net
assets. The investment adviser has voluntarily agreed to reimburse the
Fund for its operating expenses of $7,588 for the period ended December
31, 1996. The Fund pays no compensation directly to its trustees who
are affiliated with the investment adviser or to its officers, all of
whom receive remuneration for their services to the Fund 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 period from December 23, 1996 to December 31, 1996 aggregated
$475,000 and $0, 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: At December 31, 1996, substantially all of the outstanding
shares of the Fund were owned by individuals affiliated with SA&W.
For the Period
December 23, 1996
(commencement of operations) to
December 31, 1996
-----------------------------------
Shares sold 23,750
Shares issued to shareholders
in payment of distribution declared -
Shares redeemed -
====================
Net increase (decrease) 23,750
====================
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund II: We have audited the
accompanying statement of assets and liabilities of Standish, Ayer & Wood
Investment Trust: Standish Small Capitalization Equity Fund II (the "Fund"), as
of December 31, 1996 and the related statement of operations, the statement of
changes in net assets and financial highlights for the period from December 23,
1996 (commencement of operations) to December 31, 1996. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audit. We conducted our audit
in accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements and financial highlights are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion. In our
opinion, the financial statements and financial highlights referred to above
present fairly, in all material respects, the financial position of Standish,
Ayer & Wood Investment Trust: Standish Small Capitalization Equity Fund II as of
December 31, 1996, the results of its operations, changes in its net assets and
financial highlights for the period from December 23, 1996 (commencement of
operations) to December 31, 1996, in conformity with generally accepted
accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 25, 1997
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization II Portfolio
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Equities - 96.1%
- -------------------------------------------------------------------------
Basic Industry - 1.1%
- -------------------------------------------------------------------------
<S> <C> <C>
OM Group Inc. 200 5,400
--------------
Capital Goods - 5.7%
- -------------------------------------------------------------------------
BE Aerospace Inc.* 300 8,138
Littelfuse Inc.* 100 4,850
Newpark Resources Inc.* 200 7,450
Philip Environmental Inc.* 500 7,250
--
------------
27,688
--------------
Consumer Stable - 4.9%
- -------------------------------------------------------------------------
Arbor Drugs Inc. 300 5,213
Hughes Supply Inc. 200 8,625
Martek Biosciences* 300 6,000
Robert Mondavi Corp. Cl A* 100 3,650
--
------------
23,488
--------------
Growth Cyclical - 4.9%
- -------------------------------------------------------------------------
Abercrombie & Fitch Co. * 300 4,950
Apple South Inc. 300 4,050
Eagle Hardware & Garden Inc.* 200 4,150
Scientific Games Holdings Corp.* 400 10,700
--
------------
23,850
--------------
Health Care - 24.3%
- -------------------------------------------------------------------------
Access Health, Inc.* 200 8,950
Agouron Pharmaceuticals Inc.* 100 6,775
American Homepatient Inc.* 200 5,450
American Medical Response Inc.* 200 6,500
Curative Health Services, Inc.* 400 11,075
Genesis Health Ventures Inc.* 200 6,225
HCIA Inc.* 300 10,350
Neurogen Corp* 400 7,700
Orthodontic Centers of America * 600 9,600
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Health Care - (continued)
- -------------------------------------------------------------------------
Physician Sales & Service* 500 $ 7,188
Rotech Medical Corp.* 400 8,400
Sepracor Inc.* 400 6,650
Sofamor/Danek Group, Inc.* 200 6,100
Sunrise Assisted Living Inc.* 300 8,363
Vertex Pharmaceuticals Inc.* 200 8,050
--
------------
117,376
--------------
Services - 33.4%
- -------------------------------------------------------------------------
Affiliated Computer Services Cl A* 200 5,950
American Management Systems Inc.* 400 9,800
American Radio Systems Corp.* 200 5,450
Bet Holdings Inc. Cl A* 200 5,750
Coach USA Inc.* 300 8,700
Central Parking Corp. 300 10,050
Compdent Corporation* 300 10,575
Computer Horizons Corp.* 300 11,550
Computer Task Group Inc. 200 8,625
CRA Managed Care Inc.* 100 4,500
Devry Inc.* 300 7,048
Emmis Broadcasting Corp. Cl A* 200 6,550
Evergreen Media Corporation* 200 5,000
Fair Issac & Company Inc. 200 7,825
Globalstar Telecommunications* 200 12,600
Healthplan Services Corp.* 300 6,338
Norrell Corp. 400 10,900
Quickresponse Services Inc.* 200 5,700
Scandinavian Broadcast Systems* 600 10,425
Technology Solutions Company* 200 8,300
--
------------
161,636
--------------
Technology - 21.8%
- -------------------------------------------------------------------------
Comverse Technology Inc.* 100 3,781
Credence Systems Corp.* 200 4,025
Dallas Semiconductor Corp. 200 4,600
Fusion Systems Corp.* 300 6,375
Gasonics Intl Corp.* 400 4,100
Geoworks* 300 7,350
Hadco Corporation* 200 9,800
Industry Group Inc.* 300 7,725
JDA Software Group Inc.* 300 8,550
<PAGE>
Value
Security Shares (Note 1A)
- ------------------------------------------------------------------------- ---------- --------------
Technology - (continued)
- -------------------------------------------------------------------------
Natural Microsystems Corp.* 300 $ 9,450
Photronics Inc.* 300 8,175
PRI Automation Inc.* 100 4,550
Sanmina Corp.* 100 5,650
Systemsoft Corp.* 600 8,925
Vanstar Corporation* 300 7,350
Zygo Corp.* 100 5,200
--
------------
105,606
--------------
Total Equities (Cost $456,074) 465,044
--------------
Total INVESTMENTS (Cost $456,074) - 96.1% 465,044
Other Assets less Liabilities - 3.9% 19,124
--------------
NET ASSETS - 100.0% $ 484,168
==============
Notes to the Schedule of Investments:
* Non-income producing security.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Assets and Liabilities
December 31, 1996
Assets:
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $456,074) $ 465,044
Cash 18,917
Interest receivable 198
Receivable from Investment Adviser 15,722
Deferred organization costs (Note 1C) 30,602
--------------
Total assets 530,483
Liabilities:
Payable to investment adviser (Note 1E) $ 30,737
Accrued investment advisory fee (Note 2) 62
Accrued expenses and other liabilities 15,516
--------------
Total liabilities 46,315
--------------
Net Assets (applicable to investors' beneficial interest) $ 484,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Operations
For the period December 23, 1996 (commencement of operations)
through December 31, l996
Investment Income
Interest income $ 198
Expenses
Investment advisory fee (Note 2) $ 62
Trustees fees 100
Amortization of organization costs (note 1F) 94
Legal and audit services 14,500
Custody fees 1,002
Miscellaneous 26
---------------
Total expenses 15,784
Waiver of investment advisory fee $ (62)
Reimbursement of operating expenses (15,722)
---------------
Total waiver of investment advisory fee and reimbursement of operating expenses (15,784)
Net expenses 0
--------------
Net investment income (loss) 198
--------------
Realized and Unrealized Gain (Loss):
Change in unrealized appreciation (depreciation) on investments 8,970
--------------
Net increase (decrease) in net assets from operations $ 9,168
==============
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Statement of Changes in Net Assets
For the period December 23, 1996 (commencement of operations) thorugh
December 31, 1996
Increase (Decrease) in Net Assets
From operations
Net investment income (loss) $ 198
Change in net unrealized appreciation (depreciation) 8,970
--------------
Increase in net assets from operations 9,168
Capital transactions
Contributions 475,000
Withdrawals -
--------------
Increase (Decrease) in net assets resulting from capital transactions 475,000
Total increase (decrease) in net assets 484,168
Net Assets:
At beginning of period -
--------------
At end of period $ 484,168
==============
</TABLE>
<PAGE>
Standish, Ayer & Wood Master Portfolio
Standish Small Capitalization Equity Portfolio II
Supplementary Data
For the period December 23, 1996 (commencement of operations)
through December 31, 1996
Ratios (to average daily net assets):
Expenses N/A *
Net investment income N/A *
Average broker commission per share $0.2000(1)
Portfolio turnover 0.00%
* Ratios are not meaningful due to the short period of operations.
All expenses were reimbursed by the Investment Adviser.
(1) Amount represents the average commission paid per share to
brokers on the purchase and sale of portfolio securities.
<PAGE>
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 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. The following is
a summary of significant accounting policies followed by the Portfolio
in the preparation of the financial statements. The preparation of
financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial
statements. Actual results could differ from those estimates.
A...Investment security valuations--
Securities for which quotations are readily available are valued at the
last sale price, or if no sale, at the closing bid price in the
principal market in which such securities are normally traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily using dealer-supplied
valuations or at their fair value as determined in good faith under
consistently applied procedures under the general supervision of the
Board of Trustees. Short term instruments with less than sixty-one days
remaining to maturity when acquired by the Portfolio are valued on an
amortized cost basis. If the Portfolio acquires a short term instrument
with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will
then be valued at amortized cost based upon the value on such date
unless the trustees determine during such sixty-day period that
amortized cost does not represent fair value.
B...Repurchase agreements--
It is the policy of the Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System, or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value of the
repurchase agreement's underlying investments to ensure the existence
of a proper level of collateral.
C...Securities transactions and income--
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued. Dividend income
is recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D...Income Taxes--
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio
is ultimately responsible for the payment of any taxes. Since some of
the Portfolio`s investors are regulated investment companies that
invest all or substantially all of their assets in the Portfolio, the
Portfolio normally must satisfy the source of income and
diversification requirements applicable to regulated investment
companies (under the 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.
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. These costs were paid for by the investment
adviser and will be reimbursed by the portfolio.
<PAGE>
(2).....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily
net assets. For the period ended December 31, 1996, the investment
adviser voluntarily agreed to limit the Portfolio's operating expenses
(excluding brokerage commissions, taxes and extraordinary expenses) to
0.00% of the Portfolio's average daily net assets. Such expenses for
the period ended December 31, 1996 were $15,784 and were reimbursed by
the investment adviser. The Portfolio pays no compensation directly to
its trustees who are affiliated with the investment adviser or to its
officers, all of whom receive remuneration for their services to the
Portfolio from the investment adviser. 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, were as follows:
Purchases Sales
Investments $456,074 $0
=================== ===================
(4).....Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1996, as computed on a
federal income tax basis, were as follows:
Aggregate cost $456,074
Gross unrealized appreciation $16,214
Gross unrealized depreciation (7,244)
==================
Net unrealized appreciation (depreciation) $8,970
==================
<PAGE>
Independent Auditors' Report
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish Small Capitalization Equity Portfolio II: We have audited the
accompanying statement of assets and liabilities of Standish Small
Capitalization Equity Portfolio II, including the portfolio of investments, as
of December 31, 1996, and the related statement of operations, the statement of
changes in net assets and the supplementary data for the period from December
23, 1996 (commencement of operations) to December 31, 1996. These financial
statements and supplementary data are the responsibility of the Portfolio's
management. Our responsibility is to express an opinion on these financial
statements and supplementary data based on our audit. We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and supplementary
data are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers; where
replies were not received from brokers we performed other auditing procedures.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion. In our opinion, the financial statements and supplementary data
data present fairly, in all material respects, the financial position of
Standish Small Capitalization Equity Portfolio II as of December 31, 1996, and
the results of its operations, changes in its net assets and supplementary data
for the respective stated period, in conformity with United States generally
accepted accounting principles.
Coopers & Lybrand
Chartered Accountants
Toronto, Canada
February 25, 1997
<PAGE>
This Report is submitted for the general information of shareholders and is not
authorized for distribution to prospective investors unless proceeded or
accompanied by an effective prospectus. Nothing herein is to be construed to be
an offer of sale or solicitation or an offer to buy shares of the Fund. Such
offer is made only by the Fund's prospectus, which includes details as to the
offering and other material information.
<PAGE>
Investors Bank and Trust
Dublin, Ireland
March 6, 1997
VIA EDGAR
Securities and Exchange Commission
Office of Filings, Information and Consumer Services
450 Fifth Street, NW
Washington, DC 20549
RE: Standish Ayer & Wood Investment Trust (the "Trust")
File No. 811 - 4813
Ladies and Gentlemen:
Pursuant to Rule 30(b)(2) under the Investment Company Act of 1940, as
amended, we are transmitting via EDGAR the semi-annual reports for Standish
Equity Fund Series, Standish Small Capitalization Equity Fund Series, Standish
Fixed Income Fund Series, and Standish Global Fixed Income Fund Series (the
"Funds") for the period ended December 31, 1996. The Funds represent a portion
of the portfolios of the Trust.
If you have any questions, please telephone the undersigned at 011-
353-1-475-2211 Thank you for your assistance with this matter.
Very truly yours,
Raymond O'Neil
Trust Administrator
cc: Kevin Connerty, Denise Kneeland, Basil Murray
