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 Fixed Income Fund II 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
The bond market offered a wild ride for investors during 1996 - and higher
interest rates overall. At year end, the long bond's 6.64% yield reflected a
rise of 69 basis points versus year end 1995. On a quarterly basis, rates rose
in the first and second quarters, as a rapidly expanding economy heightened
investor concerns. Yields continued to rise through August based upon ongoing
signs of economic strength and worries of Federal Reserve tightening - which
never happened. The Fed's decision not to raise interest rates sparked a rally
that lasted through the end of November when rates, once again, resumed their
rise. While inflation concerns waxed and waned throughout the year, inflation
proved to be quite subdued: core and consumer price inflation remained below
three percent while producer price inflation fluctuated around 2.5%. Wage
inflation also showed little evidence of being a potential problem.
For 1996, the Fund's 3.77% total return outperformed the 3.63% return posted by
the Lehman Aggregate Index by 14 basis points and the 2.90% return of the Lehman
Government/Corporate Index by 87 basis points. Corporate and mortgage returns
well offset the adverse impact of the slightly longer duration position the fund
maintained throughout the year.
During the year, the fund maintained an overweighted posture in corporate bonds
and mortgages - sectors that proved to be steady return contributors through
most of the year. These two spread sectors, corporates and mortgages, helped
cushion the blow of higher interest rates. In the corporate sector, investor
confidence in the economy proved a positive. Due to an insatiable demand for
yield on the part of bond investors, corporate spreads narrowed, in spite of
record issuance of investment grade corporates. The corporates held in the fund
outperformed in the first, third and fourth quarters and posted neutral returns
versus the index for the second quarter. 1996 proved to be a good performance
year for mortgages as moderately higher interest rates, especially in the first
three quarters of the year, served to reduce prepayment risk and allowed yield
spreads to narrow. We reduced our exposure to mortgages - a heavy overweighting
at the beginning of the year - as the sector outperformed.
As we enter 1997, the fund continues to be overweighted versus the Lehman
Aggregate Index in both the corporate and mortgage sectors. For 1997, as was the
case in 1996, we believe the fund's yield advantage versus its benchmark index
will continue to be an important determinant of absolute return going forward.
Overall, the fund is well positioned for an environment of more stable or
modestly higher interest rates.
In closing, we hope that this information is helpful to you in reviewing your
overall investment strategies. As always, we appreciate and thank you for your
continued confidence as shareholders.
David C. Stuehr Caleb Aldrich
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II Series
Comparison of Change in Value of $100,000 Investment in
Standish Fixed Income Fund II, 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 II compared with the Lehman Gov't/Corp Index and Lehman Aggregate Index for
the period July 3, 1995 to December 31, 1996, based upon a $100,000 investment.
Also included is the average annual total return for one year and since
inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
BONDS and NOTES - 82.1%
Asset Backed - 5.1%
- ---------------------------------------------------
<S> <C> <C> <C> <C>
AFC Home Equity Loan Trust 1994 31A 8.00% 10/25/2024 $ 605,827 $ 617,186
Continental Mortgage Home Equity 1996-4 A9 6.88 1/15/2028 600,000 591,750
Equacredit Home Equity 1996-1 6.19 12/15/2010 75,000 73,430
Mortgage Cap Fd 96 Non-Erisa 7.80 4/15/2006 100,000 103,063
RTC 1994-C1 C Non-Erisa 8.00 6/25/2026 75,000 76,852
RTC 1994-C2 C 8.00 4/25/2025 75,000 76,852
The Money Store Home Equity 1996-A5 Erisa 6.85 6/15/2019 100,000 100,016
The Money Store Home Equity 1996-B A5 7.18 2/15/2015 75,000 75,891
UCFC Home Equity Loan Trust 1994-D A4 8.78 2/10/2016 100,000 103,844
----------------
Total Asset Backed 1,818,884
----------------
Collateralized Mortgage Obligation - 1.1%
- ---------------------------------------------------
Merrill Lynch Mortgage Investments 1996-C2E 6.96 12/21/2028 400,000 375,125
----------------
Corporate - 30.5%
- ---------------------------------------------------
Basic Industry - 0.3%
- ---------------------------------------------------
Brascan Ltd. 7.38 10/01/2002 100,000 100,193
--------------
Capital Goods - 0.5%
- ---------------------------------------------------
Conseco Finance Trust II 8.70 11/15/2026 175,000 177,042
----------------
Consumer Cyclical - 0.3%
- ---------------------------------------------------
Ford Motor 8.38 1/15/2000 100,000 105,296
----------------
Consumer Stable - 0.3%
- ---------------------------------------------------
ADT Operations 8.25 8/01/2000 100,000 103,911
----------------
Energy - 0.2%
- ---------------------------------------------------
Kern River Funding 144A ** 6.72 9/30/2001 75,000 74,897
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Financial - 18.5%
- ---------------------------------------------------
Advanta National Bank 6.45% 10/30/2000 $ 75,000 $ 74,075
Bank America Corp. Capital Securities 144A ** 7.70 12/31/2026 100,000 97,267
Capital One Bank Co. 5.95 2/15/2001 250,000 241,460
Capital One Bank Co. 7.00 4/30/2001 250,000 250,805
Comdisco Inc. 5.75 2/15/2001 350,000 338,797
Corestates Capital CFL 144A ** 8.00 12/15/2026 350,000 349,192
First Chicago Corp Notes 144A ** 7.75 12/01/2026 175,000 173,205
First USA Bank 7.00 8/20/2001 250,000 252,253
Fleet Financial Group 7.13 5/01/2000 100,000 101,846
Goldman Sachs Inc. 144A ** 6.38 6/15/2000 400,000 397,448
Loewen Group International Inc. 144A ** 8.25 10/15/2003 575,000 580,767
Mellon Bank I 7.72 12/01/2026 175,000 171,395
Merrill Lynch 6.00 1/15/2001 75,000 73,557
Merrill Lynch & Co 6.50 4/01/2001 300,000 299,205
Midatlantic Bank 9.88 12/01/1999 193,000 209,853
Morgan Stanley Group Inc., Med. Term Notes 5.75 2/15/2001 100,000 96,918
Morgan Stanley Group Inc. 6.70 5/01/2001 250,000 250,793
Nordbanken 144A ** 7.25 10/30/2006 325,000 326,079
Post Apt Homes REIT Nts Ncl 7.25 10/01/2003 100,000 101,005
Salomon Brothers Inc. 6.63 11/30/2000 300,000 298,239
Salomon Brothers Inc. 7.00 5/15/1999 100,000 100,790
Salomon Brothers Inc. 7.25 5/01/2001 300,000 302,838
Sears Roebuck 7.13 9/13/2001 250,000 254,458
Security Connecticut Corp. 7.13 3/01/2003 100,000 98,068
Simon Debartolo 6.88 11/15/2006 350,000 341,303
Smith Barney Holdings 6.63 6/01/2000 100,000 100,237
UCFC Home Equity Loan 1996 7.70 1/15/2004 150,000 149,777
Union Planters Corp. 6.25 11/01/2003 50,000 48,022
United Companies Financial 9.35 11/01/1999 400,000 425,428
USF&G Corp. 8.38 6/15/2001 75,000 79,656
--
--------------
6,584,736
----------------
Health Care - 2.4%
- ---------------------------------------------------
Ahmanson (H.F.) & Co. 144A ** 8.36 12/01/2026 175,000 174,785
Highwoods Properties REIT Notes 6.75 12/01/2003 525,000 515,057
Trinet Corp. Realty Trust 7.30 5/15/2001 150,000 151,590
--
--------------
841,432
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Real Estate - 3.2%
- ---------------------------------------------------
Avalon Property REIT 7.38% 9/15/2002 $ 100,000 $ 101,600
Duke Realty REIT Investments 7.38 9/22/2005 100,000 99,698
Meditrust 7.38 7/15/2000 275,000 280,198
Shopping Center Associates 6.75 1/15/2004 250,000 243,473
Spieker Properties 6.65 12/15/2000 100,000 99,291
Storage USA REIT 7.13 11/01/2003 200,000 198,570
Wellsford Residential Property 7.75 8/15/2005 100,000 102,570
--
--------------
1,125,400
----------------
Services - 3.8%
- ---------------------------------------------------
News America Holdings Corp. 7.70 10/30/2025 300,000 286,635
News America Holdings Corp. 9.50 7/15/2024 100,000 114,356
Time Warner Inc. 6.85 1/15/2026 50,000 48,752
Time Warner Entertainment 8.38 3/15/2023 250,000 254,093
Time Warner Inc. 9.15 2/01/2023 400,000 435,092
Viacom Inc. 7.75 6/01/2005 225,000 221,551
--
--------------
1,360,479
----------------
Technology - 1.0%
- ---------------------------------------------------
ITT Corp. 6.25 11/15/2000 350,000 344,453
----------------
Total Corporate 10,817,839
----------------
U.S. Government Agency - 35.5%
- ---------------------------------------------------
Pass Thru Securities - 35.5%
- ---------------------------------------------------
FHLMC 6.50 3/01/2026 - 5/01/2026 99,435 95,147
FHLMC 7.50 11/01/2026 - 11/01/2026 1,755,842 1,757,474
FNMA 5.22 1/23/1997 1,000,000 985,922
FNMA 6.18 3/15/2001 75,000 74,557
FNMA 6.50 3/01/2026 - 4/01/2026 1,041,911 994,065
FNMA 7.00 9/01/2025 - 10/01/2026 3,894,670 3,808,907
FNMA 8.00 7/25/2023 175,000 182,766
GNMA 7.00 10/15/2025 - 1/15/2026 1,650,806 1,616,706
GNMA 7.50 9/15/2025 - 10/15/2026 827,902 828,488
GNMA 9.00 4/15/2016 - 4/15/2025 1,905,380 2,045,021
Resolution Trust Corp. 1995-2 Ca1 7.45 9/15/2025 203,787 203,023
----------------
TOTAL U.S. Government Agency 5/25/2029 12,592,076
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
U.S. Treasury Obligations - 6.6%
- ---------------------------------------------------
Treasury Bonds - 1.1%
- ---------------------------------------------------
U.S. Treasury Bond 8.13% 8/15/2019 $ 350,000 $ 404,852
----------------
Treasury Notes - 5.5%
- ---------------------------------------------------
U.S. Treasury Note 5.38 11/30/1997 200,000 199,562
U.S. Treasury Note + 5.75 10/31/2000 450,000 444,024
U.S. Treasury Note 6.25 2/15/2003 300,000 299,625
U.S. Treasury Note + 6.63 6/30/2001 700,000 711,263
U.S. Treasury Note 7.13 2/29/2000 150,000 154,430
U.S. Treasury Note (Strip) 0.00 8/15/2008 200,000 93,520
U.S. Treasury Coupon Strip 0.00 2/15/2019 250,000 55,043
--
--------------
1,957,467
----------------
TOTAL U.S. Treasury Obligations 2,362,319
----------------
Yankee Bonds - 3.3%
- ---------------------------------------------------
Cominco Ltd. 6.88 2/15/2006 449,000 428,620
Methanex Corp. 7.75 8/15/2005 100,000 102,750
Noranda Forrest Inc 6.88 11/15/2005 375,000 364,879
Se Banken 144A Euro Step Up ** 8.13 9/06/2049 250,000 257,620
----------------
Total Yankee Bonds 1,153,869
----------------
TOTAL BONDS and NOTES (Cost $35,485,304) 29,120,112
----------------
Preferred Stock - 0.6% Shares
- --------------------------------------------------- -------------
Capital Preferred Trust * (Cost $200,000) 8,000 207,000
----------------
Short-Term Investments - 16.5%
- ---------------------------------------------------
Par
Commercial Paper - 15.3% Value
- --------------------------------------------------- ---------------
Anheuser Busch 5.30 1/22/1997 $ 1,000,000 986,308
Coca Cola Company 5.24 1/07/1997 1,000,000 994,032
Eli Lilly Corp. + 5.32 4/16/1997 1,000,000 973,991
General Electric Co. 5.30 1/24/1997 1,000,000 985,572
Nynex Corp 0.00 3/05/1997 1,000,000 988,200
Sears Roebuck 5.32 1/30/1997 500,000 492,537
--
--------------
5,420,640
----------------
U.S. Government Agency - 0.0%
- ---------------------------------------------------
FNMA Discount Notes + 5.40 1/17/1997 10,000 9,957
----------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------- -------- --------------------- --------------- ----------------
Repurchase Agreements - 1.2%
- ---------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $437,345 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $445,950 +) $ 437,206 $ 437,206
----------------
Total Short-Term Investments (Cost $5,870,258) 5,867,803
----------------
TOTAL INVESTMENTS (Cost $35,203,789) - 99.2% 35,194,915
Other Assets Less Liabilities - 0.8% 290,389
----------------
NET ASSETS - 100.0% $ 35,485,304
================
* Non-income producing security
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
** This security is restricted, but eligible for resale under 144A
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REIT - Real Estate Investment Trust
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statement of Assets and Liabilitites
December 3l, 1996
<S> <C> <C>
Assets
Investments, at value (Note 1A) (identified cost, $35,203,789) $35,194,915
Receivable for investments sold 346,961
Interest and dividends receivable 359,900
Deferred organization costs (Note 1E) 8,692
Receivable from investment adviser (Note 2) 5,946
-------------------
Total assets 35,916,414
Liabilities
Payable for investments purchased $357,069
Payable for daily variation margin on financial futures contracts (Note 6) 38,906
Accrued audit services 22,274
Accrued expenses and other liabilities 12,702
Accrued trustee fees (Note 3) 159
----------------
Total liabilities 431,110
-------------------
Net Assets $35,485,304
===================
Net Assets consist of
Paid - in capital $35,425,262
Undistributed net investment income 11,552
Accumulated undistributed net realized gain (loss) 56,763
Net unrealized appreciation (depreciation) (8,273)
-------------------
Total Net Assets $35,485,304
===================
Shares of beneficial interest outstanding 1,894,219
===================
Net asset value, offering price, and redemption price per share $18.73
===================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statement of Operations
Year Ended December 31, 1996
Income
Interest income $1,051,457
Dividend income 3,360
-----------------
Total income 1,054,817
Expenses
Investment advisory fee (Note 2) $61,291
Accounting, custody and transfer agent fees 60,571
Audit services 24,730
Registration costs 2,707
Legal fees 3,338
Amortization of organization costs (Note 1E) 2,499
Trustees fees (Note 2) 806
Miscellaneous 4,613
---------------
Total expenses 160,555
Deduct:
Waiver of investment advisory fee (Note 2) (61,291)
Reimbursement of Fund operating expenses (Note 2) (38,689)
---------------
Total waiver/reimbursement of Fund expenses (99,980)
Net expenses 60,575
-----------------
Net investment income 994,242
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities ($48,224)
Written options transactions 15,655
Financial futures contracts 91,523
---------------
Net realized gain (loss) 58,954
Change in net unrealized appreciation (depreciation)
Investment securities (236,147)
Financial futures contracts (600)
---------------
Net change in net unrealized appreciation (depreciation) (236,747)
-----------------
Net realized and unrealized gain (loss) (177,793)
-----------------
Net increase (decrease) in net assets from operations $816,449
=================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statements of Changes in Net Assets
For the Period
Year Ended July 3, l995
December 31, (start of business) to
1996 December 31, l995
----------------- --------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $994,242 $707,724
Net realized gain (loss) 58,954 806,785
Change in net unrealized appreciation (depreciation) (236,747) 228,474
----------------- -----------------
Net increase (decrease) in net assets from operations 816,449 1,742,983
----------------- -----------------
Distributions to shareholders
From net investment income (975,274) (705,113)
From net realized capital gains on investments (642,185) (176,818)
----------------- -----------------
Total distributions to shareholders (1,617,459) (881,931)
----------------- -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 28,147,072 27,181,697
Net asset value of shares issued to shareholders in
payment of distributions declared 1,584,262 327,947
Cost of shares redeemed (1,491,504) (20,324,212)
----------------- -----------------
Increase (decrease) in net assets from Fund share transactions 28,239,830 7,185,432
----------------- -----------------
Net increase (decrease) in net assets 27,438,820 8,046,484
Net Assets
At beginning of period 8,046,484 0
----------------- -----------------
At end of period (including undistributed investment
income of $11,552 and $0 at December 31, 1996 and 1995, respectively) $35,485,304 $8,046,484
================= =================
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Financial Highlights
For the Period July 3, l995
Year Ended (Start of business) to
December 31, 1996 December 31, l995
---------------------- ----------------------
<S> <C> <C>
Net asset value - beginning of period $20.52 $20.00
---------------------- ----------------------
Income from investment operations
Net investment income * $1.16 $0.53
Net realized and unrealized gain (loss) (0.52) 0.64
---------------------- ----------------------
Total from investment operations 0.64 1.17
---------------------- ----------------------
Less distributions declared to shareholders
From net investment income (1.15) (0.53)
In excess of net investment income (0.12)
From net realized gains on investments (1.28) -
---------------------- ----------------------
Total distributions declared to shareholders (2.43) (0.65)
---------------------- ----------------------
Net asset value - end of period $18.73 $20.52
====================== ======================
Total return 3.77% 5.79%
Net assets at end of period (000 omitted) $35,485 $8,046
Ratios (to average daily net assets)/Supplemental Data:
Expenses * 0.40% 0.40% t
Net investment income * 6.57% 6.64% t
Portfolio turnover 124% 389%
* The investment adviser voluntarily waived its
investment advisory fee and reimbursed the fund for
a portion of its operating expenses. Had these actions
not been taken, the net investment income
per share and the ratios would have been:
Net investment income per share $1.04 $0.29
Ratios (to average daily net assets):
Expenses 1.06% 1.29% t
Net investment income 5.91% 5.75% t
t Computed on an annualized basis
The accompanying notes are an integral part of the financial statements
</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 II (the "Fund") is a separate
diversified investment series of the Trust. 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--
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 primarily 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 Fund are
valued at amortized cost basis. If the Fund 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 Fund 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 Fund
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. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount on debt securities when
required for federal income tax purposes.
D. .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.
E. .Deferred organization cost--
Costs incurred by the Fund in connection with its organization and
initial registration are being amortized, on a straight-line basis,
through June, 2000.
F. .Distributions to shareholders-
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. Distributions to
shareholders are recorded on the ex-dividend date. 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 and asset backed securities. 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>
(2) ...Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.40%
of the Fund's average daily net assets. SA&W voluntarily agreed to
limit the Fund's total operating expense to 0.40% of the Fund's average
daily net assets for the Fund's fiscal year ended December 31, 1996.
For the year ended December 31, 1996, SA&W voluntarily waived its
investment advisory fee of $61,291, and reimbursed the Fund for $38,689
of its operating expenses. 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.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations
were as follows:
(4) ....Shares of Beneficial Interest:
Purchases Sales
----------------- -----------------
U.S. Government securities $23,561,580 $13,271,294
================== ==================
Non-U.S. Government securities $15,872,747 $4,170,120
================== ==================
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the Period
For the Year Ended July 3, l995 to
December 31, 1996 December 31, 1995
<S> <C> <C>
Shares sold 1,494,596 1,367,590
Shares issued to shareholders in payment of distributions declared 85,215 16,103
Shares redeemed (77,808) (991,477)
--------------------- -----------------
Net increase 1,502,003 392,216
===================== =================
</TABLE>
At December 31, 1996, one shareholder, Exeter Health Resources, Inc.,
was record owner of approximately 71% of the total outstanding shares
of the Fund.
On August 15, 1995, securities with a fair market value of $7,132,126
were contributed to the Fund by shareholders. In return for such
securities, shareholders received shares of the Fund.
(5) ....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, are as follows:
Aggregate Cost $35,204,211
=================
Gross unrealized appreciation 128,754
Gross unrealized depreciation (138,050)
-----------------
Net unrealized depreciation ($9,296)
=================
<PAGE>
(6) ....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 Fund's Prospectus and Statement of Additional Information.
The Fund 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 Fund 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 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 purchased by the
Fund is exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as writer of an option, has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the security underlying the written option. A summary of
such transactions for the year ended December 31, 1996 is as follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 0 $0
Options written 1,370 14,405
Options exercised - -
Options expired (1,370) (14,405)
Options closed - -
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 0 $0
Options written 400 1,250
Options exercised (200) (1,000)
Options expired (200) (250)
Options closed - -
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
<PAGE>
.........Futures contracts--
The Fund 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 Fund 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
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. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund 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 Fund held the following futures
contracts: At December 31, 1996, the fund had segregated sufficient
cash and/or securities to cover margin requirements on open futures
contracts.
<TABLE>
<CAPTION>
Unrealized
Expiration Underlying Face Appreciation
Contract Position Date Amount at Value (Depreciation)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
US 5 Yr Note Future (1 contract) Long 03/19/97 $106,594 ($416)
US 10 YR Note Future (1contract) Long 03/19/97 1,527,750 (9,764)
US Bond (4 contracts) Long 03/19/97 2,477,750 10,780
---------------- --------------------
$4,112,094 $600
================ ====================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund II:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish Fixed Income Fund II (the
"Fund"), including the portfolio of investments, as of December 31, 1996, and
the related statement of operations for the year then ended, changes in net
assets and the financial highlights for the year then ended and for the period
July 3, 1995 (start of business) to December 31, 1995. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. 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 II as of
December 31, 1996, the results of its operations for the year then ended, the
changes in its net assets and the financial highlights for the year then ended
and for the period July 3, 1995 (start of business) to December 31, 1995, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 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 Short-Term Asset Reserve 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
The year 1996 was reasonably positive for investors in short duration assets.
For the full year ended December 31, 1996, the STAR Fund returned 5.62%,
outperforming the IBC Donoghue Money Market Average at 4.90%, a margin of 72
basis points (bp). We experienced quite a volatile market environment and are
pleased that we were able to turn in positive performance for the year.
As we have noted throughout the year, 1996 was a very choppy market environment.
It was almost as if investors did a complete turnaround on January 1, 1996 after
a very strong market environment during 1995. The first half of 1996 was
characterized by concern that the economy was reaching record low levels of
unemployment, and that inflation was bound to heat up, causing the Federal
Reserve to tighten monetary policy. In the first six months of the year, rates
rose by 60-100 bp, depending on the maturity. As the year continued, the
economic news continued to be good on all fronts, resulting in a very strong
fourth quarter during which rates fell by about 30 bp across the board. Despite
this strong fourth quarter rally, we still ended the full year with a rate
increase of 35-70 bp in the short end of the curve. The yield curve also
steepened significantly during the year; as we opened 1996, there was a yield
pickup of only 20 bp from 3 months to 3 years; at December 31 the yield pickup
was 83 bp. The market environment was generally quite good for the types of
spread products that we employ during the year. Corporate bonds experienced
spread tightening for the year to historically narrow levels, and Asset Backed
Securities (ABS) tightened as well, despite a year of record high issuance.
Our performance attribution models show us that the STAR Fund performance was
positively impacted by our holdings in non- Treasury sectors, which averaged
75-80% of the portfolio throughout the year. As previously mentioned, corporate
securities either narrowed or maintained their spread (depending on the
particular name), allowing the additional yield to accrue to the bottom line of
the fund. The asset backed sector which comprised about 20-25% of our portfolio
for much of the year was a particular standout, as spreads tightened
significantly. We continue to believe that this is the single most attractive
sector in the short term markets as we enter 1997.
Our duration decisions were generally neutral to positive for the year. Although
we suffered during the first half as interest rates rose, we maintained our
duration, believing that the rate rise was unwarranted. We were rewarded for our
fortitude, especially during the fourth quarter, when the market rallied
strongly. Our general strategy is to avoid making major changes in duration over
the short term but to adopt a longer term outlook and to make modest changes as
conditions warrant.
During the fourth quarter of 1996, we began to employ a new type of options
strategy on the portfolio in conjunction with our desire to add value
opportunistically through the use of options. Because market participants had
turned complacent at year end, the volatility in the markets had decreased
substantially. Thus, it was possible to buy call options at a relatively low
price that would allow us to maintain our current portfolio duration and
participate in any substantial market rallies, while keeping our downside risk
at the same level. We expect that these strategies will continue to play an
important role for us during 1997.
Looking back on 1996 performance, we are pleased that we were able to turn in
attractive returns in such a volatile market environment, and we continue to
have a very positive outlook for an extended duration short term portfolio. We
would like to thank our shareholders for their support during the year, and we
would like to assure you that we are working our hardest to turn in competitive
performance during the next year.
Jennifer A. Pline
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund Series
Comparison of Change in Value of $1,000,000 Investment in Standish
Short-Term Asset Reserve Fund and IBC Donoghue Average
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Short-Term
Asset Reserve Fund compared with the IBC Donoghue Average for the period January
3, 1989 to December 31, 1996, based upon a $1,000,000 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 Short-Term Asset Reserve Fund
Portfolio of Investments
December 31, 1996
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
BONDS and NOTES - 99.0%
- ---------------------------------------------------------
Asset Backed - 30.0%
- ---------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1993-4 A1 5.50% 04/15/00 3/25/2010 $ 736,116 700,920
Aircraft Lease Portfolio Trust 1994-1 A2 7.15% 12/31/97 9/15/2004 3,633,940 3,672,550
AT&T Capital Equipment 1996-1A2 5.95% 01/10/98 7/15/2000 3,030,000 3,034,734
Beneficial California Incorporated Home Equity 1994-1 B (a) 6.35% 02/28/97 3/29/2044 1,873,699 1,882,468
Capital Home Equity 1990-1B (a) 6.75% 02/28/97 12/31/1997 1,212,513 1,214,782
Capital Home Equity 1992-1 (a) 6.30% 02/20/97 12/25/2012 371,562 371,968
Case Equipment Trust Loan 1995-BA2 5.95% 02/28/97 9/15/2000 565,421 565,981
Charter Financial Corp 1994-1A 7.40% 02/28/98 10/25/2001 1,549,075 1,571,585
Contimortgage Hel Trust 6.86% 09/30/97 7/15/2010 2,175,000 2,177,719
Contimortgage Home Equtiy 1994-4A 7.96% 12/30/97 9/15/2009 4,421,533 4,482,330
Continental Mortgage Home Equity 1996-4 A2 6.23% 02/05/98 10/15/2011 2,850,000 2,845,547
Equacredit Home Equity 1993-4 5.73% 06/15/99 12/15/2008 2,062,559 2,013,573
Equacredit Home Equity 1994-1A 5.80% 08/30/99 3/15/2009 665,668 649,546
Equicon Home Equity 1995-2 A1 6.45% 08/30/97 7/18/2010 1,301,702 1,300,482
Equicon Home Equity 1995-4 A1 6.15% 04/15/97 7/15/2004 2,333,362 2,332,632
Greentree Financial Corp. 1996-9 A1 5.96% 10/06/97 1/15/2028 4,170,408 4,169,073
Greentree Financial Corp. 6.10% 12/15/97 4/15/2018 1,711,346 1,706,520
Greentree Financial Corp. 1993-3 5.20% 04/15/97 10/15/2018 4,709,548 4,683,033
Greentree Financial Corp. 1995-DA1 6.05% 04/15/97 9/15/2025 1,871,802 1,874,104
Home Equity Loan 1992-2 A1 (a) 6.22% 02/20/97 10/20/2007 420,930 422,243
Home Equity Loan Trust 1992-2A 6.65% 02/15/99 11/20/2012 629,917 629,327
Merrill Lynch Asset Backed 1992-B A2 8.05% 05/15/97 4/15/2012 1,550,139 1,554,975
Merrill Lynch Home Equity 1991-2A2 (a) 5.91% 02/15/97 4/15/2006 170,326 170,379
Merrill Lynch Home Equity 1993-1B (a) 6.69% 02/15/97 2/15/2003 1,450,693 1,456,583
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55% 01/25/99 11/25/2007 606,369 604,758
Olympic Auto Receivables Trust 1995-D A2 5.80% 02/15/97 10/15/1998 917,242 917,242
Onyx Acceptance Trust 1996-1 A 5.40% 09/15/98 5/15/2001 3,028,477 3,001,977
Security Pacific Home Equity Cl 1991-1 Cl A 7.85% 03/01/97 5/15/1998 103,371 103,726
Security Pacific Home Equity Cl 1991-2 A 8.10% 03/31/97 6/15/2020 573,025 574,097
Security Pacific Home Equity Cl 1991-2 B 8.15% 12/15/97 6/15/2020 2,600,598 2,638,185
The Money Store Home Equity 1994-A A1 4.88% 07/30/97 3/15/2008 2,186,225 2,169,145
<PAGE>
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
Asset Backed - (continued)
- ---------------------------------------------------------
The Money Store Home Equity 1994-C A1 6.78% 02/28/97 9/15/2007 $ 127,153 127,312
The Money Store Home Equity 1995-B A2 6.50% 02/28/97 10/15/2006 718,598 717,251
TransAmerica Leasing 1995-1 A 6.40% 10/15/97 9/15/2001 1,119,810 1,124,972
UCFC Home Equity Loan Trust 1994 D1 A2 8.38% 06/10/97 3/10/2007 585,418 586,881
UCFC Home Equity Loan Trust 1995 B1 A1 6.75% 01/10/97 10/10/2004 197,392 197,392
----------
TOTAL Asset Backed 58,245,992
----------
Corporate - 46.8%
- ---------------------------------------------------------
Basic Industry - 0.8%
- ---------------------------------------------------------
Georgia Pacific Corp. 9.85% 6/15/1997 1,475,000 1,498,984
----------
Consumer Cyclical - 7.1%
- ---------------------------------------------------------
Chrysler Financial Corp. 8.06% 1/27/1997 600,000 600,822
Chrysler Financial Corp. 5.02% 1/27/1997 2,000,000 1,999,280
Chrysler Financial Corp. 7.89% 2/10/1997 3,300,000 3,306,204
Dayton Hudson Corp. 9.55% 4/15/1997 800,000 808,352
Dayton Hudson Corp. 9.77% 6/15/1997 2,200,000 2,237,510
Ford Motor Credit Corp. (a) 5.81% 11/09/1998 2,800,000 2,799,076
Sears Roebuck Co 9.25% 4/15/1998 2,000,000 2,077,060
----------
13,828,304
----------
Financial - 32.9%
- ---------------------------------------------------------
Bank of Boston (a) 5.55% 8/28/1998 3,000,000 2,995,230
Bear Stearns Co (a) 6.10% 1/14/1999 2,800,000 2,786,000
Capital One Bank Co. 8.63% 1/15/1997 5,500,000 5,503,080
Centura Bank 6.00% 4/07/1997 5,125,000 5,125,000
Citicorp (a) 5.76% 1/30/1998 4,100,000 4,095,900
Comdisco Inc Notes 6.29% 10/22/1998 425,000 425,631
Dean Witter Discover (a) 5.51% 3/10/1999 2,800,000 2,753,940
Discover Credit 7.81% 3/18/1997 2,400,000 2,409,912
Discover Credit 7.76% 5/13/1997 2,000,000 2,013,380
<PAGE>
Expected
Maturity Par Value
Security Rate (Unaudited) Maturity Value (Note 1A)
- --------------------------------------------------------- ------- ----------- -------------- ----------------- -----------
Financial - (continued)
- ---------------------------------------------------------
Discover Credit 7.82% 5/13/1997 $ 1,000,000 1,006,890
First Interstate 12.75% 5/01/1997 1,660,000 1,695,607
First USA Bank 8.10% 2/21/1997 2,350,000 2,356,392
Fleet Mortgage Group Inc. 6.13% 8/15/1997 1,000,000 1,000,590
Goldman Sachs Inc. 144A (a) 5.93% 1/26/1999 3,000,000 3,012,000
Great Western Bank 9.50% 7/01/1997 3,800,000 3,866,614
Heller Financial 7.75% 5/15/1997 3,350,000 3,371,373
International Lease Finance 5.50% 4/01/1997 5,400,000 5,395,194
Merrill Lynch Cmt (a) 5.77% 4/07/1997 6,150,000 6,147,909
Morgan Stanley 5.65% 6/15/1997 650,000 649,578
Norwest Corp. 9.25% 5/01/1997 1,140,000 1,152,175
Salomon Brothers Inc. 5.47% 8/29/1997 2,000,000 1,994,800
Wells Fargo & Co. (a) 5.98% 6/25/1997 4,000,000 4,006,320
----------
63,763,515
----------
Health Care - 1.5%
- ---------------------------------------------------------
Health & Rehab Property (a) 6.28% 7/13/1999 2,900,000 2,863,605
----------
Real Estate - 4.5%
- ---------------------------------------------------------
Equity Residential Property Operating LP (a) 6.25% 12/22/1997 5,800,000 5,794,076
Taubman Realty (a) 6.00% 11/03/1997 3,025,000 3,017,407
----------
8,811,483
----------
TOTAL Corporate 90,765,891
----------
U.S. Government Agency - 5.2%
- ---------------------------------------------------------
Pass Thru Securities
- ---------------------------------------------------------
FHLMC (a) 7.82% 05/01/98 2/01/2023 380,413 388,794
FHLMC 7.00% 02/16/97 8/01/1999 2,437,975 2,461,593
FHLMC 8.00% 05/01/97 2/01/2000 - 7/01/20 3,797,216 3,885,621
Resolution Trust Corp. 1992 Cl B 7.15% 06/30/97 12/25/2020 2,054,182 2,054,182
Resolution Trust Corp. 1992-12 A-A2 7.50% 12/15/97 08/25/2023 553,538 555,614
Resolution Trust Corp. 1992-7 A3 (a) 7.36% 06/30/97 3/25/2022 757,057 756,584
----------
TOTAL U.S. Government Agency 10,102,388
----------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------- ---------- ------------------ ---------------- ----------
U.S. Treasury Obligations - 17.0%
- ---------------------------------------------------------
Treasury Notes - 17.0%
- ---------------------------------------------------------
U.S. Treasury Note 5.88% 8/15/1998 $ 7,800,000 7,803,666
U.S. Treasury Note 5.88% 10/31/1998 1,375,000 1,374,780
U.S. Treasury Note 5.63% 11/30/1998 16,695,000 16,619,372
U.S. Treasury Note 5.13% 11/30/1998 7,000,000 6,907,040
U.S. Treasury Note 5.38% 5/31/1998 325,000 323,323
----------
TOTAL U.S. Treasury Obligations 33,028,181
----------
TOTAL BONDS and NOTES (Cost $192,381,683) 192,142,452
----------
Principal
Amount of
Contracts
--------------
Purchased Options - 0.0%
- ---------------------------------------------------------
- ---------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- ---------------------------------------------------------
UST Call, 5.75% 12/23/98, Str 100.09375, 3/24/97 (Premiums Paid $10,563) 52,000 8,125
----------
Par
Value
--------------
Repurchase Agreements - 0.0%
- ---------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $40,697 (Collateralized by
FNMA FNARM with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $41,497. (Cost $40,864) $ 40,864 40,864
----------
TOTAL INVESTMENTS (Cost $192,433,110) - 99.0% 192,191,441
Other Assets less Liabilities - 1.0% 1,882,164
----------
NET ASSETS - 100.0% $194,073,605
==========
(a) Variable Rate Security
* This security is restricted, but eligible for resale under 144A
FHLMC - Federal Home Loan Mortgage Corporation
UST - U.S. Treasury
FNARM - FNMA Adjustable Rate Mortgage
UCFC - United Co.'s Financial Corp.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Assets and Liabilitites
December 31, l996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $192,433,110) $192,191,441
Receivable for investments sold 156,050
Interest receivable 2,135,074
--------------------
Total assets 194,482,565
Liabilities
Distribution payable $380,297
Accrued trustee fees (Note 3) 2,022
Accrued expenses and other liabilities 26,641
----------------
Total liabilities 408,960
--------------------
Net Assets $194,073,605
====================
Net Assets consist of
Paid - in capital $205,255,771
Distributions in excess of net investment income (131,817)
Accumulated undistributed net realized gain (loss) (10,808,680)
Net unrealized appreciation (depreciation) (241,669)
--------------------
Total Net Assets $194,073,605
====================
Shares of beneficial interest outstanding 9,953,704
====================
Net asset value, offering price, and redemption price per share $19.50
====================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Operations
Year Ended December 31, l996
Income
Interest income $15,608,502
Expenses
Investment advisory fee (Note 3) $643,488
Accounting, custody and transfer agent fees 143,850
Legal fees 34,803
Audit services 22,092
Insurance expense 9,902
Trustees fees (Note 3) 9,630
Registration costs 9,326
Miscellaneous 11,829
---------------
Total expenses 884,920
-----------------
Net investment income 14,723,582
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities (407,753)
Written option transactions 28,818
---------------
Net realized gain (loss) (378,935)
Change in net unrealized appreciation (depreciation)
Investment securities (494,693)
Written options (547)
---------------
Change in net unrealized appreciation (depreciation) (495,240)
-----------------
Net realized and unrealized gain (loss) (874,175)
-----------------
Net increase (decrease) in net assets from operations $13,849,407
=================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short - Term Asset Reserve Fund
Statement of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------ -----------------
Increase (decrease) in Net Assets
From operations:
<S> <C> <C>
Net investment income $14,723,582 $16,422,079
Net realized gain (loss) (378,935) 91,489
Change in net unrealized appreciation (depreciation) (495,240) 4,729,922
------------------ -----------------
Net increase (decrease) in net assets from operations 13,849,407 21,243,490
------------------ -----------------
Distributions to shareholders
From net investment income (14,723,192) (16,408,848)
In excess of net investment income ----- (72,090)
------------------ -----------------
Total distributions to shareholders (14,723,192) (16,480,938)
------------------ -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 190,145,017 224,454,605
Net asset value of shares issued to shareholders in
payment of distributions declared 10,684,739 11,942,616
Cost of shares redeemed. (249,381,886) (274,677,022)
------------------ -----------------
Increase (decrease) in net assets from Fund share transactions (48,552,130) (38,279,801)
------------------ -----------------
Net increase (decrease) in net assets (49,425,915) (33,517,249)
Net Assets
At beginning of period 243,499,520 277,016,769
------------------ -----------------
At end of period (including distributions in excess of net
investment income of $131,817 and $ 72,090 at
December 31, 1996 and 1995, respectively) $194,073,605 $243,499,520
================== =================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Short-Term Asset Reserve Fund
Financial Highlights
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995 1994 1993 1992 *
------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $19.55 $19.22 $19.79 $19.96 $20.46
------------ ------------ ------------ ------------- -----------
Income from investment operations
Net investment income $1.11 $1.13 $1.01 $1.31 $1.35
Net realized and unrealized gain (loss) (0.04) 0.33 (0.57) (0.17) (0.48)
------------ ------------ ------------ ------------- -----------
Total from investment operations 1.07 1.46 0.44 1.14 0.87
------------ ------------ ------------ ------------- -----------
Less distributions declared to shareholders
From net investment income (1.12) (1.12) (1.01) (1.31) (1.35)
In excess of net investment income ----- (0.01) ----- ----- -----
From net realized gains on investments ----- ----- ----- ----- (0.02)
----------- ------------ ------------ ------------- ------------
Total distributions declared to shareholders (1.12) (1.13) (1.01) (1.31) (1.37)
------------ ------------ ------------ ------------- -----------
Net asset value - end of period $19.50 $19.55 $19.22 $19.79 $19.96
============ ============ ============ ============= ===========
Total return 5.62% 7.85% 2.27% 5.08% 4.33%
Net assets at end of period (000's omitted) $194,074 $243,500 $277,017 $275,080 $289,969
Ratios (to average daily net assets)/Supplemental Data:
Expenses 0.35% 0.33% 0.33% 0.33% 0.37%
Net investment income 5.75% 5.95% 5.24% 5.82% 6.60%
Portfolio turnover 156% 208% 154% 182% 167%
* Audited by other auditors.
The accompanying notes are an integral part of the financial statements
</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 Short-Term Asset Reserve Fund (the "Fund") is a
separate diversified investment series of the Trust. The following is a
summary of significant accounting policies consistently followed by the
Fund 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, at the closing bid price in the
principal market in which such securities are primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued primarily 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 Fund are valued on an amortized cost basis. If the Fund
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 Fund 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 Fund
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. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount or amortization of premiums
debt securities when required for federal income tax purposes.
D. .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 capital loss carryovers 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 carryovers are $3,071,161, $1,512,610, $5,263,400
$568,968 and $277,757 which expire on December 31, 2000, December 31,
2001, December 31, 2002, December 31, 2003, and December 31, 2004
respectively. The Fund elected to defer to its fiscal year ending
December 31, 1997, $113,973 of losses recognized during the period
November 1, 1996 to December 31, 1996.
(2) ....Distributions to Shareholders:
Dividends on shares of the Fund are declared daily from net investment
income and distributed monthly. Net capital gains, if any, are
distributed annually. Dividends from net investment income and
distributions from capital gains, if any, are reinvested in additional
shares of the Fund unless the shareholder elects to receive them in
cash. Distributions to shareholders are recorded on the ex-dividend
date. 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 treatment of asset backed securities. Permanent book and tax
basis differences relating to shareholder distributions will result in
reclassifications between paid-in capital, undistributed net investment
and accumulated net realized gain (loss).
<PAGE>
(3) ....Investment Advisory Fee:
The investment advisory fee is paid to Standish, Ayer & Wood, Inc.
(SA&W) for overall investment advisory and administrative services, and
general office facilities, monthly at the annual rate of 0.25% of the
Fund's average daily net assets. The advisory agreement provides that
if the total Fund operating expenses (excluding brokerage, taxes and
extraodinary expenses) of the Fund in any fiscal year exceed 0.50% of
the Fund's average daily net assets, the compensation due to SA&W shall
be reduced by the amount of the excess. 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 sales of investments, other than short-term obligations
were as follows:
Purchases Sales
U.S. Government securities $316,467,507 $286,457,375
================== ==================
Non-U.S. Government securities $83,425,120 $102,574,333
================== ==================
(5) ....Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995
------------------ ------------------
<S> <C> <C>
Shares sold 9,748,426 11,547,118
Shares issued to shareholders in payment of distributions declared 548,316 614,434
Shares redeemed (12,798,043) (14,122,510)
------------------ ------------------
Net decrease (2,501,301) (1,960,958)
================== ==================
</TABLE>
(6) ....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, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Aggregate Cost $192,436,358
Gross unrealized appreciation $191,489
Gross unrealized depreciation (436,406)
------------------
Net unrealized depreciation ($244,917)
==================
</TABLE>
<PAGE>
(7) ....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 Fund 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 Fund uses options to seek to hedge against risks of
market exposure and changes in securities prices as well as to seek 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 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 Fund has no open
written option contracts at December 31, 1996. A summary of written
option transactions for the year ended December 31, 1996 is as follows:
Written Call Option Transactions
Number
of Contracts Premiums
-------------- ----------------
Outstanding, beginning of period 7,000 $4,922
Options written 91,915 94,599
Options exercised (5,000) (3,321)
Options expired (73,415) (78,095)
Options closed (20,500) (18,105)
-------------- ----------------
Outstanding, end of period 0 $0
============== ================
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Short-Term Asset Reserve Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish Short-Term Asset Reserve Fund (the "Fund"), including the portfolio of
investments, 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, 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. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers. 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 Short-Term Asset Reserve 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 20, 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 Controlled Maturity Fund
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
Standish, Ayer & Wood Investment Trust
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>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Management Discussion
Tough lessons were learned in 1996 concerning investor expectations versus
actual market performance. Perceived moderate growth, little or no inflationary
pressures, and a strong dollar were expected to carry the 1995 bond rally well
into 1996. Instead, bond prices generally declined as investors reacted
cautiously to a steady stream of conflicting economic data. In this environment
short and intermediate maturity bond portfolios performed reasonable well with
less exposure relative to longer maturities to rising interest rates. For the
full year ended December 31, 1996 the Controlled Maturity Fund provided a total
return of 5.13% versus 4.98% for the Merrill Lynch 1-3 Year Treasury Index.
Early in 1996 the prices of bonds with shorter maturities reacted favorably when
the Fed cut interest rates in January. When it became apparent that inflation
was not going to decline any further and the economy appeared stronger than
expected, yields began to climb with a corresponding decline in bond prices. The
yield on five-year Treasuries increased from 5.37% in January to 6.50% by the
end of June. In the second half of the year lower inflation and weaker
employment data strengthened bond markets. Short-term bonds prices reacted
favorably during this period with the fund making up some of the ground lost
during the first half of the year. The yield on the five-year Treasury finished
the year at 6.21%.
During the year the fund maintained an overweighted position in corporate bonds
and asset-backed securities. The additional yield earned on these securities
helped to offset the effects of rising interest rates. Demand for corporate
bonds remained strong throughout the year as the fundamental outlook for most
sectors of the economy remained favorable. Despite an increase in the supply of
new issues, spreads on asset-backed securities tightened significantly as more
investors added to their positions in this sector. Throughout the year
asset-backed securities continued to offer attractive high quality yields in the
short term markets.
The fund's average maturity was maintained at a level slightly longer than the
benchmark index throughout the course of the year, reflecting our neutral to
slightly positive outlook for interest rates. In the first half of the year, our
longer average maturity hindered performance as interest rates increased. When
the market rallied in the fourth quarter, our strategy of maintaining a slightly
longer maturity relative to the index rewarded shareholders with attractive
relative returns.
During 1996 we employed a new type of options strategy in the portfolio in order
to opportunistically add incremental returns. At certain times during the year
volatility in the bond markets had decreased. This enabled us to
opportunistically purchase call options at a relatively low price while
maintaining the average maturity of the portfolio. Adding call options to the
portfolio decreased the downside risk associated with market declines, while
enabling the portfolio to participate fully in any substantial market rallies.
We expect that these strategies will continue to play an important role for us
during 1997.
We are pleased that we were able to earn relatively attractive returns for our
shareholders in such a volatile market environment. Looking toward the futures
we continue to maintain a positive outlook for controlled maturity portfolios.
Howard B. Rubin
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Comparison of Change in Value of $100,000 Investment in
Standish Controlled Maturity Fund and Merrill Lynch 1-3 Year Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Controlled
Maturity Fund compared with the Merrill Lynch 1-3 Year Index for the period July
3, 1995 to December 31, 1996, based upon a $100,000 investment. Also included is
the average annual total return for one year and since inception.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
BONDS and NOTES - 99.6%
Asset Backed - 26.9%
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.00 % 2/25/2006 $ 158,708 164,008
Advanta Home Equity Trust Loan 1992-2 A1 7.15 6/25/2008 22,634 22,726
Advanta Home Equity Trust Loan 1993-4 A1 5.50 3/25/2010 222,189 211,566
AFC Home Equity 1996-3 1A2 7.22 12/25/2027 75,000 75,914
AFC Home Equity Loan Trust 1993-2 A 6.00 1/20/2013 236,180 230,939
Contimortgage Hel Trust 6.86 7/15/2010 100,000 100,219
Equacredit Home Equity 1993-4 5.73 12/15/2008 127,462 124,435
Equacredit Home Equity 1995-4 A2 6.35 10/15/2009 120,000 120,000
Equicon Home Equity 1995-2 Cl A2 6.50 7/18/2010 100,000 99,531
First Sierra Equipment Lease 6.29 11/10/2004 100,000 99,750
General Motors Acceptance Corp. 7.00 8/15/1997 25,000 25,173
Greentree Financial Corp.1993-4 A2 5.85 1/15/2019 100,000 99,750
Home Equity Loan Trust 1992-2A 6.65 11/20/2012 10,804 10,794
MBNA Master Card Trust 1991-1 7.75 10/15/1998 20,000 20,019
Ml Mtg Inv 1992-D A2 7.40 7/15/2017 30,203 30,278
Newcourt 1996-2 A 6.87 6/20/2004 68,655 69,114
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.30 9/25/2007 56,436 56,012
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.55 11/25/2007 46,741 46,617
Rnfc Trust 1995-3A2 6.80 12/20/2007 50,000 50,086
Security Pacific Home Equity Cl 1991-2 B 8.15 6/15/2020 32,239 32,705
The Money Store Home Equity 1992-B 6.90 7/15/2007 224,980 224,980
The Money Store Home Equity 1993-D A1 5.68 2/15/2009 68,401 65,857
The Money Store Home Equity 1994-DA4 8.75 9/15/2020 175,000 182,656
The Money Store Home Equity 1996-B A3 6.82 3/15/2010 150,000 150,609
Trans Leasing 1996-1A 5.98 11/20/2002 192,974 192,492
UCFC Home Equity Loan Trust 1993-B 1A 6.08 7/25/2014 227,885 223,612
UCFC Home Equity Loan Trust 1994 BA-6 7.10 6/10/2023 181,622 182,871
UCFC Home Equity Loan Trust 1995-A1 A4 8.25 4/01/2016 100,000 102,938
UCFC Home Equity Loan Trust 1995-B1 A2 6.60 7/10/2009 150,000 150,609
UCFC Home Equity Loan Trust 1996-D1 A3 6.54 11/15/2013 200,000 199,500
---------------
TOTAL Asset Backed (Cost $3,359,369) 3,365,760
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ----------------
Collateralized Mortgage Obligations - 0.1%
- -----------------------------------------------------
Collateralized Mortgage Obligation Trust 13-A
(Cost $6,723) 5.81 % 1/20/2003 $ 6,799 6,782
---------------
TOTAL Collateralized Mortgage Obligations (Cost $6,723)
Corporate - 48.5%
- -----------------------------------------------------
Basic Industry - 1.4%
- -----------------------------------------------------
Brascan Ltd. 7.38 10/01/2002 75,000 75,145
Great Northern Nekoosa 9.13 2/01/1998 100,000 102,961
---------------
178,106
---------------
Capital Goods - 2.8%
- -----------------------------------------------------
Caterpillar Finance 6.10 7/15/1999 100,000 99,400
Comdisco Inc Medium Term Notes 7.75 1/29/1997 125,000 125,169
WMX Technologies 6.25 4/01/1999 125,000 124,926
---------------
349,495
---------------
Consumer Cyclical - 3.6%
- -----------------------------------------------------
Chrysler Financial Corp. 5.38 10/15/1998 50,000 49,324
Ford Motor Credit Co 5.63 1/15/1999 125,000 123,569
General Motors Acceptance Corp. 7.50 7/22/1999 150,000 154,055
Sears Roebuck Co 7.94 2/06/1998 50,000 51,091
Sears Roebuck Co 9.25 4/15/1998 75,000 77,890
---------------
455,929
---------------
Consumer Stable - 0.6%
- -----------------------------------------------------
ADT Operations 8.25 8/01/2000 75,000 77,933
---------------
Energy - 0.8%
- -----------------------------------------------------
Occidental Petroleum 5.90 11/09/1998 100,000 99,278
---------------
Financial - 29.2%
- -----------------------------------------------------
Advanta National Bank Nts Ncl 6.25 7/08/1997 150,000 150,190
Ahmanson H F & Co 9.88 11/15/1999 175,000 190,136
Associates Corp. 6.63 11/15/1997 50,000 50,272
Associates Corp. 6.88 1/15/1997 50,000 50,011
Bank of Boston 9.50 8/15/1997 75,000 76,622
Bear Stearns Co 6.50 6/15/2000 125,000 124,963
Bear Stearns Co 6.75 8/15/2000 100,000 100,599
Capital One Bank Co. 6.39 6/29/1998 50,000 50,007
Capital One Bank Co. 6.66 8/17/1998 75,000 75,266
Chase Manhattan Corp. 7.50 12/01/1997 50,000 50,622
Chase Manhattan Corp. 8.00 6/15/1999 100,000 103,581
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
Financial - (continued)
- -----------------------------------------------------
Cit Group Hldgs 6.20 % 4/15/1998 $ 150,000 150,644
CitiCorp. Mtn 8.42 2/12/1997 125,000 125,306
Comdisco Inc. 6.50 6/15/2000 75,000 74,875
First Chicago 8.50 6/01/1998 75,000 77,441
First Chicago 9.88 7/01/1999 130,000 140,386
First Union Corp. 9.45 6/15/1999 100,000 106,857
First USA Bank 5.75 1/15/1999 100,000 98,660
First USA Bank 6.38 10/23/2000 75,000 73,904
Fleet Financial Group 6.00 10/26/1998 75,000 74,855
Fleet Financial Group 7.25 10/15/1997 25,000 25,230
Goldman Sachs Group 6.75 4/20/2000 55,000 55,308
Goldman Sachs Group 6.88 9/15/1999 125,000 126,646
Greyhound Financial 8.50 2/15/1999 100,000 104,157
Hartford National Bank Corp. 9.85 6/01/1999 75,000 80,351
Integra Financial Corp Nts Ncl 6.50 4/15/2000 200,000 198,910
International Lease Finance Co. 6.13 11/01/1999 150,000 148,457
Merrill Lynch Cmt 5.77 4/07/1997 50,000 49,983
Norwest Financial Inc. 6.38 11/15/2001 100,000 99,511
Salomon Brothers Inc. 6.63 11/30/2000 75,000 74,560
Salomon Brothers Inc. 6.82 7/26/1999 100,000 100,660
Salomon Brothers Inc. 7.75 5/15/2000 75,000 77,012
Smith Barney Holdings 5.50 1/15/1999 50,000 49,328
Smith Barney Shearson 5.63 11/15/1998 50,000 49,483
Transamerica Corp. 9.88 1/01/1998 125,000 129,644
United Companies Financial 7.00 7/15/1998 120,000 120,424
USF&G Corp. 7.00 5/15/1998 225,000 226,976
---------------
3,661,837
---------------
Real Estate - 4.4%
- -----------------------------------------------------
Equity Residential Property Operating LP 6.25 12/22/1997 50,000 49,949
Equity Residential Property Operating LP 144A * 8.50 5/15/1999 200,000 207,118
Federal Realty Investment Trust 8.88 1/15/2000 110,000 116,327
Meditrust 7.38 7/15/2000 50,000 50,945
Spieker Properties 6.65 12/15/2000 75,000 74,468
Wellsford Residential Property 7.25 8/15/2000 50,000 50,752
---------------
549,559
---------------
Services - 3.5%
- -----------------------------------------------------
Hertz Corp. 9.50 5/15/1998 125,000 130,441
News America Holdings Corp. 7.50 3/1/2000 150,000 153,429
Time Warner Inc. 7.95 2/01/2000 150,000 154,897
---------------
438,767
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ---------------
Technology - 1.8%
- -----------------------------------------------------
ITT Corp. 6.25 % 11/15/2000 $ 225,000 221,434
---------------
Utilities - 0.4%
- -----------------------------------------------------
System Energy Resources Corp. 7.63 4/01/1999 50,000 50,935
----------------
TOTAL Corporate (Cost $6,137,893) 6,083,273
---------------
Foreign - 1.7%
- -----------------------------------------------------
Canada - 1.7%
- -----------------------------------------------------
Noranda Forest Inc Notes NCL 8.88 10/15/1999 200,000 210,166
---------------
TOTAL Foreign (Cost $212,642) 210,166
---------------
U.S. Government Agency - 6.2%
- -----------------------------------------------------
Pass Thru Securities - 6.2%
- -----------------------------------------------------
Federal Farm Credit Bank 6.61 10/06/1999 200,000 200,562
FHLMC 7.00 8/01/1999 62,324 62,928
FHLMC 7.50 3/01/1997-8/01/2000 182,189 185,190
FHLMC 8.00 2/01/2000 26,030 26,636
FHLMC 10.50 7/1/2015 2,299 2,541
FNMA Remic Pac 1994 -8SE 6.00 11/25/2006 75,000 73,805
GNMA 9.00 11/15/2016 - 12/15/2024 159,779 169,777
Resolution Trust Corp. 1992-7 A1 6.82 3/25/2022 43,277 42,925
Resolution Trust Corp. P-T A-1 7.75 7/25/2030 8,726 8,786
Resolution Trust Corp. P-T A-2 8.63 7/25/2030 4,025 4,075
---------------
TOTAL U.S. Government Agency (Cost $778,373) 777,225
---------------
U.S. Treasury Obligations - 16.1%
- -----------------------------------------------------
Treasury Notes - 16.1%
- -----------------------------------------------------
U.S. Treasury Note 5.88 8/15/1998 50,000 50,024
U.S. Treasury Note + 6.38 5/15/1999 1,550,000 1,563,315
U.S. Treasury Note 6.38 3/31/2001 25,000 25,168
U.S. Treasury Note 6.63 6/30/2001 375,000 381,033
---------------
TOTAL U.S. Treasury Obligations (Cost $2,026,333) 2,019,540
---------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- ------------------------------------------------------- --------- ------------------------ ---------------- ----------------
Purchased Options - 0.0%
- -----------------------------------------------------
- -----------------------------------------------------
Deliver/Receive, Excercise Price, Expiration
- -----------------------------------------------------
UST Call, 5.75% 12/23/98, Str 100.09375, 3/24/97
(Premium Paid $609) 3/24/1997 $ 3,000 469
---------------
Total Purchased Options (Premium Paid $609)
Short-Term Investments - 1.0%
- -----------------------------------------------------
Repurchase Agreements - 1.0%
- -----------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $126,324 (Collateralized by
FNMA FNAR with a rate of 6.084% and a maturity date of
12/01/35 with a market value of $128,809) 126,283 126,283
---------------
TOTAL INVESTMENTS (Cost $12,648,225) - 100.5% 12,589,498
Other Assets less Liabilities - (0.5)% (64,623)
---------------
NET ASSETS - 100.0% 12,524,875
===============
* This Security is restricted, but eligible for resale under 144A
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A)(identified cost, $12,648,225) $12,589,498
Interest receivable 159,919
Deferred organization expenses (Note 1 E) 8,205
Receivable from Investment Adviser (Note 2) 622
----------------
Total assets 12,758,244
Liabilities
Distribution payable $128,733
Payable for investments purchased 79,240
Accrued expenses and other liabilities 18,870
Accrued custodian fees 6,526
----------------
Total liabilities 233,369
----------------
Net Assets $12,524,875
================
Net Assets consist of
Paid-in capital $12,585,485
Undistributed net investment income 14,419
Accumulated net realized gain (loss) (16,302)
Net unrealized appreciation (depreciation) (58,727)
----------------
Total Net Assets $12,524,875
================
Shares of beneficial interest outstanding 626,464
================
Net asset value, offering price, and redemption price per share $19.99
================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Operations
For the Year ending December 31, 1996
Investment income
Interest income $714,652
Expenses
Investment advisory fee (Note 2) $35,907
Accounting, custody and transfer agent fees 58,473
Audit services 22,265
Legal fees 1,104
Amortization of organization costs (Note 1E) 2,355
Miscellaneous 7,229
----------------
Total expenses 127,333
Deduct:
Waiver of investment advisory fee (Note 2) (35,907)
Reimbursement of Fund operating expenses (Note 2) (50,610)
----------------
Total waiver of investment advisory fee and reimbursement of operating expenses (86,517)
Net expenses 40,816
----------------
Net investment income 673,836
----------------
Realized and unrealized gain (loss)
Realized gain (loss)
Investment securities (22,349)
Change in net unrealized appreciation (depreciation)
Investment securities (124,788)
----------------
Net realized and unrealized gain (loss) (147,137)
----------------
Net increase (decrease) in net assets from operations $526,699
================
The accompanying notes are an integral part of the financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statements of Changes in Net Assets
Year Ended For the Period July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
----------------- -----------------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $500,802 $213,340
Net realized gain (loss) (22,349) 15,239
Change in net unrealized appreciation (depreciation) (124,788) 66,061
----------------- -----------------------------
Net increase (decrease) in net assets from operations 353,665 294,640
----------------- -----------------------------
Distributions to shareholders
From net investment income (653,352) (213,237)
From net realized gains on investments (5,114) (10,245)
----------------- -----------------------------
Total distributions to shareholders (658,466) (223,482)
----------------- -----------------------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 4,854,921 9,300,102
Net asset value of shares issued to shareholders in
payment of distributions declared 226,009 68,587
Cost of shares redeemed (1,292,135) (572,000)
----------------- -----------------------------
Increase (decrease) in net assets from Fund share transactions 3,788,795 8,796,689
----------------- -----------------------------
Net increase (decrease) in net assets 3,483,994 8,867,847
Net Assets
At beginning of period 8,867,847 0
----------------- -----------------------------
At end of period (including undistributed net investment
income of $14,419 and $0 at December 31, 1996 and 1995, respectively) $12,351,841 $8,867,847
================= =============================
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Highlights
For the Period
Year Ended July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
----------------------- -----------------------
Net asset value - beginning of period $20.24 $20.00
----------------------- -----------------------
Income from investment operations
Net investment income * 1.27 0.57
Net realized and unrealized gain (loss) (0.27) 0.24
----------------------- -----------------------
Total from investment operations 1.00 0.81
----------------------- -----------------------
Less distributions declared to shareholders
From net investment income (1.24) (0.57)
From net realized gains on investments (0.01)
----------------------- -----------------------
Total distributions declared to shareholders (1.25) (0.57)
----------------------- -----------------------
Net asset value - end of period $19.99 $20.24
======================= =======================
Total return 5.13% 4.20%
Ratios (to average daily net assets)/Supplemental Data
Expenses * 0.40% 0.40% t
Net investment income * 6.60% 6.29% t
Portfolio turnover 107% 127%
Net assets at end of period (000 omitted) $12,525 $8,868
* The investment adviser voluntarily waived its investment advisory fee and
reimbursed the Fund for a portion of its operating expenses. Had these
actions not been taken, the net investment income per share and the ratios
would have been:
Net investment income per share $1.11 $0.38
Ratios (to average daily net assets):
Expenses 1.25% 2.51% t
Net investment income 5.75% 4.18% t
t Computed on an annualized basis
</TABLE>
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (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 Controlled Maturity Fund (Fund) is a separate
diversified investment series of the Trust. The following is a summary
of significant accounting policies consistently followed by the Fund 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, at the closing bid price in the
principal market in which such securities are primarily 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 Fund are
valued on an amortized cost basis. If the Fund 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 Fund 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 Fund
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. Realized
gains and losses from securities sold are recorded on the identified
cost basis. Interest income is determined on the basis of interest
accrued, adjusted for accretion of discount and amoritization of
premium on debt securities when required for federal income tax
purposes.
D. .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 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 $10,860 which expires on December 31,
2004. The Fund elected to defer to its fiscal year ending December 31,
1997, $5,066 of losses recognized during the period November 1, 1996 to
December 31, 1996.
E. .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 June, 2000.
<PAGE>
F. .Distributions to shareholders-
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. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. The differences are primarily due to differing treatment of
asset and mortgage backed securities. 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).
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.35%
of the Fund's average daily net assets. SA&W has voluntarily agreed to
limit the Fund's total operating expenses to 0.40% of the Fund's
average daily net assets for the Fund's fiscal year ended December 31,
1996. For the year ended December 31, 1996, SA&W voluntarily waived its
investment advisory fee of $35,907 and reimbursed the Fund for $50,610
of operating expenses. 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.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations,
were as follows:
Purchases Sales
Non-U.S. government securities $6,949,143 $2,300,416
================== =================
U.S. Government securities $6,945,990 $7,232,599
================== =================
(4) ....Shares of Beneficial Interest:
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
For the Period
Year Ended July 3, 1995
December 31, (start of business)
1996 to December 31, 1995
-------------------------- --------------------------
<S> <C> <C>
Shares sold 241,487 462,667
Shares issued to shareholders in payment of distributions declared 11,325 3,396
Shares redeemed (64,441) (27,970)
-------------------------- --------------------------
Net increase 188,371 438,093
========================== ==========================
</TABLE>
At December 31, 1996, two shareholders were record owners of approximately 32%
and 28% respectively of the total outstanding shares of the Fund.
<PAGE>
(5) ....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, are as follows:
Aggregate cost $12,648,741
=========================
Gross unrealized appreciation 22,999
Gross unrealized depreciation (82,242)
-------------------------
Net unrealized depreciation ($59,243)
=========================
(6) ....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 Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial insturments 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 may use options to seek to hedge against risks
of market exposure and changes in security prices, as well as to seek
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 purchased by the Fund is exercised, the premium
reduces the cost basis of the securities purchased by the Fund. The
Fund, as 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. During 1996, the fund had
the following written option transactions. There were no outstanding
written option contracts at December 31, l996.
<TABLE>
<CAPTION>
Written Call Option Transactions
Number
of Contracts Premiums
-------------------------- ---------------------------
<S> <C> <C>
Outstanding, beginning of period 0 0
Options written 3,000 2,988
Options exercised 0 0
Options expired (2,500) (2,500)
Options closed (500) (488)
-------------------------- ---------------------------
Outstanding, end of period 0 0
========================== ===========================
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Controlled Maturity Fund: We have audited the accompanying statement
of assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Controlled Maturity Fund (the "Fund"), including the portfolio of investments,
as of December 31, 1996, and the related statement of operations for the year
then ended, changes in net assets and the financial highlights for the year then
ended and for the period from July 3, 1995 (start of business) to December 31,
1995. 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 audits in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements and financial highlights are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. Our
procedures included confirmation of securities owned as of December 31, 1996 by
correspondence with the custodian and brokers. 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 Controlled Maturity Fund as of December 31, 1996, the
results of its operations for the year then ended and the changes in its net
assets and the financial highlights for the year then ended and for the period
from July 3, 1995 (start of business) to December 31, 1995, in conformity with
generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 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 Securitized 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
The mortgage sector posted solid returns in the fourth quarter. Benefitting from
declining prepayment risk as interest rates rose during the year, mortgages
outperformed Treasuries. For the past year, with a duration profile closer to
the Lehman Aggregate Index, the Securitized Fund returned, net of fees, 4.41%
and a gross return of 4.86%. In comparison, the Lehman Aggregate and Lehman
Mortgage Indices returned 3.61% and 5.36%, respectively.
Higher interest rates, coupled with moderately declining volatility, created a
favorable environment for mortgages. Rising mortgage rates diminished
refinancing activity and prepayments slowed. With reduced call risk, yield
spreads over Treasuries narrowed enhancing mortgage returns. Also contributing
to the sector's strong performance were positive market technicals. As yield
spreads have trended tighter across most sectors during the year, investors have
turned to mortgages for incremental yield. Also, the sustained decline in net
supply of mortgages benefitted spreads. (Net supply is defined as gross agency
issuance less prepayments.)
Looking back at 1996, pass-through spreads have narrowed significantly from
their extremely undervalued levels at the beginning of the year. At currently
tighter spread levels, the mortgage sector is clearly closer to fair value. We
have reduced the fund's allocation to pass-throughs as they have outperformed.
Alternatively, we have found attractive values in both commercial mortgage bonds
and home equity asset backeds. In particular, the commercial mortgage market has
offered compelling investment opportunities throughout the year. The incremental
yield of commercial mortgage bonds over both Treasuries and similar quality
corporates makes them especially good values. Also, through the use of
prepayment penalties, commercial mortgages provide investors with better call
protection, and therefore, less convexity risk than is typically found in most
mortgage assets. As the marketplace has become familiar with the structural and
credit considerations of commercial mortgages, yield spreads have narrowed. But
even at today's tighter spread levels, select opportunities within the sector
remain quite attractive.
In the coming year, it is less likely that spread product will benefit from the
compression in yield spreads similar to what sectors experienced in 1996.
Therefore, we are focused on finding stable attractively priced bonds and look
for opportunities to rotate sectors as relative values change. We look forward
to serving you in 1997.
Dolores S. Driscoll James J. Sweeney
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund Series
Comparison of Change in Value of $1,000,000 Investment in Standish Securitized
Fund,
the Lehman Aggregate Index, and the Lehman Mortgage Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish Securitized
Fund compared with the Lehman Aggregate Index and the Lehman Mortgage Index for
the period August 31, 1989 to December 31, 1996, based upon a $1,000,000
investment. Also included are the average annual total returns for one year,
five year, and since inception.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- ------------ --------------------------- --------------- ----------------
BONDS and NOTES - 111.6%
- --------------------------------------------------------
Asset Backed - 4.2%
- --------------------------------------------------------
<S> <C> <C> <C> <C>
Citibank Credit Card Master Trust 0.000% 2/07/2003 $ 1,425,000 $ 1,099,031
Continental Mortgage Home Equity 1996-4 A9 6.880 1/15/2028 550,000 542,438
Greentree Financial Corp 7.240 11/15/2028 500,000 491,250
--------------
TOTAL Asset Backed (Cost $2,168,812) 2,132,719
--------------
Collateralized Mortgage Obligation - 2.0%
- --------------------------------------------------------
FNMA P/O Trust 108 (Cost$ $1,077,844) 0.000 3/01/2020 1,291,932 1,017,396
--------------
U.S. Government Agency - 93.3%
- --------------------------------------------------------
Pass Thru Securities - 93.3%
- --------------------------------------------------------
Chase Comm Cert 1996 1A1 7.600 12/18/2005 494,737 510,043
CSFB 1995-A 144A * 7.542 11/15/2005 750,000 745,071
FDIC Remic Trust 1994-C1 2C 8.450 9/25/2025 500,000 521,250
FHA Insured Project Mtg Series #15 7.450 5/01/2021 1,404,228 1,413,005
FHA #113 Puttable Project 8/3 7.430 6/01/2024 3,837,205 3,888,768
FHLMC 6.500 12/01/2023 - 4/01/2026 3,316,412 3,178,347
FHLMC 7.500 8/01/2026 973,275 974,180
FNMA + 6.500 7/01/2025 - 3/01/2026 3,413,631 3,260,017
FNMA + x 7.000 10/01/2023 - 2/01/2027 8,552,955 8,365,722
FNMA REMIC 1994-84 PJ 8.000 7/25/2023 975,000 1,017,656
GE Capital 96-A Erisa 7.250 12/25/11 494,220 495,456
GNMA + 7.000 11/15/2022 - 6/15/2026 8,618,004 8,450,809
GNMA + 7.500 10/15/2022 - 9/15/2025 1,705,617 1,711,638
GNMA 9.000 5/15/2016 - 9/15/2026 2,703,905 2,877,183
Lehman Brothers Commercial Conduit Mortgage Trust 1995-C2 7.054 9/25/2025 575,000 560,805
Merrill Lynch Mortgage Investments 1996-C2E 6.960 12/21/2028 700,000 656,469
Midstate Trust II A3 9.350 4/01/1998 150,000 153,281
ML Mtg Inv 1994-C1 Cl C 8.892 11/25/2020 1,095,000 1,132,812
Mortgage Capital Funding 1996 7.800 4/15/2026 497,000 512,221
Resolution Trust Corp. 1991-6 C-1 9.000 9/25/2028 226,620 232,710
Resolution Trust Corp. 1992-C2 A1 9.000 10/25/2021 225,573 227,054
Resolution Trust Corp. 1994-C2 D AL 1 8.000 4/25/2025 710,512 724,501
Resolution Trust Corp. 1995 C1 Cl C 6.900 2/25/2027 900,000 879,469
Resolution Trust Corp. 1995-1 A2C Erisa + 7.500 10/25/2028 1,000,000 1,009,688
Resolution Trust Corp. P-T Ser 1992-5 Sr A6 + 9.239 5/25/2026 2,150,000 2,202,406
Resolution Trust Corp. P-T Ser 1992-M4 A1 8.000 9/25/2021 404,184 406,963
Sears Credit Account 1987-B 8.000 5/25/2017 125,914 125,835
Structured Asset Security Corp. 1994-C1 D 6.870 8/25/2026 825,000 795,352
Structured Asset Security Corp. 1996-Cfl C 6.525 2/25/2028 200,000 195,375
--------------
TOTAL U.S. Government Agency (Cost $47,129,814) 47,224,086
--------------
<PAGE>
Par Value
Security Rate Maturity Value (Note 1A)
- -------------------------------------------------------- ------------ --------------------------- --------------- --------------
U.S. Treasury Obligations - 12.1%
- --------------------------------------------------------
Treasury Bonds - 5.6%
- --------------------------------------------------------
U.S. Treasury Bond + 7.625% 2/15/2025 $ 1,625,000 $ 1,805,018
U.S. Treasury Bond + 8.125 8/15/2019 875,000 1,012,130
--------------
2,817,148
--------------
Treasury Notes - 6.5%
- --------------------------------------------------------
U.S. Treasury Note 5.625 11/30/1998 400,000 398,188
U.S. Treasury Note 6.625 6/30/2001 2,375,000 2,413,214
U.S. Treasury Note (Strip) 0.000 8/15/2008 1,000,000 467,600
--------------
3,279,002
--------------
TOTAL U.S. Treasury Obligations (Cost $6,138,988) 6,096,150
--------------
TOTAL BONDS and NOTES (Cost $56,515,458) 56,470,351
--------------
Principal
Purchased Options - 0.0% Amount of
- --------------------------------------------------------
- --------------------------------------------------------
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -------------
UST Put/ 6.25% 10/1, Str 100.1328125, 1/6/97 (Premiums Paid $6,445) 11,000 3,438
--------------
Short-Term Investments - 3.3%
- --------------------------------------------------------
Repurchase Agreements - 3.2%
- --------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $1,599,920 (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 $1,631,399) $ 1,599,411 1,599,411
--------------
U.S. Government Agency - 0.1%
- --------------------------------------------------------
FNMA 5.400 1/17/1997 65,000 64,717
--------------
TOTAL Short-Term Investments (Cost $1,664,128) 1,664,128
--------------
TOTAL INVESTMENTS (Cost $58,186,030) - 114.9% $ 58,137,917
==============
<PAGE>
Principal
Written Options - 0.0% Amount of
Deliver/Receive, Excercise Price, Expiration Contracts
- -------------------------------------------------------- -------------
UST Call, 6.25% 10/01, Str 101.1328125, 1/6/97 11,000 $ (86)
--------------
Total Written Options (Premium Received $4,555) (86)
--------------
Other Assets Less Liabilities - (14.9%) (7,520,575)
--------------
NET ASSETS - 100.0% $ 50,617,256
==============
* This security is restricted but eligible for resale under 144A
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
x Denotes all or part of security is delayed delivery contract (see Note 7)
Abbreviations used in this statement
FNMA - Federal National Mortgage Association
FHLMC - Federal Home Loan Mortgage Corporation
GNMA - Government National Mortgage Association
FDIC - Federal Depository Insurance Corporation
FHA - Federal Housing Authority
ML - Merrill Lynch
FNARM - FNMA Adjustable Rate Mortgage
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Assets and Liabilities
December 31, 1996
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $58,186,030) $ 58,137,917
Interest receivable 342,617
Cash 27,790
Receivable for daily variation margin on fianancial futures contracts (Note 6) 24,219
Other assets 2,488
------------------
Total assets 58,535,031
Liabilities
Distribution payable $ 1,504,685
Payable for delayed delivery transactions, (Note 7) 6,384,219
Written options outstanding, at value (premiums received, $4,555) 86
Accrued trustee fees (Note 2) 362
Accrued expenses and other liabilities 28,423
-----------------
Total liabilities 7,917,775
------------------
Net Assets $50,617,256
==================
Net Assets consist of
Paid-in capital $ 52,745,999
Distributions in excess of net investment income (97,839)
Accumulated undistributed net realized loss (2,053,795)
Net unrealized appreciation 22,891
------------------
Total Net Assets $ 50,617,256
Shares of beneficial interest outstanding 2,569,380
==================
Net asset value, offering price, and redemption price per share $ 19.70
==================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Interest income $3,921,909
Expenses
Investment advisory fee (Note 2) $132,516
Accounting, custody and transfer agent fees 89,679
Audit services 31,509
Registration costs 3,257
Trustee fees (Note 2) 2,168
Legal services 2,880
Insurance expense 2,182
Miscellaneous 2,600
-----------------
Total expenses 266,791
Deduct:
Waiver of investment advisory fee (Note 2) (29,535)
-----------------
Net expenses 237,256
------------------
Net investment income 3,684,653
------------------
Realized and unrealized gain (loss)
Net realized gain (loss):
Investment securities ($235,337)
Written options 218,408
Financial futures contracts (349,453)
Foreign currency and forward foreign exchange contracts 33,042
-----------------
Net realized gain (loss) (333,340)
Change in net unrealized appreciation (depreciation):
Investment securities ($1,319,348)
Written options 10,153
Financial futures contracts 155,513
-----------------
Change in net unrealized appreciation (depreciation) (1,153,682)
------------------
Net realized and unrealized gain (loss) (1,487,022)
------------------
Net increase (decrease) in net assets from operations $2,197,631
==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund Series
Statement of Changes in Net Assets
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------
1996 1995
----------------- ------------------
Increase (decrease) in Net Assets
From operations
<S> <C> <C>
Net investment income $3,684,653 $3,780,223
Net realized gain (loss) (333,340) 1,131,513
Change in net unrealized (depreciation) appreciation (1,153,682) 3,537,677
----------------- ------------------
Net increase in net assets from operations 2,197,631 8,449,413
----------------- ------------------
Distributions to shareholders
From net investment income (3,663,175) (3,731,675)
----------------- ------------------
Total distributions to shareholders (3,663,175) (3,731,675)
----------------- ------------------
Fund share principal transactions (Note 4)
Net proceeds from sale of shares 70,000 1,275,000
Net asset value of shares issued to shareholders in
payment of distributions declared 402,234 591,437
Cost of shares redeemed (3,590,133) (5,162,432)
----------------- ------------------
Increase (decrease) in net assets from Fund share transactions (3,117,899) (3,295,995)
----------------- ------------------
Net increase (decrease) in net assets (4,583,443) 1,421,743
Net assets
At beginning of period 55,200,699 53,778,956
----------------- ------------------
At end of period (including distributions in excess of net investment income
of $97,839 and $163,094 at December 31, 1996 and 1995, respectively) $50,617,256 $55,200,699
================= ==================
The accompanying notes are an integral part of the financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
1996 1995 1994 1993 1992*
-------------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $20.25 $18.61 $20.24 $20.14 $20.97
-------------- ----------- ----------- ------------ -----------
Income (loss) from investment operations
Net investment income+ 1.43 1.32 1.42 1.45 1.43
Net realized and unrealized (loss) gain
on investments (0.57) 1.66 (1.86) 0.54 (0.61)
-------------- ----------- ----------- ------------ -----------
Total income (loss) from investment operations 0.86 2.98 (0.44) 1.99 0.82
-------------- ----------- ----------- ------------ -----------
Less distributions declared to shareholders
From net investment income (1.41) (1.34) (1.19) (1.48) (1.57)
In excess of net investment income --- --- --- (0.05) ---
From net realized gains on investments --- --- --- (0.36) (0.07)
In excess of net realized gains on investments --- --- --- --- (0.01)
-------------- ----------- ----------- ------------ -----------
Total distributions declared to shareholders (1.41) (1.34) (1.19) (1.89) (1.65)
-------------- ----------- ----------- ------------ -----------
Net asset value - end of period $19.70 $20.25 $18.61 $20.24 $20.14
============== =========== =========== ============ ===========
Total return 4.41% 16.32% (2.16%) 10.02% 4.07%
Net assets at end of period (In thousands) $50,617 $55,201 $53,779 $78,054 $90,460
Supplemental Data
Ratios to average daily net assets:
Expenses + 0.45% 0.45% 0.45% 0.45% 0.45%
Net investment income + 6.99% 6.78% 6.79% 6.75% 6.94%
Portfolio turnover 212% 225% 138% 130% 301%
+ 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 $1.40 $1.22 $1.41 $1.44 $1.42
Ratios to average daily net assets:
Expenses 0.51% 0.51% 0.49% 0.48% 0.51%
Net Investment Income 6.93% 6.72% 6.76% 6.72% 6.88%
* Audited by other auditors.
The accompanying notes are an integral part of the financial statements.
</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 Securitized Fund ("the Fund") is a separate
diversified investment series of the Trust. 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--
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 primarily 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
Fund are valued on an amortized cost basis. If the Fund 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 Fund 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 Fund
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, 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.
D. .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 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 carryovers are $1,745,441 and $234,501 which expire
on December 31, 2002 and December 31, 2004, respectively.
E. .Distributions to shareholders--
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. Distributions to
shareholders are recorded on the ex-dividend date. 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, futures and options transactions 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>
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W)
for overall investment advisory and administrative services, and
general office facilities, is paid monthly at the annual rate of 0.25%
of the Fund's average daily net assets up to the first $500,000,000 and
0.20% of assets in excess of this amount. SA&W has agreed to limit
total Fund operating expenses to 0.45% of the Fund's average daily net
assets. For the year ended December 31, 1996, SA&W voluntarily waived
$29,535 of its fee. 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
trustees and officers of the Trust are directors or officers of SA&W.
(3) ....Purchases and Sales of Investments:
Purchases and sales of investments, other than short-term obligations,
were as follows:
Purchases Sales
U.S. government securities $121,694,322 $126,243,666
================== ==================
Non-U.S. government securities $5,301,904 $4,506,758
================== ==================
(4) ....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 December 31
--------------------------------------
1996 1995
----------------- ------------------
<S> <C> <C>
Shares sold 3,450 64,329
Shares issued to shareholders in payment of distributions declared 20,413 29,757
Shares redeemed (179,930) (258,806)
----------------- ------------------
Net decrease (156,067) (164,720)
================= ==================
</TABLE>
At December 31, 1996, one shareholder, Allendale Mutual
Insurance Co., together with its affiliates, was record owner of
approximately 82% of the total outstanding shares of the Fund.
(5) ....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, are as follows:
Aggregate Cost $58,191,889
Gross unrealized appreciation 619,007
Gross unrealized depreciation (672,979)
-----------------
Net unrealized depreciation ($53,972)
=================
<PAGE>
6) .....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 Fund 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 Fund 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 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 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
written option transactions for the twelve months ended December 31,
1996 is as follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 2,750 $11,816
Options written 9,725 74,708
Options exercised (6,525) (29,965)
Options expired (4,850) (50,461)
Options closed (1,100) (6,098)
------------------ ------------------
Outstanding, end of period 0 $0
================== ==================
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
------------------ ------------------
Outstanding, beginning of period 3,900 $26,926
Options written 25,950 146,679
Options exercised (1,000) (5,000)
Options expired (13,750) (63,699)
Options closed (14,000) (100,351)
------------------ ------------------
Outstanding, end of period 1,100 $4,555
================== ==================
.........Forward foreign currency and cross currency exchange contracts--
The Fund 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 Fund's foreign securities
from adverse currency movements. At December 31, 1996, there were no
open forward foreign currency contracts.
<PAGE>
.........Futures Contracts--
The Fund 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 Fund 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
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 index, which may not correlate
with changes in value of the hedged investments. In addition, there is
the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund 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 Fund held the following futures
contracts:
<TABLE>
<CAPTION>
Expiration Underlying Face Unrealized
Contract Position Date Amount at Value Appreciation
- -------------------------- ------------------------ ------------- ----------------------------------
<S> <C> <C> <C> <C>
US 10 Year Note (31 contracts) Short 03/31/97 $3,382,875 $66,535
================ ================
</TABLE>
At December 31, 1996, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
(7) ....Delayed Delivery Transactions:
The Fund may purchase securities on a when-issued or forward commitment
basis. Payment and delivery may take place a month or more after the
date of the transactions. The price of the underlying securities and
the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. The Fund instructs its
custodian to segregate securities having a value at least equal to the
amount of the purchase commitment. At December 31, 1996, the Fund had
entered into the following delayed delivery transactions:
Type Security Settlement Date Amount
- ----------------------------------------------------------------------
Buy FNMA 2/13/97 $6,384,219
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Securitized Fund: We have audited the accompanying statement of
assets and liabilities of Standish, Ayer & Wood Investment Trust: Standish
Securitized Fund (the "Fund"), including the portfolio of investments, 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 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. Our procedures included confirmation of securities
owned as of December 31, 1996 by correspondence with the custodian and brokers.
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
Securitized 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 20, 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 International 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
Foreign bond markets posted positive returns on average during the year with the
J.P. Morgan Hedged Non-U.S. Government Bond index returning 12.16%. We are
pleased to report that the strategies employed in the Standish International
Fixed Income Fund resulted in a return of 15.28%, 312 basis points more than our
index.
Foreign economies were generally weak during the year, particularly in Europe.
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 case 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 appreciated during the year
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 mortgage 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
and an underweight in Japan 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 based on 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.
Thank you for your support during 1996. We will be working hard 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 International Fixed Income Fund Series
Comparison of Change in Value of $100,000 Investment in
Standish International Fixed Income Fund, the J.P. Morgan Hedged Non-U.S.
Government Bond Index and the 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 International
Fixed Income Fund compared with the J.P. Morgan Hedged Non-U.S. Government Bond
Index and the Lehman Aggregate 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 International Fixed Income Fund Series
Portfolio of Investments
December 31, 1996
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
BONDS and NOTES - 86.7%
Argentina - 1.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
<S> <C> <C> <C> <C>
Govt. of Argentina FBR 6.63 % 3/31/2005 18,620,000 $ 16,199,400
---------------------
Australia - 5.6%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Australia 10.00 10/15/2007 21,800,000 20,485,368
Govt. of Australia 12.00 11/15/2001 6,000,000 5,736,839
New South Wales Treasury 0.00 9/03/2010 15,600,000 4,399,387
South Australia Government Finance 0.00 12/21/2015 5,550,000 1,036,096
Treasury Corp. of Victoria 0.00 8/31/2011 5,500,000 1,419,990
-----
----------------
33,077,680
---------------------
Other
- -------------------------------------------------------
News America Holdings 8.63 2/07/2014 19,000,000 14,081,876
---------------------
Total Australia 47,159,556
---------------------
Canada - 1.6%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Canada 7.50 3/01/2001 12,000,000 9,450,241
Govt. of Canada 7.75 9/01/1999 5,400,000 4,235,357
-----
----------------
13,685,598
---------------------
Denmark - 7.7%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Kingdom of Denmark 8.00 11/15/2001 39,000,000 7,345,476
Kingdom of Denmark 9.00 11/15/1998 48,000,000 8,859,708
-----
----------------
16,205,184
---------------------
Other
- -------------------------------------------------------
Byggeriets Real Kredit 11.00 10/01/2017 124,000 23,574
Byggeriets Real Kredit 11.00 10/01/2020 80,000 15,141
Denmark Nykredit 7.00 10/01/2026 226,594,000 36,058,574
Denmark Nykredit 8.00 10/01/2026 57,466,000 9,817,787
Denmark Nykredit 11.00 10/01/2017 89,000 16,920
Denmark Realkredit 7.00 10/01/2026 14,864,000 2,365,352
Kreditforningen Ser 22A 11.00 10/01/2017 283,000 53,801
-----
----------------
48,351,149
---------------------
Total Denmark 64,556,333
----------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Europe - 0.8%
- -------------------------------------------------------
Other
- -------------------------------------------------------
Govt. of Italy (Strip) 0.00 % 3/07/1999 5,920,000 $ 6,761,620
---------------------
Finland - 3.1%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Finland 7.25 4/18/2006 111,000,000 25,845,957
---------------------
Germany - 12.3%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Baden Nurttemberg 6.20 11/22/2013 16,000,000 10,760,766
Bundesobligation 5.13 11/21/2000 12,750,000 8,500,000
Deutschland Republic 6.00 1/05/2006 12,650,000 8,325,761
Die Bundrep Deutschland Dm1000 8.25 9/20/2001 40,700,000 30,216,547
Federal Republic of Germany 6.25 1/04/2024 8,100,000 4,976,728
Federal Republic of Germany 8.00 7/22/2002 10,100,000 7,486,654
Federal Republic of Germany 8.38 5/21/2001 22,530,000 16,735,527
Federal Republic of Germany 9.00 10/20/2000 8,480,000 6,370,597
Province of Buenos Aires 10.00 3/05/2001 8,250,000 5,730,282
-----
----------------
99,102,862
---------------------
Other
- -------------------------------------------------------
LKB Global 6.00 1/25/2006 6,900,000 4,488,470
---------------------
Total Germany 103,591,332
---------------------
Ireland - 4.4%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Irish Gilts 6.25 4/01/1999 4,520,000 7,696,720
Irish Gilts 6.50 10/18/2001 16,850,000 29,006,310
-----
----------------
36,703,030
---------------------
Italy - 7.8%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Italy 8.50 1/01/1999 7,350,000,000 5,035,162
Govt. of Italy 8.50 1/01/1999 6,850,000,000 4,692,634
Govt. of Italy 9.50 5/01/2001 9,040,000,000 6,579,740
Govt. of Italy 9.50 5/01/2001 2,660,000,000 1,936,074
Govt. of Italy 10.50 11/01/2000 2,766,666,667 2,053,963
Govt. of Italy 10.50 11/01/2000 8,166,666,667 6,062,903
Govt. of Italy 10.50 11/01/2000 8,166,666,667 6,062,903
Govt. of Italy 10.50 11/01/2000 6,750,000,000 5,011,175
Govt. of Italy 10.50 11/01/2000 4,550,000,000 3,377,903
Govt. of Italy 12.00 9/01/2001 8,666,666,667 6,850,603
Govt. of Italy 12.00 9/01/2001 7,766,666,667 6,139,194
Govt. of Italy 12.00 9/01/2001 8,666,666,667 6,850,603
-----
----------------
60,652,857
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Other
- -------------------------------------------------------
Bank Nederlandse 10.50 % 6/18/2003 6,400,000,000 $ 4,910,599
---------------------
Total Italy 65,563,456
---------------------
Japan - 7.1%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Finland 6.00 1/29/2002 950,000,000 9,777,891
Govt. of Italy 5.13 7/29/2003 920,000,000 9,217,033
Kingdom of Spain 5.75 3/23/2002 915,000,000 9,339,020
-----
----------------
28,333,944
---------------------
Other
- -------------------------------------------------------
Interamer Development Bank 6.00 10/30/2001 770,000,000 7,901,832
KFW International Finance 6.00 11/29/1999 798,000,000 7,819,548
Kingdom of Belgium 5.00 12/17/1999 1,610,000,000 15,388,095
-----
----------------
31,109,475
---------------------
Total Japan 59,443,419
---------------------
New Zealand - 5.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Government Property Services 7.25 3/15/1999 1,500,000 1,046,416
Housing New Zealand 8.00 11/15/2006 11,950,000 8,467,119
-----
----------------
9,513,535
---------------------
Other
- -------------------------------------------------------
Fernz Capital + 9.80 4/15/2002 19,000,000 13,589,360
Fletcher Challenge 10.00 4/30/2005 7,000,000 5,272,974
Fletcher Challenge 14.50 9/30/2000 8,500,000 7,143,187
Fletcher Challenge Cvt 11.25 12/15/2002 13,000,000 10,260,997
Lion Nathan Ltd. 0.00 9/01/1997 5,793,293 3,862,029
-----
----------------
40,128,547
---------------------
Total New Zealand 49,642,082
---------------------
Norway - 4.7%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Govt. of Norway 7.00 5/31/2001 117,600,000 19,719,366
Govt. of Norway 9.00 1/31/1999 48,000,000 8,182,828
Govt. of Norway 9.50 10/31/2002 37,360,000 7,000,529
-----
----------------
34,902,723
---------------------
Other
- -------------------------------------------------------
Union Bank of Norway 12.75 10/26/2002 2,500,000 410,552
Vital Forsikring 7.85 9/22/2003 25,600,000 4,229,163
-----
----------------
4,639,715
---------------------
Total Norway 39,542,438
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Spain - 6.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Castilla Junta 8.30 % 11/29/2001 473,000,000 $ 3,929,230
Junta de Andalucia 11.10 12/02/2005 1,350,000,000 13,103,155
Kingdom of Spain 10.10 2/28/2001 2,160,000,000 19,121,693
Kingdom of Spain 10.30 6/15/2002 1,248,500,000 11,401,269
Kingdom of Spain 12.25 3/25/2000 1,153,000,000 10,519,406
-----
----------------
58,074,753
---------------------
Sweden - 3.5%
- -------------------------------------------------------
Government
- -------------------------------------------------------
Kingdom of Sweden 13.00 6/15/2001 71,800,000 13,518,816
Kingdom of Sweden #1036 10.25 5/05/2000 83,200,000 14,038,943
-----
----------------
27,557,759
---------------------
Other
- -------------------------------------------------------
Fulmar Mortgage Sec #1 7.65 11/01/2000 11,270,745 1,648,903
---------------------
Total Sweden 29,206,662
---------------------
United Kingdom - 12.9%
- -------------------------------------------------------
Government
- -------------------------------------------------------
UK Treasury 6.75 11/26/2004 8,700,000 14,303,279
UK Treasury 7.50 12/07/2006 4,540,000 7,765,193
UK Treasury 8.00 12/07/2000 14,720,000 25,901,533
UK Treasury 8.50 12/07/2005 6,400,000 11,668,992
-----
----------------
59,638,997
---------------------
Other
- -------------------------------------------------------
Alliance And Leicester Bldg Soc. 8.75 12/07/2006 7,100,000 12,398,304
Birmingham Midshires Bldg Soc. 9.13 1/05/2006 3,900,000 6,883,364
Inco Ltd. 15.75 7/15/2006 996,000 2,471,618
Lond & Scot Marine Oil Cvt 7.75 10/04/2005 250,000 406,497
Mepc Plc 12.00 6/30/2006 2,250,000 4,786,110
Northern Rock Building Soc. 9.38 10/17/2021 5,080,000 9,062,232
Royal Bank of Scotland 9.63 6/22/2015 380,000 699,352
Smithkline Beecham Corp. 8.13 11/25/1998 3,730,000 6,473,564
Woolwich Building Society 11.63 12/18/2001 2,800,000 5,469,198
-----
----------------
48,650,239
---------------------
Total United Kingdom 108,289,236
---------------------
United States - 0.5%
- -------------------------------------------------------
Other
- -------------------------------------------------------
Irsa Parcks Cvt 144A 4.50 8/02/2003 4,200,000 4,158,000
---------------------
TOTAL BONDS and NOTES (Cost $693,180,133) 728,422,872
---------------------
Principal
<PAGE>
Amount of Value
Security Contracts (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Purchased Options - 0.9%
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration
- -------------------------------------------------------
BGB 7% Put/ Str 106.29, 4/24/97 510,000,000 $ 167,280
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.50% Put/ Str 108.47, 4/30/97 8,000,000,000 24,000
BTPS 9.5% Put/ Str 107.44, 1/8/97 8,966,666,667 0
BTPS 9.5% Put/ Str 107.44, 1/08/97 17,933,333,333 0
CAN 7% Call, Str 105.71, 1/16/97 23,900,000 149,925
CHF Put/AUD Call, Str .9725, 9/10/97 10,200,000 601,341
CHF Put/GBP Call, Str 2.26, 9/25/97 25,100,000 507,622
CHF Put/USD Call, Str 1.30, 1/31/97 18,000,000 534,600
DBR 6.25% Call, Str 101.92, 10/20/97 27,400,000 308,332
DBR 6.25% Call, Str 102.33, 5/9/97 33,000,000 263,472
DBR 6.25% Call, Str 94.13, 2/6/97 25,700,000 201,874
DBR 6.25% Call, Str 96.00, 2/28/97 29,100,000 120,881
DEM 8.375% Call, Str 114.62, 1/09/97 32,260,000 20,937
DEM Put/ITL Call, Str 40.00, 09/08/97 24,800,000 544,137
DEM Put/USD Call, Str 1.502, 09/05/97 19,900,000 597,000
DEM Put/USD Call, Str 1.55, 4/22/97 14,800,000 187,960
DGB 8% Call, Str 108.84, 3/17/97 99,000,000 223,542
FRF 6.5% Put/ Str 103.65, 4/16/97 92,400,000 181,566
FRF Put/USD Call, Str 5.265, 3/20/97 16,900,000 126,750
FRF Put/USD Call, Str 5.30, 12/01/97 16,900,000 229,840
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Call, Str 109.68, 3/6/97 9,000,000,000 72,000
ITL 9.5% Put/ Str 102.07, 1/10/97 22,119,999,999 0
JGB 6.4% Call, Str 120.603, 2/5/97 4,200,000,000 12,600
JPY 4.8% Call, Str 115.912, 2/03/97 4,100,000,000 41,000
JPY Put/AUD Call, Str 86.00, 9/10/97 900,000,000 426,600
JPY Put/ITL Call, Str 14.50, 09/08/97 1,850,000,000 1,087,800
JPY Put/USD Call, Str 120.00, 1/5/98 16,900,000 218,010
SPGB 8.40% Call, Str 107.910, 2/19/97 2,100,000,000 241,500
SPGB 8.40% Put/ Str 105.65, 4/30/97 2,000,000,000 30,000
UKT 7.5% Call, Str 99.0625, 2/14/97 10,200,000 240,108
USD Put/MXP Call, Str 9.12, 9/30/97 7,100,000 299,620
---------------------
Total Purchased Options (Premium Paid $7,120,927) 7,852,297
---------------------
<PAGE>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Short-Term Investments - 12.6%
- -------------------------------------------------------
Repurchase Agreements - 2.5%
- -------------------------------------------------------
Prudential-Bache Repurchase Agreement, dated 12/31/96,
5.72% due 1/2/97, to pay $21,268,997(Collateralized by
FMAC FGPC's with rates ranging from 6.5% to 9.5% and
maturity dates ranging from 12/01/10 to 4/01/24 with an
aggregate market value of $21,687,485. 21,262,241 $ 21,262,241
---------------------
U.S. Government Agency - 10.1%
- -------------------------------------------------------
FHLB 5.20 % 1/09/1997 11,970,000 11,881,821
FHLMC 5.22 1/03/1997 8,000,000 7,950,120
FHLMC 5.28 1/07/1997 17,863,000 17,792,263
FHLMC 5.70 1/07/1997 4,030,000 4,025,533
FNMA 5.30 1/08/1997 7,200,000 7,170,320
FNMA 5.50 1/15/1997 20,000,000 19,932,778
FNMA 5.70 1/09/1997 5,480,000 5,472,191
FNMA 6.50 1/02/1997 10,000,000 9,996,388
-----
----------------
84,221,414
---------------------
Total Short-Term Investments (Cost $105,483,655) 105,483,655
---------------------
TOTAL INVESTMENTS (Cost $805,784,715) - 100.2% 841,758,824
---------------------
Principal
Written Options - (0.2%) Amount of
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration Contracts
- ------------------------------------------------------- -------------------
USD Put/JPY Call, Str 1.05, 1/05/98 16,900,000 (218,010)
AUD Put/CHF Call, Str .9060, 9/10/97 10,200,000 (42,626)
AUD Put/JPY Call, Str 79.0000, 9/10/97 900,000,000 (54,900)
DBR 6.25% Call, Str 101.92, 4/18/97 27,400,000 (282,823)
DBR 6.25% Put/ Str 101.60, 4/16/97 27,300,000 (173,683)
DBR 6.25% Put/ Str 101.650, 4/24/97 24,700,000 (166,750)
DBR 8.25% Put/ Str 112.420, 2/19/97 25,000,000 (27,600)
DBR 8.25% Put/ Str 113.57, 4/30/97 23,750,000 (201,970)
DBR 8.25% Put/ Str 113.58, 4/30/97 24,000,000 (243,048)
DEM 6.25% Put/ Str 101.95, 1/08/97 27,000,000 (3,510)
DGB 8% Call, Str 111.84, 3/17/97 99,000,000 (58,806)
DGB 8% Put/ Str 105.84, 3/17/97 99,000,000 (45,342)
GBP Put/CHF Call, Str 1.835, 9/25/97 21,000,000 (18,816)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Call, Str 111.68, 3/6/97 9,000,000,000 (18,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 (9,000)
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 (9,000)
<PAGE>
Principal
Amount of Value
Security Contracts (Note 1A)
- ------------------------------------------------------- --------------- -------------- ---------------------- ---------------------
Written Options - (continued)
- -------------------------------------------------------
- -------------------------------------------------------
Deliver/Receive, Exercise Price, Expiration
- -------------------------------------------------------
ITL 9.5% Put/ Str 107.68, 3/6/97 9,000,000,000 $ (9,000)
ITL Put/DEM Call, Str 80.0000, 09/08/97 24,800,000 (48,286)
ITL Put/JPY Call, Str 15.1000, 09/08/97 1,850,000,000 (120,250)
UKT 7.5% Call, Str 102.0625, 2/14/97 10,200,000 (49,122)
USD Put/CHF Call, Str 1.22, 1/31/97 18,000,000 (9,000)
USD Put/CHF Call, Str 1.42, 3/20/97 16,900,000 (50,700)
USD Put/DEM Call, Str 1.3800, 09/05/97 19,900,000 (83,580)
USD Put/DEM Call, Str 1.425, 4/22/97 14,800,000 (35,520)
---------------------
Total Written Options (Premium Received $4,732,745) (2,015,342)
---------------------
Other Assets less Liabilities - 0.0% 389,336
---------------------
NET ASSETS - 100.0% $ 840,132,818
================
* This security is restricted, but eligible for resale under 144A.
+ Denotes all or part of security pledged as a margin deposit (see Note 6)
(a) The principal amounts of these bonds are stated in the currency of the classification
CAN - Canadian Dollar USD United States Dollar
CHF - Swiss Franc DEM German Deutschemark
AUD - Australian Dollar FRF French Franc
GBP - British Pound Sterling ITL Italian Lira
FHLMC - Federal Home Loan Mortgage Corporation JPY Japanese Yen
FNMA - Federal National Mortgage Association
FHLB - Federal Home Loan Bank
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $805,784,715) $841,758,824
Receivable for investments sold 5,711,998
Interest receivable 19,659,599
Net unrealized appreciation on forward foreign currency
exchange contracts (Note 6) 6,273,366
Interest rate swap contracts at value (Note 6) 24,001
----------------
Total assets $873,427,788
Liabilities
Distribution payable $20,615,202
Payable for investments purchased 6,048,938
Unrealized depreciation on forward foreign exchange contracts (Note 6) 4,481,724
Written options outstanding, at value (premiums received, $4,732,745) (Note 6) 2,015,342
Accrued custodian fees 66,737
Accrued expenses and other liabilities 60,292
Accrued trustee fees (Note 2) 6,735
------------------
Total liabilities 33,294,970
----------------
Net Assets $840,132,818
================
Net assets consist of
Paid-in capital $787,273,190
Undistributed net investment income 7,509,300
Accumulated undistributed net realized gain 6,107,628
Net unrealized appreciation 39,242,700
----------------
Total net assets $840,132,818
================
Shares of beneficial interest outstanding 36,136,500
================
Net asset value, offering price, and redemption price per share $23.25
================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of these financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Interest income (net of withholding taxes of $56,974) $62,030,870
Expenses
Investment advisory fee (Note 2) $3,234,397
Accounting, custody and transfer agent fees 771,266
Legal fees 116,190
Audit services 46,275
Insurance expense 34,944
Trustees fees (Note 2) 34,923
Miscellaneous 4,995
-----------------
Total expenses 4,242,990
----------------
Net investment income 57,787,880
----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities (including gain from purchased options of $8,565,457) $35,914,375
Written options 8,494,142
Financial futures contracts (703,509)
Foreign currency and foreign exchange contracts 13,626,884
-----------------
Net realized gain (loss) 57,331,892
Change in net unrealized appreciation (depreciation)
Investment securities $5,099,934
Written options 2,186,730
Financial futures contracts 940
Interest rate swap contracts 24,001
Foreign currency and foreign exchange contracts (5,678,286)
-----------------
Change in net unrealized appreciation (depreciation) 1,633,319
----------------
Net realized and unrealized gain (loss) 58,965,211
----------------
Net increase (decrease) in net assets from operations $116,753,091
================
The accompanying notes are an integral part of these financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statements of Changes in Net Assets
Year Ended December 31,
-------------------------------------------
1996 1995
------------------- ---------------------
Increase (decrease) in Net Assets
From operations
Net investment income $57,635,263 $79,260,556
Net realized gain (loss) 57,382,433 18,355,655
Change in net unrealized appreciation (depreciation) 1,735,395 62,727,279
------------------- ---------------------
Net increase (decrease) in net assets from operations 116,753,091 160,343,490
------------------- ---------------------
Distributions to shareholders
From net investment income (88,136,980) (69,501,890)
From net realized gains on investments (24,989,660)
------------------- ---------------------
Total distributions to shareholders (113,126,640) (69,501,890)
------------------- ---------------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 202,993,713 79,384,197
Net asset value of shares issued to shareholders in
payment of distributions declared 86,471,969 47,953,848
Cost of shares redeemed (256,496,190) (484,059,233)
------------------- ---------------------
Increase (decrease) in net assets from Fund share transactions 32,969,492 (356,721,188)
------------------- ---------------------
Net increase (decrease) in net assets 36,595,943 (265,879,588)
Net assets:
At beginning of period 803,536,875 1,069,416,463
------------------- ---------------------
At end of period (including undistributed net investment
income of $7,509,300 and distributions in excess of net investment $840,132,818 $803,536,875
=================== =====================
income of $2,477,089 at December 31, 1996 and 1995, respectively)
The accompanying notes are an integral part of these financial statements.
</TABLE>
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Financial Highlights
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
1996 (1) 1995 1994 1993 1992*
------------- ------------- ------------- ------------- ------
<S> <C> <C> <C> <C> <C>
Net asset value - beginning of period $23.21 $21.30 $24.22 $21.20 $22.05
------------- ------------- ------------- ------------- ------
Income from investment operations
Net investment income 1.72 1.96 1.71 2.03 2.01
Net realized and unrealized gain (loss) 1.73 1.84 (3.93) 2.90 (0.25)
------------- ------------- ------------- ------------- ------
Total from investment operations 3.45 3.80 (2.22) 4.93 1.76
------------- ------------- ------------- ------------- ------
Less distributions declared to shareholders
From net investment income (2.64) (1.89) (0.20) (1.53) (2.03)
From net realized gains on investments (0.77) --- --- (0.26) (0.54)
In excess of net realized gains on investments --- --- --- --- (0.04)
In excess of net investment income --- --- --- (0.12) ---
Tax return of capital --- --- (0.50) --- ---
------------- ------------- ------------- ------------- ------
Total distributions declared to shareholders (3.41) (1.89) (0.70) (1.91) (2.61)
------------- ------------- ------------- ------------- ------
Net asset value - end of period $23.25 $23.21 $21.30 $24.22 $21.20
============= ============= ============= ============= ======
Total return 15.28% 18.13% (9.22%) 23.77% 8.07%
Net assets at end of period (000 omitted) $840,133 $803,537 $1,069,416 $1,131,201 $384,660
Ratios (to average daily net assets)/Supplemental Data:
Expenses 0.53% 0.51% 0.51% 0.51% 0.59%
Net investment income 7.17% 8.09% 7.69% 7.53% 8.37%
Portfolio turnover 226% 165% 158% 98% 175%
* Audited by other auditors.
(1) The per share data was calculated based upon
average shares outstanding during the year.
The accompanying notes are an integral part of these financial statements.
</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 International Fixed Income Fund (the "Fund") is a
separate non-diversified investment series of the Trust. The following
is a summary of significant accounting policies consistently followed
by the Fund 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, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily 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 Fund are
valued at amortized cost. If the Fund 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 Fund 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 Fund
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. Realized gains and losses
from securities sold are 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.
D. .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.
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.
<PAGE>
F. .Distributions to shareholders-
Distributions to shareholders are recorded on the ex-dividend date.
Distributions in excess of net realized gain on investments, written
options, and foreign currency arise because of certain timing
differences. Dividends from net investment income and distributions
from capital gains, 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 options, futures 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).
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company, L.P. (SIMCO) for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.40% of the Fund's average daily net assets.
SIMCO has voluntarily agreed to limitthe total annual operating
expenses of the Fund (excluding brokerage commissions, taxes and
extraordinary expenses) to 0.80% of the Fund's average daily net
assets. 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 SIMCO. Certain of the
trustees and officers of the Trust are directors 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
Non-U.S. Government securities $1,628,614,838 $1,721,147,921
====================== ======================
U.S. Government securities $20,444,584 $20,694,000
====================== ======================
(4) ....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:
Year Ended December 31,
1996 1995
---------------- --------------------
Shares sold 8,454,273 3,493,337
Shares issued to shareholders in
payment of distributions declared 3,702,434 2,095,788
Shares redeemed (10,643,614) (21,174,451)
---------------- --------------------
Net increase (decrease) 1,513,093 (15,585,326)
================ ====================
(5) ....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, are as follows:
Aggregate cost $806,190,863
==================
Gross unrealized appreciation $44,312,256
Gross unrealized depreciation (8,744,295)
------------------
Net unrealized appreciation $35,567,961
==================
<PAGE>
(6) ....Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, the 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 Fund's Prospectus and Statement of Additional Information.
The Fund trades the following 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 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 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 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 twelve months ended December 31, 1996 is as
follows:
Written Put Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 4 $972,358
Options written 44 6,591,423
Options exercised (1) (204,079)
Options expired (17) (2,515,411)
Options closed (19) (2,629,324)
Outstanding, end of period 11 $2,214,967
Written Call Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 2 $451,202
Options written 30 3,576,577
Options exercised (4) (342,177)
Options expired (10) (1,904,139)
Options closed (9) (635,768)
Outstanding, end of period 9 $1,145,695
Written Cros Currency Option Transactions
- --------------------------------------------------------------------------------
Number
of Contracts Premiums
Outstanding, beginning of period 3 $799,386
Options written 16 3,709,052
Options exercised --- ---
Options expired (2) (116,185)
Options closed (12) (3,020,170)
Outstanding, end of period 5 $1,372,083
<PAGE>
.........Forward currency exchange contracts--
The Fund 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 Fund's
foreign securities from adverse currency movements. At December 31,
1996, the Fund held the following forward foreign currency and cross
currency exchange contracts:
Forward Foreign Currency Contracts
<TABLE>
<CAPTION>
Local U.S. $ U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
- -------------------------- -------------------- --------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C> <C>
Australian 21,012,110 2/6/97 $16,682,634 $16,899,267 ($216,633)
Swiss Franc 16,750,000 8/4/97 12,782,943 14,546,244 (1,763,301)
CCzech Koruna 411,601,050 08/27/97 14,516,416 14,779,213 (262,797)
Deutsche Mark 57,811,899 4/22-8/01/97 38,009,286 38,575,906 (566,620)
Danish Krone 93,265,433 2/18-8/4/97 15,921,943 15,785,870 136,073
Spanish Peseta 415,334,142 1/29/97 3,193,565 3,244,925 (51,360)
Finnish Markka 32,600,000 1/8/97 7,089,628 7,239,686 (150,058)
British Pound Sterling 135,000 12/31/96 231,120 205,756 25,364
Greek Drachma 2,372,150 8/1/97 9,302 9,266 36
Irish Punt 4,489,135 1/17/97 7,601,435 7,332,553 268,882
Italian Lira 108,938,194,766 12/30/96-8/1/97 71,588,366 71,031,511 556,855
Japanese Yen 2,083,123,069 2/24/97 18,076,128 18,937,482 (861,354)
Norwegian Krone 35,040,954 1/13-7/21/97 5,503,478 5,407,555 95,923
Swedish Krona 58,638,560 1/8-5/19/97 8,630,919 8,641,490 (10,571)
==================== ================ ================ ==============
Total 112,170,368,268 219,837,163 222,636,724 (2,799,561)
==================== ================ ================ ==============
Local U.S. $ U.S. $
Principal Contract Market Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
- -------------------------- -------------------- --------------- ---------------- ---------------- --------------
Australian Dollar 80,482,590 2/6 -3/27/97 63,894,638 63,421,787 (472,851)
British Pound Sterling 62,531,147 1/7 -3/27/97 106,951,352 101,750,777 (5,200,575)
Canadian Dollar 19,428,924 2/10 - 3/24/97 14,235,735 14,339,213 103,478
Danish Krone 548,649,325 1/10 - 8/4/97 93,685,667 94,796,299 1,110,632
Deutsche Mark 207,171,996 1/9 -8/1/97 135,386,986 136,440,415 1,053,429
European Currency Unit 3,530,046 2/7/97 4,430,297 4,476,275 45,978
Finnish Markka 119,539,839 1/8 -6/3/97 26,237,840 26,389,975 152,135
French Franc 73,800,000 8/27/97 14,428,770 14,779,213 350,443
Greek Drachma 3,781,422,750 8/1/97 14,827,752 14,463,447 (364,305)
Irish Punt 25,765,453 1/17 -2/24/97 43,618,784 42,608,375 (1,010,409)
Italian Lira 208,420,088,715 1/2 -7/21/97 136,872,183 135,659,389 (1,212,794)
Japanese Yen 9,192,962,553 2/5 -3/13/97 79,736,092 86,287,155 6,551,063
New Zealand 70,095,867 1/13 -2/18/97 49,414,147 49,093,888 (320,259)
Norwegian Krone 301,942,107 1/13 -7/21/97 47,572,025 47,189,262 (382,763)
Spanish Peseta 7,912,337,278 1/29 -6/20/97 60,795,480 61,940,222 1,144,742
Swedish Krona 307,935,039 1/8 - 6/05/97 45,282,186 45,621,717 339,531
-------------------- ---------------- ---------------- --------------
Total 231,127,683,629 937,369,934 939,257,409 1,887,475
==================== ================ ================ ==============
Forward Foreign Cross Currency Contracts
U.S. $ U.S. $ Contract U.S. $ Unrealized
Contracts to Deliver Market Value In Exchange For Market Value Value Date Gain/ (Loss)
- -------------------------- -------------------- --------------------------------- ---------------- --------------
Swiss Franc 13,106,811 Norwegian Krone 14,722,470 7/21/97 1,615,659
Swiss Franc 12,782,943 Danish Krone 13,872,500 8/4/97 1,089,557
Deutsche Mark 14,202,558 Greek Drachma 14,818,450 8/1/97 615,892
Finnish Markka 7,089,628 Swedish Krona 7,476,571 1/8/97 386,943
Norwegian Krone 14,111,384 Swiss Franc 13,106,811 7/21/97 (1,004,573)
-------------------- ---------------- --------------
Total 61,293,324 63,996,802 3,321,108
==================== ================ ==============
</TABLE>
<PAGE>
.........Futures contracts--
The Fund 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 Fund 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
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. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund 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 Fund held no open futures
contracts.
.........Interest rate swap contracts--
Interest rate swaps involve the exchange by the Fund 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 Fund 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 Fund anticipates purchasing at a later date. At
December 31, 1996, the Fund held the following interest rate swap
contracts:
<TABLE>
<CAPTION>
Unrealized
Expiration Notional Amount Appreciation/
Contract Date Local (Depreciation)
- ------------------------ ----------------- --------------------- --------------
<S> <C> <C> <C>
Deutsche Mark 12/16/2000 12,750,000 $8,300,536
Deutsche Mark 12/16/2000 (12,750,000) (8,276,535)
--------------
$24,001
==============
</TABLE>
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish International Fixed Income Fund: We have audited the accompanying
statement of assets and liabilities of Standish, Ayer & Wood Investment Trust:
Standish International Fixed Income Fund (the "Fund"), including the portfolio
of investments, 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. Our procedures included
confirmation of securities owned as of December 31, 1996 by correspondence with
the custodian and brokers. 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 International 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 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>
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 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 International Equity Fund
Financial Statements for the Year Ended
December 31, 1996
<PAGE>
Standish, Ayer & Wood Investment Trust
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>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Management Discussion
The international equity markets did not provide as exciting returns for US
investors in 1996 as did our domestic market. The return of the MSCI EAFE was
6.04%. The Standish International Equity Fund return was 7.44% while its
benchmark, which changed back from EAFE GDP in December to EAFE, was 7.24%. The
fund was ahead of its benchmark for virtually the entire year but gave up much
of its incremental return in the second half due to negative experience in
emerging markets.
For the year, there were fairly attractive gains in many foreign markets, with
twelve of the twenty EAFE markets providing returns in excess of 20% in local
currencies. In fact, the strong US return placed it below median in local market
returns of countries in the MSCI World Index. Unfortunately, Japan--with the
largest weighting in EAFE--was a notable exception, off 4.9% for the year in
local terms. The dollar strengthened against most currencies, increasing 4.7%
against an EAFE-weighted basket of currencies.
The fund had most of the extremes--best and worst markets--correctly positioned
in 1996, as we were overweight Spain--the strongest market in the index--and
underweight Singapore and Switzerland--two of the weakest markets-- for
virtually the entire year. Our largest overweights for the year were in
Scandinavia, especially Finland (up 33.9% in dollar terms) and Norway (up 28.6%
in dollar terms). Our largest underweights besides Switzerland were in Germany
and the United Kingdom which were up mid-teens in local terms.
Our Japanese weighting during the course of the year averaged out to a very
slight overweight. Even this small overweight hurt performance against our
benchmark and in comparison with other managers, who were generally
underweighted. Most price multiples in Japan are at relatively low historical
levels and earnings are growing. Meanwhile, ten-year bond yields are at 2.6%.
Emerging markets performed relatively well in the first half of 1996, and the
fund benefited from its position in emerging markets, which averaged returns of
approximately 15% in the first half. Performance reversed in the second half of
1996, resulting in a return for the year of only 3.9%, even lower than that of
EAFE. We had reduced our position in emerging markets to less than 5% of the
fund by year end, but the decline in return of this area had an adverse impact
on the fund return in the latter half of the year.
In December we began implementing some exciting enhancements to the fund. We
began using active stock selection techniques which we believe will add value
within markets. These techniques are similar to those used by Standish in our
core equity fund and are based on investment models developed during twelve
years of experience managing international equity portfolios. We will be
focusing on stocks that have attractive valuation (i.e. low price multiples
relative to history) and improving growth prospects. The other significant
change, alluded to in the first paragraph, is the reversion to use of
cap-weighted EAFE as our benchmark. Cap-weighted EAFE rather than GDP EAFE is
the industry standard and was the fund's benchmark from 1988 until 1995. The
discontinuities of the GDP weighted benchmark and its lack of connection to
liquidity considerations make it too cumbersome for continued use.
Finally, we would like to thank all of our shareholders for your continued
support. We are working diligently to earn and reward that support in 1997.
Remi Browne
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Comparison of Change in Value of $100,000 Investments in Standish
International Equity Fund, the EAFE GDP Index and the EAFE Index
The following is a description of the graphical chart omitted from electronic
format:
This line chart shows the cumulative performance of the Standish International
Equity Fund compared with the EAFE GDP Index and the EAFE Index for the period
December 8, 1988 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 International Equity Fund Series
Portfolio of Investments
December 31, 1996
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Equities - 96.6%
- ---------------------------------
Austria - 3.4%
- ---------------------------------
<S> <C> <C>
BWT STAMM 2,200 $ 227,439
Creditanstalt-Bankverein 7,800 528,215
Creditanstalt-Bkverein:Vorzug 1,500 69,290
Ea-Generali AG 500 147,820
Oemv AG * 3,300 372,256
Radex-Heraklith Indust. AG 9,200 291,537
---
--------------
1,636,557
-----------------
Belgium - 3.0%
- ---------------------------------
Almanij 800 262,212
Banque Bruxelles Lampert SA * 1,200 254,523
Electrabel SA 1,000 236,685
Groupe Bruxelles Lambert SA * 1,800 231,737
Petrofina SA 800 254,649
Tessenderlo Chemie 400 171,762
---
--------------
1,411,568
-----------------
Denmark - 3.6%
- ---------------------------------
Danisco As 3,569 216,879
Den Danske Bank 4,165 335,813
DFDS A/S 350 258,432
FLS Industries As Cl B 1,559 199,794
Novo-Nordisk As 1,803 339,709
Tele Danmark Cl B 6,566 362,221
---
--------------
1,712,848
-----------------
Finland - 2.0%
- ---------------------------------
Nokia Corp. ADR A 7,000 402,500
Pohjola Insurance Company, Class A 7,400 172,101
Upm-Kymmeme 9,440 198,000
Valmet Cl A 10,000 174,752
---
--------------
947,353
-----------------
France - 3.0%
- ---------------------------------
Banque National De Paris 4,900 189,531
Bertrand Faure 4,800 186,859
Casino French Ord 3,500 162,882
CGIP 500 137,821
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
France - (continued)
- ---------------------------------
Elf Gabon SA 900 $ 229,702
ERAMET SLN 1,900 99,547
Europe 1 Communication 700 148,319
SEITA 6,500 271,694
---
--------------
1,426,355
-----------------
Germany - 5.3%
- ---------------------------------
Commerzbank AG 17,700 449,250
Heidelberger Zement AG * 5,700 460,662
Kolbenschmidt AG * 30,700 422,486
Muenchener Rueckversicherungs-Gesellschaft AG 180 449,270
Puma AG 11,400 386,290
Viag AG 900 352,872
---
--------------
2,520,830
-----------------
Hong Kong - 4.8%
- ---------------------------------
Elec & Eltek International 1,320,000 290,110
Great Eagle Holdings Ltd 157,000 647,485
Guoco Group Ltd 74,000 414,247
Harbour Centre Development 150,000 221,073
Hong Kong Telecom 83,000 133,594
New Asia Realty & Trust Co., Class A 81,000 298,972
Swire Pacific Ltd., Class A 30,000 286,037
---
--------------
2,291,518
-----------------
Ireland - 4.1%
- ---------------------------------
Allied Irish Banks PLC 68,300 458,038
Avonmore Foods PLC, Class A 34,000 100,187
CRH PLC 12,100 122,841
CRH PLC 16,600 172,046
DCC PLC 22,300 97,434
Fii Fyffes PLC 1 197,700 368,285
Hibernian Group PLC 47,000 226,844
Smurfit (Jefferson) Group 142,700 433,784
---
--------------
1,979,459
-----------------
Italy - 4.8%
- ---------------------------------
Banca Popolare Di Milano 58,000 294,162
Danieli & Company 36,000 295,418
ENI SPA 101,000 518,830
Parmalat Finanziaria SPA 76,000 116,076
Telecom Italia SPA 228,000 591,389
Unipol-PTC Pfd 222,000 453,061
---
--------------
2,268,936
-----------------
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - 32.6%
- ---------------------------------
Ajinomoto Co Inc 16,000 $ 162,576
Aoyama Trading Company Ltd 15,000 397,830
Asahi Glass Co Ltd 31,000 290,967
Canon Inc. 17,000 374,752
Chugoku Bank Ltd 27,000 395,247
Credit Saison 24,000 535,262
Daikin Industries Ltd 43,000 381,383
Fanuc Company 9,000 287,523
Fuji Bank 25,000 363,816
Fuji Heavy Industry 90,000 362,697
Fuji Photo Film 10,000 328,942
Furukawa Company Ltd 100,000 335,831
Hokkaido Electric Power 8,000 157,065
Honda Motor Company Ltd 10,000 285,025
Industrial Bank of Japan 23,000 398,088
Japan Energy Corp 88,000 238,698
Japan Radio 37,000 395,074
Joyo Bank 56,000 336,588
Kawasaki Kisen Kaisha Ltd * 200,000 454,663
Komori Corp. 20,000 423,663
Kubota Corp. 52,000 250,306
Kurabo Industries 121,000 343,839
Kyushu Electric Power Company 20,000 387,497
Mitsubishi Gas Chemical Company 106,000 380,625
Mitsui Petrochemical 57,000 294,498
Mochida Pharmaceutical 37,000 356,841
NEC Corp. 13,000 156,721
Nippon Denso Corp. 12,000 288,298
Nissan Fire & Marine Insurance 87,000 479,463
Nitto Boseki Company Ltd * 126,000 341,772
Ono Pharmaceutical 17,000 505,037
Rinnai Corp 13,000 260,828
Seventy Seven Bank * 43,000 351,761
Shionogi & Company 49,000 348,945
Sumitomo Heavy Industries * 54,000 163,679
Sumitomo Warehouse 89,000 448,334
Suzuki Motor Company Ltd 40,000 365,108
Takashimaya Company 39,000 466,804
Takeda Chemical Industries Ltd 13,000 272,023
Takuma Company 25,000 273,400
Teijin Limited 53,000 230,931
<PAGE>
Value
Security Shares (Note 1A)
- --------------------------------- --------------- -----------------
Japan - (continued)
- ---------------------------------
Tokyo Broadcasting 34,000 $ 518,212
Toshiba Tungaloy 59,000 261,138
Toyo Suisan Kaisha Ltd 37,000 369,586
Yamaguchi Bank 25,000 365,969
Yodogawa Steel Works 29,000 176,053
---
--------------
15,563,358
-----------------
Malaysia - 4.3%
- ---------------------------------
Arab Malaysian Finance Berhad 48,000 256,532
Faber Group Berhad * 115,000 109,264
IGB Corporation 140,000 155,740
Landmarks Berhad 100,000 133,017
Malayan Cement Berhad 105,000 241,093
Pan-Malaysian Cement Works 115,000 116,093
Renong Berhad 144,000 255,392
Shell Refining Company Berhad 74,000 216,785
Systems Telekom Malaysia 29,000 258,314
Tan Chong Motor Holdings Berhad 117,000 198,242
UMW Holdings Berhad 27,000 126,128
---
--------------
2,066,600
-----------------
Norway - 5.2%
- ---------------------------------
Den Norske Bank 87,200 335,332
Elkem A/S, Series A * 12,600 207,660
Kvaerner Cl B 6,267 272,478
Leif Hoegh & Company 13,000 265,264
Norsk Hydro 14,379 780,903
Orkla As A-Aksjer * 6,137 430,582
Saga Petroleum As Cl A 12,300 206,577
---
--------------
2,498,796
-----------------
Singapore - 2.0%
- ---------------------------------
Creative Technology Ltd * 16,000 166,857
Development Bank of Singapore 20,000 270,000
Hong Kong Land Holdings Ltd * 37,000 102,860
Mandarin Oriental 93,000 131,130
Robinson & Co. 31,000 125,107
Singapore Airlines Ltd. 3,000 27,214
Singapore Telecom Ltd. 58,000 136,714
---
--------------
959,882
-----------------
<PAGE>
Value
Security Rate + Maturity Shares (Note 1A)
- --------------------------------- -------------- ----------- --------------- -----------------
Spain - 2.1%
- ---------------------------------
Banco de Santander 4,181 $ 267,365
Grupo Anaya SA 7,500 139,958
Iberdrola SA 27,274 386,181
Telefonica Nacional de Espana 9,274 215,168
---
--------------
1,008,672
-----------------
United Kingdom - 16.4%
- ---------------------------------
Arjo Wiggins Appleton PLC 108,000 330,964
Bank of Scotland * 74,000 390,199
British Petroleum Company PLC * 67,000 803,502
British Telecommunications PLC 45,000 304,308
Glaxo Wellcome PLC 25,200 408,990
Great Portland Estates PLC 135,000 481,885
Guinness PLC 47,000 369,330
Hazlewood Foods PLC 192,000 350,070
Hepworth PLC 69,000 299,454
HSBC Holdings PLC 23,000 514,644
Royal & Sun Alliance Insurance Group 60,500 461,949
Scottish Hydro-Electric PLC 55,000 308,845
Scottish Power PLC 51,500 311,233
Scottish Newcastle Breweries * 38,500 452,486
South West Water PLC 47,500 490,360
Storehouse PLC 101,000 446,978
Tesco PLC 72,500 440,626
Tomkins PLC 71,000 328,190
Unigate PLC 50,000 355,668
---
--------------
7,849,681
-----------------
TOTAL Equities (Cost $45,007,533) 46,142,413
-----------------
Short-Term Investments - 2.6%
- ---------------------------------
Par
Federal Agency Discount Notes - 2.6% Value
- ------------------------------------------------ -------------
FHLB + 5.300% 3/12/1997 $ 225,000 222,658
FNMA + 5.220% 1/16/1997 1,000,000 997,830
---
--------------
TOTAL Short-Term Investments (Cost $1,220,506) 1,220,488
-----------------
TOTAL INVESTMENTS (Cost $46,228,039) - 99.2% 47,362,901
Other Assets less Liabilities - 0.8% 375,614
-----------------
NET ASSETS - 100.0% $ 47,738,515
=================
Notes to the Schedule of Investments:
* Non-income producing security.
+ Rate noted is yield to maturity.
** Denotes all or part of security pledged as a margin deposit (see Note 6)
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Assets and Liabilities
December 31, 1996
Assets
<S> <C> <C>
Investments, at value (Note 1A) (identified cost, $46,228,039) $47,362,901
Cash 306,510
Receivable for investments sold 10,701
Interest and dividends receivable 47,153
Net unrealized appreciation on forward foreign currency exchange contracts (Note 6) 382,340
Receivable for foreign dividend tax reclaims 97,316
Receivable from Investment Adviser (Note 2) 3,269
-----------------
Total assets 48,210,190
Liabilities
Distribution payable $252,106
Unrealized depreciation on forward foreign currency exchange contracts (Note 6) 186,398
Payable for daily variation margin on financial futures contracts (Note 6) 2,799
Accrued trustee fees (Note 2) 318
Accrued expenses and other liabilities 30,054
-----------------
Total liabilities 471,675
-----------------
Net Assets $47,738,515
=================
Net Assets consist of
Paid-in capital $43,985,314
Undistributed net investment income 8,961
Accumulated undistributed net realized gain (loss) 2,408,548
Net unrealized appreciation (depreciation) 1,335,692
-----------------
Total Net Assets $47,738,515
=================
Shares of beneficial interest outstanding 2,053,669
=================
Net asset value, offering price, and redemption price per share $23.25
=================
(Net assets/Shares outstanding)
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statement of Operations
Year Ended December 31, 1996
Investment income
Dividend income (net of foreign withholding taxes of $90,911) $771,708
Interest income 403,047
-----------------
Total income 1,174,755
Expenses
Investment advisory fee (Note 2) $410,099
Accounting and transfer agent fees 98,176
Custody fees 85,628
Audit services 35,184
Legal fees 11,762
Registration costs 8,866
Insurance expense 2,683
Trustee fees (Note 2) 1,955
Miscellaneous 2,819
-----------------
Total expenses 657,172
Deduct:
Waiver of investment advisory fee (Note 2) (402,258)
-----------------
Net expenses 254,914
-----------------
Net investment income 919,841
-----------------
Realized and unrealized gain (loss)
Net realized gain (loss)
Investment securities 3,795,947
Financial futures contracts 744,905
Foreign currency and forward foreign exchange contracts (20,322)
-----------------
Net realized gain (loss) 4,520,530
Change in net unrealized appreciation (depreciation)
Investment securities (1,582,054)
Financial futures contracts (195,226)
Translation of assets and liabilities in foreign currencies
and forward foreign exchange contracts 264,316
-----------------
Change in net unrealized appreciation (depreciation) (1,512,964)
-----------------
Net realized and unrealized gain (loss) 3,007,566
-----------------
Net increase (decrease) in net assets from operations $3,927,407
=================
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Statements of Changes in Net Assets
Year Ended Year Ended
December 31, December 31,
1996 1995
------------------ -----------------
Increase (decrease) in Net Assets
From operations
Net investment income $919,841 $1,535,925
Net realized gain (loss) 4,520,530 555,805
Change in net unrealized appreciation (depreciation) (1,512,964) (1,331,247)
------------------ -----------------
Net increase (decrease) in net assets from operations 3,927,407 760,483
------------------ -----------------
Distributions to shareholders
From net investment income (993,584) ---
From net realized gains on investments (2,991,390) (293,380)
------------------ -----------------
Total distributions to shareholders (3,984,974) (293,380)
------------------ -----------------
Fund share (principal) transactions (Note 4)
Net proceeds from sale of shares 3,568,994 12,167,766
Net asset value of shares issued to shareholders in
payment of distributions declared 3,425,523 272,750
Cost of shares redeemed (18,671,701) (57,868,870)
------------------ -----------------
Increase (decrease) in net assets from Fund share transactions (11,677,184) (45,428,354)
------------------ -----------------
Net increase (decrease) in net assets (11,734,751) (44,961,251)
Net assets
At beginning of period 59,473,266 104,434,517
------------------ -----------------
At end of period (including undistributed net investment income
of $8,961 and $103,026, at December 31, 1996 and
1995, respectively) $47,738,515 $59,473,266
================== =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
Standish, Ayer & Wood Investment Trust
Standish International 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 $23.54 $23.12 $26.74 $19.78 $22.20
---------- ---------- ---------- --------- ----------
Income from investment operations
Net investment income 0.47 0.04 0.21 0.26 0.26
Net realized and unrealized gain (loss) 1.28 0.45 (2.08) 7.29 (2.47)
---------- ---------- ---------- --------- ----------
Total from investment operations 1.75 0.49 (1.87) 7.55 (2.21)
---------- ---------- ---------- --------- ----------
Less distributions declared to shareholders
From net investment income (0.51) --- (0.12) (0.23) (0.21)
In excess of net investment income --- --- --- (0.36) ---
From net realized gains on investments (1.53) (0.07) (1.63) --- ---
---------- ---------- ---------- --------- ----------
Total distributions declared to shareholders (2.04) (0.07) (1.75) (0.59) (0.21)
---------- ---------- ---------- --------- ----------
Net asset value - end of period $23.25 $23.54 $23.12 $26.74 $19.78
========== ========== ========== ========= ==========
Total return 7.44% 2.14% (6.99%) 38.27% (9.95%)
Net assets at end of period (000 omitted) 47,739 59,473 104,435 92,419 56,539
Ratios (to average daily net assets)/Supplemental Data
Expenses 0.50** 1.22% 1.23% 1.34% 1.53%
Net investment income 1.80** 1.76% 1.52% 1.09% 1.18%
Portfolio turnover 163% 108% 75% 98% 98%
Average Broker Commission per share $0.0092(1)
* Audited by other auditors
(1) Amount represents the average commission per share paid to brokers on the
purchase and sale of portfolio securities.
** The investment adviser voluntarily waived a portion of its investment advisory fee.
Had this action not been undertaken, the net investment income per share and the
ratios would have been:
Net investment income per share $0.27
Ratios (to average daily net assets)
Expenses 1.29%
Net investment income 1.01%
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Equity Fund
Notes to Financial Statements
(1) ....Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (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 International Equity Fund ("The Fund") is a separate,
diversified investment series of the Trust. The following is a summary
of significant accounting policies consistently followed by the Fund 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 primarily 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
Fund are valued at amortized cost. If the Fund 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. .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 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 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. .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.
E. .Distributions to shareholders--
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. Distributions to
shareholders are recorded on the ex-dividend date. 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 treatment
of 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>
(2) ....Investment Advisory Fee:
The investment advisory fee paid to Standish International Management
Company L.P. (SIMCO), for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.80% of the Fund's average daily net assets.
SIMCO has voluntarily agreed to limit total Fund operating expenses to
0.50% of the Fund's average daily net assets for the Fund's fiscal year
ended December 31, 1996. For the year ended December 31, 1996, SIMCO
voluntarily waived a portion of its investment advising fee in the
amount of $402,258. 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 SIMCO. Certain
of the trustees and officers of the Trust are directors 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
Non-U.S. Government securities $50,287,925 $58,275,201
===================== ====================
U.S. Government securities $23,042,519 $26,292,529
===================== ====================
(4) ....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 147,664 535,762
Shares issued to shareholders in
payment of distributions declared 144,612 12,155
Shares redeemed (764,772) (2,539,577)
--------------------- --------------------
Net increase (decrease) (472,496) (1,991,660)
===================== ====================
</TABLE>
(5) ....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, are as follows:
Aggregate cost $46,247,098
Gross unrealized appreciation $2,608,342
Gross unrealized depreciation (1,492,539)
---------------------
Net unrealized appreciation (depreciation) $1,115,803
=====================
<PAGE>
(6) ....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 Fund 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 Fund 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 Fund, are reflected in the accompanying Statement of
Net 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 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. During 1996, the Fund had no written option transactions, nor
were there any open written option contracts at December 31, 1996.
.........Forward currency exchange contracts--
The Fund 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 Fund's
foreign securities from adverse currency movements.
At December 31, 1996, the Fund held the following forward foreign
currency exchange contracts:
<TABLE>
<CAPTION>
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Receive Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
<S> <C> <C> <C> <C> <C>
British Pound Sterling 4,074,592 1/10/97 $6,974,210 $6,635,507 $338,703
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,728,025 37,834
Japanese Yen 26,462,154 1/16/97 228,396 240,128 (11,732)
---------------- ---------------- ------------------
$10,968,465 $10,603,660 $364,805
================ ================ ==================
U.S. $
Local U.S. $ Unrealized
Principal Contract U.S. $ Aggregate Appreciation/
Contracts to Deliver Amount Value Date Market Value Face Amount (Depreciation)
- ------------------------- ----------------- ----------- ---------------- ---------------- ------------------
British Pound Sterling 4,070,000 1/10/97 $6,966,348 $6,811,552 ($154,796)
Italian Lira 5,721,000,000 1/2/97 3,765,859 3,745,989 (19,870)
Japanese Yen 26,462,154 1/16/97 228,396 234,199 5,803
---------------- ---------------- ------------------
$10,960,603 $10,791,740 ($168,863)
================ ================ ==================
</TABLE>
<PAGE>
.........Futures contracts--
The Fund 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 Fund 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
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. In addition,
there is the risk that the Fund may not be able to enter into a closing
transaction because of an illiquid secondary market. The Fund 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 Fund held the following futures contracts:
<TABLE>
<CAPTION>
Unrealized
Expiration Underlying Face Appreciation/
Contract Position Date Amount at Value (Depreciation)
- ----------------------------------- --------------- ---------------- ---------------------------------
<S> <C> <C> <C> <C>
Topix Futures (6 contracts) Long 3/19/97 $774,637 ($1,136)
FTSE 100 Futures (2 contracts) Long 3/19/97 342,525 1,189
CAC 40 Index Future (2 contracts) Long 3/19/97 175,054 2,605
DAX Futures (1 contracts) Long 3/19/97 185,546 1,336
---------------- ----------------
$1,477,762 $3,994
================ ================
</TABLE>
At December 31, 1996, the Fund 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 Fund 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 Fund 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 Fund anticipates purchasing at a later date.
During 1996, the Fund had no interest rate swap contract transactions.
At December 31, 1996, the Fund had no open interest rate swap
contracts.
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish International Equity Fund:
We have audited the accompanying statement of assets and liabilities of
Standish, Ayer & Wood Investment Trust: Standish International Equity Fund (the
"Fund"), including the portfolio of investments, as of December 31, 1996, and
the related statement of operations for the year then ended, and changes in net
assets for each of the two years in the period 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, 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. Our procedures included confirmation of securities owned as of
December 31, 1996 by correspondence with the custodian and brokers. 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 International Equity Fund as of
December 31, 1996, the results of its operations for the year then ended and the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended, in
conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 20, 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 Small Capitalization Equity Fund II
Financial Statements for the Period
from December23, 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.
