Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Financial Statements for the
Six Months Ended June 30, 1998
(Unaudited)
[LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Statement of Assets and Liabilities
June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments at value (Note 1A) (identified cost, $82,521,659) $ 83,280,329
Cash 1,090
Receivable for investments sold 1,786
Interest and dividends receivable 838,867
Deferred organization costs (Note 1E) 4,984
Miscellaneous receivable 435
Prepaid expenses 4,062
------------
Total assets 84,131,553
Liabilities
Payable for delayed delivery transactions (Note 7) $ 3,760,937
Distribution payable 337,111
Payable for variation margin on financial futures contracts (Note 6) 3,047
Options written, at value (premiums received, $57,516) (Note 6) 33,854
Accrued accounting, custody and transfer agent fees 18,532
Accrued trustees' fees and expenses (Note 2) 1,914
Accrued expenses and other liabilities 15,442
-----------
Total liabilities 4,170,837
------------
Net Assets $ 79,960,716
============
Net Assets consist of:
Paid-in capital $ 78,216,652
Undistributed net investment income 411,280
Accumulated net realized gain 547,796
Net unrealized appreciation 784,988
------------
Total Net Assets $ 79,960,716
============
Shares of beneficial interest outstanding 4,136,406
============
Net Asset Value, offering price and redemption price per share
(Net Assets/Shares outstanding) $ 19.33
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statement of Operations
Six Months Ended June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Interest income $ 2,430,601
Dividend income 12,557
-----------
Total investment income 2,443,158
Expenses
Investment advisory fee (Note 2) $ 145,294
Accounting, custody and transfer agent fees 49,261
Professional services 10,099
Registration fees 8,565
Trustees' fees and expenses (Note 2) 3,990
Insurance expense 2,971
Amortization of organization costs (Note 1E) 1,229
Miscellaneous 1,987
---------
Total expenses 223,396
Deduct --
Waiver of investment advisory fee (Note 2) (78,102)
---------
Net expenses 145,294
-----------
Net investment income 2,297,864
-----------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss)
Investment security transactions $ 461,427
Financial futures contracts (4,209)
Written option transactions 109,733
---------
Net realized gain 566,951
Change in unrealized appreciation (depreciation)
Investment securities (249,174)
Financial futures contracts (12,922)
Written options (5,048)
---------
Net change in unrealized appreciation (depreciation) (267,144)
-----------
Net realized and unrealized gain 299,807
-----------
Net Increase in Net Assets from Operations $ 2,597,671
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1998 Year Ended
(Unaudited) December 31, 1997
----------------- -----------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income $ 2,297,864 $ 3,304,308
Net realized gain 566,951 76,622
Change in unrealized appreciation (depreciation) (267,144) 1,060,405
------------ -----------
Net increase in Net Assets from Investment Operations 2,597,671 4,441,335
------------ -----------
Distributions to Shareholders
From net investment income (1,891,183) (3,318,681)
From net realized gains on investments (87,332) (57,788)
------------ -----------
Total distributions to shareholders (1,978,515) (3,376,469)
------------ -----------
Fund Share (principal) Transactions (Note 4)
Net proceeds from sale of shares 16,275,718 38,654,192
Value of shares issued to shareholders in
payment of distributions declared 1,380,904 2,705,708
Cost of shares redeemed (12,895,297) (3,329,835)
------------ -----------
Net increase in Net Assets from Fund share transactions 4,761,325 38,030,065
------------ -----------
Total Increase in Net Assets 5,380,481 39,094,931
Net Assets
At beginning of period 74,580,235 35,485,304
------------ -----------
At end of period (including undistributed net investment income of
$411,280 and $4,599, respectively) $ 79,960,716 $74,580,235
============ ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Six Months
Ended Year Ended December 31,
June 30, 1998 -------------------------------------------
(Unaudited) 1997 1996 1995 +
----------- --------- --------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Period $ 19.17 $ 18.73 $ 20.52 $20.00
------- -------- -------- ------
Investment Operations
Net investment income * 0.60 1.11 1.16 0.53
Net realized and unrealized gain
(loss) on investments 0.08 0.46 (0.52) 0.64
------- -------- -------- ------
Total from investment operations 0.68 1.57 0.64 1.17
------- -------- -------- ------
Less distributions to shareholders
From net investment income (0.50) (1.11) (1.15) (0.53)
In excess of net investment income -- -- -- (0.12)
From net realized gains on
investments (0.02) (0.02) (1.28) --
------- -------- -------- ------
Total distributions to shareholders (0.52) (1.13) (2.43) (0.65)
------- -------- -------- ------
Net Asset Value, End of Period $ 19.33 $ 19.17 $ 18.73 $20.52
======= ======== ======== ======
Total Return 3.58% 8.59% 3.77% 5.79%
Ratios/Supplemental Data
Expenses (to average daily net assets)* 0.40%++ 0.40% 0.40% 0.40%++
Net investment income (to average
daily net assets)* 6.32%++ 6.58% 6.57% 6.64%++
Portfolio Turnover 84% 103% 124% 389%
Net Assets, End of Period (000's
omitted) $79,961 $ 74,580 $ 35,485 $8,046
- ----------------------------------------
* The investment adviser voluntarily agreed not to impose a portion of its investment advisory fee and
reimbursed the Fund for a portion of its operating expenses. In the absence of this agreement, the net
investment income per share and the ratios would have been:
Net investment income per share $ 0.58 $ 1.06 $ 1.04 $ 0.29
Ratios (to average daily net
assets):
Expenses 0.61%++ 0.74% 1.06% 1.29%++
Net investment income 6.11%++ 6.24% 5.91% 5.75%++
</TABLE>
+ For the period from July 3, 1995 (start of business) to December 31, 1995.
++ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Schedule of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 95.2%
Asset Backed -- 9.7%
ACLC 1997-1 B1A Non-ERISA FRN(a) 6.448% 03/25/2027 $1,095,052 $ 1,085,984
Advanta Mortgage Loan Trust 1997-3 A7 ERISA 6.920% 10/25/2028 550,000 559,518
Chase Credit Card Master Trust
1997-3 A Non-ERISA 6.777% 05/15/2007 550,000 554,189
Continental Mortgage Home Equity 1996-4 A9 6.880% 01/15/2028 600,000 610,688
Franchise Mortgage Acceptance Corp. 1997-1A 7.350% 07/15/2027 469,605 491,251
Green Tree Financial Corp. 1997-6 B2 Non-ERISA 7.750% 01/15/2029 250,000 244,707
Greentree Acceptance Corp. 1997-5 M1 6.950% 05/15/2029 500,000 508,516
IMC Home Equity Loan 1998-1 M1 Non-ERISA 7.030% 03/20/2028 675,000 684,914
Oakwood Mortgage Investments 1997-D B1 Non-ERISA 7.325% 02/15/2028 550,000 545,875
Preferred Credit Corp. 1997-1 A6 Non-ERISA 7.590% 07/25/2026 300,000 309,563
Residential Funding 1997-HS5 M1 7.010% 05/25/2027 550,000 554,727
TMS Home Equity 1996-A5 ERISA 6.850% 06/15/2019 100,000 100,766
TMS Home Equity 1996-DA9 ERISA 7.000% 04/15/2028 625,000 638,863
Vanderbilt Mtg 1998-A 1B2 Non-ERISA 7.690% 04/07/2028 825,000 836,602
------------
Total Asset Backed (Cost $7,663,668) 7,726,163
------------
Collateralized Mortgage Obligations -- 7.4%
Citicorp Mortgage Sec. Inc. 1997-5 A PAC 6.500% 11/25/2027 550,000 551,375
FNMA REMIC 1994-81 PJ 8.000% 07/25/2023 175,000 190,805
GE Capital Mortgage 1997-13 A-3 NAS 6.750% 12/25/2013 539,671 544,265
Housing Securities, Inc. 1994-2 A1 6.500% 07/25/2009 318,730 318,703
Norwest Asset Sec. Corp. 1998-3 A5 6.750% 02/25/2013 737,999 745,840
Norwest Asset Sec. Corp. 1998-8 A 6.500% 04/25/2013 1,440,732 1,437,580
Prudential Home Mortgage 1992-25 B1 NAS 144A 8.000% 08/25/2022 652,395 693,885
Residential Funding 1998-S4 A4 NAS 6.500% 02/25/2013 1,431,483 1,441,324
------------
Total Collateralized Mortgage Obligations (Cost
$5,898,108) 5,923,777
------------
Corporate -- 27.2%
Bank Bonds -- 5.7%
Banco Latinoamericano 144A Notes 6.500% 04/02/2001 450,000 449,595
Bank Sub. Midlantic Cap. Notes 9.875% 12/01/1999 193,000 202,642
Bank United Corp. Notes+ 8.875% 05/01/2007 525,000 575,453
BankBoston Corp. Notes 6.375% 04/15/2008 500,000 499,035
Branch Bank & Trust Notes 6.375% 06/30/2005 1,000,000 997,480
Centura Capital Trust 144A NC '07+ 8.845% 06/01/2027 350,000 390,394
Fleet Bank Notes+ 6.450% 10/30/2000 75,000 75,859
Hubco Capital Trust 8.980% 02/01/2027 500,000 568,355
Key Corp. Sub. Notes NC '08 6.500% 04/15/2008 550,000 555,896
Union Planters Corp. Sub. Notes 6.250% 11/01/2003 240,000 238,584
------------
4,553,293
------------
Financial -- 13.6%
American Annuity Group Senior Notes 6.875% 06/01/2008 300,000 300,924
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Schedule of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial (continued)
American Health Properties REIT Notes+ 7.500% 01/15/2007 $ 175,000 $ 181,676
Amerus Capital Life Notes NC '07 8.850% 02/01/2027 375,000 400,391
Carramerica REIT 144A Notes 6.875% 03/01/2008 450,000 449,154
Colonial Realty Medium Term Notes 7.160% 01/17/2003 150,000 155,051
Colonial Realty Medium Term Notes 6.960% 07/26/2004 500,000 507,130
Conseco Finance Trust Cap. Notes+ 8.700% 11/15/2026 450,000 508,356
Conseco Finance Trust Cap. Notes 8.796% 04/01/2027 550,000 627,715
Contifinancial Corp. Senior Notes 7.500% 03/15/2002 750,000 750,300
Florida Property & Casualty 144A Notes 7.250% 07/01/2002 250,000 258,645
Florida Windstorm 144A Notes 6.700% 08/25/2004 225,000 229,957
Hutchison Whampoa Finance Hong Kong 144A 7.450% 08/01/2017 200,000 159,320
IRT Prop. Senior Notes, REIT 7.250% 08/15/2007 325,000 338,215
Lehman Brothers Notes 6.250% 04/01/2003 500,000 500,625
Meditrust REIT Notes 7.375% 07/15/2000 275,000 276,815
MMI Capital Trust Notes 7.625% 12/15/2027 725,000 746,170
Phoenix Re-Insurance Corp. 8.850% 02/01/2027 550,000 595,282
Realty Income Corp. Notes 7.750% 05/06/2007 375,000 398,314
Security Capital Notes 7.625% 07/01/2017 500,000 517,585
Simon Debartolo Group LP Notes 6.875% 10/27/2005 350,000 349,293
Spieker Properties REIT 6.650% 12/15/2000 100,000 100,704
Summit Properties Notes REIT 7.200% 08/15/2007 250,000 253,363
Sun Communities, Ltd. Senior Notes 7.375% 05/01/2001 175,000 179,536
Susa Partnership - Storage USA Inc. REIT Notes 7.125% 11/01/2003 200,000 204,584
TIG Holdings Capital 144A 8.597% 01/15/2027 600,000 648,546
Trinet Corp. Realty Trust Notes 7.300% 05/15/2001 400,000 406,332
UCFC Home Equity Loan 1996 7.700% 01/15/2004 150,000 148,148
United Companies Financial Corp. Senior Notes 7.000% 07/15/1998 375,000 375,068
Wharf Capital Notes 7.625% 03/13/2007 375,000 296,363
------------
10,863,562
------------
Industrial Bonds -- 7.9%
Blount, Inc. Notes 7.000% 06/15/2005 600,000 590,622
Cominco Ltd. Notes 6.875% 02/15/2006 449,000 443,091
Georgia Pacific Senior Notes 9.950% 06/15/2002 350,000 393,369
Guandong Enterprises 144A Senior Notes 8.875% 05/22/2007 700,000 520,590
Idex Corp. Senior Notes 6.875% 02/15/2008 650,000 647,446
La Quinta Inns, Inc. Medium Term Notes 7.110% 10/17/2001 300,000 302,808
Quantum Health Sub. Deb. Notes 4.750% 10/01/2000 725,000 695,297
Toro Co. Deb. Notes 7.800% 06/15/2027 500,000 537,535
U.S. Filter Corp. 144A Notes PT '03 NC '03 6.500% 05/15/2013 725,000 726,131
USA Waste Services, Inc. Senior Notes 6.500% 12/15/2002 700,000 702,828
Wisconsin Central Transportation Notes 6.625% 04/15/2008 800,000 798,464
------------
6,358,181
------------
Total Corporate (Cost $21,545,806) 21,775,036
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Schedule of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Government/Other -- 8.9%
Yankee Bonds -- 8.9%
Abitibi, Inc. Notes 6.950% 04/01/2008 $ 700,000 $ 707,280
Amvescap 144A Senior Notes 6.600% 05/15/2005 700,000 707,665
Edperbrascan Ltd. Notes+ 7.375% 10/01/2002 1,100,000 1,131,108
Gruma SA 144A Notes 7.625% 10/15/2007 525,000 499,013
Lite-On Tech 144A 0.000% 12/15/2002 700,000 700,000
Merita Bank 7.500% 12/29/2049 200,000 207,388
Royal Caribbean Cruise Senior Notes 7.500% 10/15/2027 550,000 574,783
Se Banken Perpetral 10 Yr. Step Up 144A 8.125% 09/06/2049 250,000 268,035
Societe Generale Step Up 144A 7.850% 04/29/2049 750,000 791,250
St. Georges Bank 144A 7.150% 10/15/2005 675,000 694,116
Svenska Handelsbanken Step Up 144A 7.125% 03/29/2049 400,000 409,660
Tata Engineering & Locomotive 144A Notes 7.875% 07/15/2007 525,000 448,560
------------
7,138,858
------------
Total Government/Other (Cost $7,090,627) 7,138,858
------------
Non-Agency -- 5.4%
Pass Thru Securities -- 5.4%
BankBoston 1997-B Non-Erisa 144A 6.730% 04/25/2000 316,364 315,660
Chase Commercial Mortgage 1996-1E Non-ERISA 7.600% 06/18/2008 725,000 740,378
Merrill Lynch Mortgage Investments
1996-C2 E Non-ERISA 6.960% 11/21/2028 400,000 389,000
Merrill Lynch Mortgage Investment
1997-D Non-ERISA 7.120% 06/18/2029 500,000 505,625
Morgan Stanley Capital 1997-WF1 E 7.490% 05/15/2009 500,000 510,391
Mortgage Capital Funding 1996 MC1A-C Non-ERISA 7.800% 04/15/2006 100,000 107,125
Residential Funding 1998-S9 A1 6.500% 04/25/2013 425,265 492,705
Resolution Trust Corp. 1993-C3 E Non-ERISA 7.100% 12/25/2024 489,515 489,661
Resolution Trust Corp. 1994-C1 C Non-ERISA 8.000% 06/25/2026 525,000 535,336
Resolution Trust Corp. 1994-C2 C Non-ERISA 8.000% 04/25/2025 75,000 75,914
Resolution Trust Corp. 1995-2 CA1 7.450% 05/25/2029 130,053 156,991
------------
4,318,786
------------
Total Non-Agency (Cost $4,264,956) 4,318,786
------------
U.S. Government Agency -- 27.6%
Pass Thru Securities -- 27.6%
FHLMC+ 6.500% 06/01/2012 - 04/01/2028 1,661,600 1,666,980
FHLMC Gold 15 Yr. E00483 6.000% 03/01/2012 470,038 466,659
FNMA 6.000% 08/01/2011 - 01/01/2012 1,475,038 1,459,733
FNMA 6.500% 04/01/2013 - 06/01/2028 2,450,572 2,442,934
FNMA+ 7.000% 11/01/2023 - 07/01/2028 6,306,045 6,395,887
FNMA 8.000% 12/01/2012 667,335 691,219
FNMA WAM 30.0 323159 7.500% 05/01/2028 781,461 801,482
GNMA 7.000% 10/15/2025 - 01/15/2026 1,012,425 1,028,590
GNMA 7.500% 11/15/2025 - 10/15/2026 861,581 885,561
</TABLE>
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Schedule of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
GNMA 8.000% 09/15/2017-07/15/2028 $5,965,210 $ 6,191,797
------------
Total U.S. Government Agency (Cost $21,772,061) 22,030,842
------------
U.S. Treasury Obligations -- 9.0%
Treasury Bonds -- 7.4%
U.S. Treasury Bond+ 8.125% 08/15/2019 1,970,000 2,542,521
U.S. Treasury Bond 6.625% 02/15/2027 2,975,000 3,359,430
------------
5,901,951
------------
Treasury Notes -- 1.6%
U.S. Treasury Note++ 5.750% 12/31/1998 550,000 551,117
U.S. Treasury Note+ 6.250% 10/31/2001 100,000 102,078
U.S. Treasury Note+ 5.875% 11/15/1999 650,000 652,945
------------
1,306,140
------------
Total U.S. Treasury Obligations (Cost $7,049,527) 7,208,091
------------
TOTAL BONDS AND NOTES (COST $75,284,753) 76,121,553
------------
<CAPTION>
Value
Security Shares (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCKS -- 1.4%
Equity Office Properties Trust 144A CVT 13,000 575,250
Societe Generale Step Up 555,000 548,007
TOTAL PREFERRED STOCKS (COST $1,203,499) 1,123,257
------------
WARRANTS -- 0.0%
Financial -- 0.0%
Equity Office Properties Warrants 5,000 4,250
------------
TOTAL WARRANTS (COST $4,000) 4,250
------------
<CAPTION>
Contract Value
Security Size (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PURCHASED OPTIONS -- 0.1%
UST 5.50% Call, Strike Price 99.984, 7/8/98 56,000 3,500
UST 5.625% Call, Strike Price 100.648, 8/6/98 2,000 2,031
UST 6.125% Call, Strike Price 109.516, 11/9/98 14,000 19,031
UST 5.625% Call, Strike Price 100.469, 9/4/98 7,000 8,750
UST 5.625% Call, Strike Price 101.6093, 9/8/98 9,450 9,598
UST 5.625% Call, Strike Price 100.547, 9/9/98 9,310 11,456
-------------
TOTAL PURCHASED OPTIONS (COST $47,030) 54,366
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Fixed Income Fund II
Schedule of Investments - June 30, 1998 (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 7.5%
U.S. Government Agency -- 5.2%
FNMA Discount Note+ 5.500% 07/17/98 $4,200,000 $ 4,189,626
------------
4,189,626
------------
Commercial Paper -- 2.0%
Texaco Inc. 5.500% 08/10/98 1,600,000 1,584,960
------------
1,584,960
------------
Repurchase Agreements -- 0.3%
Prudential Bache Repurchase Agreement, dated 6/30/98, due 7/01/98, with a
maturity value of $202,347 and an effective yield of 5.32%, collateralized by
U.S. Government Agency Obligations with rates ranging from 6.22% to 7.84%, with
maturity dates ranging from 1/05/07 to 4/01/29, and with an aggregate market value
of $206,366. 202,317
------------
TOTAL SHORT-TERM INVESTMENTS (COST $5,982,377) 5,976,903
------------
TOTAL INVESTMENTS -- 104.2% (COST $82,521,659) $ 83,280,329
Other Assets, Less Liabilities -- (4.2)% (3,319,613)
------------
NET ASSETS -- 100% $ 79,960,716
============
</TABLE>
Notes to the Schedule of Investments:
144A - Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration.
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
REIT - Real Estate Investment Trust
UST - United States Treasury
(a) Variable Rate Security; rate indicated is as of 6/30/98.
+ Denotes all or part of security pledged as a margin deposit (Note 6).
++ Denotes all or part of security pledged as collateral to cover margin
requirements on open financial futures contracts (Note 6).
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish 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 Board of 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.
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
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 financial
futures contracts and option 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).
(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 six months ended June 30, 1998. Pursuant to
this agreement, SA&W voluntarily did not impose $78,102 of its investment
advisory fee. The Trust pays no compensation directly to its trustees who
are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Trust from SA&W. Certain of the
trustees and officers of the Trust are directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the six month period ended June 30, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- -----------
<S> <C> <C>
U.S. Government Securities................................. $52,293,349 $46,802,829
=========== ===========
Investments (non-U.S. Government Securities)............... $20,403,466 $11,720,876
=========== ===========
</TABLE>
(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>
Six Months Ended Year Ended
June 30, 1998 December 31, 1997
------------------ -----------------
<S> <C> <C>
Shares sold....................................... 840,405 2,028,481
Shares issued to shareholders in payment of
distributions declared......................... 71,582 142,698
Shares redeemed................................... (665,957) (175,022)
----------- ------------
Net increase...................................... 246,030 1,996,157
=========== ============
</TABLE>
At June 30, 1998, four shareholders were record owners of approximately
26%, 19%, 15% and 11%, respectively, of the total outstanding shares of
the Fund.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(5) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at June 30, 1998, as computed on a federal
income tax basis, were as follows:
Aggregate Cost................................... $82,521,659
===========
Gross unrealized appreciation.................... 1,321,973
Gross unrealized depreciation.................... (563,303)
-----------
Net unrealized appreciation...................... $ 758,670
===========
(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. Writing puts and buying calls tend to
increase the Fund's exposure to the underlying instrument. Buying puts and
writing calls tend to decrease the Fund's exposure to the underlying
instrument, or hedge other Fund investments. Options, both held and
written by the Fund, are reflected in the accompanying Statement of Assets
and Liabilities at market value. The underlying face amount at value of
any open purchased option is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the underlying
instrument, if there is an illiquid secondary market for the contracts, or
if the counterparties do not perform under the contracts' terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option purchased by the 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 six months ended June 30, 1998 is as follows:
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Written Put Option Transactions
---------------------------------------------------------------------------------------
Number of
Contracts Premiums
------------ ----------
<S> <C> <C>
Outstanding, beginning of period.......................... 4 $ 56,015
Options written........................................... 2 43,531
Options expired........................................... (3) (78,632)
Options closed............................................ (1) (6,102)
------ ----------
Outstanding, end of period................................ 2 $ 14,812
====== ==========
<CAPTION>
Written Call Option Transactions
---------------------------------------------------------------------------------------
Number of
Contracts Premiums
------------ ----------
<S> <C> <C>
Outstanding, beginning of period.......................... 3 $ 12,711
Options written........................................... 6 55,509
Options expired........................................... (2) (22,078)
Options closed............................................ (1) (3,438)
------ ----------
Outstanding, end of period................................ 6 42,704
====== ==========
</TABLE>
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. Pursuant to margin requirements, the Fund
deposits either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the 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. Buying futures tends to
increase the Fund's exposure to the underlying instrument, while selling
futures tends to decrease the Fund's exposure to the underlying instrument
or hedge other Fund 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. Losses may arise if there is an illiquid
secondary market or if the counterparties do not perform under the
contracts' terms. The Fund enters into financial futures transactions
primarily to manage its exposure to certain markets and to changes in
security prices and foreign currencies. Gains and losses are realized upon
the expiration or closing of the futures contracts. At June 30, 1998, the
Fund held the following futures contracts:
<TABLE>
<CAPTION>
Underlying
Face/amount Unrealized
Contract Position Expiration Date at value Gain/(Loss)
--------------------------------------------- --------- --------------- ------------ ------------
<S> <C> <C> <C> <C>
US Bond (CBT) (3 contracts)................. Long 9/30/98 $ 370,781 $ 415
US 5 Yr. Note (21 contracts)................ Short 9/30/98 2,303,438 1,431
US 10 Yr. Bond (5 contracts)................ Short 9/30/98 569,219 810
------------
$ 2,656
============
</TABLE>
At June 30, 1998, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Fixed Income Fund II
Notes to Financial Statements (Unaudited)
- --------------------------------------------------------------------------------
(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 segregates securities having a
value at least equal to the amount of the purchase commitment.
At June 30, 1998, the Fund entered into the following delayed delivery
transactions:
When Issued
Type Security Settlement Date Amount
----------- ------------- -------------------- ---------------
Buy GNMA 7/21/98 $3,760,937
===============
15
<PAGE>
[LOGO]
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, MA 02111
(800) 221-4795
1023-98
