Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Statements for the Year Ended
December 31, 1997
[STANDISH LOGO]
<PAGE>
Standish, Ayer & Wood Investment Trust
February 23, 1998
Dear Standish, Ayer & Wood Investment Trust Shareholder:
I am writing to provide you with a review of developments at Standish, Ayer &
Wood as they relate to the activities of the Investment Trust.
Investment returns were generally quite favorable during 1997. U.S. large
capitalization stocks as measured by the Standard & Poor's 500 Index registered
a return in 1997 of more than 33%, bringing the five-year annual average returns
for that Index to over 20%. During the last year, both U.S. bonds as reflected
in the Lehman Aggregate Index and hedged international bonds as reported by the
J.P. Morgan Non-U.S.Hedged Index recorded returns in the vicinity of 10-11%. It
has generally been an exceedingly favorable period for investors.
Standish, Ayer & Wood has also had a successful year. Our assets under
management grew from $30.6 billion at the beginning of the year to about $39.3
billion at the end of 1997. This growth reflected new assets under management,
market appreciation, and the absence of any significant turnover of existing
clients. The Standish Funds grew from $4.2 billion to $5.7 billion during the
year. We were particularly pleased that 75% of the mutual fund purchases during
the year represented additions from our existing clients.
We have also grown significantly as an enterprise. At the end of 1997, our
organization had 232 employees versus 213 at the beginning of the year. Our 82
investment officers have average experience of 16 years. Of the 82 officers, 46
hold advanced degrees (typically an MBA) and 55 have some advanced professional
accreditation (virtually all Chartered Financial Analysts).
While the corporate structure remains unchanged, a number of important
developments among new directors took place during the year. In March 1997, Jim
Sweeney elected to take early retirement. In November, Tom Sorbo joined Standish
as a shareholder/director in order to head up our marketing and sales
activities. Tom had previously served with distinction at Travelers and Stein,
Roe & Farnham.
Four other changes in our shareholders and directors were effective at the end
of 1997. Walter Cabot reached the age at which he must step down as a
shareholder, but we are pleased that he will continue as our Senior Advisor. We
elected three new shareholder/directors, namely Chuck Cook of our international
fixed income team, Joe Corrado as director of equity research, and Mike
Thompson, one of the senior members of our insurance company investment
management effort. We also elected six new associate directors, eighteen new
vice presidents, and twelve new assistant vice presidents.
During 1997 we introduced a number of new products including "diversified
income" portfolios that combine higher yielding domestic bonds, emerging market
bonds, and higher grade international bonds. By the end of the year, we managed
a number of separate accounts as well as the Standish Diversified Income Fund
with assets of about $27 million. We have also developed a growth equity
strategy and a global small cap discipline to complement the highly successful
start up on our international small cap style. Some of the disciplines we
introduced in 1996, such as duration neutral bonds and Small Cap Equity Fund II,
continue to be successful.
1
<PAGE>
As we look ahead, there are ample numbers of challenges for investors and
investment managers. We believe that we have a good understanding of what has
produced our past business and investment success and a clear vision of our
future. We consider that we have a set of competitive advantages that includes:
o A long history of stability of ownership, personnel, investment philosophy,
and clientele.
o Critical mass to enable us to provide risk control, compliance, technology,
and deep investment research.
o An exclusive focus on investment management and a dedication to serving our
existing clients.
o A team effort which ensures our clients are receiving not just the work of
one individual but the benefits of Standish as an organization.
o Well-defined and disciplined investment philosophies which have
historically added reasonably consistent increments of return.
o A dedication to in-depth communication with our clients.
We remain confident that we have the people, resources, investment technology,
and organizational stability to succeed. We are working hard to fulfill your
expectations in the years ahead, and we are optimistic that we can achieve our
mutual objectives.
Sincerely yours,
/s/ Ted Ladd
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
2
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Management Discussion
In 1997, the performance of the short end of the market was very similar to that
of 1996. The first half of 1997 was characterized by rising interest rates as
strong economic growth fueled inflation fears, prompting the Federal Reserve to
raise short term interest rates by 25 basis points. During this period the yield
on the three-year Treasury note rose to 6.68%, up from 6.02% at the beginning of
the year. During the second half of the year saw yields declined due to
diminished inflation expectations and a "flight to quality" in response to
problems in Asian and U.S. equity markets. The yield on the three-year Treasury
note traded as low as 5.61% in October and finished the year at 5.67%. The short
end also benefited from technical factors, such as reduced issuance of Treasury
notes and bills as the budget deficit shrunk.
For the year the Controlled Maturity Fund returned a strong 6.66%, slightly
ahead of the Merrill Lynch 1-3 Year Index which had an annual return of 6.65%.
The Fund began the year with an average maturity longer than its benchmark
index, but after the first quarter, the average maturity of the Fund was held
relatively neutral to the index. The duration bet of the first quarter was a
slight drag on performance for the year. Our general strategy is to avoid making
major shifts in duration, but to make only modest changes as conditions warrant.
Approximately 80% of the Fund held non-government securities throughout the
year. This spread product positively impacted performance particularly during
the first half, as spreads were stable to tighter. Tighter spreads continued
into the third quarter but began widening in September under quarter end
pressures and rising concerns over Asia. The continued Asian problems and
resulting volatility in U.S. equity markets on top of year end "window dressing"
and profit taking caused spread products to further underperform in the fourth
quarter. Throughout the first half of the year any spread widening was used as
an opportunity to add to corporate and asset-backed exposure. By the end of the
third quarter we were more cautious on corporates, which typically underperform
in the fourth quarter, and focused on governments, asset-backeds and short,
well-structured CMOs.
Even after underperforming in the fourth quarter, the securitized sector
(particularly asset-backeds and pass-throughs) significantly contributed to
total return of the Fund. We continue to believe that the securitized sector
represents value for high quality, short-term paper -- but is an area that
requires constant monitoring and analysis. The best performing short-term sector
for the year was floating rate notes. The wide differential between short
treasuries and LIBOR (i.e., the "TED" spread) has made LIBOR-based floaters an
attractive yield vehicle. With low price volatility and short durations,
floaters are an ideal fit for shorter duration portfolios.
In this period of choppy market swings, the outlook for short duration
portfolios is positive. We believe that high quality, short corporates and asset
backeds which underperformed late last year have become more attractive. We are
dedicated in our efforts to add value for our shareholders and appreciate your
continued support.
/s/ Howard B. Rubin
Howard B. Rubin
3
<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 the Merrill Lynch 1-3 Year Index
- --------------------------------
Average Annual Total Return
Since
Inception
1 Year 7/3/95
- ------ ------
6.66% 6.42%
- --------------------------------
[The following information was represented by a line graph in the printed
materials.]
Standish Controlled Maturity Merrill Lynch 1-3
Fund Yr. Index
Inception 7/3/95 100000 100000
7/31/95 100350 100414
8/31/95 100950 101011
9/30/95 101550 101502
10/31/95 102411 102359
11/30/96 103372 103264
12/31/95 104200 104057
1/31/96 105075 104941
2/29/96 104612 104498
3/31/96 104458 104405
4/30/96 104562 104492
5/31/96 104771 104706
6/30/96 105558 105458
7/31/96 106036 105874
8/31/96 106354 106237
9/30/96 107362 107200
10/31/96 108763 108408
11/30/96 109679 109238
12/31/96 109542 109238
1/31/97 110035 109750
2/28/97 110364 110003
3/31/97 110251 109960
4/30/97 111141 110858
5/31/97 111976 111612
8/31/97 114110 113720
9/30/97 115071 114585
10/31/97 115873 115433
11/30/97 116103 115710
12/31/97 116834 116497
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Assets and Liabilities
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Investments at value (Note 1A) (identified cost, $12,105,637) $ 12,117,121
Receivable for Fund shares sold 1,837,049
Interest receivable 141,423
Receivable from investment adviser (Note 2) 4,910
Receivable for variation margin on open financial futures contracts 625
Deferred organization costs (Note 1E) 5,869
Prepaid expenses 718
------------
Total assets 14,107,715
Liabilities
Distribution payable $ 164,120
Accrued trustees fees (Note 2) 1,072
Accrued accounting, custody and transfer agent fees 8,805
Accrued expenses and other liabilities 17,723
-----------
Total liabilities 191,720
------------
Net Assets $ 13,915,995
============
Net Assets consist of
Paid-in capital $ 13,996,584
Undistributed net investment income 14,993
Accumulated net realized loss (109,109)
Net unrealized appreciation 13,527
------------
Total Net Assets $ 13,915,995
============
Shares of beneficial interest outstanding 697,521
============
Net asset value, offering price and redemption price per share
(Net assets/Shares outstanding) $ 19.95
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Operations
Year Ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Investment Income
<S> <C> <C>
Interest income $ 860,867
Miscellaneous income 6,817
---------
Total investment income 867,684
Expenses
Investment advisory fee (Note 2) $ 43,478
Accounting, custody and transfer agent fees 69,145
Audit services 20,248
Registration fees 8,589
Legal fees 5,905
Trustees fees (Note 2) 4,246
Insurance expense 2,640
Amortization of organization expenses (Note 1E) 2,336
Miscellaneous 2,381
---------
Total expenses 158,968
Deduct --
Waiver of investment advisory fee (Note 2) (43,478)
Reimbursement of Fund operating expenses (Note 2) (68,982)
---------
Total expense deductions (112,460)
---------
Net expenses 46,508
---------
Net investment income 821,176
---------
Realized and Unrealized Gain (Loss) on Investments
Net realized loss
Investment security transactions (94,817)
Financial futures contracts 1,065
---------
Net realized loss (93,752)
Change in unrealized appreciation
Investment securities 70,211
Financial futures contracts 2,043
---------
Net change in unrealized appreciation 72,254
---------
Net realized and unrealized loss (21,498)
---------
Net increase in net assets from operations $ 799,678
=========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
---------------- ---------------
Increase (decrease) in net assets
From operations
<S> <C> <C>
Net investment income $ 821,176 $ 673,836
Net realized loss (93,752) (22,349)
Change in unrealized appreciation (depreciation) 72,254 (124,788)
----------- -----------
Net increase in net assets from operations 799,678 526,699
----------- -----------
Distributions to Shareholders
From net investment income (819,657) (653,352)
From net realized gains on investments -- (5,114)
----------- -----------
Total distributions to shareholders (819,657) (658,466)
----------- -----------
Fund Share (principal) Transactions (Note 4)
Net proceeds from sale of shares 2,042,049 4,854,921
Net asset value of shares issued to shareholders in payment of distributions
declared 316,512 226,009
Cost of shares redeemed (947,462) (1,292,135)
----------- -----------
Net increase in net assets from Fund share transactions 1,411,099 3,788,795
----------- -----------
Net increase in net assets 1,391,120 3,657,028
Net Assets
At beginning of period 12,524,875 8,867,847
----------- -----------
At end of period (including undistributed net investment income of $14,993 and
$14,419, respectively) $13,915,995 $12,524,875
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended
December 31,
----------------------------------------
1997 1996 1995 +
-------- -------- --------
<S> <C> <C> <C>
Net asset value, beginning of period $ 19.99 $ 20.24 $20.00
-------- -------- -------
Income from investment operations
Net investment income * 1.34 1.27 0.57
Net realized and unrealized gain (loss) on investments (0.04) (0.27) 0.24
-------- -------- -------
Total from investment operations 1.30 1.00 0.81
-------- -------- -------
Less distributions to shareholders
From net investment income (1.34) (1.24) (0.57)
From net realized gains on investments -- (0.01) --
-------- -------- -------
Total distributions to shareholders (1.34) (1.25) (0.57)
-------- -------- -------
Net asset value, end of period $ 19.95 $ 19.99 $20.24
======== ======== =======
Total return 6.66% 5.13% 4.20%
Ratios (to average daily net assets)/Supplemental Data
Expenses * 0.37% 0.40% 0.40%++
Net investment income * 6.60% 6.60% 6.29%++
Portfolio Turnover 94% 107% 127%
Net assets, end of period (000 omitted) $13,916 $12,525 $8,868
- -------------------
<CAPTION>
* The investment adviser voluntarily agreed not to impose 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:
<S> <C> <C> <C>
Net investment income per share $ 1.18 $ 1.11 $ 0.38
Ratios (to average daily net assets):
Expenses 1.28% 1.25% 2.51%++
Net investment income 5.69% 5.75% 4.18%++
</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.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
BONDS AND NOTES -- 82.8%
Asset Backed -- 31.9%
<S> <C> <C> <C> <C>
Advanta Home Equity Trust Loan 1991-1A 9.000% 02/25/2006 145,197 $ 148,189
Advanta Home Equity Trust Loan 1992-2 A1 7.150% 06/25/2008 16,514 16,636
Advanta Home Equity Trust Loan 1993-4 A1 5.500% 03/25/2010 168,692 163,735
AFC Home Equity Loan Trust 1993-2 A 6.000% 01/20/2013 170,183 167,148
AFC Home Equity Loan Trust 1996-3 1A2 7.220% 02/25/2027 75,000 75,115
Equacredit Home Equity 1993-4 5.725% 12/15/2008 92,146 90,359
Equacredit Home Equity 1995-4 A2 6.350% 10/15/2009 91,211 91,251
Equicon Home Equity 1995-2 Cl A2 6.500% 07/18/2010 89,831 89,717
First Sierra Equipment Lease 6.290% 11/10/2004 94,296 94,493
Fleetwood 97-B A Grantor Trust 6.400% 05/15/2013 141,679 142,209
Greentree Home Equity 1997-D A3 6.390% 09/15/2028 100,000 100,092
Greentree Home Equity 1997-D M2 6.160% 09/15/2028 150,000 149,904
Home Equity Loan Trust 1992-2A 6.650% 11/20/2012 11,083 11,069
Newcourt 1996-2 A 6.870% 06/20/2004 39,078 39,224
Old Stone Credit Corp. Home Equity Trust 1992-3 A2 6.300% 09/25/2007 119,440 119,289
Old Stone Credit Corp. Home Equity Trust 1992-4 Cl A 6.550% 11/25/2007 31,520 31,538
Premier Auto Trust 97-1B 6.550% 09/06/2003 250,000 251,638
RNFC Trust 1995-3A2 6.800% 12/20/2007 24,480 24,461
Security Pacific Home Equity Cl 1991-2 B 8.150% 06/15/2020 18,303 18,418
Standard Credit Card 1994-3 B 7.000% 04/07/2001 225,000 226,966
The Money Store Home Equity 1992-B 6.900% 07/15/2007 165,408 165,923
The Money Store Home Equity 1993-D A1 5.675% 02/15/2009 53,218 51,819
The Money Store Home Equity 1994-DA4 8.750% 09/15/2020 175,000 180,466
The Money Store Home Equity 1996-BA3 6.820% 03/15/2010 32,451 32,388
Toyota Auto Lease 97-A B 6.750% 04/26/2004 250,000 250,778
Trans Leasing 1996-1A 5.980% 11/20/2002 110,980 110,852
UCFC Home Equity Loan Trust 1993-B 1A 6.075% 07/25/2014 148,197 146,111
UCFC Home Equity Loan Trust 1994 B-A6 7.100% 06/10/2023 116,130 117,180
UCFC Home Equity Loan Trust 1995-A1 A4 8.250% 04/10/2016 350,000 356,322
UCFC Home Equity Loan Trust 1996-D1 A3 6.541% 11/15/2013 200,000 200,685
World Omni Auto Lease 6.300% 06/25/2002 263,725 263,967
World Omni Auto Lease 6.850% 11/15/2002 250,000 251,403
World Omni Auto Lease 7.300% 06/25/2003 250,000 254,645
----------
Total Asset Backed (Cost $4,412,219) 4,433,990
----------
Collateralized Mortgage Obligations -- 2.3%
Collateralized Mortgage Obligation Trust 13-A 6.250% 01/20/2003 9,263 9,223
FNMA, REMIC 1994-85E 6.000% 11/25/2006 75,000 74,751
Residential Funding 1997-12 6.700% 08/25/2027 225,000 229,216
----------
Total Collateralized Mortgage Obligations (Cost $308,921) 313,190
----------
Corporate -- 32.0%
Financial -- 13.9%
BankBoston 97 C1 7.218% 04/25/2000 200,000 200,302
Banponce Corp. 5.750% 03/01/1999 325,000 323,122
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
Financial (continued)
<S> <C> <C> <C> <C>
First Chicago 9.875% 07/01/1999 130,000 $ 136,731
First Union Corp. 9.450% 06/15/1999 100,000 104,446
Goldman Sachs Group 6.750% 04/20/2000 55,000 55,649
Lehman Brothers Holdings 7.110% 09/27/1999 250,000 253,957
MBNA Corp. Sr Med Term Notes 6.500% 09/15/2000 225,000 227,184
Salomon Brothers, Inc. 7.750% 05/15/2000 75,000 77,396
Sovereign Bancorp 6.750% 07/01/2000 250,000 251,782
United Companies Financial Corp. 9.350% 11/01/1999 175,000 181,379
United Companies Financial Corp. 7.000% 07/15/1998 120,000 120,394
----------
1,932,342
----------
Real Estate -- 9.6%
Chelsea GCA Realty 7.750% 01/26/2001 250,000 258,260
Equity Residential Property Operating L.P., 144A, REIT 8.500% 05/15/1999 200,000 205,603
Federal Realty Investment Trust, REIT 8.875% 01/15/2000 110,000 115,423
Franchise Financial 7.000% 11/30/2000 275,000 277,849
Meditrust, REIT 7.375% 07/15/2000 100,000 101,508
Spieker Properties, REIT 6.650% 12/15/2000 75,000 75,303
Wellsford Residential Property, REIT 7.250% 08/15/2000 50,000 51,288
Wellsford Residential Property, REIT 6.195% 11/24/1999 250,000 250,167
----------
1,335,401
----------
Services -- 8.5%
Cox Enterprises 144A Deb Notes 6.250% 08/26/1999 225,000 225,633
ITT Corp. 6.250% 11/15/2000 225,000 221,240
TCI Communications Inc. 6.375% 09/15/1999 225,000 225,029
Videotron Holdings PLC 0.000% 07/01/2004 300,000 282,897
Worldcom Inc. 01/15/2004 217,000 229,741
----------
1,184,540
----------
Total Corporate (Cost $4,470,240) 4,452,283
----------
Government/Other -- 4.6%
Yankee Bonds -- 4.6%
Brascan Ltd. 7.375% 10/01/2002 325,000 335,833
St. Georges Bank 144A Notes 6.875% 04/01/1999 300,000 302,370
----------
Total Government/Other (Cost $634,536) 638,203
----------
Non-Agency -- 4.7%
Pass Thru Securities -- 4.7%
Resolution Trust Corp. P-T A-1 7.750% 07/25/2030 14,799 14,797
Resolution Trust Corp. P-T A-2 8.625% 07/25/2030 2,476 2,474
Resolution Trust Corp. 1992-m4 7.200% 09/25/2021 200,842 200,839
Resolution Trust Corp. 1992-7 A1 6.837% 03/25/2022 31,882 31,760
Resolution Trust Corp. 7.100% 12/25/2024 228,692 228,117
Resolution Trust Corp. 1994 C1 D 8.000% 06/25/2026 175,203 178,376
----------
Total Non-Agency (Cost $657,552) 656,363
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
U.S. Government Agency -- 2.5%
Pass Thru Securities -- 2.5%
<S> <C> <C> <C> <C>
FHLMC 10.500% 07/01/2015 2,267 $ 2,526
FHLMC Gold 5 Yr 7.000% 08/01/1999 47,061 47,516
Merrill Lynch Variable Rate Note(a) 7.260% 03/25/2002 300,000 302,995
----------
Total U.S. Government Agency (Cost $352,866) 353,037
----------
U.S. Treasury Obligations -- 4.8%
Treasury Notes -- 4.8%
U. S. Treasury Note 5.250% 07/31/1998 495,000 494,146
U.S. Treasury Note+ 5.625% 11/30/1998 25,000 24,998
U.S. Treasury Note 6.625% 06/30/2001 150,000 154,147
----------
Total U.S. Treasury Obligations (Cost $672,539) 673,291
----------
TOTAL BONDS AND NOTES (COST $11,508,873) 11,520,357
-----------
SHORT-TERM INVESTMENTS -- 4.3%
Commercial Paper -- 0.4%
Ciesco Corp., 1/5/98 50,000 49,967
----------
U.S. Government -- 1.4%
FHLB, 1/6/98 200,000 199,841
----------
Repurchase Agreements -- 2.5%
Prudential-Bache Repurchase Agreement, dated 12/31/97, due 1/2/98, with a
maturity value of $347,073 and an effective yield of 6.07%, collateralized by a
U.S. Treasury Bond with a rate of 11.25%, with a maturity date of 2/15/15 and
with an aggregate market value of $353,897. 346,956
----------
TOTAL SHORT-TERM INVESTMENTS (COST $596,764) 596,764
----------
TOTAL INVESTMENTS -- 87.1% (COST $12,105,637) $12,117,121
Other Assets, Less Liabilities -- 12.9% 1,798,874
----------
NET ASSETS -- 100% $13,915,995
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1997
- --------------------------------------------------------------------------------
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.
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
REIT - Real Estate Investment Trust
REMIC - Real Estate Mortgage Conduit
(a) Variable Rate Security; rate indicated is as of 12/31/97.
+ 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.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies:
Standish, Ayer & Wood Investment Trust (the "Trust") is organized as a
Massachusetts business trust and is registered under the Investment
Company Act of 1940, as amended, as an open-end, management investment
company. Standish Controlled Maturity 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 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 amortization 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, 1997, 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 $10,860 and $88,604 which will expire on December
31, 2004 and 2005, respectively. The Fund elected to defer to its
fiscal year ending December 31, 1997, $9,904 short term and $2,442 long
term losses recognized during the period November 1, 1997 to December
31, 1997.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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.
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 voluntarily agreed
to limit the Fund's total operating expenses to 0.40% of the Fund's
average daily net assets for the period from January 1, 1997 to
September 30, 1997 and 0.30% for the period October 1, 1997 to December
31, 1997. Pursuant to this agreement, SA&W voluntarily waived $43,478
of its investment advisory fee and reimbursed the Fund for $68,982 of
operating expenses. 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, were as follows:
<TABLE>
<CAPTION>
Purchases Sales
----------- ------------
<S> <C> <C>
U.S. Government Securities.................................. $ 3,118,104 $ 4,458,877
=========== ============
Investments (non-U.S. Government Securities)................ $10,586,908 $ 10,191,713
=========== ============
</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>
Year Ended Year Ended
December 31, 1997 December 31, 1996
------------------- -------------------
<S> <C> <C>
Shares sold............................................... 102,366 241,487
Shares issued to shareholders in payment of distributions
declared............................................... 15,862 11,325
Shares redeemed........................................... (47,171) (64,441)
------- --------
Net increase/(decrease)................................... 71,057 188,371
======= ========
</TABLE>
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1997, three shareholders were record owners of
approximately 28%, 25% and 20%, respectively, 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, 1997, as computed on a
federal income tax basis, were as follows:
Aggregate Cost.......................................$12,105,637
===========
Gross unrealized appreciation........................ 51,902
Gross unrealized depreciation........................ (40,418)
-----------
Net unrealized appreciation (depreciation)...........$ 11,484
===========
(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, 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 instruments, if there is an illiquid
secondary market, 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. There were no
outstanding written option contracts at December 31, 1997.
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
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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 December 31, 1997,
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 10 Yr. Bond (2 Contracts).. Long 3/20/98 $ 224,312 $ 2,043
=============
</TABLE>
At December 31, 1997, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
16
<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 schedule of investments, as of December 31, 1997, and the
related statement of operations for the year then ended, the statements of
changes in net assets for each of the two years in the period then ended and the
financial highlights for each of the periods stated therein. 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. Our procedures included confirmation of securities owned as of
December 31, 1997 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, 1997, 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
the financial highlights for each of the periods stated therein, in conformity
with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
February 19, 1998
17
<PAGE>
[this page intentionally left blank]
18
<PAGE>
[STANDISH LOGO]
Standish, Ayer & Wood Investment Trust
One Financial Center
Boston, MA 02111
(800) 221-4795
98-057
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1997
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 13
<NAME> Standish Controlled Maturity Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<INVESTMENTS-AT-COST> 12,105,637
<INVESTMENTS-AT-VALUE> 12,117,121
<RECEIVABLES> 1,984,007
<ASSETS-OTHER> 6,587
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 14,107,715
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 191,720
<TOTAL-LIABILITIES> 191,720
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 13,996,584
<SHARES-COMMON-STOCK> 697,521
<SHARES-COMMON-PRIOR> 626,464
<ACCUMULATED-NII-CURRENT> 14,993
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (109,109)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 13,527
<NET-ASSETS> 13,915,995
<DIVIDEND-INCOME> 6,817
<INTEREST-INCOME> 860,867
<OTHER-INCOME> 0
<EXPENSES-NET> 46,508
<NET-INVESTMENT-INCOME> 821,176
<REALIZED-GAINS-CURRENT> (93,752)
<APPREC-INCREASE-CURRENT> 72,254
<NET-CHANGE-FROM-OPS> 799,678
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 819,657
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 102,366
<NUMBER-OF-SHARES-REDEEMED> 47,171
<SHARES-REINVESTED> 15,862
<NET-CHANGE-IN-ASSETS> 1,391,120
<ACCUMULATED-NII-PRIOR> 14,419
<ACCUMULATED-GAINS-PRIOR> (16,302)
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 43,478
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 158,968
<AVERAGE-NET-ASSETS> 12,445,988
<PER-SHARE-NAV-BEGIN> 19.99
<PER-SHARE-NII> 1.34
<PER-SHARE-GAIN-APPREC> (0.04)
<PER-SHARE-DIVIDEND> (1.34)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 19.95
<EXPENSE-RATIO> 0.37
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
