STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Financial Statements for the Period Ended
September 30, 1999
[LOGO]
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STANDISH, AYER & WOOD INVESTMENT TRUST
November 25, 1999
Dear Standish Funds Shareholder:
Enclosed you will find the annual statement for your Standish Fund for the
fiscal year ended September 30, 1999.
During the twelve months ended September 30, 1999, returns from most equity
investments have been very strong. For example, large capitalization U.S.
stocks, as reflected in the Standard and Poor's 500 Index, provided a total
return of 27.79%; smaller cap U.S. stocks, as measured by the Russell 2000
Index, a return of 19.08%; and international stocks, as recorded by the Morgan
Stanley Capital International EAFE Index, a total return of 30.94%. Within the
market, growth issues have generally performed better than value stocks, and
larger capitalization issues have generally performed better than smaller
capitalization issues. The past year's results combined with those of prior
years have produced very good returns. Specifically, the Standard and Poor's 500
Index annual total return for the five years ending September 30, 1999 was
25.03%, about two and one-half times the very long-term average return for U.S.
stocks.
The financial crisis that gripped the world's capital market in the fall of 1998
has waned, and economic growth, especially in the U.S., remains strong. Some
acceleration of growth has appeared in Western Europe, as has evidence of a
bottoming of the economy in Japan. Corporate profit growth has generally been
strong. Although inflation has been quiescent, interest rates have increased
reflecting the stronger economic growth. The Federal Reserve has recently
tightened monetary policy, reversing the easing that took place a year ago.
Standish Ayer & Wood is devoted to producing superior long-term returns through
very disciplined investment philosophies designed to uncover value. We remain
confident that we have the capability to do a superior job by adhering to our
disciplines. As of September 30, 1999, Standish, Ayer & Wood, Inc., advisor to
Standish Funds, together with its affiliate, Standish International Management
Company, L.P., had approximately $45 billion of assets under management,
including $6 billion of assets in the Standish Funds. Our principal clients are
corporate pension trusts, governmental pension funds, insurance companies,
endowments and foundations, and high net worth individuals. Standish, Ayer &
Wood remains independent and is owned by investment professionals active in the
business. The professional staff, now 287, has grown over the last year and
includes 111 professionals who hold the Chartered Financial Analyst designation.
We appreciate the opportunity to serve you and hope you will find the attached
information helpful.
Sincerely yours,
/s/ Ted Ladd
Edward H. Ladd
Chairman
Standish, Ayer & Wood, Inc.
2
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Management Discussion and Analysis
The Standish Small Capitalization Equity Fund II outperformed the Russell 2000
Growth Index for the fiscal year ended September 30, 1999, returning 72.14%
versus 32.64% for the benchmark -- a strong showing for the Fund in what
continues to be a challenging environment for small cap investors.
Volatility and neglect continued to characterize small cap stocks over the
12-month period ended September 30, 1999. Results have improved considerably as
compared to 1998, yet emerging companies remain entrenched in a cycle of
inferior relative performance that began over five years ago. Investors continue
to disregard the small cap market as demonstrated by the recent decline in
mutual fund flows. This dynamic has penalized small cap stocks while fueling the
dramatic rise in big cap market averages. Narrow leadership - technology and
Internet oriented companies have dominated the market - and interest rate
apprehension have made for a precarious small cap investment environment. With
the added burden of disappointing earnings in individual companies, a broader
turnaround has been slow to develop.
Notwithstanding an erratic small cap market, Standish Small Capitalization
Equity Fund II provided investors with solid performance over the past year.
During the period, growth-oriented companies led the small cap market, helped by
the ongoing, albeit volatile, rise in technology and Internet issues. This type
of environment favors our investment strategy; we focus on industries that are
revolutionizing the economy and companies that demonstrate sustainable earnings
power, solid management, and an enviable competitive position. The Fund's
overweight in technology and the Internet contributed to successful fiscal year
results, as did strong stock selection in services, a sector that has also
stimulated today's economic growth. During the past year the health care sector
slightly detracted from the Fund's performance. Typical of the current market,
companies in the lower end of the small cap range - generally less than $500
million labored under the popularity of larger issues. The market cap effect was
overshadowed by the positive benefits of sector allocation and stock selection,
which greatly contributed to absolute and relative performance.
Looking forward, we are optimistic that investors will come to recognize the
attractive valuations, reasonable earnings growth, and compelling innovation
available in the small cap market. Though volatility is inherent to small cap
investing, historically emerging companies have commensurately rewarded
investors. We remain committed to capturing the potential of smaller, optimally
positioned, and fundamentally sound companies over a long-term investment
horizon.
On a final note, we would like to introduce Ken Winston, the newest member of
our small cap team. Ken comes to Standish from investment banker Needham & Co.,
where he served as a research analyst for Internet and business service
companies. His unique perspective on the Fund's primary economic sectors
complements the skill and experience of our group. As always, we are dedicated
to assisting you reach your investment goals and appreciate your support of the
Standish Small Capitalization Equity Fund II.
Sincerely,
/s/ Nicholas S. Battelle /s/ Andrew L. Beja
Nicholas S. Battelle Andrew L. Beja
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
Comparison of Change in Value of $100,000 Investment in
Standish Small Capitalization Fund II,
and the Russell 2000 Growth Index
[The following table was represented as a mountain graph in the printed
materials.]
Standish Small Cap Equity Fund II Russell 2000 Growth
--------------------------------- -------------------
100000 100000
101900 102396
106850 104954
98950 98616
93000 91656
93900 90593
110800 104209
118850 107742
125600 113258
131550 116656
145651 125965
135297 118400
133647 115577
1 Year 133301 115642
134163 114099
149189 124173
154791 129382
158399 130175
147035 120718
147250 121952
137771 111769
108149 85973
119675 94690
124253 99633
135725 107365
2 Year 152421 117081
172295 122350
158076 111155
178758 115112
187052 125276
184467 125474
203802 132087
200840 128005
203264 123218
206010 125596
------------------------------
Average Annual Total Return
(for periods ended 9/30/99)
Since
Inception
1 Year 12/23/1996
------ ----------
72.14% 29.06%
------------------------------
Past performance is not predictive of future performance.
4
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investment in Standish Small Capitalization Equity
Portfolio II ("Portfolio"), at value (Note 1A) $43,931,930
Receivable for Fund shares sold 112,392
Prepaid expenses 151
-----------
Total assets 44,044,473
LIABILITIES
Accrued accounting, custody and transfer agent fees $4,912
Accrued trustees' fees and expenses (Note 2) 1,000
Accrued expenses and other liabilities 7,839
------
Total liabilities 13,751
-----------
NET ASSETS $44,030,722
===========
NET ASSETS CONSIST OF:
Paid-in capital $32,720,462
Accumulated net realized gain 4,743,641
Net unrealized appreciation 6,566,619
-----------
TOTAL NET ASSETS $44,030,722
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,150,164
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 38.28
===========
The accompanying notes are an integral part of the financial statements.
5
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $ 50,200
Dividend income allocated from Portfolio 28,761
Expenses allocated from Portfolio (274,343)
-----------
Net investment income allocated from Portfolio (195,382)
EXPENSES
Accounting, custody, and transfer agent fees $ 28,716
Registration fees 16,054
Legal and audit services 12,488
Trustees' fees and expenses (Note 2) 4,033
Insurance expense 339
Miscellaneous 6,572
----------
Total expenses 68,202
Deduct:
Reimbursement of Fund operating expenses (Note 2) (52,490)
----------
Net expenses 15,712
-----------
Net investment loss (211,094)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain allocated from Portfolio on:
Investment security transactions 5,339,363
----------
Net realized gain 5,339,363
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investment securities 7,689,250
----------
Change in net unrealized appreciation
(depreciation) 7,689,250
-----------
Net realized and unrealized gain 13,028,613
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $12,817,519
===========
The accompanying notes are an integral part of the financial statements.
6
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment loss $ (211,094) $ (25,722)
Net realized gain 5,339,363 36,806
Change in net unrealized appreciation (depreciation) 7,689,250 (2,290,170)
----------- -----------
Net increase (decrease) in net assets from investment
operations 12,817,519 (2,279,086)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income -- (12,372)
From net realized gains on investments -- (165,969)
In excess of net realized gain on investment
transactions -- (384,658)
----------- -----------
Total distributions to shareholders -- (562,999)
----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 25,975,745 9,955,084
Value of shares issued to shareholders in payment of
distributions declared -- 555,593
Cost of shares redeemed (6,706,525) (2,038,167)
----------- -----------
Net increase in net assets from Fund share
transactions 19,269,220 8,472,510
----------- -----------
TOTAL INCREASE IN NET ASSETS 32,086,739 5,630,425
NET ASSETS
At beginning of year 11,943,983 6,313,558
----------- -----------
At end of year $44,030,722 $11,943,983
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED NINE MONTHS DECEMBER 23, 1996
SEPTEMBER 30, ENDED (COMMENCEMENT OF
------------------ SEPTEMBER 30, OPERATIONS) TO
1999(1) 1998(1) 1997 DECEMBER 31, 1996
------- ------- ------------- -----------------
<S> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 22.22 $ 29.12 $20.39 $20.00
------- ------- ------ ------
FROM INVESTMENT OPERATIONS:
Net investment income (loss)* (0.24) (0.07) 0.03 --
Net realized and unrealized gain (loss) on
investments 16.30 (5.01) 8.71 0.39
------- ------- ------ ------
Total from investment operations 16.06 (5.08) 8.74 0.39
------- ------- ------ ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income -- (0.04) (0.01) --
From net realized gain on investments -- (0.54) -- --
In excess of net realized gain on
investments -- (1.24) -- --
------- ------- ------ ------
Total distributions to shareholders -- (1.82) (0.01) --
------- ------- ------ ------
NET ASSET VALUE, END OF YEAR $ 38.28 $ 22.22 $29.12 $20.39
======= ======= ====== ======
TOTAL RETURN 72.14% (17.84)% 42.94% --(2)
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)*(3) 1.00% 0.58% 0.00%+ --(2)
Net Investment Income (Loss) (to average
daily net assets)* (0.73)% (0.25)% 0.49%+ --(2)
Net Assets, End of Year (000's omitted) $44,031 $11,944 $6,314 $ 484
</TABLE>
- -----------------
* For the periods indicated, the investment adviser did not impose a portion
of its advisory fee and/or reimbursed a portion of the Fund's operating
expenses. If this voluntary reduction had not been taken, the investment
income per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income per share $ (0.30) $ (0.42) $(0.25) --(2)
Ratios (to average daily net assets):
Expenses (3) 1.18% 1.94% 3.56%+ --(2)
Net investment loss (0.91)% (1.61)% (3.07)%+ --(2)
</TABLE>
(1) Calculated based on average shares outstanding.
(2) Amounts are not meaningful due to the short period of operations.
(3) Includes the Fund's share of the Standish Small Capitalization Equity II
Portfolio's allocated expenses.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
8
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
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 in an interest in Standish
Small Capitalization Equity Portfolio II (the "Portfolio"), a subtrust of
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), which is
organized as a New York trust, and has the same investment objective as
the Fund. The value of the Fund's investment in the Portfolio reflects the
Fund's proportionate interest in the net assets of the Portfolio
(approximately 100% at September 30, 1999). The performance of the Fund is
directly affected by the performance of the Portfolio. The financial
statements of the Portfolio are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The Fund currently offers two different classes of shares: Institutional
Class and Service Class. The Service Class of shares are subject to an
account service fee of 0.25% of the average daily net assets of that class
of shares. At September 30, 1999, there were no Service Class of shares
outstanding.
The following is a summary of significant accounting policies 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
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Currently, the
Fund's net investment income consists of the Fund's pro rata share of the
net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted
accounting principles.
C. FEDERAL TAXES
As a qualified regulated investment company under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
D. OTHER
All net investment income and realized and unrealized gains and losses of
the Portfolio are allocated pro rata among the investors in the Portfolio.
E. 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. 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 a 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).
9
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(2) INVESTMENT ADVISORY FEE:
The Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer, & Wood, Inc. ("SA&W") for such services. See
Note 2 of the Portfolio's Notes to Financial Statements which are included
elsewhere in this report. SA&W has voluntarily agreed to limit total Fund
operating expenses and its pro-rata share of expenses allocated from the
Portfolio (excluding commissions, taxes and extraordinary expenses) to
1.00% of the Fund's average daily net assets for the period October 1,
1998 to September 30, 1999. This agreement is voluntary and temporary and
may be discontinued or revised by SA&W at any time. Pursuant to this
agreement, for the year ended September 30, 1999, SA&W voluntarily
reimbursed the Fund for its operating expenses in the amount of $52,490.
The Trust pays no compensation directly to its trustees who are affiliated
with the SA&W or to its officers, all of whom receive remuneration for
their services to the Trust from SA&W. Certain of the trustees and
officers of the Trust are directors or officers of SA&W.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended September 30, 1999 aggregated $25,892,217 and $6,716,319,
respectively.
(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 YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
Shares sold 801,425 373,288
Shares issued to shareholders in
payment of distributions declared -- 23,472
Shares redeemed (188,863) (75,976)
-------- -------
Net increase 612,562 320,784
======== =======
At September 30, 1999, one shareholder was record owner of approximately
20% of the total outstanding shares of the Fund.
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund II:
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and financial
highlights present fairly, in all material respects, the financial position of
Standish, Ayer & Wood Investment Trust: Standish Small Capitalization Equity
Fund II (the "Fund"), at September 30, 1999, and the results of its operations,
the changes in its net assets and the financial highlights for each of the
periods indicated therein, in conformity with generally accepted accounting
principles. These financial statements and financial highlights (hereafter
referred to as "financial statements") are the responsibility of the Fund's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1999
11
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STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 98.7%
CAPITAL GOODS -- 5.2%
Eagle USA Airfreight, Inc.* 39,200 $ 1,173,550
Expeditors International Wash, Inc. 24,500 786,298
Kroll-Ogara Co.* 19,000 317,062
-----------
2,276,910
-----------
EARLY CYCLICAL -- 2.0%
Atlantic Coast Airlines, Inc.* 35,400 628,350
Ryanair Holdings PLC ADR* 5,700 261,487
-----------
889,837
-----------
ENERGY -- 2.6%
Cal Dive International, Inc.* 11,400 390,450
Cooper Cameron Corp.* 8,200 309,550
Dril-Quip* 16,900 432,006
-----------
1,132,006
-----------
FINANCIAL -- 1.7%
Costar Group, Inc.* 13,100 312,762
First Sierra Financial, Inc.* 40,600 433,912
-----------
746,674
-----------
GROWTH CYCLICAL -- 7.6%
Cinar Corp.* 27,400 828,850
Global Sports, Inc.* 17,700 396,037
Hibbet Sporting Goods, Inc.* 29,600 484,700
Westwood One, Inc.* 27,600 1,245,450
Wet Seal, Inc., Class A* 24,100 399,156
-----------
3,354,193
-----------
HEALTH CARE -- 13.8%
ADAC Laboratories* 51,400 504,362
Alkermes, Inc.* 12,800 368,800
Cephalon, Inc.* 16,600 298,282
Chirex, Inc.* 15,700 405,256
Cytyc Corp.* 15,600 603,525
Impath, Inc.* 15,400 448,525
Inhale Therapeutic Systems, Inc.* 15,300 464,738
Medquist, Inc.* 14,100 471,469
Pharmacyclics, Inc.* 10,600 433,275
Transkaryotic Therapies, Inc.* 10,100 518,888
Triangle Pharmaceuticals, Inc.* 31,200 600,600
United Therapeutics* 18,600 537,075
Vical, Inc.* 30,900 426,806
-----------
6,081,601
-----------
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- --------------------------------------------------------------------------------
OTHER -- 1.9%
Nasdaq-100 Shares* 3,500 $ 421,312
S&P 400 Mid-Cap Depositary Receipts 5,800 416,513
-----------
837,825
-----------
SERVICES -- 38.1%
24/7 Media, Inc.* 12,200 462,075
Abacus Direct Corp.* 7,200 877,500
Acme Communications, Inc.* 4,290 132,990
C-Net, Inc.* 16,100 901,600
CN Maximus, Inc.* 24,000 718,500
Checkfree Holdings Corp.* 12,400 509,950
Concentric Network Corp.* 30,800 625,625
Devry, Inc.* 22,600 452,000
Digex, Inc.* 28,600 677,463
Digital River, Inc.* 27,600 600,300
Emmis Broadcasting Corp., Class A* 12,700 838,994
Entercom Communications Corp.* 7,300 262,800
Exodus Communications, Inc.* 6,700 482,819
F.Y.I., Inc.* 15,600 525,525
First Consulting Group, Inc.* 27,200 272,000
Homestore.com, Inc.* 13,700 571,119
Infospace.com, Inc.* 13,000 534,625
Insight Communications, Inc.* 25,400 727,075
Loislaw.com, Inc.* 6,770 98,165
Luminant Worldwide Corp.* 13,400 412,050
Pinnacle Holdings, Inc.* 47,400 1,238,325
Radio One, Inc.* 9,000 373,500
Rowecom, Inc.* 25,400 704,850
SBS Broadcasting SA* 33,100 1,282,625
Salem Communications Corp., Class A* 22,000 561,000
Sapient Corp.* 4,500 424,125
Sportsline USA, Inc.* 27,600 815,925
Starmedia Network, Inc.* 10,900 400,235
Superior Consultant Holdings* 21,500 252,625
-----------
16,736,385
-----------
TECHNOLOGY -- 25.8%
ATMI, Inc.* 35,400 1,320,863
Applied Micro Circuits Corp.* 20,000 1,140,000
Bea Systems, Inc.* 13,300 469,656
Best Software, Inc.* 14,100 278,475
CBT Group PLC ADR* 17,500 430,938
Computer Network Tech Corp.* 48,100 447,931
Credence Systems Corp.* 9,800 439,775
Dallas Semiconductor Corp. 7,400 395,438
Emulex Corp.* 8,000 687,000
Globespan, Inc.* 7,000 441,875
National Computer System, Inc. 12,300 471,629
PRI Automation, Inc.* 18,500 668,313
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- -------------------------------------------------------------------------------
TECHNOLOGY (CONTINUED)
Photronics, Inc.* 41,500 $ 931,156
Qlogic Corp.* 10,400 726,050
Semtech Corp.* 14,600 534,725
Sipex Corp.* 13,400 191,788
Stamps.com, Inc.* 14,400 500,400
TSI International Software Ltd.* 20,400 553,350
Verisign, Inc.* 6,600 702,900
-----------
11,332,262
-----------
TOTAL EQUITIES (COST $36,821,026) 43,387,693
-----------
SHORT-TERM INVESTMENTS -- 4.2%
REPURCHASE AGREEMENTS -- 4.2%
Prudential-Bache Repurchase Agreement, dated 09/30/99,
due 10/01/99, with a maturity value of $1,830,153 and
an effective yield of 4.48%, collaterized by a U.S.
Government Agency obligation with a rate of 6.00%, a
maturity date of 03/01/13 and a market value of $1,866,524. 1,829,925
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,829,925) 1,829,925
-----------
TOTAL INVESTMENTS -- 102.9% (COST $38,650,951) $45,217,618
OTHER ASSETS, LESS LIABILITIES -- (2.9%) (1,285,503)
-----------
NET ASSETS -- 100.0% $43,932,115
===========
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
*Non-income producing security.
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$38,650,951) $45,217,618
Receivable for investments sold 994,710
Interest receivable 466
Deferred organization costs (Note 1E) 10,586
Prepaid expenses 1,360
-----------
Total assets 46,224,740
LIABILITIES
Payable for investments purchased $2,259,962
Accrued accounting and custody fees 12,828
Accrued trustees' fees and expenses (Note 2) 1,370
Payable to investment adviser (Note 2) 30
Accrued expenses and other liabilities 18,435
---------
Total liabilities 2,292,625
-----------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS) $43,932,115
===========
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Interest income $ 50,201
Dividend income 28,761
-----------
Total income 78,962
EXPENSES
Investment advisory fee (Note 2) $ 173,628
Accounting and custody fees 65,715
Legal and audit services 22,627
Trustees' fees and expenses (Note 2) 4,806
Amortization of organization expenses (Note 1E) 4,749
Insurance expense 2,819
----------
Total expenses 274,344
-----------
Net investment loss (195,382)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 5,339,392
----------
Net realized gain 5,339,392
Change in unrealized appreciation (depreciation)
Investment securities 7,689,299
----------
Change in net unrealized appreciation
(depreciation) 7,689,299
-----------
Net realized and unrealized gain 13,028,691
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $12,833,309
===========
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment loss $ (195,382) $ (25,722)
Net realized gain 5,339,392 36,810
Change in net unrealized appreciation (depreciation) 7,689,299 (2,290,197)
----------- -----------
Net increase (decrease) in net assets from investment
operations 12,833,309 (2,279,109)
----------- -----------
CAPITAL TRANSACTIONS
Contributions 25,892,217 9,663,712
Withdrawals (6,716,319) (1,758,185)
----------- -----------
Net increase in net assets from capital transactions 19,175,898 7,905,527
----------- -----------
TOTAL INCREASE IN NET ASSETS 32,009,207 5,626,418
NET ASSETS
At beginning of year 11,922,908 6,296,490
----------- -----------
At end of year $43,932,115 $11,922,908
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED DECEMBER 23, 1996
SEPTEMBER 30, NINE MONTHS (COMMENCEMENT OF
------------------ ENDED OPERATIONS) TO
1999(1) 1998(1) SEPTEMBER 30, 1997 DECEMBER 31, 1996
------- ------- ------------------ -----------------
<S> <C> <C> <C> <C>
RATIOS:
Expenses (to average daily net assets)* 0.95% 0.58% 0.00%+ 0.00%(1)
Net Investment Income (Loss) (to average
daily net assets)* (0.67)% (0.25)% 0.50%+ --(1)
Portfolio Turnover 242% 147% 122% --
Net Assets, End of Year (000's omitted) $43,932 $11,923 $6,296 $ 484
</TABLE>
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not
to impose a portion of its investment advisory fee and/or reimbursed the
Portfolio for a portion of its operating expenses. If this voluntary
action had not been taken, the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C>
Ratios (to average daily net assets):
Expenses -- 1.39% 4.33%+ --(1)
Net investment loss -- (1.06)% (3.84)%+ --(1)
</TABLE>
+ Computed on an annualized basis.
(1) Amounts are not meaningful due to the short period of operations.
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
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 II (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. As of September 30,
1999, the Standish Small Capitalization Equity Fund II's proportionate
interest in the net assets of the Portfolio was approximately 100%.
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of 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 the trade date. Interest income
is determined on the basis of interest accrued. Dividend income is
recorded on the ex-dividend date. Realized gains and losses from
securities sold are recorded on the identified cost basis.
D. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since some of the
Portfolio's investors are regulated investment companies that invest all
or substantially all of their assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification
requirements applicable to regulated investment companies (under the
Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio allocates 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.
19
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. DEFERRED ORGANIZATIONAL EXPENSES
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized, on a straight-line basis through
December 2001.
(2) INVESTMENT ADVISORY FEE:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. ("SA&W")
for overall investment advisory and administrative services is paid
monthly at the annual rate of 0.60% of the Portfolio's average daily net
assets. The Portfolio Trust pays no compensation directly to its trustees
who are affiliated with SA&W or to its officers, all of whom receive
remuneration for their services to the Portfolio Trust from SA&W. Certain
of the trustees and officers of the Portfolio Trust are directors or
officers of SA&W.
(3) PURCHASES AND SALES OF INVESTMENTS:
Cost of purchases and proceeds from sales of investments, other than
short-term obligations for the year ended September 30, 1999 were as
follows:
PURCHASES SALES
----------- -----------
U.S. Government Securities $ -- $ --
=========== ===========
Investments (non-U.S.Government Securities) $87,073,141 $67,959,678
=========== ===========
(4) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at September 30, 1999, as computed on a
federal income tax basis, were as follows:
Aggregate Cost $39,259,271
===========
Gross unrealized appreciation 8,610,058
Gross unrealized depreciation (2,651,711)
-----------
Net unrealized appreciation $ 5,958,347
===========
(5) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more fully
in Parts A and B of the Portfolio Trust's registration statement.
The Portfolio trades the following financial instruments with off-balance
sheet risk:
OPTIONS
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before a
certain date. The Portfolio may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Writing puts and buying calls tend
to increase the Portfolio's exposure to the underlying instrument. Buying
puts and writing calls tend to decrease the Portfolio's exposure to the
underlying instrument, or hedge other Portfolio investments. Options, both
held and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. The underlying face
amount at value of any open purchased options is shown in the Schedule of
Investments. This amount reflects each
20
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
contract's exposure to the underlying instrument at period end. Losses may
arise from changes in the value of the underlying instruments, if there is
an illiquid secondary market for the contracts, or if the counterparties
do not perform under the contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. 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 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 year ended
September 30, 1999.
FUTURES CONTRACTS
The Portfolio may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices at
a fixed price on a future date. Pursuant to margin requirements the
Portfolio deposits either in cash or securities an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio. There
are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged investments.
Buying futures tends to increase the Portfolio's exposure to the
underlying instrument, while selling futures tends to decrease the
Portfolio's exposure to the underlying instrument or hedge other
investments. In addition, there is the risk that the Portfolio may not be
able to enter into a closing transaction because of an illiquid secondary
market. Losses may arise if there is an illiquid secondary market or if
the counterparties do not perform under the contract's terms. The
Portfolio enters into financial futures transactions primarily to seek to
manage its exposure to certain markets and to changes in securities prices
and foreign currencies. Gains and losses are realized upon the expiration
or closing of the futures contracts.
The Portfolio had no open financial futures contracts at September 30,
1999.
(6) LINE OF CREDIT:
The Portfolio, other subtrusts in the Portfolio Trust and funds in the
Trust are parties to a committed line of credit facility, which enables
each portfolio/fund to borrow, in the aggregate, up to $25 million.
Interest is charged to each participating portfolio/fund based on its
borrowings at a rate equal to the Federal Funds effective rate plus 1/2 of
1%. In addition, a commitment fee, computed at an annual rate of .065 of
1% on the daily unused portion of the facility, is allocated ratably among
the participating portfolios/funds at the end of each quarter. For the
year ended September 30, 1999, the expense related to the commitment fee
was $448 for the Portfolio. During the year ended September 30, 1999, the
Portfolio had no borrowings under the credit facility.
21
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Master Portfolio and the Investors of
Standish Small Capitalization Equity Portfolio II:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplemental data present fairly, in all material
respects, the financial position of Standish Small Capitalization Equity
Portfolio II (the "Portfolio"), at September 30, 1999, the results of its
operations, the changes in its net assets and the supplemental data for each of
the periods indicated therein, in conformity with generally accepted accounting
principles. These financial statements and supplemental data (hereafter referred
to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at September 30, 1999, by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
November 19, 1999
22
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