STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
Financial Statements for the Year Ended
December 31, 1998
[LOGO]
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STANDISH, AYER & WOOD INVESTMENT TRUST
February 25, 1999
Dear Standish, Ayer and Wood Investment Trust Shareholder:
We are writing to provide you with a review of developments at Standish, Ayer &
Wood, as they relate to the activities of the Investment Trust.
The financial markets had a wild year in 1998. Following the disarray in Asia
and, more directly, the de facto Russian default in mid-August, a large part of
the world's financial markets simply shut down. Many sectors of the U.S. markets
were paralyzed. Spurred by a second easing of monetary policy by the Federal
Reserve in mid-October, the markets reopened and staged a dramatic recovery.
Performance within subsets of the major asset classes varied greatly. Bonds
generally produced positive returns, but less liquid issues with any degree of
perceived credit risk underperformed. Emerging market securities were
eviscerated during the third quarter spasm and recovered only partially in the
fourth. By far the best returns in the U.S. equity markets were registered by a
relatively narrow group of higher price/earnings ratio, larger capitalization
stocks. The disparity in return between the larger cap stocks and smaller cap
stocks, as measured by the Standard & Poor's 500 and the Russell 2000 indexes
was an astounding 31%!
While some funds managed by Standish did well relative to their benchmarks and
most funds produced good absolute returns, too many underperformed their
benchmarks in 1998. In bonds, our holdings of corporate credits and mortgages
underperformed U.S. Treasury securities, the latter representing a significant
portion of the major indexes. In equities, our preference for lower
price/earnings ratios led to an overweighting in mid cap stocks that suffered
relative to larger cap stocks with significantly higher valuations.
We have expended considerable time and effort trying to learn the correct
lessons from 1998. We have determined that much of the underperformance was
generic to our style and that 1998 was an aberrant year, with valuation on
holiday in many sectors. We are deeply committed to the view that valuation is
extremely important in making investment judgments. We are dedicated to our
philosophy and unalterably convinced that our strategy of buying securities that
are inexpensive relative to their fundamentals is an excellent path to
sustainable excess returns over the long term.
Notwithstanding the chaotic markets, we are pleased that Standish has benefited
from extraordinary stability of both our clients and our professional team. At
the end of 1998, total assets under management for our clients were $46.2
billion, compared with $39.3 billion at the end of 1997. We have experienced
growth in virtually all asset categories, especially equities. The Standish
Funds increased assets from $5.7 billion to $6.5 billion during the year, with
about 75% of the growth representing additions from existing clients.
The Standish team has also grown significantly, from 232 members at the
beginning of 1998 to 276 members at the end of the year. Our 97 investment
officers have average investment experience of 15 years. Fifty-six officers have
advanced degrees (typically an MBA) and 65 have some advanced professional
accreditation (virtually all Chartered Financial Analysts). There have been no
changes in the 24 individuals (all with CFAs) who own Standish, Ayer & Wood.
1
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At the end of 1998, the Standish Board of Directors elected four new associate
directors: Susan Coan, one of the key managers in our taxable client group;
David Horsfall, head of our large bond trading operation; Phil Leonardi, a major
contributor to expanding our equity assets; and Jennifer Pline, who holds major
responsibilities for serving large, fixed income clients. We have elected 13 new
vice presidents and 17 new assistant vice presidents of Standish, Ayer & Wood.
In this environment, there are no shortages of challenges and opportunities. Our
first priority remains to produce superior long-term investment performance for
our clients. We believe we have the investment disciplines and the professional
team to achieve that goal. In those asset classes in which our returns were
subpar in 1998, we have a special impetus to produce superior results in the
future. With our portfolios attractively priced compared to the relevant
benchmarks, we see potential for significant excess return when the markets
become more focused on investment value.
We believe that we are in partnership with our clients. We would like to assure
you of our dedication to fulfilling your needs while expressing our great
appreciation for your confidence in Standish.
Sincerely yours,
/s/ Ted Ladd /s/ George Noyes
Edward H. Ladd, Chairman George W. Noyes, President
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
Management Discussion and Analysis
The later part of 1998 posed a challenging environment for non-Treasury bond
investors. On an absolute basis, short maturity bonds performed well in 1998,
reflecting the trend of declining of interest rates. However, relative to
Treasuries, corporate and asset backed securities lagged significantly during
the second half of the year. After outperforming its benchmark for the first
seven months of the year, Controlled Maturity finished the year generating a
return of 5.58%, trailing the 7.0% of the Merrill Lynch U.S. Treasury 1-3 Year
Index. In addition, the Controlled Maturity Fund saw significant asset growth
during the year as assets doubled.
The first half of 1998 was characterized by stable to slightly rising interest
rates as the domestic economic growth was offset by declining inflation and
continued weakness in Asia. During this period the yield on the two year
Treasury note averaged 5.49%. Sector and security selection generated
outperformance for the Fund during this period. Investments in asset backed
securities and industrial and bank corporate notes led returns.
The second half of the year saw yields decline due to a "flight to quality" as
unrest in emerging markets and the collapse of hedge funds crossed the
headlines. Uncertainty about corporate profitability and new fears that the U.S.
economy would head toward recession caused credit related securities to
underperform. The yield advantage of corporate bonds with maturities from one to
three years more than doubled from mid-year. The high premium for liquidity
further contributed to underperformance by all securities other than the most
recently issued U.S. Treasury notes. In an attempt to restore investor
confidence and liquidity to the market, as well as to fight the slowing global
economic trends, the Federal Reserve reduced overnight interest rates from 5.5%
to 4.75%. Reflecting this activity, the yield on the two year Treasury note
traded as low as 3.82% in October, from 5.47% on June 30, before finishing the
year at 4.53%.
Based on our expectations of declining interest rates, the Fund's maturity
averaged slightly longer than that of the index during the second half of the
year. With the continued threat of a slowdown, we continue to maintain that bias
near term. Our general strategy is to avoid making major changes in duration and
making modest changes as conditions warrant.
With uncertainty in the equity markets, global turmoil and choppy interest rate
swings, we have a positive outlook on the opportunities for short maturity bond
portfolios. We are dedicated in our efforts to add value for our shareholders
and appreciate your continued support.
Sincerely yours,
/s/ Barbara J. McKenna /s/ Howard B. Rubin
Barbara J. McKenna Howard B. Rubin
3
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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
[The following table was originally a line chart in the printed material.]
Standish Controlled Merrill Lynch
Maturity Fund 1-3 Yr. Index
------------- -------------
Inception July-1995 100000 100000
Jul-1995 100350 100414
Aug-1995 100950 101011
Sep-1995 101550 101502
Oct-1995 102411 102359
Nov-1996 103372 103264
Dec-1995 104200 104057
Jan-1996 105075 104941
Feb-1996 104612 104498
Mar-1996 104458 104405
Apr-1996 104562 104492
May-1996 104771 104706
Jun-1996 105558 105458
Jul-1996 106036 105874
Aug-1996 106354 106237
Sep-1996 107362 107200
Oct-1996 108763 108408
Nov-1996 109679 109238
Dec-1996 109542 109238
Jan-1997 110035 109750
Feb-1997 110364 110003
Mar-1997 110251 109960
Apr-1997 111141 110858
May-1997 111976 111612
Aug-1997 114110 113720
Sep-1997 115071 114585
Oct-1997 115873 115433
Nov-1997 116103 115710
Dec-1997 116834 116497
Jan-1998 117830 117627
Feb-1998 117947 117728
Mar-1998 118476 118207
Apr-1998 119070 118760
May-1998 119784 119393
Jun-1998 120439 120014
Aug-1998 122122 122091
Sep-1998 123205 123709
Oct-1998 122597 124316
Nov-1998 122779 124208
Dec-1998 123359 124647
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Assets and Liabilities
December 31, 1998
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<TABLE>
<S> <C> <C>
Assets
Investments at value (Note 1A) (identified cost, $25,885,181) $ 25,771,090
Receivable for Fund shares sold 630,000
Interest receivable 281,269
Deferred organization costs (Note 1E) 3,533
Prepaid expenses 1,071
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Total assets 26,686,963
Liabilities
Distribution payable 83,260
Accrued accounting, custody and transfer agent fees 6,338
Accrued trustees' fees and expenses (Note 2) 1,069
Accrued expenses and other liabilities 17,079
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Total liabilities 107,746
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Net Assets $ 26,579,217
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Net Assets consist of:
Paid-in capital $ 26,805,373
Distributions in excess of net investment income (1,636)
Accumulated net realized loss (110,429)
Net unrealized depreciation (114,091)
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Total Net Assets $ 26,579,217
=============
Shares of beneficial interest outstanding 1,337,951
=============
Net Asset Value, offering price and redemption price per share
(Net Assets/Shares outstanding) $ 19.87
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statement of Operations
Year Ended December 31, 1998
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<TABLE>
<S> <C> <C>
Investment Income
Interest income $ 1,620,609
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Total investment income 1,620,609
Expenses
Investment advisory fee (Note 2) $ 74,568
Accounting, custody and transfer agent fees 74,316
Legal and audit services 23,665
Registration fees 14,712
Trustees' fees and expenses (Note 2) 4,960
Insurance expense 3,080
Amortization of organization expenses (Note 1E) 2,336
Miscellaneous 4,905
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Total expenses 202,542
Deduct --
Waiver of investment advisory fee (Note 2) (74,568)
Reimbursement of Fund operating expenses (Note 2) (52,664)
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Total expense deductions (127,232)
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Net expenses 75,310
------------
Net investment income 1,545,299
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Realized and Unrealized Gain (Loss) on Investments
Net realized gain (loss)
Investment security transactions 29,988
Financial futures contracts (31,712)
----------
Net realized loss (1,724)
Change in unrealized appreciation (depreciation)
Investment securities (125,575)
Financial futures contracts (2,043)
----------
Net change in unrealized appreciation (depreciation) (127,618)
------------
Net realized and unrealized loss (129,342)
------------
Net Increase in Net Assets from Operations $ 1,415,957
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Statements of Changes in Net Assets
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<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income $ 1,545,299 $ 821,176
Net realized loss (1,724) (93,752)
Change in unrealized appreciation (depreciation) (127,618) 72,254
------------- ------------
Net increase in Net Assets from Investment Operations 1,415,957 799,678
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Distributions to Shareholders
From net investment income (1,561,525) (819,657)
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Total distributions to shareholders (1,561,525) (819,657)
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Fund Share (principal) Transactions (Note 4)
Net proceeds from sale of shares 27,446,026 2,042,049
Value of shares issued to shareholders in payment of distributions declared 1,249,284 316,512
Cost of shares redeemed (15,886,520) (947,462)
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Net increase in Net Assets from Fund share transactions 12,808,790 1,411,099
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Total Increase in Net Assets 12,663,222 1,391,120
Net Assets
At beginning of year 13,915,995 12,524,875
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At end of year (including distributions in excess of $1,636 and undistributed
net investment income of $14,993, respectively) $ 26,579,217 $13,915,995
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Financial Highlights
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<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998(1) 1997 1996 1995+
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 19.95 $ 19.99 $ 20.24 $20.00
-------- -------- -------- -------
Investment Operations
Net investment income * 1.25 1.34 1.27 0.57
Net realized and unrealized gain (loss) on
investments (0.16) (0.04) (0.27) 0.24
-------- -------- -------- -------
Total from investment operations 1.09 1.30 1.00 0.81
-------- -------- -------- -------
Less distributions to shareholders
From net investment income (1.17) (1.34) (1.24) (0.57)
From net realized gains on investments -- -- (0.01) --
-------- -------- -------- -------
Total distributions to shareholders (1.17) (1.34) (1.25) (0.57)
-------- -------- -------- -------
Net Asset Value, End of Year $ 19.87 $ 19.95 $ 19.99 $20.24
======== ======== ======== =======
Total Return 5.58% 6.66% 5.13% 4.20%
Ratios/Supplemental Data
Expenses (to average daily net assets)* 0.30% 0.37% 0.40% 0.40%++
Net investment income (to average daily net
assets)* 6.19% 6.60% 6.60% 6.29%++
Portfolio Turnover 145% 94% 107% 127%
Net Assets, End of Year (000 omitted) $26,579 $13,916 $12,525 $8,868
</TABLE>
- -------------------
* 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:
<TABLE>
<S> <C> <C> <C> <C>
Net investment income per share $ 1.15 $ 1.18 $ 1.11 $ 0.38
Ratios (to average daily net assets):
Expenses 0.81% 1.28% 1.25% 2.51%++
Net investment income 5.68% 5.69% 5.75% 4.18%++
</TABLE>
(1) Calculated based on average shares outstanding.
+ 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
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1998
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<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 96.1%
Asset Backed -- 35.0%
Advanta Home Equity Trust Loan 1991-1A FGIC 9.000% 02/25/2006 $ 232,086 $ 232,340
Advanta Mortgage Loan Trust 1993-4 A1 5.500% 03/25/2010 116,162 113,829
Advanta Mortgage Loan Trust 1997-4 A4 6.660% 03/25/2022 50,000 50,207
AFC Home Equity Loan Trust 1993-2 A FGIC 6.000% 01/20/2013 114,599 113,776
Amresco 1997-1 B1 7.915% 03/25/2027 750,000 726,562
Amresco 1997-1 B1A Non-ERISA FRN(a) 6.456% 03/25/2027 600,000 567,469
Amresco Residential Securities 1998-2 B1A(a) 6.806% 06/25/2028 750,000 705,468
Charming Shoppes Master Trust 1994-1 A 7.000% 04/15/2003 300,000 300,844
Chase Manhattan Auto Owner 1997-B 6.750% 01/15/2004 650,000 666,808
Chemical Master Credit Card Trust 1995-2 A 6.230% 06/15/2003 400,000 405,872
Delta Funding Home Equity Loan 1998-1 2A(a) 5.252% 05/25/2030 220,337 218,754
Equicredit Home Equity 1993-4 5.725% 12/15/2008 62,513 62,278
Equicredit Home Equity 1995-4 A2 6.350% 10/15/2009 26,499 26,528
Equicredit Home Equity 1997-1 A4 ERISA 7.160% 03/15/2013 325,000 330,700
First USA 1998-1 C 144A 6.500% 05/18/2003 450,000 451,008
Gulf States Auto Grantor Trust 1996-B A 6.600% 05/25/2003 176,068 176,233
Independent National Mortgage Corp. 1998-2 A2 6.170% 12/25/2011 650,000 650,812
Premier Auto Trust 1997-1B ERISA 6.550% 09/06/2003 700,000 708,202
Standard Credit Card 1998-1 A6(a) 6.737% 03/23/2003 500,000 499,844
TMS Home Equity Trust 1998-1 AV1(a) 5.710% 06/15/2029 164,100 162,818
Toyota Auto Lease 1997-A B 6.750% 09/25/2001 500,000 495,781
UCFC Home Equity Loan Trust 1993-B A1 6.075% 07/25/2014 374,957 373,785
UCFC Home Equity Loan Trust 1996 A1 A5 6.500% 03/15/2016 350,000 350,438
Union Acceptance Corp. 1998-B A4 5.900% 02/09/2004 600,000 602,063
World Omni Auto Lease 1996-A A1 ERISA 6.300% 06/25/2002 52,818 52,884
World Omni Auto Lease 1997-A B Non-ERISA 144A 7.300% 06/25/2003 248,927 251,183
-----------
Total Asset Backed (Cost $9,387,960) 9,296,486
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Collateralized Mortgage Obligations -- 0.0%
Collateralized Mortgage Obligation Trust 13-A(a) 6.063% 01/20/2003 5,957 5,910
-----------
Total Collateralized Mortgage Obligations (Cost $5,913) 5,910
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Corporate -- 27.8%
Bank Bonds -- 3.1%
Banco Latinoamericano 144A Notes 6.500% 04/02/2001 300,000 296,100
Banponce Financial Corp. Medium Term Notes 5.750% 03/01/1999 325,000 325,215
Sovereign Bancorp 6.750% 07/01/2000 200,000 200,444
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821,759
-----------
Financial -- 16.2%
Avalon Bay Comm Notes 6.500% 07/15/2003 500,000 493,595
Chartwell Real Estate Holdings Senior Notes 10.250% 03/01/2004 650,000 684,697
Chelsea GCA Realty 7.750% 01/26/2001 450,000 450,221
Conseco Inc. 6.400% 02/10/2003 600,000 576,228
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1998
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<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial (continued)
ERP REIT 144A 8.500% 05/15/1999 $ 200,000 $ 201,582
Lehman Brothers Holding Inc. 6.000% 02/26/2001 250,000 248,154
MBNA Corp. Sr Medium Term Notes 6.500% 09/15/2000 225,000 225,542
Merrill Lynch Variable Rate Note(a) 7.260% 03/25/2002 600,000 602,334
Reliance Group Holdings Corp. 9.000% 11/15/2000 350,000 363,179
Salomon Brothers, Inc. Senior Notes 7.750% 05/15/2000 75,000 77,195
Spieker Properties REIT 6.650% 12/15/2000 75,000 75,362
Wellsford Residential Property REIT 7.250% 08/15/2000 50,000 51,644
Wellsford Residential Property REIT(a) 5.570% 11/24/1999 250,000 250,140
-----------
4,299,873
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Industrial Bonds -- 8.5%
Comdisco Inc. 6.070% 05/08/2000 400,000 405,065
Cox Communications Inc.(a) 6.150% 08/01/2003 525,000 534,718
IMC Global 7.400% 11/01/2002 350,000 354,204
MCI Communications Corp.(a) 6.125% 04/15/2002 250,000 253,182
News America Holdings 7.450% 06/01/2000 175,000 179,006
Walt Disney Notes 5.125% 12/15/2003 400,000 397,784
Waste Management Inc. 6.700% 05/01/2001 150,000 152,843
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2,276,802
-----------
Total Corporate (Cost $7,426,648) 7,398,434
-----------
Government/Other -- 6.6%
Yankee Bonds -- 6.6%
Edperbrascan Ltd. Notes 7.375% 10/01/2002 325,000 325,312
Groupe Videotron 10.625% 02/15/2005 500,000 534,795
St. Georges Bank 144A Notes 6.875% 04/01/1999 425,000 426,785
Tyco International 6.125% 06/15/2001 450,000 454,334
-----------
Total Government/Other (Cost $1,757,483) 1,741,226
-----------
Non-Agency -- 2.1%
Pass Thru Securities -- 2.1%
BankBoston 1997-C1 B Non-ERISA 144A 7.218% 04/25/2000 55,893 55,631
MLMI Mortgage Inv. 1995-C2 D Non-ERISA 7.495% 06/15/2021 333,022 338,954
Resolution Trust Corp. 1993-C3 E Non-ERISA 7.100% 12/25/2024 165,761 165,425
-----------
Total Non-Agency (Cost $564,295) 560,010
-----------
U.S. Government Agency -- 3.3%
Pass Thru Securities -- 3.3%
FHLMC 10.500% 07/01/2015 2,230 2,462
FHLMC Gold 5 Yr 7.000% 08/01/1999 25,645 25,789
FNMA 8.500% 12/01/2026 420,218 440,044
GNMA 8.000% 11/15/2017 - 392,175 411,415
7/15/2027
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Total U.S. Government Agency (Cost $880,048) 879,710
-----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
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Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Schedule of Investments - December 31, 1998
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<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Obligations -- 21.3%
Treasury Notes -- 21.3%
U.S. Treasury Note 5.625% 12/31/1999 $ 150,000 $ 151,454
U.S. Treasury Note 4.625% 11/30/2000 800,000 800,495
U.S. Treasury Note 5.625% 11/30/2000 4,265,000 4,340,959
U.S. Treasury Note 6.250% 10/31/2001 350,000 364,655
------------
Total U.S. Treasury Obligations (Cost $5,631,083) 5,657,563
------------
TOTAL BONDS AND NOTES (COST $25,653,430) 25,539,339
------------
SHORT-TERM INVESTMENTS -- 0.9%
Repurchase Agreements -- 0.9%
Prudential-Bache Repurchase Agreement, dated 12/31/98, due 1/4/99, with a
maturity value of $231,853 and an effective yield of 3.95%, collateralized by a
U.S. Government Agency Obligation with a rate of 7.685%, a maturity date of
12/1/24 and a market value of $236,531. 231,751
------------
TOTAL SHORT-TERM INVESTMENTS (COST $231,751) 231,751
------------
TOTAL INVESTMENTS -- 97.0%(COST $25,885,181) $25,771,090
Other Assets, Less Liabilities -- 3.0% 808,127
------------
NET ASSETS -- 100% $26,579,217
============
</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.
AFC - Alliance Funding Corporation
ERP - Equity Residential Properties
FGIC - Financial Guaranty Insurance Company
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
MLMI - Merrill Lynch Mortgage Investors, Inc.
REIT - Real Estate Investment Trust
UCFC - United Companies Financial Corporation
(a) Variable Rate Security; rate indicated is as of 12/31/98.
The accompanying notes are an integral part of the financial statements.
11
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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 regulated investment company qualified 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, 1998, 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 $5,003 and $88,743 which will expire on December
31, 2004 and 2005, respectively. The Fund elected to defer to its
fiscal year ending December 31, 1999, $15,434 of losses recognized
during the period November 1, 1998 to December 31, 1998.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
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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, distributions in excess of
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 waive its investment advisory fee and to limit the Fund's total
operating expenses to 0.30% of the Fund's average daily net assets for
the year ending December 31, 1998. Pursuant to this agreement, SA&W
voluntarily waived $74,568 of its investment advisory fee and
reimbursed the Fund for $52,664 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, for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------- -------------
<S> <C> <C>
U.S. Government Securities.................................. $19,905,875 $14,066,953
============= =============
Investments (non-U.S. Government Securities)................ $29,389,183 $18,529,580
============= =============
</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, 1998 December 31, 1997
------------------- -------------------
<S> <C> <C>
Shares sold.......................................... 1,364,193 102,366
Shares issued to shareholders in payment of
distributions declared............................ 62,459 15,862
Shares redeemed...................................... (786,222) (47,171)
------------------- -------------------
Net increase......................................... 640,430 71,057
=================== ===================
</TABLE>
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1998, five shareholders were record owners of
approximately 27%, 20%, 15%, 14% and 13%, 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, 1998, as computed on a
federal income tax basis, were as follows:
Aggregate Cost......................................... $25,886,430
=============
Gross unrealized appreciation.......................... 102,605
Gross unrealized depreciation.......................... (217,945)
-------------
Net unrealized depreciation............................ $ (115,340)
=============
(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, 1998.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Controlled Maturity Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
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. There were no
outstanding futures contracts at December 31, 1998.
15
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Controlled Maturity Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Standish, Ayer & Wood Investment Trust:
Standish Controlled Maturity Fund (the "Fund"), at December 31, 1998, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated therein, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (herein 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, which included
confirmation of securities at December 31, 1998, by correspondence with the
custodian and brokers, provides a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
16
<PAGE>
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17
<PAGE>
[This page intentionally left blank]
18
<PAGE>
[LOGO] STANDISH FUNDS(R)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
www.standishfunds.com
<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, 1998
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-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 25,885,181
<INVESTMENTS-AT-VALUE> 25,771,090
<RECEIVABLES> 911,269
<ASSETS-OTHER> 4,604
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,686,963
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 107,746
<TOTAL-LIABILITIES> 107,746
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,805,373
<SHARES-COMMON-STOCK> 1,337,951
<SHARES-COMMON-PRIOR> 697,521
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (1,636)
<ACCUMULATED-NET-GAINS> (110,429)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (114,091)
<NET-ASSETS> 26,579,217
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,620,609
<OTHER-INCOME> 0
<EXPENSES-NET> 75,310
<NET-INVESTMENT-INCOME> 1,545,299
<REALIZED-GAINS-CURRENT> (1,724)
<APPREC-INCREASE-CURRENT> (127,618)
<NET-CHANGE-FROM-OPS> 1,415,957
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,561,525
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,364,193
<NUMBER-OF-SHARES-REDEEMED> (786,222)
<SHARES-REINVESTED> 62,459
<NET-CHANGE-IN-ASSETS> 12,663,222
<ACCUMULATED-NII-PRIOR> 14,993
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> (109,109)
<GROSS-ADVISORY-FEES> 74,568
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 202,542
<AVERAGE-NET-ASSETS> 24,945,477
<PER-SHARE-NAV-BEGIN> 19.95
<PER-SHARE-NII> 1.25
<PER-SHARE-GAIN-APPREC> (0.16)
<PER-SHARE-DIVIDEND> (1.17)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 19.87
<EXPENSE-RATIO> 0.30
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
