STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
Financial Statements for the Period Ended
September 30, 1999
[LOGO]
<PAGE>
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
Management Discussion and Analysis
The Standish Small Capitalization Equity Fund outperformed the Russell 2000
Growth Index for the year ended September 30, 1999, returning 44.02% versus
32.64% for the benchmark respectively -- 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
over 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 provided investors with competitive 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.
Sincerely,
/s/ Nicholas S. Battelle
Nicholas S. Battelle
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
Comparison of Change in Value of $100,000 Investment in
Standish Small Capitalization Equity Fund and the Russell 2000 Growth Index
[The following table was represented as a mountain graph in the printed
materials.]
Standish Small Cap
Equity Fund Russell 2000 Growth
----------- -------------------
100000 100000
98409 101952
105495 111444
112134 117413
113989 120248
112441 116285
124003 124865
121136 122542
120638 118086
125625 121430
126996 119411
122050 114760
1 Year 127612 120372
132082 125509
131737 125814
136898 129307
144273 135753
149614 142255
147838 137675
158540 144127
162174 148271
163655 149975
153593 141768
154890 143025
2 Year 158351 144647
144914 129717
148167 134634
151795 140805
149246 136627
159297 148807
157529 149690
153642 142892
131200 122204
120245 110628
113545 104425
126995 114025
3 Year 137914 119464
149619 130683
169279 145697
177082 155961
178383 154105
190689 161547
182160 150552
196322 157375
201877 164322
205080 166800
221394 173902
204779 164830
4 Year 227096 180614
243395 194801
242827 196879
234252 185557
220907 174783
218010 174392
205801 163271
212956 168396
211593 161913
220679 166433
229482 173277
246404 189449
5 Year 249187 194647
251877 197061
241179 186359
250751 191159
244182 185094
256632 196190
259385 196657
264327 198620
281720 208132
296860 215006
301552 221224
299613 212276
6 Year 319513 220652
332758 226526
331322 225529
308355 211675
314554 211999
310574 207248
294869 198392
294802 201219
312183 215985
312250 216890
314263 219200
296748 210331
7 Year 307845 215286
307772 210901
316609 220647
326396 227092
325958 230507
323182 233527
334673 249619
367980 269074
380835 272395
388796 278003
370901 264328
389459 275996
8 Year 399683 282112
397366 279776
408580 292534
426075 298317
474970 321219
507866 337691
469815 315748
406480 277201
441495 297723
455809 313055
432030 299550
439186 307881
9 Year 469083 313884
486355 321725
447383 302296
411245 280963
306428 227245
354833 261400
378865 270262
399711 284099
411750 292622
457363 315973
425234 296996
423790 289916
10 Year 411718 290078
407012 286208
448814 311478
466683 324544
475140 326534
439480 302811
433976 305906
407411 280363
312159 215655
332981 237522
350292 249921
385473 269315
11 Year 418773 293688
447314 306904
408643 278822
447226 288748
471627 314245
457444 314741
YTD 490037 331328
481669 321090
466870 309081
479555 315047
----------------------------------------------------------------------
Average Annual Total Return
(for periods ended 9/30/99)
Since
Inception
1 Year 3 Year 5 Year 09/01/1990
---------- ---------- --------- --------------------
44.02% 11.34% 15.04% 16.94%
----------------------------------------------------------------------
Past performance is not predictive of future performance.
4
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investment in Standish Small Capitalization Equity
Portfolio ("Portfolio"), at value (Note 1A) $147,562,088
Prepaid expenses 312
------------
Total assets 147,562,400
LIABILITIES
Payable for Fund shares redeemed $212,705
Accrued accounting, custody and transfer agent fees 5,110
Accrued trustees' fees and expenses (Note 2) 1,000
Accrued expenses and other liabilities 11,691
--------
Total liabilities 230,506
NET ASSETS $147,331,894
============
NET ASSETS CONSIST OF:
Paid-in capital $103,135,939
Accumulated net realized gain 27,266,760
Net unrealized appreciation 16,929,195
------------
TOTAL NET ASSETS $147,331,894
============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,705,327
============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 54.46
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $ 235,001
Dividend income allocated from Portfolio 61,717
Expenses allocated from Portfolio (1,233,978)
-----------
Net investment income allocated from Portfolio (937,260)
EXPENSES
Accounting, custody, and transfer agent fees $ 32,836
Legal and audit services 17,203
Registration fees 14,250
Trustees' fees and expenses (Note 2) 3,016
Insurance expense 1,099
Miscellaneous 14,974
----------
Total expenses 83,378
Deduct:
Reimbursement of Fund operating expenses (Note 2) (80,043)
----------
Net expenses 3,335
-----------
Net investment loss (940,595)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions 28,976,532
Financial futures contracts (224,810)
----------
Net realized gain 28,751,722
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investment securities 32,740,605
Financial futures contracts 218,759
----------
Change in net unrealized appreciation
(depreciation) 32,959,364
-----------
Net realized and unrealized gain 61,711,086
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $60,770,491
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
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 $ (940,595) $ (1,259,982)
Net realized gain 28,751,722 25,168,219
Change in net unrealized appreciation (depreciation) 32,959,364 (84,429,754)
------------- -------------
Net increase (decrease) in net assets from investment
operations 60,770,491 (60,521,517)
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net realized gains on investments (15,623,361) (32,065,343)
------------- -------------
Total distributions to shareholders (15,623,361) (32,065,343)
------------- -------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 22,657,287 28,517,984
Value of shares issued to shareholders in payment of
distributions declared 14,776,461 29,237,802
Cost of shares redeemed (82,249,148) (92,536,928)
------------- -------------
Net decrease in net assets from Fund share
transactions (44,815,400) (34,781,142)
------------- -------------
TOTAL INCREASE (DECREASE) IN NET ASSETS 331,730 (127,368,002)
NET ASSETS
At beginning of year 147,000,164 274,368,166
------------- -------------
At end of year $ 147,331,894 $ 147,000,164
============= =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
SEPTEMBER 30, ENDED YEAR ENDED DECEMBER 31,
----------------------- SEPTEMBER 30, -------------------------------------
1999(1) 1998(1) 1997(1) 1996 1995 1994
--------- --------- ------------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 41.74 $ 66.50 $ 52.96 $ 53.46 $ 42.15 $ 48.97
--------- --------- --------- --------- --------- ---------
FROM INVESTMENT OPERATIONS:
Net investment loss* (0.28) (0.31) (0.23) -- -- --
Net realized and unrealized gain
(loss) on investments 17.77 (16.57) 14.80 9.29 12.57 (1.84)
--------- --------- --------- --------- --------- ---------
Total from investment operations 17.49 (16.88) 14.57 9.29 12.57 (1.84)
--------- --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net realized gain on investments (4.77) (7.88) (1.03) (9.79) (1.26) (4.98)
--------- --------- --------- --------- --------- ---------
Total distributions to shareholders (4.77) (7.88) (1.03) (9.79) (1.26) (4.98)
--------- --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF YEAR $ 54.46 $ 41.74 $ 66.50 $ 52.96 $ 53.46 $ 42.15
========= ========= ========= ========= ========= =========
TOTAL RETURN 44.02% (27.20)% 27.92% 17.36% 29.83% (3.66)%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net
assets)*(2) 0.74% 0.74% 0.74%+ 0.75% 0.75% 0.79%
Net Investment Loss (to average daily
net assets)* (0.56)% (0.57)% (0.57)%+ (0.44)% (0.30)% (0.27)%
Portfolio Turnover(3) -- -- -- 28% 103% 95%
Net Assets, End of Year (000's
omitted) $ 147,332 $ 147,000 $ 274,368 $ 244,131 $ 180,470 $ 107,591
</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> <C> <C>
Net investment income per share $ (0.30) $ (0.34) $ (0.23) $ (0.01) -- --
Ratios (to average daily net assets):
Expenses(2) 0.80% 0.78% 0.74%+ 0.76% -- --
Net investment loss (0.62)% (0.61)% (0.57)%+ (0.45)% -- --
</TABLE>
+ Computed on an annualized basis.
(1) Calculated using average shares outstanding.
(2) Includes the Fund's share of the Standish Small Capitalization Equity
Portfolio's allocated expenses for periods after May 3, 1996.
(3) Portfolio turnover represents activity while the Fund was investing
directly in securities. The portfolio turnover for the period since the
Fund transferred substantially all of its investable assets to the
Portfolio is shown in the Portfolio's financial statements which are
included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY 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 Small Capitalization Equity Fund (the "Fund") is a
separate diversified investment series of the Trust.
The Fund invests all of its investable assets in an interest in the
Standish Small Capitalization Equity Portfolio (the "Portfolio"), a
subtrust of Standish, Ayer & Wood Master Portfolio (the "Portfolio
Trust"), which is organized as a New York trust, 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 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. Prior to the Fund's investment in the Portfolio,
the Fund held its investments directly. For investments held directly,
interest income was determined on the basis of interest accrued, dividend
income was recorded on the ex-dividend date and realized gains and losses
from securities sold were recorded on the identified cost basis.
C. FEDERAL TAXES
As a 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.
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
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. For the year ended September 30, 1999, SA&W
voluntarily agreed to limit the aggregate annual operating expenses of the
Fund and its pro-rata share of expenses allocated from the Portfolio
(excluding commissions, taxes and extraordinary expenses) to 0.74% of the
Fund's average daily net assets. This agreement is voluntary and temporary
and may be discontinued or revised by SA&W at any time. Pursuant to this
agreement, SA&W voluntarily reimbursed the Fund for operating expenses in
the amount of $80,043 for the year ended September 30, 1999. 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 $22,746,465 and $82,997,659,
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:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
Shares sold 469,529 584,804
Shares issued to shareholders in payment of
distributions declared 322,771 592,338
Shares redeemed (1,608,974) (1,780,964)
----------- -----------
Net decrease (816,674) (603,822)
=========== ===========
</TABLE>
At September 30, 1999, the Fund had two shareholders of record owning
approximately 13% and 11% of the total outstanding shares of the Fund.
(5) SUBSEQUENT EVENT:
On October 12, 1999, the Fund's Board of Trustees approved a restructuring
proposal (the "Restructuring Proposal") for the Fund. The Restructuring
Proposal would eliminate the Fund's current master-feeder structure and
allow the Fund to invest directly in securities. It is currently
anticipated that the Restructuring Proposal will be implemented by
January 28, 2000.
10
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SMALL CAPITALIZATION EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TAX INFORMATION -- UNAUDITED:
Pursuant to section 852 of the Internal Revenue Code the Fund designates
$15,623,361 capital gains dividends for the year ended September 30, 1999
which represents a 20% rate gain distribution.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Small Capitalization Equity Fund:
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 (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
12
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ------------------------------------------------------------------------------
EQUITIES -- 100.1%
CAPITAL GOODS -- 4.9%
Eagle USA Airfreight, Inc.* 139,700 $ 4,182,269
Kroll-Ogara Co.* 74,100 1,236,544
Waste Connections, Inc.* 87,800 1,805,387
------------
7,224,200
------------
EARLY CYCLICAL -- 3.9%
Atlantic Coast Airlines, Inc.* 111,400 1,977,350
Forward Air Corp.* 81,600 1,927,800
Ryanair Holdings PLC ADR* 42,200 1,935,925
------------
5,841,075
------------
ENERGY -- 2.3%
Cal Dive International, Inc.* 53,100 1,818,675
Core Laboratories, Inc.* 81,400 1,531,337
------------
3,350,012
------------
FINANCIAL -- 1.2%
Costar Group, Inc.* 74,400 1,776,300
------------
GROWTH CYCLICAL -- 8.9%
1-800-Flowers.com* 115,000 1,660,312
Cinar Corp.* 80,000 2,420,000
Global Sports, Inc.* 60,300 1,349,212
Hibbet Sporting Goods, Inc.* 66,500 1,088,937
Steiner Leisure Ltd.* 46,375 1,159,375
Tweeter Home Entertainment Group, Inc.* 41,400 1,547,325
Westwood One, Inc.* 85,350 3,851,420
------------
13,076,581
------------
HEALTH CARE -- 9.9%
Cephalon, Inc.* 53,900 968,518
Chirex, Inc.* 59,600 1,538,425
Closure Medical Corp.* 92,400 1,253,175
Cytyc Corp.* 50,400 1,949,850
Impath, Inc.* 41,900 1,220,337
Inhale Therapeutic Systems, Inc.* 62,200 1,889,325
Medquist, Inc.* 50,000 1,671,875
Novoste Corp.* 38,600 688,771
Pharmaceutical Product Development, Inc.* 67,900 920,894
Protein Design Labs, Inc.* 39,700 1,434,162
Vical, Inc.* 80,500 1,111,906
------------
14,647,238
------------
OTHER -- 2.5%
S&P 400 Mid-Cap Depositary Receipts 51,800 3,703,700
------------
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- ------------------------------------------------------------------------------
SERVICES -- 34.7%
CN Maximus, Inc.* 54,300 $ 1,625,606
Charles River Associates, Inc.* 59,000 1,644,625
Citadel Communication Corp.* 60,000 2,047,500
Concentric Network Corp.* 108,300 2,199,844
Corporate Executive Board Co.* 54,500 2,220,875
Digex, Inc.* 42,200 999,612
Digital River, Inc.* 91,800 1,996,650
Dycom Industries, Inc.* 50,400 2,126,250
Education Management Corp.* 120,800 1,494,900
Emmis Broadcasting Corp., Class A* 47,300 3,124,756
F.Y.I., Inc.* 32,800 1,104,950
Flycast Communication, Inc.* 74,700 3,398,850
Getty Images, Inc.* 64,300 1,551,237
ICG Communications, Inc.* 102,400 1,593,600
Infospace.com, Inc.* 42,800 1,760,150
Insight Communications, Inc.* 107,000 3,062,875
Luminant Worldwide Corp.* 43,600 1,340,700
NCO Group, Inc.* 37,600 1,767,200
Pinnacle Holdings, Inc.* 112,700 2,944,287
Quanta Services, Inc.* 57,200 1,676,675
Rowecom, Inc.* 43,500 1,207,125
SBS Broadcasting SA* 122,400 4,743,000
Salem Communications Corp., Class A* 44,100 1,124,550
Sportsline USA, Inc.* 95,400 2,820,263
World Gate Communications, Inc.* 68,700 1,571,513
------------
51,147,593
------------
TECHNOLOGY -- 31.8%
ATMI, Inc.* 97,100 3,623,044
Applied Micro Circuits Corp.* 37,100 2,114,700
Bluestone Software, Inc.* 55,900 1,292,688
Broadbase Software, Inc.* 12,250 195,234
Burr - Brown Corp.* 54,300 2,144,850
CBT Group PLC ADR* 76,000 1,871,500
Computer Network Tech Corp.* 205,000 1,909,063
Credence Systems Corp.* 47,100 2,113,613
Cree Research, Inc.* 62,600 2,124,488
Cybex Corp.* 78,800 2,629,950
Emulex Corp.* 23,200 1,992,300
Globespan, Inc.* 24,200 1,527,625
HNC Software, Inc.* 15,600 619,125
Mercury Interactive Corp.* 42,700 2,756,819
Micrel, Inc.* 60,400 2,619,850
Netscout Systems, Inc.* 67,800 1,453,463
Paradyne Networks, Inc.* 42,500 1,190,000
Pervasive Software, Inc.* 73,000 2,518,500
Photronics, Inc.* 132,400 2,970,725
Qlogic Corp.* 33,600 2,347,800
Semtech Corp.* 110,400 4,043,400
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SECURITY SHARES (NOTE 1A)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY (CONTINUED)
Sipex Corp.* 67,800 $ 970,388
Veeco Instruments, Inc.* 69,800 1,954,400
-------------
46,983,525
-------------
TOTAL EQUITIES (COST $130,814,146) 147,750,224
-------------
<CAPTION>
PAR
RATE MATURITY VALUE
------- --------------------- --------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 2.5%
U.S. GOVERNMENT AGENCY -- 0.1%
U.S. Treasury Bill 4.540% 12/23/1999 $200,000 197,828
-------------
REPURCHASE AGREEMENTS -- 2.4%
Prudential-Bache Repurchase Agreement, dated
9/30/99, due 10/01/99, with a maturity value
of $3,487,155 and a effective yield of 4.48%,
collateralized by a U.S. Government Agency
obligation with a rate of 7.00%, a maturity
date of 9/01/14 and a market value of
$3,556,456. $ 3,486,721
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,684,618) 3,684,549
-------------
TOTAL INVESTMENTS -- 102.6% (COST $134,498,764) $ 151,434,773
OTHER ASSETS, LESS LIABILITIES -- (2.6%) (3,872,549)
-------------
NET ASSETS -- 100.0% $ 147,562,224
=============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Note 1A) (identified cost,
$134,498,764) $151,434,773
Receivable for investments sold 5,400,592
Interest receivable 434
Other receivables 1,587
Deferred organization costs (Note 1E) 23,724
Prepaid expenses 3,603
------------
Total assets 156,864,713
LIABILITIES
Payable for investments purchased $9,240,955
Payable for variation margin on closed financial
futures contracts (Note 5) 1,100
Accrued accounting and custody fees 25,651
Accrued trustees' fees and expenses (Note 2) 3,463
Accrued expenses and other liabilities 31,320
----------
Total liabilities 9,302,489
------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS) $147,562,224
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1C)
Interest income $ 240,887
Dividend income 63,993
-----------
Total income 304,880
EXPENSES
Investment advisory fee (Note 2) $1,025,384
Accounting and custody fees 155,090
Legal and audit services 40,118
Licensing expenses 18,557
Trustees' fees and expenses (Note 2) 17,471
Amortization of organization expenses (Note 1E) 14,936
Insurance expense 5,626
----------
Total expenses 1,277,182
Deduct:
Waiver of investment advisory fee (16,107)
----------
Net expenses 1,261,075
-----------
Net investment loss (956,195)
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions 28,963,512
Financial futures contracts (225,973)
----------
Net realized gain 28,737,539
Change in unrealized appreciation (depreciation)
Investment securities 34,489,406
Financial futures contracts 230,370
----------
Change in net unrealized appreciation 34,719,776
-----------
Net realized and unrealized gain 63,457,315
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $62,501,120
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
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 $ (956,195) $ (1,283,618)
Net realized gain 28,737,539 24,075,476
Change in net unrealized appreciation (depreciation) 34,719,776 (86,183,360)
------------ -----------------
Net increase (decrease) in net assets from investment
operations 62,501,120 (63,391,502)
------------ -----------------
CAPITAL TRANSACTIONS
Contributions 23,183,117 39,862,755
Withdrawals (91,918,827) (96,838,761)
------------ -----------------
Net decrease in net assets from capital transactions (68,735,710) (56,976,006)
------------ -----------------
TOTAL DECREASE IN NET ASSETS (6,234,590) (120,367,508)
NET ASSETS
At beginning of year 153,796,814 274,164,322
------------ -----------------
At end of year $147,562,224 $ 153,796,814
============ =================
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
YEAR ENDED MAY 3, 1996
SEPTEMBER 30, NINE MONTHS (COMMENCEMENT OF
------------------------------ ENDED OPERATIONS) TO
1999 1998 SEPTEMBER 30, 1997 DECEMBER 31, 1996
----------- ----------- ------------------ -----------------
<S> <C> <C> <C> <C>
RATIOS:
Expenses (to average daily net assets)* 0.74% 0.74% 0.71%+ 0.73%+
Net investment loss (to average daily net
assets)* (0.56)% (0.57)% (0.54)%+ (0.43)%+
Portfolio Turnover 173% 107% 70% 76%
Net assets, end of year (000's omitted) $ 147,562 $ 153,797 $ 274,164 $ 246,652
</TABLE>
- -----------------
* For the periods indicated, the investment adviser voluntarily agreed not to
impose a portion of its investment advisory fee. 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 0.75% -- -- --
Net investment loss (0.57)% -- -- --
</TABLE>
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the State of New York
on January 18, 1996 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. Standish
Small Capitalization Equity Portfolio (the "Portfolio") is a separate
diversified investment series of the Portfolio Trust. As of September 30,
1999, the Standish Small Capitalization Equity Fund's proportionate
interest in the net assets of the Portfolio were approximately 100%. The
Small Capitalization Equity Asset Fund redeemed its interest in the
Portfolio as of March 26, 1999.
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.
20
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
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 April 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. For the ended September 30, 1999, SA&W has voluntarily agreed to
limit the Portfolio's total annual operating expenses (excluding brokerage
commissions, taxes and extraordinary expenses) to 0.74% of the Portfolio's
average daily net assets. Pursuant to this agreement, SA&W voluntarily did
not impose $16,107 of its investment advisory fee. This agreement is
voluntary and temporary and may be discontinued or revised by SA&W at any
time. 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, were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
------------ ------------
<S> <C> <C>
U.S. Government Securities $ -- $ --
============ ============
Investments (non-U.S.Government Securities) $285,762,669 $345,934,257
============ ============
</TABLE>
(4) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at, as computed on a federal income tax
basis, were as follows:
<TABLE>
<S> <C>
Aggregate Cost $135,729,785
============
Gross unrealized appreciation 29,831,123
Gross unrealized depreciation (14,126,135)
------------
Net unrealized appreciation $ 15,704,988
============
</TABLE>
(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
21
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH SMALL CAPITALIZATION EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
any open purchased options 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 for the contracts,
or if the counterparties do not perform under the contracts terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option 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 contracts 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, and 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 $3,045 for the Portfolio. During the year ended September 30, 1999,
the Portfolio had the following borrowings under the credit facility.
Interest expense $ 637
Average balance outstanding $1,455,000
Average interest rate 5.25%
At September 30, 1999, there was no outstanding balance on the line of
credit.
(7) SUBSEQUENT EVENT
On October 12, 1999, the Portfolio's Board of Trustees approved a
restructuring proposal (the "Restructuring Proposal") for the Portfolio.
The Restructuring Proposal would eliminate the Portfolio's current
master-feeder structure and allow the feeder Fund (Standish Small
Capitalization Equity Fund) to invest directly in securities. It is
currently anticipated that the Restructuring Proposal will be implemented
by January 28, 2000.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Master Portfolio and the Investor of
Standish Small Capitalization Equity Portfolio:
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 (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 made 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
23
<PAGE>
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