STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
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 EQUITY ASSET FUND
Management Discussion and Analysis
The Equity Asset Fund had a 12.04% total return for the fiscal year ended
September 30, 1999. While this represents a good year on an absolute basis, it
was disappointing on a relative basis with the benchmark S&P 500 up 27.79%. All
of the relative underperformance came in the first half of the fiscal year with
the Fund outperforming the benchmark modestly in the second half.
During the year, we maintained our disciplined approached of investing in
companies with strong business momentum and attractive valuations. Our analysts
were able to identify companies that met these criteria. The disappointing news
for the Fund was that investors generally were not paying attention to these
fundamental factors. We maintain that the Fund's underperformance did not result
from an abandonment of our philosophy, but rather from our style being out of
favor in the market. We do not believe that investors can ignore earnings and
valuations on an indefinite basis, and in fact the latter half of the year
witnessed a partial return to these characteristics of successful investments.
The significant underperformance seen in the first half of the fiscal year
resulted from a confluence of market events that we have not experienced in
nearly 30 years. Specifically, investors in the first half of the fiscal year
assumed a "growth at any price" mentality and bid up the shares of a very small
number of very large cap companies (many of them in the technology sector). As a
result, the top ten contributors to the S&P 500's return in the first six months
of the fiscal year accounted for nearly 60% of the index's total return. Of
these top ten, eight were in the technology or communications services sectors
reflecting investor's enthusiasm for companies participating in the Internet's
growth. Collectively, these top ten contributors were trading at 40 times
earnings in the beginning of the period and 60 times earnings at the end of the
first half.
This environment has been an extremely difficult one for our investment
philosophy, which looks for companies that combine strong growth with reasonable
valuations. This "growth at a reasonable price" style has been hard hit in a
market where only the most expensive stocks have generated above average
returns. Even in the latter half of the fiscal year when the Fund was able to
outperform the benchmark, valuation was not a good predictor of investment
results. Our focus on earnings growth has been responsible for overcoming the
performance drag that has come from our valuation work.
Our economic outlook is for a continuation of the economic expansion with
moderate growth and low inflation. Fund flows to the stock market continue to be
positive, and the supply/demand dynamics of the market are very positive
(including corporate takeover activity). We believe this environment is
supportive of positive stock market returns, but do not expect the same type of
above average returns that we have experienced the past four years. Rather we
expect stocks to post mid single digit returns. It should be noted that, because
of very high valuation levels in the current marketplace, the downside
associated with a financial "accident" could be significant. We expect
volatility to be a persistent problem.
On a relative basis, the Fund is favorably positioned with historic and expected
earnings that are better than the benchmark, and with more attractive
valuations. We remain committed to our philosophy of investing in a diversified
portfolio of companies with a history of strong earnings growth, above average
expectations for future growth, and below average valuations. Our analysts
continue to find stocks that meet those criteria. We are confident that our
focused pursuit of these characteristics, while not guaranteed, should lead to
superior performance. The last six months we have been heartened as investors
have begun to focus again on fundamental factors like earnings and valuations
after largely ignoring them in the first half of the fiscal year.
Sincerely,
/s/ Ralph S. Tate /s/ David C. Cameron
Ralph S. Tate David C. Cameron
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
Comparison of Change in Value of $100,000 Investment in
Standish Equity Asset Fund and the S&P 500 Index
[The following table was represented as a mountain graph in the printed
materials.]
Standish Equity
Asset Fund S&P 500 Index
--------------- -------------
$100,000 $100,000
94,750 96,660
97,450 101,135
98,311 102,872
97,960 104,010
104,889 111,512
110,814 117,222
110,109 118,402
106,585 116,366
108,700 121,093
103,913 119,804
84,360 102,483
1 Year 88,338 109,048
93,838 117,913
98,832 125,059
105,279 132,262
104,608 137,791
100,684 133,505
97,896 138,846
103,007 144,219
102,491 140,818
105,697 148,634
104,094 143,998
101,507 143,278
2 Year 98,972 139,351
---------------------------
Average Annual Total Return
(for periods ended 9/30/99)
Since
Inception
1 Year 10/08/1997
-------- -----------
12.04% (0.52)%
---------------------------
Past performance is not predictive of future performance.
4
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investment in Standish Equity Portfolio
("Portfolio"), at value (Note 1A) $57,293,836
Deferred organization costs (Note 1E) 3,363
Prepaid expenses 563
-----------
Total assets 57,297,762
LIABILITIES
Payable for Fund shares redeemed $33,806
Accrued accounting, custody and transfer agent fees 2,682
Accrued trustees' fees and expenses (Note 2) 1,000
Accrued expenses and other liabilities 45,497
-------
Total liabilities 82,985
-----------
NET ASSETS $57,214,777
===========
NET ASSETS CONSIST OF:
Paid-in capital $47,854,074
Accumulated net realized gain 5,280,052
Undistributed net investment income 24,276
Net unrealized appreciation 4,056,375
-----------
TOTAL NET ASSETS $57,214,777
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,991,624
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 19.12
===========
The accompanying notes are an integral part of the financial statements.
5
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1B)
Dividend income allocated from Portfolio $ 747,956
Interest income allocated from Portfolio 295,865
Expenses allocated from Portfolio (437,399)
-----------
Net investment income allocated from Portfolio 606,422
EXPENSES
Administration service fee (Note 3) $ 182,327
Accounting, custody, and transfer agent fees 20,532
Registration fees 19,675
Legal and audit services 14,458
Trustees' fees and expenses (Note 2) 3,016
Amortization of organization expenses (Note 1E) 1,120
Insurance expense 1,075
Miscellaneous 7,283
-----------
Total expenses 249,486
Deduct:
Reimbursement of Fund operating expenses (Note 2) (22,216)
-----------
Net expenses 227,270
-----------
Net investment income 379,152
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain allocated from Portfolio on:
Investment security transactions 4,182,268
Financial futures contracts 4,040,019
-----------
Net realized gain 8,222,287
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investment securities 5,485,451
Financial futures contracts (1,978)
-----------
Change in net unrealized appreciation 5,483,473
-----------
Net realized and unrealized gain 13,705,760
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $14,084,912
===========
The accompanying notes are an integral part of the financial statements.
6
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 8, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS) TO
SEPTEMBER 30, 1999 SEPTEMBER 30, 1998
------------------ ------------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 379,152 $ 13,043
Net realized gain (loss) 8,222,287 (785,859)
Change in net unrealized appreciation (depreciation) 5,483,473 (1,427,098)
----------- -----------
Net increase (decrease) in net assets from investment
operations 14,084,912 (2,199,914)
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1F)
From net investment income (355,195) (14,387)
From net realized gains on investments (1,736,620) --
----------- -----------
Total distributions to shareholders (2,091,815) (14,387)
----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 5)
Net proceeds from sale of shares 84,938,827 11,617,645
Value of shares issued to shareholders in payment of
distributions declared 2,091,815 14,387
Cost of shares redeemed (50,607,920) (618,773)
----------- -----------
Net increase in net assets from Fund share
transactions 36,422,722 11,013,259
----------- -----------
TOTAL INCREASE IN NET ASSETS 48,415,819 8,798,958
NET ASSETS
At beginning of year 8,798,958 --
----------- -----------
At end of year (including undistributed net
investment income of $24,276 and $0, respectively) $57,214,777 $ 8,798,958
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
YEAR ENDED
SEPTEMBER 30,
---------------------
1999(1) 1998(1)(2)
------- ----------
NET ASSET VALUE, BEGINNING OF YEAR $ 17.51 $ 20.00
------- -------
FROM INVESTMENT OPERATIONS:
Net investment income* 0.10 0.05
Net realized and unrealized gain (loss) on
investments 2.02 (2.42)
------- -------
Total from investment operations 2.12 (2.37)
------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (0.10) (0.12)
From net realized gain on investments (0.41) --
------- -------
Total distributions to shareholders (0.51) (0.12)
------- -------
NET ASSET VALUE, END OF YEAR $ 19.12 $ 17.51
======= =======
TOTAL RETURN 12.04% (11.66)%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net assets)*(3) 0.91% 0.83%+
Net Investment Income (to average daily net assets)* 0.52% 0.46%+
Net Assets, End of Year (000's omitted) $57,215 $ 8,799
- -----------------
* For the periods indicated, the investment adviser 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:
Net investment income per share $ 0.10 $ (0.14)
Ratios (to average daily net assets):
Expenses 0.94% 2.49%+
Net investment income (loss) 0.49% (1.20)%+
(1) Calculated based on average shares outstanding.
(2) For the period October 8, 1997 (commencement of operations) to September
30, 1998.
(3) Includes the Fund's share of Standish Equity Portfolio's allocated
expenses for the periods since October 8, 1997.
+ 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 EQUITY ASSET 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 Equity Asset Fund (the "Fund") is a separate diversified
investment series of the Trust.
The Fund invests all of its investable assets in an interest of the
Standish 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
30% 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.
Shares of the Fund may be purchased by entities ("Account Administrators")
that provide omnibus accounting services for groups of individuals who
beneficially own Fund shares ("Omnibus Accounts"). Omnibus Accounts
include pension and retirement plans (such as 401(k) plans, 457 plans and
403 (b) plans), and programs through which personal and or account
maintenance services are provided to groups of individuals whether or not
such individuals invest on a tax-deferred basis. Individual investors may
only purchase Fund shares through their Omnibus Account Administrators.
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 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. DEFERRED ORGANIZATIONAL EXPENSES
Costs associated with the Fund's organization and initial registration are
being amortized, on a straight-line basis, through September 2002.
F. 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, as will dividends from net investment income. In
determining the amounts of its
9
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 gain (loss).
(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 (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 voluntarily agreed to limit the aggregate annual
operating expenses of the Fund and the Portfolio (excluding commissions,
taxes, and extraordinary expenses) for the year ended September 30, 1999
so that the Fund's annual operating expenses do not exceed the annual
operating expenses of the Standish Equity Fund (net of any expense
limitation) for the comparable period plus 0.25% (the Fund's maximum
Administration Service Fee). 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 $22,216 of operating
expenses for the year ended September 30, 1999. The Fund 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) ADMINISTRATION SERVICE FEE:
Pursuant to a service plan, the Fund pays the service fees at an aggregate
annual rate of up to 0.25% of the Fund's average daily net assets. The
service fee is payable for the benefit of the participants in the Omnibus
Accounts that are shareholders in the Fund and is intended to be
compensation to Account Administrators for providing personal services
and/or account maintenance services to participants in Omnibus Accounts
that are the beneficial owners of Fund shares.
(4) INVESTMENT TRANSACTIONS:
Increases and decrease in the Fund's investment in the Portfolio for the
year ended September 30, 1999 aggregated $84,962,112 and $50,819,047
respectively.
(5) 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>
FOR THE PERIOD
OCTOBER 8, 1997
(COMMENCEMENT OF
YEAR ENDED OPERATIONS)
SEPTEMBER 30, 1999 TO SEPTEMBER 30, 1998
------------------ ---------------------
<S> <C> <C>
Shares sold 5,004,819 535,327
Shares issued to shareholders in payment of
distributions declared 104,416 773
Shares redeemed (2,620,073) (33,638)
----------- ---------
Net increase 2,489,162 502,462
=========== =========
</TABLE>
At September 30, 1999, two profit sharing plans on behalf of their
respective plan participants were shareholders of the Fund. Prudential
Trust for the benefit of MTA Profit Sharing Plan was record owner of
approximately 99% of the Fund's outstanding voting shares. Investment
activities of this shareholder could have a material impact on the Fund.
10
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH EQUITY ASSET FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
TAX INFORMATION -- UNAUDITED:
Pursuant to section 852 of the Internal Revenue Code, the Fund designated
$1,412,183 as capital gain dividends for the year ended September 30,
1999.
11
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Equity Asset Fund:
In our opinion, the accompanying statement of assets and liabilities 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 Equity Asset Fund (the "Fund"),
at September 30, 1999, 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 (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 EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- --------------------------------------------------------------------------------
EQUITIES -- 92.3%
BASIC INDUSTRY -- 1.3%
LaFarge Corp. 26,500 $ 851,312
Southdown, Inc. 30,900 1,653,150
------------
2,504,462
------------
CAPITAL GOODS -- 9.8%
Cordant Technologies, Inc. 38,200 1,162,712
General Dynamics 28,800 1,798,200
Ingersoll Rand Co. 50,800 2,790,825
Navistar International* 70,000 3,255,000
Tyco International Ltd. 38,200 3,944,150
US Freightways Corp. 54,500 2,581,937
United Technologies Corp. 53,800 3,191,012
------------
18,723,836
------------
CONSUMER STABLE -- 8.9%
Ball Corp. 20,600 907,687
CVS Corp. 47,200 1,926,350
Earthgrains Co. 38,300 847,387
IBP, Inc. 41,300 1,019,594
Kroger Co.* 81,100 1,789,269
Philip Morris Cos., Inc. 41,400 1,415,362
Quaker Oats Company 30,400 1,881,000
Safeway, Inc.* 59,000 2,245,687
Stewart Enterprises, Inc., Class A 96,500 585,031
Supervalu, Inc. 89,900 1,960,944
U.S. Foodservice* 53,800 968,400
Universal Foods Corp. 59,100 1,355,606
------------
16,902,317
------------
EARLY CYCLICAL -- 1.2%
Centex Corp. 39,100 1,155,894
Kaufman And Broad Home 53,200 1,097,250
------------
2,253,144
------------
ENERGY -- 7.7%
Ashland Oil, Inc. 26,400 887,700
BP Amoco PLC ADR 37,645 4,171,537
Chevron Corp. 13,200 1,171,500
Coastal Corp. 67,900 2,779,656
El Paso Energy Corp. 69,900 2,782,894
Exxon Corp. 37,602 2,855,402
------------
14,648,689
------------
FINANCIAL -- 13.1%
AMBAC Inc. 33,100 1,568,112
Americredit* 80,900 1,208,444
Amsouth Bancorp 114,950 2,694,141
Conseco, Inc. 81,900 1,581,694
Countrywide Credit Inc. 25,800 832,050
Cullen/Frost Bankers, Inc. 35,400 885,000
Dime Bancorp, Inc. 38,300 670,250
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
VALUE
SECURITY SHARES (NOTE 1A)
- --------------------------------------------------------------------------------
FINANCIAL (CONTINUED)
Federal Home Loan Mortgage Corp. 28,800 $ 1,497,600
Federal National Mortgage Association 28,000 1,755,250
Fleet Financial Group, Inc. 67,000 2,453,875
Golden West Financial Corp. 19,900 1,955,175
Northfork Bancorp 47,900 934,050
PNC Bank Corp. 38,300 2,017,931
Southtrust Corp. 23,600 846,650
The PMI Group, Inc. 49,300 2,015,138
Washington Mutual, Inc. 39,100 1,143,675
Webster Financial Corp. 34,600 882,300
------------
24,941,335
------------
GROWTH CYCLICAL -- 7.9%
Brinker International, Inc.* 38,300 1,038,888
Dayton-Hudson Corp. 33,200 1,994,075
Federated Department Stores* 39,200 1,712,550
Jones Apparel Group, Inc.* 99,900 2,872,125
May Department Stores 35,600 1,297,175
Ross Stores, Inc. 73,600 1,481,200
TJX Cos, Inc. 99,600 2,795,025
Tommy Hilfiger Corp.* 66,300 1,868,831
------------
15,059,869
------------
HEALTH CARE -- 8.7%
Abbott Laboratories 47,200 1,734,600
Amerisource Health Corp., Class A* 33,900 803,006
Amgen, Inc.* 37,700 3,072,550
Biomet, Inc. 50,800 1,336,675
Eli Lilly & Co. 30,400 1,945,600
Schering-Plough Corp. 90,000 3,926,250
Sybron International Corp.* 81,600 2,193,000
Waters Corp.* 15,500 938,719
Watson Pharmaceutical, Inc.* 24,300 742,669
------------
16,693,069
------------
REAL ESTATE -- 1.1%
General Growth Properties, REIT 15,500 488,250
Liberty Property Trust, REIT 33,100 750,956
Prentiss Properties Trust, REIT 42,000 931,875
------------
2,171,081
------------
SERVICES -- 12.2%
AT&T Corp. 47,500 2,066,250
Bell Atlantic Corp. 68,000 4,577,250
Bellsouth Corp. 109,776 4,939,920
Centurytel, Inc. 84,625 3,437,891
Gannett Co., Inc. 16,200 1,120,838
Interim Services, Inc.* 59,000 966,125
Knight Ridder, Inc. 56,800 3,116,900
Omnicom Group 37,900 3,001,206
------------
23,226,380
------------
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
SCHEDULE OF INVESTMENTS - SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
VALUE
SECURITY SHARES (NOTE 1A)
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
TECHNOLOGY -- 18.8%
American Power Conversion Corp.* 132,700 $ 2,521,300
Apple Computer, Inc.* 35,900 2,272,919
BMC Software, Inc.* 41,300 2,955,531
Computer Associates International, Inc. 46,700 2,860,375
Compuware Corp.* 37,600 979,950
DSP Communications, Inc.* 43,500 826,500
Hewlett-Packard Company 10,500 966,000
Intel Corp. 43,200 3,210,300
International Business Machine 37,800 4,587,975
Sun Microsystems, Inc.* 72,100 6,705,300
Symbol Technologies, Inc. 63,300 2,128,463
Synopsys, Inc.* 50,800 2,852,740
Unisys Corp.* 67,600 3,050,450
-------------
35,917,803
-------------
UTILITIES -- 1.6%
Calpine Corp.* 11,000 935,688
DTE Energy Co. 29,500 1,065,687
FPL Group, Inc. 22,100 1,113,288
-------------
3,114,663
-------------
TOTAL EQUITIES (COST $163,229,316) 176,156,648
-------------
<CAPTION>
PAR
RATE MATURITY VALUE
------- ----------------------- --------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 1.8%
U.S. GOVERNMENT AGENCY -- 0.4%
U.S. Treasury Bill 4.540% 12/23/1999 $800,000 791,312
-------------
REPURCHASE AGREEMENTS -- 1.4%
Prudential-Bache Repurchase Agreement, dated
9/30/99, due 10/01/99, with a maturity value
of $2,663,688 and an 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 an aggregate
market value of $2,716,624. $ 2,663,357
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,454,946) 3,454,669
-------------
TOTAL INVESTMENTS -- 94.1% (COST $166,684,262) $ 179,611,317
OTHER ASSETS, LESS LIABILITIES -- 5.9% 11,245,869
-------------
NET ASSETS -- 100.0% $ 190,857,186
=============
</TABLE>
NOTES TO SCHEDULE OF INVESTMENTS:
ADR - American Depositary Receipt
REIT - Real Estate Investment Trust
* Non-income producing security.
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$166,684,262) $179,611,317
Receivable for investments sold 11,931,743
Interest and dividends receivable 206,867
Receivable for variation margin on open financial
futures contracts (Note 5) 153,981
Deferred organization costs (Note 1E) 23,725
Prepaid expenses 4,096
------------
Total assets 191,931,729
LIABILITIES
Payable for investments purchased $1,006,217
Accrued accounting and custody fees 26,658
Accrued trustees' fees and expenses (Note 2) 3,938
Accrued expenses and other liabilities 37,730
----------
Total liabilities 1,074,543
------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS) $190,857,186
============
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME (NOTE 1C)
Dividend income $ 2,787,277
Interest income 1,031,966
-----------
Total income 3,819,243
EXPENSES
Investment advisory fee (Note 2) $ 1,360,746
Accounting and custody fees 160,651
Legal and audit services 44,731
Trustees' fees and expenses (Note 2) 19,785
Amortization of organization expenses (Note 1E) 14,935
Insurance expense 8,550
Miscellaneous 18,585
-----------
Total expenses 1,627,983
-----------
Net investment income 2,191,260
-----------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain
Investment security transactions 1,570,502
Financial futures contracts 13,027,806
-----------
Net realized gain 14,598,308
Change in unrealized appreciation (depreciation)
Investment securities 24,975,103
Financial futures contracts 94,662
-----------
Change in net unrealized appreciation 25,069,765
-----------
Net realized and unrealized gain 39,668,073
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $41,859,333
===========
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH 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 income $ 2,191,260 $ 1,534,621
Net realized gain 14,598,308 19,645,359
Change in net unrealized appreciation (depreciation) 25,069,765 (46,208,987)
------------- ------------
Net increase (decrease) in net assets from investment operations 41,859,333 (25,029,007)
------------- ------------
CAPITAL TRANSACTIONS
Contributions 130,904,313 131,734,295
Withdrawals (189,518,283) (69,235,470)
------------- ------------
Net increase (decrease) in net assets from capital transactions (58,613,970) 62,498,825
------------- ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (16,754,637) 37,469,818
NET ASSETS
At beginning of year 207,611,823 170,142,005
------------- ------------
At end of year $ 190,857,186 $207,611,823
============= ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH 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) 0.60% 0.65% 0.66%+ 0.69%+
Net Investment Income (to average daily net assets) 0.81% 0.75% 0.99%+ 1.58%+
Portfolio Turnover 90% 144% 75% 78%
Net Assets, End of Year (000's omitted) $190,857 $207,612 $170,142 $106,278
</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 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
Equity Portfolio (the "Portfolio") is a separate diversified investment
series of the Portfolio Trust. As of September 30, 1999, the Standish
Equity Fund, Standish Equity Asset Fund and Standish U.S. Equity Fund
Limited held approximately 68%, 30% and 1% interests in the Standish
Equity Portfolio, respectively.
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 TRANSACTION 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 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 0.50% 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
purchased option transactions and short-term obligations, were as follows:
PURCHASES SALES
------------ ------------
U.S. Government Securities $ -- $ --
============ ============
Investments (non-U.S.Government Securities) $217,827,361 $264,525,711
============ ============
(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 $167,263,024
============
Gross unrealized appreciation 24,541,688
Gross unrealized depreciation (12,193,395)
------------
Net unrealized appreciation $ 12,348,293
============
(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
21
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
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 for 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 the following open financial futures contracts at
September 30, 1999.
<TABLE>
<CAPTION>
UNDERLYING FACE UNREALIZED
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE LOSS
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
S&P 500 (32 contracts) Long 12/17/99 $10,385,600 $(32,409)
</TABLE>
At September 30, 1999, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open financial futures
contracts.
(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
22
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH EQUITY PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
allocated ratably among the participating portfolios/funds at the end of
each quarter. For the year ended September 30, 1999, the expense related
to this commitment fee was $4,958 for the Portfolio. During the year ended
September 30, 1999, the Portfolio had the following borrowings:
Interest Expense $ 249
Average Balance outstanding $1,705,000
Average interest rate 5.25%
At September 30, 1999, there was no outstanding balance on the line of
credit.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Master Portfolio and Investors of
Standish 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 Equity Portfolio, (the "Portfolio")
at September 30, 1999, the results of its operations, the changes in its net
assets and the supplementa1 data for 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
24
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[LOGO] Standish Funds(R)
One Financial Center
Boston, MA 02111-2662
800.221.4795
www.standishonline.com
