STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
Financial Statements for the Year Ended
December 31, 1998
[LOGO]
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
February 25, 1999
Dear Standish, Ayer and Wood Investment Trust Shareholder:
We are writing to provide you with a review of developments at Standish, Ayer &
Wood, as they relate to the activities of the Investment Trust.
The financial markets had a wild year in 1998. Following the disarray in Asia
and, more directly, the de facto Russian default in mid-August, a large part of
the world's financial markets simply shut down. Many sectors of the U.S. markets
were paralyzed. Spurred by a second easing of monetary policy by the Federal
Reserve in mid-October, the markets reopened and staged a dramatic recovery.
Performance within subsets of the major asset classes varied greatly. Bonds
generally produced positive returns, but less liquid issues with any degree of
perceived credit risk underperformed. Emerging market securities were
eviscerated during the third quarter spasm and recovered only partially in the
fourth. By far the best returns in the U.S. equity markets were registered by a
relatively narrow group of higher price/earnings ratio, larger capitalization
stocks. The disparity in return between the larger cap stocks and smaller cap
stocks, as measured by the Standard & Poor's 500 and the Russell 2000 indexes
was an astounding 31%!
While some funds managed by Standish did well relative to their benchmarks and
most funds produced good absolute returns, too many underperformed their
benchmarks in 1998. In bonds, our holdings of corporate credits and mortgages
underperformed U.S. Treasury securities, the latter representing a significant
portion of the major indexes. In equities, our preference for lower
price/earnings ratios led to an overweighting in mid cap stocks that suffered
relative to larger cap stocks with significantly higher valuations.
We have expended considerable time and effort trying to learn the correct
lessons from 1998. We have determined that much of the underperformance was
generic to our style and that 1998 was an aberrant year, with valuation on
holiday in many sectors. We are deeply committed to the view that valuation is
extremely important in making investment judgments. We are dedicated to our
philosophy and unalterably convinced that our strategy of buying securities that
are inexpensive relative to their fundamentals is an excellent path to
sustainable excess returns over the long term.
Notwithstanding the chaotic markets, we are pleased that Standish has benefited
from extraordinary stability of both our clients and our professional team. At
the end of 1998, total assets under management for our clients were $46.2
billion, compared with $39.3 billion at the end of 1997. We have experienced
growth in virtually all asset categories, especially equities. The Standish
Funds increased assets from $5.7 billion to $6.5 billion during the year, with
about 75% of the growth representing additions from existing clients.
The Standish team has also grown significantly, from 232 members at the
beginning of 1998 to 276 members at the end of the year. Our 97 investment
officers have average investment experience of 15 years. Fifty-six officers have
advanced degrees (typically an MBA) and 65 have some advanced professional
accreditation (virtually all Chartered Financial Analysts). There have been no
changes in the 24 individuals (all with CFAs) who own Standish, Ayer & Wood.
1
<PAGE>
At the end of 1998, the Standish Board of Directors elected four new associate
directors: Susan Coan, one of the key managers in our taxable client group;
David Horsfall, head of our large bond trading operation; Phil Leonardi, a major
contributor to expanding our equity assets; and Jennifer Pline, who holds major
responsibilities for serving large, fixed income clients. We have elected 13 new
vice presidents and 17 new assistant vice presidents of Standish, Ayer & Wood.
In this environment, there are no shortages of challenges and opportunities. Our
first priority remains to produce superior long-term investment performance for
our clients. We believe we have the investment disciplines and the professional
team to achieve that goal. In those asset classes in which our returns were
subpar in 1998, we have a special impetus to produce superior results in the
future. With our portfolios attractively priced compared to the relevant
benchmarks, we see potential for significant excess return when the markets
become more focused on investment value.
We believe that we are in partnership with our clients. We would like to assure
you of our dedication to fulfilling your needs while expressing our great
appreciation for your confidence in Standish.
Sincerely yours,
/s/ Ted Ladd /s/ George Noyes
Edward H. Ladd, Chairman George W. Noyes, President
2
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
Management Discussion and Analysis
1998 turned out to be a most difficult year for non-Treasury fixed income
assets. Interest rates declined about 100 basis points, mostly during the second
half of the year as Russia unraveled, having far-reaching implications for world
financial markets. As the global crisis worsened, the collapse of hedge funds
and investors' flight to quality resulted in an abrupt shutdown of capital
markets. The magnitude of spread widening during this period--August was the
worst one-month period in spread issues ever--resulted in poor performance
relative to Treasuries for most sectors including agency mortgages, asset backed
securities and commercial mortgage bonds.
In 1998, the Fund's performance lagged the broad Lehman Aggregate Index due to
its overweight in spread product, specifically asset-backeds and commercial
mortgages. These sectors suffered from the systemic spread widening seen across
fixed income assets during the year. By comparison, the Fund remained ahead of
Lehman's Mortgage Index primarily due to its longer duration as interest rates
declined. For the last year, the Securitized Fund returned 8.04% on a gross
basis and 7.53% net of fees. Lehman's Aggregate and Mortgage indices posted
8.67% and 6.97%, respectively.
During the year, the Fund's strategy remained fairly defensive in the first
half. With a brief dip in rates in late January, refinancing activity soared and
mortgage spreads widened. We took this opportunity to move from an underweighted
to neutral position in agency mortgages. At the same time, our bias shifted
toward higher coupon mortgages as their wider spreads and shorter durations
provided a better cushion versus Treasuries in the event of a further market
rally and spread widening risk.
By mid-year, we became increasingly concerned about the weakening global
environment and diminishing market liquidity. In an effort to reduce the
portfolio's spread risk, we sold approximately 5% of our mortgages back into
Treasuries. While this modest shift in the portfolio was beneficial, it was far
outweighed by the sharply negative impact of wider spreads in August and
thereafter.
The market's turmoil peaked by late October. At this point, yield spreads across
the many securitized sectors stood at historically wide levels. We took
advantage of the dramatic shift in spreads by increasing the Fund's allocation
to agency mortgages and AAA rated asset-backed and commercial mortgage
securities. As it turned out, interest rates backed up in November and the Fed
eased for a third time. Through the remainder of the year, the tone of the
market gradually improved. With a return of moderate stability and liquidity to
the marketplace, yield spreads for agency mortgages and high quality securitized
assets narrowed, though modestly.
In the coming year, the uncertainties surrounding global economic conditions
will likely put periodic pressure on yield spreads across fixed income sectors.
We therefore remain very focused on balancing our concern regarding spread risk
with the opportunities we see today as a result of the past year's events.
We appreciate your support during 1998 and look forward to serving you in the
new year.
Sincerely yours,
/s/ Dolores S. Driscoll
Dolores S. Driscoll
3
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
Comparison of Change in Value of $1,000,000 Investment in Standish
Securitized Fund, the Lehman Aggregate Index, and the Lehman Mortgage Index
[The following table was originally a line chart in the printed materials.]
Lehman
Standish Aggregate Lehman
Securitized Fund Index Mortgage Index
---------------- ----- --------------
Inception 8/31/1989 1000000 1000000 1000000
Sep-1989 1000000 1005100 1007100
Oct-1989 1024635 1029825 1030062
Nov-1989 1033183 1039609 1041187
Dec-1989 1040221 1042416 1047330
Jan-1990 1033510 1030011 1039998
Feb-1990 1040737 1033307 1046134
Mar-1990 1044867 1034030 1048750
Apr-1990 1036428 1024517 1039311
May-1990 1066493 1054843 1071529
Jun-1990 1082316 1071826 1088460
Jul-1990 1099033 1086617 1107399
Aug-1990 1086630 1072056 1095660
Sep-1990 1096337 1080955 1104645
Oct-1990 1112330 1094683 1117127
Nov-1990 1138249 1118218 1140587
Dec-1990 1159757 1135663 1159749
Jan-1991 1175605 1149745 1177377
Feb-1991 1186359 1159518 1187267
Mar-1991 1193256 1167518 1195340
Apr-1991 1206501 1180127 1206338
May-1991 1215140 1186972 1216953
Jun-1991 1215140 1186379 1218049
Jul-1991 1233435 1202869 1238634
Aug-1991 1255271 1228851 1261177
Sep-1991 1277697 1253797 1284761
Oct-1991 1301146 1267714 1306088
Nov-1991 1306558 1279377 1315492
Dec-1991 1340079 1317375 1341933
Jan-1992 1306209 1299458 1326367
Feb-1992 1323463 1307905 1338967
Mar-1992 1319009 1300581 1330398
Apr-1992 1323600 1309945 1343436
May-1992 1353772 1334703 1367617
Jun-1992 1376728 1353122 1383755
Jul-1992 1377396 1380725 1395932
Aug-1992 1394764 1394671 1414079
Sep-1992 1401444 1411267 1425109
Oct-1992 1370904 1392497 1412568
Nov-1992 1370225 1392776 1416947
Dec-1992 1394657 1414921 1435226
Jan-1993 1424434 1442087 1454027
Feb-1993 1448671 1467324 1468713
Mar-1993 1455595 1473487 1477672
Apr-1993 1466836 1483801 1485356
May-1993 1464728 1485730 1493823
Jun-1993 1492828 1512622 1505176
Jul-1993 1502092 1521244 1511196
Aug-1993 1526319 1547866 1518299
Sep-1993 1528457 1552045 1519665
Oct-1993 1534249 1557787 1524072
Nov-1993 1521216 1544546 1521024
Dec-1993 1534293 1552887 1533345
Jan-1994 1554760 1573851 1548525
Feb-1994 1531260 1546466 1537685
Mar-1994 1495632 1508268 1497705
Apr-1994 1482533 1496202 1486622
May-1994 1487156 1496052 1492569
Jun-1994 1483303 1492761 1489285
Jul-1994 1505967 1522467 1519071
Aug-1994 1510656 1524294 1523932
Sep-1994 1496589 1501887 1502292
Oct-1994 1496589 1500535 1501391
Nov-1994 1491052 1497234 1496736
Dec-1994 1501556 1507565 1508710
Jan-1995 1528183 1537414 1540997
Feb-1995 1561264 1574005 1580292
Mar-1995 1573366 1583606 1587719
Apr-1995 1592204 1605777 1610265
May-1995 1648718 1667920 1660988
Jun-1995 1656908 1680096 1670456
Jul-1995 1658571 1676397 1673309
Aug-1995 1677692 1696629 1690628
Sep-1995 1692657 1713086 1705499
Oct-1995 1712054 1735357 1720677
Nov-1995 1728922 1761387 1740293
Dec-1995 1746366 1786046 1762047
Jan-1996 1761296 1797834 1775356
Feb-1996 1739733 1766552 1760620
Mar-1996 1725069 1754186 1754282
Apr-1996 1714588 1744363 1749370
May-1996 1708474 1740874 1744297
Jun-1996 1733804 1764202 1768368
Jul-1996 1740881 1768965 1774911
Aug-1996 1736458 1765958 1774911
Sep-1996 1770072 1796685 1804552
Oct-1996 1806800 1836572 1839921
Nov-1996 1839048 1867977 1866232
Dec-1996 1823653 1850605 1856528
Jan-1997 1832910 1856342 1870266
Feb-1997 1837538 1860983 1876438
Mar-1997 1813292 1840326 1858799
Apr-1997 1844232 1867931 1888354
May-1997 1860171 1885676 1906860
Jun-1997 1880786 1908116 1929170
Jul-1997 1928257 1959635 1965439
Aug-1997 1912117 1942978 1960722
Sep-1997 1946307 1971734 1985623
Oct-1997 1970336 2000324 2007663
Nov-1997 1976103 2009525 2014289
Dec-1997 1996954 2029822 2032619
Jan-1998 2026760 2055803 2052742
Feb-1998 2018812 2054159 2057052
Mar-1998 2026772 2061143 2065692
Apr-1998 2035825 2071902 2077404
May-1998 2057953 2091482 2091198
Jun-1998 2078082 2109259 2101236
Aug-1998 2116773 2148099 2131129
Sep-1998 2158664 2198365 2156916
Oct-1998 2131874 2186714 2154112
Nov-1998 2138056 2199178 2164882
Dec-1998 2147400 2205780 2174190
4
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments at value (Note 1A) (identified cost, $40,442,709) $ 40,824,836
Receivable for investments sold 3,698,264
Interest receivable 270,602
Reclaim receivable 2,909
Prepaid expenses 1,655
-------------
Total assets 44,798,266
Liabilities
Payable for delayed delivery transactions (Note 7) $ 3,662,711
Distribution payable 1,003,057
Payable for daily variation margin on financial futures contracts (Note 6) 172
Options written, at value (premiums received, $86,078) (Note 6) 54,840
Accrued accounting, custody and transfer agent fees 6,668
Accrued trustees' fees and expenses (Note 2) 1,095
Accrued expenses and other liabilities 19,006
------------
Total liabilities 4,747,549
-------------
Net Assets $ 40,050,717
=============
Net Assets consist of:
Paid-in capital $ 40,819,600
Distributions in excess of net investment income (144,411)
Accumulated net realized loss (1,022,869)
Net unrealized appreciation 398,397
-------------
Total Net Assets $ 40,050,717
=============
Shares of beneficial interest outstanding 1,977,246
=============
Net Asset Value, offering price and redemption price per share
(Net Assets/Shares outstanding) $ 20.26
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statement of Operations
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Interest income $ 2,762,677
------------
Total investment income 2,762,677
Expenses
Investment advisory fee (Note 2) $ 100,997
Accounting, custody and transfer agent fees 77,720
Legal and audit services 28,293
Insurance expense 5,523
Trustees' fees and expenses (Note 2) 5,250
Registration fees 4,100
Miscellaneous 5,404
----------
Total expenses 227,287
Deduct:
Waiver of investment advisory fee (Note 2) (45,491)
----------
Net expenses 181,796
------------
Net investment income 2,580,881
------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain
Investment security transactions 769,214
Financial futures contracts 21,200
Written option transactions 91,197
----------
Net realized gain 881,611
Change in unrealized appreciation (depreciation)
Investment securities (525,621)
Financial futures contracts (12,442)
Written options 3,171
----------
Net change in unrealized appreciation (depreciation) (534,892)
------------
Net realized and unrealized gain 346,719
------------
Net Increase in Net Assets from Operations $ 2,927,600
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Statements of Changes in Net Assets
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1998 1997
------------ ------------
<S> <C> <C>
Increase (decrease) in Net Assets
From Investment Operations
Net investment income $ 2,580,881 $ 3,054,490
Net realized gain 881,611 183,436
Change in unrealized appreciation (depreciation) (534,892) 910,398
------------ ------------
Net increase in Net Assets from Investment Operations 2,927,600 4,148,324
------------ ------------
Distributions to Shareholders
From net investment income (2,580,881) (3,102,532)
In excess of net investment income (32,653) --
------------ ------------
Total distributions to shareholders (2,613,534) (3,102,532)
------------ ------------
Fund Share (principal) Transactions (Note 4)
Net proceeds from sale of shares 80,000 --
Value of shares issued to shareholders in payment of distributions declared 311,696 367,563
Cost of shares redeemed (779,817) (11,905,839)
------------ ------------
Net decrease in Net Assets from Fund share transactions (388,121) (11,538,276)
------------ ------------
Total Decrease in Net Assets (74,055) (10,492,484)
Net Assets
At beginning of year 40,124,772 50,617,256
------------ ------------
At end of year (including distributions in excess of net investment income of
$144,411 and $21,338, respectively) $40,050,717 $40,124,772
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------
1998(1) 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 20.10 $ 19.70 $ 20.25 $ 18.61 $ 20.24
-------- -------- -------- -------- --------
Investment Operations
Net investment income * 1.31 1.46 1.43 1.32 1.42
Net realized and unrealized gain (loss)
on investments 0.18 0.37 (0.57) 1.66 (1.86)
-------- -------- -------- -------- --------
Total from investment operations 1.49 1.83 0.86 2.98 (0.44)
-------- -------- -------- -------- --------
Less distributions to shareholders
From net investment income (1.31) (1.43) (1.41) (1.34) (1.19)
In excess of net investment income (0.02) -- -- -- --
-------- -------- -------- -------- --------
Total distributions declared to shareholders (1.33) (1.43) (1.41) (1.34) (1.19)
-------- -------- -------- -------- --------
Net Asset Value, End of Year $ 20.26 $ 20.10 $ 19.70 $ 20.25 $ 18.61
======== ======== ======== ======== ========
Total Return 7.53% 9.50% 4.41% 16.32% (2.16)%
Ratios/Supplemental Data
Expenses (to average daily net assets)* 0.45% 0.45% 0.45% 0.45% 0.45%
Net investment income (to average daily net
assets)* 6.39% 6.47% 6.99% 6.78% 6.79%
Portfolio Turnover 123% 100% 212% 225% 138%
Net Assets, End of Year (000's omitted) $40,051 $40,125 $50,617 $55,201 $53,779
</TABLE>
- -----------------------------------------------
* During various periods, the investment adviser voluntarily agreed not to
impose a portion of its investment advisory fee and/or reimbursed the Fund
for a portion of its operating expenses. In the absense of this agreement,
the net investment income per share and the ratios would have been:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income per share $ 1.29 $ 1.43 $ 1.40 $ 1.22 $ 1.41
Ratios (to average daily net assets):
Expenses 0.56% 0.57% 0.51% 0.51% 0.49%
Net investment income 6.28% 6.35% 6.93% 6.72% 6.76%
</TABLE>
(1) Calculated based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 99.0%
Asset Backed -- 13.8%
Advanta Home Equity Trust 1997-2 M1 7.550% 06/25/2027 $ 400,000 $ 408,750
CIT Holdings 98-1 M2 Non-ERISA+ 6.720% 09/15/2027 400,000 390,063
Citicorp Credit Card Trust 1997-6 A ERISA+ 0.000% 08/15/2006 600,000 436,308
Discover Card Master Trust 1998-7 A 5.600% 05/15/2006 400,000 401,563
Greentree Financial Corp. 1996-10 M1 7.240% 11/15/2028 500,000 507,500
Greentree Home Equity 1997-D M2 Non-ERISA 7.450% 09/15/2028 500,000 502,969
Greentree Home Equity 1997-M1 7.220% 03/15/2028 500,000 506,348
JC Penney Credit Card 1998-E 5.500% 11/15/2007 300,000 300,000
Newcourt Rec Asset Lease 98-2D 7.210% 09/15/2007 400,000 398,500
Oakwood Mtg Invs 1997-C B2 7.700% 11/15/2027 375,000 322,324
Vanderbilt Mtg 1998-A 1B2 Non-ERISA+ 7.690% 04/07/2028 500,000 471,875
Vanderbilt Mtg Fin 98-C 1M1 6.900% 10/07/2028 375,000 364,570
World Omni Auto Lease 1997-A B Non-ERISA 144A 7.300% 06/25/2003 497,854 502,366
-----------
Total Asset Backed (Cost $5,592,427) 5,513,136
-----------
Collateralized Mortgage Obligations -- 3.8%
Bear Stearns Mtg 1998-2 B 6.750% 04/30/2030 391,968 382,292
FNMA P/O Trust 108 0.000% 03/01/2020 740,394 636,036
GE Capital 1996-17 2A5 ERISA 7.250% 12/25/2011 454,823 458,660
Sears Credit Account 1987-B CL1 8.000% 05/25/2017 61,147 59,313
-----------
Total Collateralized Mortgage Obligations (Cost $1,513,616) 1,536,301
-----------
Non-Agency -- 28.0%
Pass Thru Securities -- 28.0%
Chase 1997-1 E Non ERISA 7.370% 12/19/2007 500,000 468,906
Chase Commercial Mortage Sec 6.6
1997-2D Non-ERISA 6.600% 12/25/2007 425,000 404,680
FDIC REMIC Trust 1994-C1 2C Non-ERISA 8.450% 09/25/2025 800,000 809,750
FDIC Remic Trust 1994-C1 2D Non-ERISA+ 8.700% 09/25/2025 500,000 508,750
First Union/Lehman 1997 C1-D Non-ERISA+ 7.500% 10/18/2008 400,000 405,906
GMAC #15 Put 9/01/00 7.450% 05/01/2021 1,225,997 1,255,880
GMAC Mortgage Corp. 1997-C1 E Non-ERISA 7.085% 11/15/2010 400,000 394,000
Lehman Brothers Commercial Conduit
Mortgage Trust 1995-C2 Non-ERISA(a) 7.088% 05/25/2005 575,000 577,808
Merrill Lynch Mortgage Investments
1996-C2 E Non-ERISA 6.960% 11/21/2028 700,000 615,125
Midland 96 C2 A2 Seq 7.233 7.233% 01/25/2029 200,000 213,125
Morgan Stanley Capital 1997-WF1 E 7.490% 05/15/2009 475,000 445,461
Morgan Stanley Dean Witter 1998-HF1 A2 6.520% 01/15/2008 400,000 414,625
Mortgage Capital Funding 1996 MC1A-C Non-ERISA 7.800% 04/15/2006 497,000 535,207
Mortgage Capital Funding 1997-MC2 D Non-ERISA+ 7.117% 11/20/2007 800,000 794,250
Resolution Trust Corp. 1991-6 C-1 9.000% 09/25/2028 305,925 306,499
Resolution Trust Corp. 1994-C2 D Al 1 Non-ERISA 8.000% 04/25/2025 686,206 688,351
Resolution Trust Corp. 1995-C1 D 6.900% 02/25/2027 546,000 543,014
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pass Thru Securities (continued)
Resolution Trust Corp. P-T Ser. 1992-5 Sr. A6 9.239% 05/25/2026 $ 807,242 $ 812,288
Structured Asset Security Corp.
1994-C1 D Non-ERISA+ 6.870% 08/25/2026 820,739 819,489
Structured Asset Security Corp.
1996-CFL C Non-ERISA+ 6.525% 02/25/2028 200,000 199,555
-----------
Total Non-Agency (Cost $11,139,542) 11,212,669
-----------
U.S. Government Agency -- 41.9%
Pass Thru Securities -- 41.9%
FHLMC+ 5.750% 07/15/2003 175,000 179,512
FHLMC Gold 8.500% 07/01/2028 359,529 376,268
FHLMC Gold 30 Yr. 6.500% 12/01/2028 681,750 686,645
FNMA+ 6.000% 05/15/2008 375,000 395,858
FNMA# 6.500% 03/01/2029 2,050,000 2,063,447
FNMA# 7.000% 01/01/2029 1,575,000 1,606,499
FNMA + 7.000% 12/01/2028 1,211,999 1,236,238
GNMA+ 7.000% 11/15/2022 - 06/15/2026 1,740,759 1,781,330
GNMA+ 7.500% 12/15/2025 191,442 197,364
GNMA+ 8.000% 01/15/2026 - 12/15/2027 2,869,547 2,982,520
GNMA 9.000% 09/15/2016 - 12/15/2017 1,795,996 1,927,487
GNMA 7.500% 10/15/2027 430,813 444,138
GNMA 8.000% 01/15/2027 679,453 706,203
GNMA 8.000% 11/15/2026 301,455 313,323
GNMA 8.000% 12/15/2026 87,640 91,090
GNMA 7.500% 08/15/2027 409,717 422,390
GNMA 7.500% 12/15/2027 115,369 118,937
GNMA 7.500% 09/15/2027 410,880 423,589
GNMA 8.000% 06/15/2027 493,438 512,864
GNSF 8.000% 06/15/2026 307,378 319,480
-----------
Total U.S. Government Agency (Cost $16,716,765) 16,785,182
-----------
U.S. Treasury Obligations -- 11.5%
Treasury Bonds -- 7.5%
U.S. Treasury Bond+ 7.625% 02/15/2025 1,425,000 1,873,432
U.S. Treasury Bond+ 6.625% 02/15/2027 950,000 1,123,669
-----------
2,997,101
-----------
Treasury Notes -- 4.0%
U.S. Treasury Note+ 6.625% 04/30/2002 700,000 740,796
U.S. Treasury Note+ 6.375% 05/15/2000 600,000 613,314
U.S. Treasury Note+ 5.625% 05/15/2008 37,000 39,480
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (Note 1A)
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Treasury Notes (continued)
U.S. Treasury Note+ 6.250% 10/31/2001 $ 200,000 $ 208,374
U.S. Treasury Note+ 5.875% 11/15/1999 25,000 25,258
-----------
1,627,222
-----------
Total U.S. Treasury Obligations (Cost $4,316,983) 4,624,323
-----------
TOTAL BONDS AND NOTES (COST $39,279,333) 39,671,611
-------------
<CAPTION>
Shares/
Contract Size
-----------------
WARRANTS -- 0.0%
Financial -- 0.0%
Equity Office Properties Warrants 2,500 500
-------------
TOTAL WARRANTS (COST $2,000) 500
-------------
PURCHASED OPTIONS -- 0.2%
UST 6.125% Call, Strike Price 110.43, 1/22/99 4,000 7,250
UST 5.625% Call, Strike Price 108.125, 4/23/99 1,500 1,594
UST 5.625% Call, Strike Price 110.25, 4/9/99 4,000 1,750
UST 5.625% Call, Strike Price 110.00, 4/9/99 8,000 3,875
UST 5.625% Put, Strike Price 99.258, 2/1/99 8,000 250
UST 5.5% Call, Strike Price 104.344, 2/24/99 12,000 24,563
UST 5.625% Call, Strike Price 103.422, 2/1/99 8,000 24,880
UST 6.125% Call, Strike Price 113.438, 5/31/99 4,000 10,875
UST 4.25% Call, Strike Price 99.594, 3/8/99 15,000 6,328
-----------
TOTAL PURCHASED OPTIONS (COST $90,016) 81,365
-----------
SHORT-TERM INVESTMENTS -- 2.7%
Repurchase Agreements -- 2.7%
Prudential-Bache Repurchase Agreement, dated 12/31/98, due 1/4/99, with a
maturity value of $1,071,830 and an effective yield of 3.95%, collateralized by
a U.S. Government Agency Obligation with a rate of 6.18%, a maturity date of
12/01/28 and a market value of $1,093,127. 1,071,360
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $1,071,360) 1,071,360
-------------
TOTAL INVESTMENTS -- 101.9% (COST $40,442,709) $ 40,824,836
Other Assets, Less Liabilities -- (1.9)% (774,119)
==================
NET ASSETS -- 100% $ 40,050,717
==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
Notes to the Schedule of Investments:
144A - Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration.
FNMA - Federal National Mortgage Association
FHLMC - Federal Home Loan Mortgage Corporation
FDIC - Federal Depository Insurance Corporation
GNMA, GNSF - Government National Mortgage Association
P/O - Principal Only
REMIC - Real Estate Mortgage Conduit
+ Denotes all or part of security pledged as a margin deposit (Note 6) or
collateral for delayed delivery transactions (Note 7).
(a) Variable Rate Security; rate indicated is as of 12/31/98.
# Delayed delivery contract (Note 7).
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized 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 Securitized Fund (the "Fund") is a separate
diversified investment series of the Trust.
The following is a summary of significant accounting policies followed
by the Fund in the preparation of the 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 primarily traded.
Securities (including restricted securities) for which quotations are
not readily available are valued at their fair value as determined in
good faith under consistently applied procedures under the general
supervision of the Board of Trustees.
Short-term instruments with less than sixty-one days remaining to
maturity when acquired by the Fund are valued on an amortized cost
basis. If the Fund acquires a short-term instrument with more than
sixty days remaining to its maturity, it is valued at current market
value until the sixtieth day prior to maturity and will then be valued
at amortized cost based upon the value on such date unless the Trustees
determine during such sixty-day period that amortized cost does not
represent fair value.
B. Repurchase agreements
It is the policy of the Fund to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book
Entry System or to have segregated within the custodian bank's vault,
all securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the Fund
to monitor on a daily basis, the market value of the repurchase
agreement's underlying investments to ensure the existence of a proper
level of collateral.
C. Securities transactions and income
Securities transactions are recorded as of the trade date. Interest
income is determined on the basis of interest accrued, adjusted for
amortization of premium or discount on long-term debt securities when
required for federal income tax purposes. Realized gains and losses
from securities sold are recorded on the identified cost basis.
D. Federal taxes
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal
year.
At December 31, 1998, the Fund, for federal income tax purposes, had a
capital loss carryover which will reduce the Fund's taxable income
arising from net realized gain on investments, if any, to the extent
permitted by the Internal Revenue Code and thus will reduce the amount
of distributions to shareholders which would otherwise be necessary to
relieve the Fund of any liability for federal income tax. Such capital
loss carryovers are $803,341 and $234,501 which expire on December 31,
2002 and December 31, 2004, respectively.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
E. Distributions to shareholders
Dividends from net investment income and capital gains distributions,
if any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to
shareholders are recorded on the ex-dividend date. Income and capital
gain distributions are determined in accordance with income tax
regulations which may differ from generally accepted accounting
principles. These differences are primarily due to differing treatments
for mortgage backed securities, futures and options transactions and
foreign currency transactions. Permanent book and tax basis differences
relating to shareholder distributions will result in reclassifications
between paid-in capital, distributions in excess of net investment
income and accumulated net realized gain (loss).
(2) Investment Advisory Fee:
The investment advisory fee paid to Standish, Ayer & Wood, Inc.
("SA&W") for overall investment advisory and administrative services,
and general office facilities, is paid monthly at the annual rate of
0.25% of the Fund's average daily net assets up to the first
$500,000,000 and 0.20% of assets in excess of this amount. SA&W
voluntarily agreed to limit the Fund's total operating expenses to
0.45% of the Fund's average daily net assets for the year ended
December 31, 1998. Pursuant to this agreement, SA&W voluntarily waived
$45,491 of its investment advisory fee. The Trust pays no compensation
directly to its trustees who are affiliated with SA&W or to its
officers, all of whom receive remuneration for their services to the
Trust from SA&W. Certain trustees and officers of the Trust are
directors or officers of SA&W.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------ ------------
<S> <C> <C>
U.S. Government Securities.................................. $43,517,531 $39,915,042
============ ============
Investments (non-U.S. Government Securities)................ $ 5,981,067 $ 7,089,126
============ ============
</TABLE>
(4) Shares of Beneficial Interest:
The Declaration of Trust permits the trustees to issue an unlimited
number of full and fractional shares of beneficial interest having a
par value of one cent per share. Transactions in Fund shares were as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1998 December 31, 1997
-------------------- -------------------
<S> <C> <C>
Shares sold............................................... 3,904 --
Shares issued to shareholders in payment of distributions
declared............................................... 15,319 18,431
Shares redeemed........................................... (38,245) (591,543)
-------------------- -------------------
Net decrease.............................................. (19,022) (573,112)
==================== ===================
</TABLE>
At December 31, 1998, the Fund had one shareholder of record owning
approximately 76% of the Fund's outstanding shares.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(5) Federal Income Tax Basis of Investment Securities:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31,1998, as computed on a
federal income tax basis, were as follows:
Aggregate Cost.......................................... $40,442,709
=============
Gross unrealized appreciation........................... 708,860
Gross unrealized depreciation........................... (326,733)
-------------
Net unrealized appreciation.............................$ 382,127
=============
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these investments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following financial instruments with off-balance
sheet risk:
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in securities prices and foreign
currencies, as well as to seek to enhance returns. Writing puts and
buying calls tend to increase the Fund's exposure to the underlying
instrument. Buying puts and writing calls tend to decrease the Fund's
exposure to the underlying instrument, or hedge other Fund investments.
Options, both held and written by the Fund, are reflected in the
accompanying Statement of Assets and Liabilities at market value. The
underlying face amount at value of any open purchased option is shown
in the Schedule of Investments. This amount reflects each contract's
exposure to the underlying instrument at period end. Losses may arise
from changes in the value of the underlying instruments, if there is an
illiquid secondary market 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 Fund is
exercised, the premium reduces the cost basis of the securities
purchased by the Fund. The Fund, as writer of an option, has no control
over whether the underlying securities may be sold (call) or purchased
(put) and as a result bears the market risk of an unfavorable change in
the price of the security underlying the written option. A summary of
written option transactions for the year ended December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Number of
Written Put Option Transactions Contracts Premiums
--------------------------------- --------------- --------------
<S> <C> <C>
Outstanding, beginning of period............. 5 $ 49,390
Options written.............................. 10 102,516
Options expired.............................. (4) (50,398)
Options closed............................... (6) (61,680)
--------------- -------------
Outstanding, end of period................... 5 $ 39,828
=============== ==============
</TABLE>
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of
Written Call Option Transactions Contracts Premiums
--------------------------------- --------------- ---------------
<S> <C> <C>
Outstanding, beginning of period............. 4 $ 16,544
Options written.............................. 13 93,995
Options expired.............................. (2) (15,563)
Options closed............................... (9) (48,726)
--------------- ---------------
Outstanding, end of period................... 6 $ 46,250
=============== ===============
</TABLE>
Forward foreign currency and cross currency exchange contracts
The Fund may enter into forward foreign currency and cross currency
exchange contracts for the purchase or sale of a specific foreign
currency at a fixed price on a future date. Risks may arise upon
entering these contracts from the potential inability of counterparts
to meet the terms of their contracts and from unanticipated movements
in the value of a foreign currency relative to the U.S. dollar and
other foreign currencies. The forward foreign currency and cross
currency exchange contracts are marked to market using the forward
foreign currency rate of the underlying currency and any gains or
losses are recorded for financial statement purposes as unrealized
until the contract settlement date or upon the closing of the contract.
Forward currency exchange contracts are used by the Fund primarily to
protect the Fund's foreign securities from adverse currency movements.
Unrealized appreciation and depreciation of forward currency exchange
contracts is included in the Statement of Assets and Liabilities. At
December 31, 1998, there were no open forward foreign currency
contracts.
Futures Contracts
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. Pursuant to margin requirements the
Fund deposits either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. There are
several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or index,
which may not correlate with changes in value of the hedged
investments. Buying futures tends to increase the Fund's exposure to
the underlying instrument, while selling futures tends to decrease the
Fund's exposure to the underlying instrument or hedge other Fund
investments. In addition, there is the risk that the Fund may not be
able to enter into a closing transaction because of an illiquid
secondary market. Losses may arise if there is an illiquid secondary
market or if the counterparties do not perform under the contracts'
terms. The Fund enters into financial futures transactions primarily to
manage its exposure to certain markets and to changes in securities
prices and foreign currencies. Gains and losses are realized upon the
expiration or closing of the futures contracts. At December 31, 1998,
the Fund held the following futures contracts:
<TABLE>
<CAPTION>
Underlying
Expiration Face/amount Unrealized
Contract Position Date at value Gain/(Loss)
---------- ---------- ------------- --------------- ------------
<S> <C> <C> <C> <C>
U.S. Bond (CBT) (12 Contracts) ....... Long 3/31/99 $1,533,376 $ (27,026)
U.S. 2 Yr. Note (19 Contracts) ....... Long 3/01/99 4,019,094 (4,939)
U.S. 5 Yr. Note (18 Contracts) ....... Long 3/31/99 2,040,188 102
U.S. 10 Yr. Note (23 Contracts) ...... Short 3/31/98 2,740,594 16,895
------------
$ (14,968)
============
</TABLE>
At December 31, 1998, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish Securitized Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) Delayed Delivery Transactions:
The Fund may purchase securities on a when-issued or forward commitment
basis. Payment and delivery may take place a month or more after the
date of the transactions. The price of the underlying securities and
the date when the securities will be delivered and paid for are fixed
at the time the transaction is negotiated. The Fund segregates
securities having a value at least equal to the amount of the purchase
commitment.
At December 31, 1998, the Fund entered into the following delayed
delivery transactions:
When Issued
<TABLE>
<CAPTION>
Type Security Settlement Date Payable Amount
------------------- ----------------------- ---------------------- ------------------------
<S> <C> <C> <C>
Buy FNMA 3/15/99 $ 2,057,688
Buy FNMA 1/21/99 1,605,023
------------------------
$ 3,662,711
========================
</TABLE>
17
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Securitized Fund:
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and related statements of operations and of changes
in net assets and the financial highlights present fairly, in all material
respects, the financial position of Standish, Ayer & Wood Investment Trust:
Standish Securitized Fund (the "Fund"), at December 31, 1998, 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
(herein referred to as "financial statements") are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at December 31, 1998, by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 1999
18
<PAGE>
[LOGO] STANDISH FUNDS(R)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
www.standishfunds.com
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Standish, Ayer & Wood Investment Trust
form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 4
<NAME> Standish Securitized Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 40,442,709
<INVESTMENTS-AT-VALUE> 40,824,836
<RECEIVABLES> 3,971,775
<ASSETS-OTHER> 1,655
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 44,798,266
<PAYABLE-FOR-SECURITIES> 3,662,711
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 1,084,838
<TOTAL-LIABILITIES> 4,747,549
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 40,819,600
<SHARES-COMMON-STOCK> 1,977,246
<SHARES-COMMON-PRIOR> 1,996,268
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> (144,411)
<ACCUMULATED-NET-GAINS> (1,022,869)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 398,397
<NET-ASSETS> 40,050,717
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 2,762,677
<OTHER-INCOME> 0
<EXPENSES-NET> 181,796
<NET-INVESTMENT-INCOME> 2,580,881
<REALIZED-GAINS-CURRENT> 881,611
<APPREC-INCREASE-CURRENT> (534,892)
<NET-CHANGE-FROM-OPS> 2,927,600
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 2,613,534
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 3,904
<NUMBER-OF-SHARES-REDEEMED> (38,245)
<SHARES-REINVESTED> 15,319
<NET-CHANGE-IN-ASSETS> (74,055)
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> (21,338)
<OVERDIST-NET-GAINS-PRIOR> (1,886,361)
<GROSS-ADVISORY-FEES> 100,997
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 227,287
<AVERAGE-NET-ASSETS> 40,401,060
<PER-SHARE-NAV-BEGIN> 20.10
<PER-SHARE-NII> 1.31
<PER-SHARE-GAIN-APPREC> 0.18
<PER-SHARE-DIVIDEND> (1.33)
<PER-SHARE-DISTRIBUTIONS> (0.02)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 20.24
<EXPENSE-RATIO> 0.45
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
