STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH INTERNATIONAL FIXED INCOME FUND
Financial Statements for the Year Ended
December 31, 1998
[LOGO]
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STANDISH, AYER & WOOD INVESTMENT TRUST
February 25, 1999
Dear Standish, Ayer and Wood Investment Trust Shareholder:
We are writing to provide you with a review of developments at Standish, Ayer &
Wood, as they relate to the activities of the Investment Trust.
The financial markets had a wild year in 1998. Following the disarray in Asia
and, more directly, the de facto Russian default in mid-August, a large part of
the world's financial markets simply shut down. Many sectors of the U.S. markets
were paralyzed. Spurred by a second easing of monetary policy by the Federal
Reserve in mid-October, the markets reopened and staged a dramatic recovery.
Performance within subsets of the major asset classes varied greatly. Bonds
generally produced positive returns, but less liquid issues with any degree of
perceived credit risk underperformed. Emerging market securities were
eviscerated during the third quarter spasm and recovered only partially in the
fourth. By far the best returns in the U.S. equity markets were registered by a
relatively narrow group of higher price/earnings ratio, larger capitalization
stocks. The disparity in return between the larger cap stocks and smaller cap
stocks, as measured by the Standard & Poor's 500 and the Russell 2000 indexes
was an astounding 31%!
While some funds managed by Standish did well relative to their benchmarks and
most funds produced good absolute returns, too many underperformed their
benchmarks in 1998. In bonds, our holdings of corporate credits and mortgages
underperformed U.S. Treasury securities, the latter representing a significant
portion of the major indexes. In equities, our preference for lower
price/earnings ratios led to an overweighting in mid cap stocks that suffered
relative to larger cap stocks with significantly higher valuations.
We have expended considerable time and effort trying to learn the correct
lessons from 1998. We have determined that much of the underperformance was
generic to our style and that 1998 was an aberrant year, with valuation on
holiday in many sectors. We are deeply committed to the view that valuation is
extremely important in making investment judgments. We are dedicated to our
philosophy and unalterably convinced that our strategy of buying securities that
are inexpensive relative to their fundamentals is an excellent path to
sustainable excess returns over the long term.
Notwithstanding the chaotic markets, we are pleased that Standish has benefited
from extraordinary stability of both our clients and our professional team. At
the end of 1998, total assets under management for our clients were $46.2
billion, compared with $39.3 billion at the end of 1997. We have experienced
growth in virtually all asset categories, especially equities. The Standish
Funds increased assets from $5.7 billion to $6.5 billion during the year, with
about 75% of the growth representing additions from existing clients.
The Standish team has also grown significantly, from 232 members at the
beginning of 1998 to 276 members at the end of the year. Our 97 investment
officers have average investment experience of 15 years. Fifty-six officers have
advanced degrees (typically an MBA) and 65 have some advanced professional
accreditation (virtually all Chartered Financial Analysts). There have been no
changes in the 24 individuals (all with CFAs) who own Standish, Ayer & Wood.
1
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At the end of 1998, the Standish Board of Directors elected four new associate
directors: Susan Coan, one of the key managers in our taxable client group;
David Horsfall, head of our large bond trading operation; Phil Leonardi, a major
contributor to expanding our equity assets; and Jennifer Pline, who holds major
responsibilities for serving large, fixed income clients. We have elected 13 new
vice presidents and 17 new assistant vice presidents of Standish, Ayer & Wood.
In this environment, there are no shortages of challenges and opportunities. Our
first priority remains to produce superior long-term investment performance for
our clients. We believe we have the investment disciplines and the professional
team to achieve that goal. In those asset classes in which our returns were
subpar in 1998, we have a special impetus to produce superior results in the
future. With our portfolios attractively priced compared to the relevant
benchmarks, we see potential for significant excess return when the markets
become more focused on investment value.
We believe that we are in partnership with our clients. We would like to assure
you of our dedication to fulfilling your needs while expressing our great
appreciation for your confidence in Standish.
Sincerely yours,
/s/ /s/ Ted Ladd /s/ George Noyes
Edward H. Ladd, Chairman George W. Noyes, President
2
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH INTERNATIONAL FIXED INCOME FUND
Management Discussion and Analysis
Foreign bond markets produced high, positive returns during the year with the
J.P. Morgan Non-U.S. Government Bond Index returning 12.11%. Unfortunately, the
market environment in 1998 did not favor our investing style as the emerging
market currency crisis caused a flight to government bonds. The Fund
underperformed the index with a return of 8.73% for the year.
Financial markets in 1998 were driven largely by the crisis in emerging market
economies. The year began with the emerging market currency crisis in full swing
in Asia, and by fall the Russian currency and capital markets had collapsed. By
year end Brazil and other Latin markets were seriously threatened. The effect of
the crisis was a reduction in world growth, lower commodity prices and a flight
into government bonds, primarily U.S. treasuries.
This flight to quality precipitated the collapse of several hedge funds,
including Long-Term Capital Management. As hedge funds unwound their positions,
credit-sensitive sectors of financial markets underperformed as liquidity was
removed from the market and investors purchased treasuries. The disinflationary
impact of the emerging market crisis positively affected developed bond markets
as central banks lowered rates to counter the negative growth impact of the
crisis.
During the year, the U.K. market posted the highest hedged returns among
developed markets. The U.K. started 1998 with relatively high short and
long-term interest rates. As the year progressed, the central bank was forced to
aggressively reduce interest rates in order to counter a rapidly slowing
economy. Other European markets produced low double-digit returns in the year.
There was only a few percentage points difference between the best and worst
performing European markets as yields had converged late in 1997 and early in
1998 in anticipation of European monetary union. The Euro was launched on
January 1, 1999 with very little disruption in business or capital markets
throughout Europe.
Dollar bloc markets such as the U.S., Australia, Canada and New Zealand also
produced low double-digit returns in the year. These markets continue to benefit
from low levels of inflation despite reasonable economic growth, particularly in
the U.S.
The worst performing market in the year was the Japanese government bond market.
Japanese yields had reached historically low levels in the latter half of 1998
only to retreat by more than 100 basis points over the next few months. Despite
the ongoing economic weakness in Japan and the strength of the yen, bond yields
below 1% were clearly overvalued. Investors are unwilling to buy Japanese
government bonds at current yield levels due to the high budget deficit and
dramatic increase in the supply of Japanese bonds expected in 1999. The return
of the Japanese bond market hedged into dollars was only 5.58% for the year.
During the year the fund benefited from favorable country selection. The fund
has been overweight the U.K. market and other European markets and underweight
the Japanese bond market. However, security selection negatively impacted the
performance of the portfolio. In particular, our weighting in corporate bonds
underperformed dramatically as investors sold credit-sensitive sectors and
bought government bonds. The Fund also suffered from a short position in the
Japanese yen as the yen rallied in the latter part of the year. Duration of the
portfolio has been longer than the index, which benefited the fund in this
period of declining interest rates.
We believe that we are well positioned to outperform in 1999. Foreign bond
markets still offer value in an environment where world growth is restrained by
the emerging market crisis. In addition, our portfolio holds a portion of
attractive, corporate securities that offer superior yield advantage relative to
government bonds. Although the road ahead is likely to be bumpy, we believe that
this is one of the best times to invest in corporate bonds that we have seen
since the early `90s. We believe that the yield advantage and potential for
spread contraction in our portfolio will add value relative to the index over
the next few years.
We appreciate your support during the year, and we look forward to working on
your behalf towards superior risk-adjusted returns in 1999.
/s/ W. Charles Cook /s/ Richard S. Wood
W. Charles Cook Richard S. Wood
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH INTERNATIONAL FIXED INCOME FUND
Standish J.P. Morgan
International Fixed Lehman Non-U.S. Govt.
Income Fund Aggregate Index Hedged Bond Index
----------- --------------- -----------------
Inception 1/2/1991 100000 100000 100000
Jan-1991 102350 101240 101900
Feb-1991 102900 102101 103459
Mar-1991 97100 102805 103625
Apr-1991 97604 103915 104381
May-1991 97654 104518 105185
Jun-1991 95387 104466 104406
Jul-1991 97352 105918 105002
Aug-1991 99569 108206 106587
Sep-1991 104910 110402 108143
Oct-1991 106019 111628 108998
Nov-1991 107430 112655 109096
Dec-1991 115083 116001 110896
Jan-1992 112787 114423 111938
Feb-1992 113622 115167 112308
Mar-1992 112293 114522 111499
Apr-1992 114469 115346 111978
May-1992 118130 117526 113009
Jun-1992 122906 119148 112850
Jul-1992 124687 121579 112489
Aug-1992 129920 122807 112512
Sep-1992 128194 124268 114064
Oct-1992 125659 122615 116380
Nov-1992 124336 122640 116205
Dec-1992 124391 124590 117518
Jan-1993 126034 126982 118588
Feb-1993 128909 129204 120734
Mar-1993 132077 129747 120807
Apr-1993 134223 130655 120819
May-1993 135892 130825 121495
Jun-1993 139230 133193 123974
Jul-1993 143102 133952 125362
Aug-1993 148366 136296 127970
Sep-1993 146551 136664 128520
Oct-1993 149560 137170 130230
Nov-1993 149498 136004 131141
Dec-1993 153972 136738 133856
Jan-1994 155498 138584 133187
Feb-1994 149268 136173 130190
Mar-1994 145072 132810 129005
Apr-1994 143587 131747 128089
May-1994 140940 131734 126667
Jun-1994 138551 131444 125375
Jul-1994 140234 134060 126203
Aug-1994 138357 134221 124991
Sep-1994 137257 132248 125104
Oct-1994 138551 132129 125592
Nov-1994 140039 131838 127363
Dec-1994 139781 132748 127070
Jan-1995 141093 135376 128455
Feb-1995 142078 138598 130112
Mar-1995 143390 139443 132766
Apr-1995 146503 141396 134872
May-1995 151868 146868 139295
Jun-1995 150146 147940 138836
Jul-1995 152685 147614 140585
Aug-1995 154556 149396 141808
Sep-1995 156159 150845 144049
Oct-1995 158653 152806 145662
Nov-1995 162899 155098 148852
Dec-1995 165123 157269 150236
Jan-1996 168040 158307 152054
Feb-1996 165408 155553 150260
Mar-1996 166333 154464 151507
Apr-1996 169275 153599 153325
May-1996 169849 153291 154368
Jun-1996 172142 155346 155649
Jul-1996 172874 155765 156816
Aug-1996 175732 155500 158902
Sep-1996 181375 158206 162287
Oct-1996 185069 161718 164964
Nov-1996 190241 164483 168264
Dec-1996 190348 162954 168499
Jan-1997 193213 163459 170606
Feb-1997 194769 163868 171697
Mar-1997 193133 162049 170787
Apr-1997 195533 164479 172632
May-1997 197436 166042 173530
Jun-1997 200360 168018 176480
Jul-1997 203728 172554 179286
Aug-1997 203391 171088 179501
Sep-1997 207938 173620 182678
Oct-1997 208533 176137 183847
Nov-1997 210234 176947 185171
Dec-1997 212929 178735 187578
Jan-1998 215543 181022 190073
Feb-1998 215916 180878 191764
Mar-1998 218349 181493 193471
Apr-1998 219010 182440 194458
May-1998 221558 184164 197122
Jun-1998 222153 185729 197970
Aug-1998 224648 189149 203747
Sep-1998 228794 193576 208576
Oct-1998 225787 192550 208263
Nov-1998 231315 193647 210512
Dec-1998 231521 194228 210259
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Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Assets and Liabilities
December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Assets
Investments at value (Note 1A) (identified cost, $1,332,821,811) $ 1,381,815,918
Foreign currency, at value (cost, $6,797) 6,799
Interest and dividends receivable 35,241,700
Receivable for Fund shares sold 26,036
Receivable for investments sold 1,385,413
Unrealized appreciation on forward foreign currency exchange contracts (Note 6) 11,705,261
Reclaim receivable 2,591,338
Prepaid expenses 5,931
---------------
Total assets 1,432,778,396
Liabilities
Payable for investments purchased $ 32,480
Distribution payable 6,295,182
Payable to investment adviser (Note 2) 376
Unrealized depreciation on forward foreign currency exchange contracts
(Note 6) 43,933,979
Options written, at value (premiums received, $19,487,683) (Note 6) 29,911,047
Accrued accounting, custody and transfer agent fees 105,734
Accrued expenses and other liabilities 116,172
-----------
Total liabilities 80,394,970
---------------
Net Assets $ 1,352,383,426
===============
Net Assets consist of:
Paid-in capital $ 1,309,342,518
Undistributed net investment income 35,089,632
Accumulated net realized gain 499,887
Net unrealized appreciation 7,451,389
---------------
Total Net Assets $ 1,352,383,426
===============
Shares of beneficial interest outstanding 58,238,602
===============
Net Asset Value, offering price and redemption price per share
(Net Assets/Shares outstanding) $ 23.22
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Statement of Operations
Year Ended December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Investment Income
Interest income (net of foreign withholding taxes of $53,912) $ 86,254,550
-------------
Total investment income 86,254,550
Expenses
Investment advisory fee (Note 2) $ 5,359,632
Accounting, custody and transfer agent fees 1,179,118
Legal and audit services 187,456
Registration fees 113,814
Trustees' fees and expenses (Note 2) 43,250
Insurance expense 21,267
Miscellaneous 38,450
------------
Total expenses 6,942,987
-------------
Net investment income 79,311,563
-------------
Realized and Unrealized Gain (Loss) on Investments
Net realized gain
Investment security transactions 15,921,096
Financial futures contracts 503,730
Written option transactions 3,999,598
Foreign currency transactions and forward foreign currency exchange
contracts 17,944,327
------------
Net realized gain 38,368,751
Change in unrealized appreciation (depreciation)
Investment securities 76,908,216
Financial futures contracts (161,549)
Written option transactions (10,998,742)
Foreign currency and forward foreign currency exchange contracts (72,530,479)
------------
Net change in unrealized appreciation (depreciation) (6,782,554)
-------------
Net realized and unrealized gain 31,586,197
-------------
Net Increase in Net Assets from Operations $ 110,897,760
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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Standish, Ayer & Wood Investment Trust
Standish International Fixed Income 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 $ 79,311,563 $ 63,973,699
Net realized gain 38,368,751 74,075,302
Change in unrealized appreciation (depreciation) (6,782,554) (25,008,757)
-------------- ---------------
Net increase in Net Assets from Investment Operations 110,897,760 113,040,244
-------------- ---------------
Distributions to Shareholders (Note 1F)
From net investment income (69,004,032) (133,232,541)
From net realized gains on investments (19,243,045) (12,277,114)
-------------- ---------------
Total distributions to shareholders (88,247,077) (145,509,655)
-------------- ---------------
Fund Share (principal) Transactions (Note 4)
Net proceeds from sale of shares 465,332,134 390,048,325
Value of shares issued to shareholders in
payment of distributions declared 70,989,234 109,885,382
Cost of shares redeemed (379,283,686) (134,902,053)
-------------- ---------------
Net increase in Net Assets from Fund share transactions 157,037,682 365,031,654
-------------- ---------------
Total Increase in Net Assets 179,688,365 332,562,243
Net Assets
At beginning of year 1,172,695,061 840,132,818
-------------- ---------------
At end of year (including undistributed net investment income and
distributions in excess of net investment income of $35,089,632 and
$1,556,611, respectively) $1,352,383,426 $ 1,172,695,061
============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Financial Highlights
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------------
1998 (1) 1997 (1) 1996 (1) 1995 1994
---------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of Year $ 22.81 $ 23.25 $ 23.21 $ 21.30 $ 24.22
---------- ---------- -------- --------- ----------
Investment Operations
Net investment income 1.38 1.54 1.72 1.96 1.71
Net realized and unrealized gain
(loss) on investments 0.58 1.16 1.73 1.84 (3.93)
---------- ---------- -------- --------- ----------
Total from investment operations 1.96 2.70 3.45 3.80 (2.22)
---------- ---------- -------- --------- ----------
Less distributions to shareholders
From net investment income (1.21) (2.86) (2.64) (1.89) (0.20)
From net realized gains on
investments (0.34) (0.28) (0.77) -- --
From tax return of capital -- -- -- -- (0.50)
---------- ---------- -------- --------- ----------
Total distributions to shareholders (1.55) (3.14) (3.41) (1.89) (0.70)
---------- ---------- -------- --------- ----------
Net Asset Value, End of Period $ 23.22 $ 22.81 $ 23.25 $ 23.21 $ 21.30
========== ========== ======== ========= ==========
Total Return 8.73% 11.86% 15.28% 18.13% (9.22)%
Ratios/Supplemental Data
Expenses (to average daily net
assets) 0.52% 0.53% 0.53% 0.51% 0.51%
Net investment income (to average
daily net assets) 5.92% 6.37% 7.17% 8.09% 7.69%
Portfolio Turnover 156% 173% 226% 165% 158%
Net Assets, End of Period
(000 omitted) $1,352,383 $1,172,695 $840,133 $ 803,537 $1,069,416
</TABLE>
(1) Calculated based on average shares outstanding.
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 99.1%
Corporate -- 1.7%
Bank Bonds -- 0.2%
GS Escrow Corp. 144A 7.125% 08/01/2005 2,700,000 $ 2,660,364
-------------
Financial -- 0.5%
Conseco Finance Trust II 8.700% 11/15/2026 6,825,000 6,182,251
-------------
Industrial Bonds -- 1.0%
Aramark Services Notes 6.750% 08/01/2004 10,000,000 10,096,010
Ryder Systems Notes NCL 6.600% 11/15/2005 2,025,000 2,032,877
U.S. Filter Corp. NC '03(b) 6.500% 05/15/2003 1,900,000 1,854,915
-------------
13,983,802
-------------
Total Corporate (Cost $24,233,908) 22,826,417
-------------
Government/Other -- 93.6%
Argentina -- 0.3%
Cointel 144A Notes NCL 10.375% 08/01/2004 5,500,000 3,685,000
-------------
Denmark -- 7.4%
Danske Kredit 5.000% 10/01/2029 33,042,000 4,876,323
Denmark Nykredit 5.000% 10/01/2029 11,000,000 1,623,374
Denmark Nykredit 7.000% 10/01/2026 78,751,000 12,625,087
Denmark Realkredit 8.000% 10/01/2026 7,000 1,137
Denmark Realkredit 7.000% 10/01/2026 12,029,000 1,928,448
Denmark Realkredit 5.000% 10/01/2029 15,000,000 2,213,692
Denmark Unikredit Realkredit 6.000% 10/01/2029 95,515,000 14,751,020
Kingdom of Denmark 8.000% 03/15/2006 209,000,000 40,648,864
Kingdom of Denmark+ 8.000% 11/15/2001 82,025,000 14,348,589
Nykredit 6.000% 10/01/2029 49,847,000 7,698,205
-------------
100,714,739
-------------
France -- 1.9%
France Oat 6.000% 10/25/2025 62,000,000 13,130,586
Remy Cointreau 144A 10.000% 07/30/2005 12,000,000 12,254,472
-------------
25,385,058
-------------
Germany -- 30.1%
Baden Nurttemberg+ 6.200% 11/22/2013 16,000,000 10,607,151
Bundes Obligation Ser 114 Notes 6.500% 03/15/2000 20,475,000 12,755,724
Bundes Obligation Ser 115 Notes+ 5.875% 05/15/2000 31,700,000 19,691,733
Bundes Obligation Ser 116 Notes 5.750% 08/22/2000 31,000,000 19,342,453
Colt Telecom Group PLC 7.625% 07/31/2008 24,575,000 14,485,804
Depfa Bank 144A Notes 4.750% 07/15/2008 26,300,000 16,370,440
Deutschland Republic+ 7.375% 01/03/2005 6,160,000 4,427,823
Deutschland Republic 7.250% 10/21/2002 26,540,000 18,089,809
Deutschland Republic 6.500% 10/14/2005 9,100,000 6,356,024
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Deutschland Republic 6.000% 01/05/2006 29,450,000 $ 20,037,944
Deutschland Republic 6.500% 07/04/2027 19,400,000 14,607,031
Die Bundrep Deutschland Dm1000+ 8.250% 09/20/2001 134,424,000 90,938,626
Exide Holding Corp. 9.125% 04/15/2004 10,000,000 5,879,530
Exide Holding Europe 144A 9.125% 04/15/2004 2,900,000 1,705,064
Federal Republic of Germany 8.375% 05/21/2001 9,500,000 6,366,391
Federal Republic of Germany+ 6.875% 05/12/2005 33,700,000 23,819,276
Fresenius Med Global 7.375% 02/01/2008 18,900,000 11,650,918
German Unity Fund+ 8.500% 02/20/2001 40,250,000 26,729,497
German Unity Fund+ 8.000% 01/21/2002 17,500,000 11,902,898
Haus Limited(b) 3.980% 05/01/2035 7,880,671 4,739,844
Texon International PLC 144A Senior Notes 10.000% 02/01/2008 22,990,000 11,034,317
Treuhandanstalt 7.500% 09/09/2004 47,950,000 34,469,456
Treuhandanstalt 6.500% 04/23/2003 30,400,000 20,439,933
-------------
406,447,686
-------------
Italy -- 0.5%
BTPS 6.000% 05/15/2000 10,200,000,000 6,397,424
-------------
Japan -- 15.5%
Austria Republic 4.500% 09/28/2005 1,170,000,000 12,105,692
Austria Republic 6.250% 10/16/2003 800,000,000 8,658,012
European Investment Bank 4.625% 02/26/2003 1,894,000,000 19,024,918
Government of Italy+ 5.125% 07/29/2003 1,300,000,000 13,412,602
IBRD-Global Bond 5.250% 03/20/2002 1,750,000,000 17,534,047
IBRD-Global Bond 4.750% 12/20/2004 1,450,000,000 15,127,162
Italy Euroyen Notes 3.750% 06/08/2005 3,225,000,000 31,957,103
Italy Euroyen Notes 5.000% 12/15/2004 250,000,000 2,625,619
Kingdom of Spain+ 5.750% 03/23/2002 2,945,000,000 29,920,085
OKB 4.300% 02/14/2001 1,400,000,000 13,307,800
Republic of Finland+ 6.000% 01/29/2002 850,000,000 8,646,878
Republic of Portugal 4.500% 03/15/2002 1,370,000,000 13,445,094
South Africa 3.350% 06/17/2004 625,600,000 5,158,932
Spanish Government 4.750% 03/14/2005 1,850,000,000 19,298,864
-------------
210,222,808
-------------
Netherlands -- 3.8%
Netherlands Government 9.000% 05/15/2000 61,640,000 35,287,522
Netherlands Government 9.000% 10/16/2000 28,100,000 16,421,573
-------------
51,709,095
-------------
New Zealand -- 4.9%
Fernz Capital+ 9.800% 04/15/2002 19,000,000 10,618,231
Fletcher Challenge 14.500% 09/30/2000 8,500,000 4,852,092
Fletcher Challenge 10.000% 04/30/2005 5,725,000 3,133,115
Fletcher Challenge 11.250% 12/15/2002 13,000,000 7,340,409
New Zealand Government 8.000% 04/15/2004 22,500,000 13,238,329
New Zealand Government 10.000% 03/15/2002 21,725,000 12,993,303
New Zealand Government 7.000% 07/15/2009 24,800,000 14,631,151
-------------
66,806,630
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Norway -- 0.3%
Vital Forsikring 7.850% 09/22/2003 25,600,000 $ 3,480,602
-------------
Sweden -- 6.2%
Government of Sweden #1039+ 5.500% 04/12/2002 95,500,000 12,488,089
Kingdom of Sweden #1030+ 13.000% 06/15/2001 36,500,000 5,489,916
Kingdom of Sweden #1033 10.250% 05/05/2003 75,000,000 11,661,455
Sweden Government Bond #1038+ 6.500% 10/25/2006 304,500,000 43,776,353
Swedish Government Bond #1042 5.000% 01/15/2004 84,000,000 10,956,097
-------------
84,371,910
-------------
United Kingdom -- 19.2%
Alliance and Leicester Building Society+ 8.750% 12/07/2006 13,000,000 25,112,218
Austria Government 6.250% 04/14/2004 7,935,000 13,936,745
Bank of Greece+ 10.750% 09/06/2010 4,550,000 10,817,827
Birmingham Midshires Building Society+ 9.125% 01/05/2006 3,900,000 7,592,722
Capital Shopping Euro Notes 6.875% 03/05/2013 5,600,000 9,955,248
CSW Investments+ 8.875% 09/27/2006 13,070,000 24,941,333
Deutsche Bank 0.000% 02/28/2001 865,000 1,243,700
European Investment Bank 7.625% 12/07/2006 6,935,000 13,355,826
FHLB 6.875% 06/07/2002 970,000 1,688,920
FNMA Global Bond 6.875% 06/07/2002 3,400,000 5,930,381
GTD Export Finance Corp. 0.000% 09/29/2000 6,190,000 9,331,625
IBRD Notes 6.875% 07/14/2000 6,200,000 10,509,073
Inco Ltd.+ 15.750% 07/15/2006 996,000 2,508,193
IPC Magazines 0.000% 03/15/2008 11,000,000 9,782,047
Northern Rock Building Society+ 9.375% 10/17/2021 10,665,000 24,517,120
P & O Steam Navigation+ 11.500% 07/03/2014 6,150,000 15,651,818
Republic of Argentina 11.500% 08/14/2001 3,950,000 6,532,862
Slough Estates 7.125% 02/17/2010 5,100,000 9,155,398
Stagecoach Holdings PLC 7.625% 10/31/2007 8,490,000 15,264,894
UK Gilt Stock+ 9.500% 10/25/2004 4,675,000 9,742,233
UK Treasury 8.500% 07/16/2007 3,050,000 6,504,945
UK Treasury Gilt 10.000% 09/08/2003 12,600,000 25,750,304
-------------
259,825,432
-------------
Yankee Bonds -- 3.5%
Asia Pulp and Paper Global Financial 11.750% 10/01/2005 2,900,000 1,914,000
Canada Notes 5.250% 11/05/2008 5,900,000 5,927,140
Gruma SA Notes 7.625% 10/15/2007 925,000 810,115
ING Barings NV 0.000% 02/12/1999 10,500,000 11,917,500
Inter Amer Dev Bank 6.375% 08/01/2000 3,969,000 4,034,330
Petroleos Mexicanos Notes 9.250% 03/30/2018 725,000 594,500
Republic of Panama 144A Notes 7.875% 02/13/2002 15,680,000 14,974,400
Republic of Panama Notes 8.875% 09/30/2027 500,000 467,810
TPSA Finance 144A Notes 7.750% 12/10/2008 6,175,000 6,128,070
-------------
46,767,865
-------------
Total Government/Other (Cost $1,207,377,984) 1,265,814,249
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency -- 1.3%
Pass Thru Securities -- 1.3%
FHLMC 5.750% 07/15/2003 5,000,000 $ 5,128,900
Tenneesee Valley Authority Notes 5.375% 11/13/2008 12,250,000 12,337,624
--------------
17,466,524
--------------
Total U.S. Government Agency (Cost $17,328,889) 17,466,524
--------------
U.S. Treasury Obligations -- 2.5%
Treasury Bonds -- 0.1%
U.S. Treasury Bond+ 6.625% 02/15/2027 1,000,000 1,182,810
--------------
Treasury Notes -- 2.4%
U.S. Treasury Note 6.625% 04/30/2002 20,985,000 22,208,006
U.S. Treasury Note+ 6.625% 06/30/2001 9,600,000 10,042,464
--------------
32,250,470
--------------
Total U.S. Treasury Obligations (Cost $33,592,427) 33,433,280
--------------
TOTAL BONDS AND NOTES (COST $1,282,533,208) 1,339,540,470
--------------
<CAPTION>
Shares
----------
<S> <C> <C>
PREFERRED STOCKS -- 0.4%
Fuji JGB Inv. L.L.C. Pfd(b) 4,200,000 3,045,000
Societe Generale Preferred Step Up NC '07 3,000,000 2,752,500
--------------
TOTAL PREFERRED STOCKS (COST $5,457,180) 5,797,500
--------------
<CAPTION>
Contract
Size (c)
-------------
<S> <C> <C>
PURCHASED OPTIONS -- 1.3%
JPY Put/NZD Call, Strike Price 73.50, 4/6/99 46,365,000 19,520
BTP 6.75% Put, Strike Price 105.49, 2/3/00 7,095,000,000 --
BTP 6.75% Put, Strike Price 107.69, 2/7/00 8,735,000,000 --
JGB 2.00% Put, Strike Price 99.00, 1/25/99 2,975,000,000 172,550
Fujibank 9.87% Call, Strike Price 6.37, 2/26/99 67,500 132
BTP 6.75% Put, Strike Price 105.29, 1/1/07 7,095,000,000 --
BTP 6.75% Put, Strike Price 105.29, 7/1/07 7,095,000,000 --
BTP 6.75% Put, Strike Price 105.29, 7/1/07 7,095,000,000 --
BTP 6.75% Put, Strike Price 105.49, 2/3/00 7,095,000,000 --
BTP Put, Strike Price 105.49, 2/3/00 7,095,000,000 --
BTP 6.75% Put, Strike Price 107.69, 2/7/00 8,735,000,000 --
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BTP 6.75% Put, Strike Price 107.69, 2/7/00 8,735,000,000 --
BTP 6.75% Put, Strike Price 107.69, 2/7/00 8,735,000,000 --
BTP 6.75% Put, Strike Price 107.69, 2/7/00 8,735,000,000 --
JPY Put/USD Call, Strike Price 155.00, 6/15/99 31,950,000 35,145
JPY Put/USD Call, Strike Price 150.00, 6/9/99 13,500,000 21,600
JGB 3.00% Put, Strike Price 110.00, 6/2/99 5,586,500,000 2,195,495
JPY Put/USD Call, Strike Price 128.00, 11/12/99 13,225,000 288,305
DEM Put/USD Call, Strike Price 1.85, 2/17/99 26,900,000 --
JPY Put/USD Call, Strike Price 150.00, 8/26/99 27,325,000 124,329
BRL Put/USD Call, Strike Price 1.35, 9/9/99 27,240,000 2,982,780
JPY Put/USD Call, Strike Price 125.00, 10/14/99 13,845,000 328,127
JPY Put/USD Call, Strike Price 127.00, 11/10/99 26,450,000 595,125
JPY Put/USD Call, Strike Price 138.00, 9/8/99 20,425,000 199,491
UST 6.125% Call, Strike Price 110.43, 1/22/99 132,500 240,156
UST 5.500% Call, Strike Price 104.391, 2/25/99 273,000 556,664
UST 5.5% Call, Strike Price 113.391, 3/30/99 133,000 37,406
UST 5.5% Call, Strike Price 105.891, 3/1/99 130,000 189,922
UST 5.625% Call, Strike Price 110.00, 4/9/99 138,000 66,844
UST 5.625% Put, Strike Price 99.258, 2/1/99 132,750 4,148
DBR 5.625% Call, Strike Price 109.62, 2/22/99 24,500,000 561,491
DBR 4.75% Call, Strike Price 96.12, 4/13/99 22,055,000 608,674
DEM 4.75% Call, Strike Price 94.53, 11/18/99 43,600,000 1,501,453
DBR 6.00% Call, Strike Price 112.66, 7/4/07 6,000,000 70,914
DBR 6.00% Call, Strike Price 112.88, 10/22/99 44,850,000 500,481
FRF 5.25% Call, Strike Price 108.15, 10/25/99 150,000,000 657,150
DBR 5.625% Call, Strike Price 115.10, 10/1/99 44,050,000 631,633
DEM 5.625% Call, Strike Price 109.10, 11/23/99 22,000,000 686,356
FRF 5.25% Call, Strike Price 106.66, 8/24/99 103,475,000 560,628
DBR 4.75% Call, Strike Price 104.90, 11/2/99 44,200,000 543,616
JGB 2.6% Call, Strike Price 120.061, 4/13/99 1,680,500,000 1,681
UST 6.125% Call, Strike Price 111.031, 2/1/99 267,500 482,754
UST 5.625% Call, Strike Price 108.188, 4/22/99 272,250 267,996
OBL 4.5% Call, Strike Price 103.35, 5/19/03 67,220,000 342,822
JPY Put, Strike Price 116.95, 12/24/99 26,550,000 1,154,925
UST 6.125% Call, Strike Price 113.438, 5/31/99 132,500 360,234
DBR 5.25% Call, Strike Price 110.76, 12/15/99 23,000,000 135,240
------------
TOTAL PURCHASED OPTIONS (COST $25,469,948) 17,125,787
------------
SHORT-TERM INVESTMENTS -- 1.4%
Commercial Paper -- 0.7%
Edison Asset 0.000% 02/01/1999 5,000,000 4,972,150
Monsanto 0.000% 02/04/1999 4,850,000 4,821,919
------------
9,794,069
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Schedule of Investments - December 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Par Value
Security Rate Maturity Value (a) (Note 1A)
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government Agency -- 0.2%
FNMA 0.000% 01/07/1999 2,500,000 $ 2,498,975
--------------
Repurchase Agreements -- 0.5%
Prudential-Bache Repurchase Agreement, dated 12/31/98, due 1/4/99, with a
maturity value of $7,062,215 and an effective yield of 3.95%, collateralized by
a U.S. Treasury Obligation with a rate of 9.875%, a maturity date of 11/15/15
and a market value of $7,209,318. 7,059,117
--------------
TOTAL SHORT-TERM INVESTMENTS (COST $19,361,475) 19,352,161
--------------
TOTAL INVESTMENTS -- 102.2%(COST $1,332,821,811) $1,381,815,918
Other Assets, Less Liabilities-- (2.2)% (29,432,492)
--------------
NET ASSETS -- 100% $1,352,383,426
==============
</TABLE>
Notes to the Schedule of Investments:
144A - Securities exempt from registration under Rule 144A of the Securities Act
of 1933. These securities may be resold in transactions exempt from
registration.
FHLMC - Federal Home Loan Mortgage Corporation
FHLB - Federal Home Loan Bank
FNMA - Federal National Mortgage Association
IBRD - International Bank for Reconstruction and Development
BRL - Brazilian Real
BTP - British Pound
DBR - Deutsche Bundes Republik
DEM - German Deutsche Mark
FRF - French Franc
JGB - Japanese Government Bond
JPY - Japanese Yen
NZD - New Zealand Dollar
OBL - Bundesobligation
OKB - Oesterreich Kontrollbank Bank
USD - United States Dollar
UST - United States Treasury
(a) Par value denominated in local currency.
(b) Variable Rate Security; rate indicated is as of 12/31/98.
(c) Contract size denominated in local currency.
+ Denotes all or part of security pledged as a margin deposit (Note 6).
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income 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 International Fixed Income Fund (the "Fund") is a
separate non-diversified investment series of the Trust.
The following is a summary of significant accounting policies
consistently followed by the Fund in the preparation of its financial
statements. The preparation of financial statements in accordance with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts and
disclosures in the financial statements. Actual results could differ
from those estimates.
A. Investment security valuations
Securities for which quotations are readily available are valued at the
last sale, 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 at amortized cost. 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 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. The
Fund does not isolate that portion of the results of operations
resulting from changes in foreign exchange rates on investments from
the fluctuations arising from changes in market prices of securities
held. Such fluctuations are included with the net realized and
unrealized gain or loss from investments.
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.
E. Foreign currency transactions
Investment security valuations, other assets and liabilities initially
expressed in foreign currencies are converted into U.S. dollars based
upon current exchange rates. Purchases and sales of foreign investment
securities and income and expenses are converted into U.S. dollars
based upon currency exchange rates prevailing on the respective dates
of such transactions.
15
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Section 988 of the Internal Revenue Code provides that gains or losses
on certain transactions attributable to fluctuations in foreign
currency exchange rates must be treated as ordinary income or loss. For
financial statement purposes, such amounts are included in net realized
gains or losses.
F. Distributions to shareholders
Distributions to shareholders are recorded on the ex-dividend date.
Distributions in excess of net realized gain on investments, written
options, and foreign currency arise because of certain timing
differences. Dividends from net investment income and distributions
from capital gains, if any, are reinvested in additional shares of the
Fund unless the 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 options, futures 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 International Management
Company, L.P. ("SIMCO") for overall investment advisory and
administrative services, and general office facilities, is paid monthly
at the annual rate of 0.40% of the Fund's average daily net assets. The
Trust pays no compensation directly to its trustees who are affiliated
with SIMCO or to its officers, all of whom receive remuneration for
their services to the Trust from SIMCO. Certain of the trustees and
officers of the Trust are directors or officers of SIMCO.
(3) Purchases and Sales of Investments:
Purchases and proceeds from sales of investments, other than short-term
investments, for the year ended December 31, 1998 were as follows:
<TABLE>
<CAPTION>
Purchases Sales
------------------ -------------------
<S> <C> <C>
U.S. Government Securities........................... $ 297,460,322 $ 15,428,230
================= ==================
Investments (non-U.S. Government Securities)......... $ 1,902,341,905 $ 1,921,662,630
================= ==================
</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............................................ 19,937,369 16,174,061
Shares issued to shareholders in payment of
distributions declared.............................. 3,059,774 4,756,614
Shares redeemed........................................ (16,178,171) (5,647,545)
-------------------- ------------------
Net increase........................................... 6,818,972 15,283,130
==================== ==================
</TABLE>
At December 31, 1998, one shareholder was record owner of approximately
11% of the Fund's outstanding shares.
16
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income 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:
<TABLE>
<S> <C>
Aggregate Cost....................................................... $1,334,868,695
==============
Gross unrealized appreciation........................................ 77,972,607
Gross unrealized depreciation........................................ (31,025,384)
--------------
Net unrealized appreciation.......................................... $ 46,947,223
==============
</TABLE>
(6) Financial Instruments:
In general, the following instruments are used for hedging purposes as
described below. However, the instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more
fully in the Fund's Prospectus and Statement of Additional Information.
The Fund trades the following instruments with off-balance sheet risk:
Options
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before
a certain date. The Fund may use options to seek to hedge against risks
of market exposure and changes in security prices 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 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 is 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
such transactions for the year ended December 31, 1998, is as follows:
Written Put Option Transactions
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Contracts Premiums
---------------------- ------------
<S> <C> <C>
Outstanding, beginning of period................................ 2 $ 451,112
Options written................................................. 24 6,126,307
Options expired................................................. (4) (853,611)
Options closed.................................................. (8) (1,926,747)
----------- ----------
Outstanding, end of period...................................... 14 $3,797,061
=========== ==========
</TABLE>
17
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Written Call Option Transactions
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Contracts Premiums
--------------------- --------------
<S> <C> <C>
Outstanding, beginning of period................................ 3 $ 481,566
Options written................................................. 17 5,123,652
Options exercised............................................... (1) (743,889)
Options expired................................................. (8) (1,412,934)
Options closed.................................................. (1) (441,781)
--------- -------------
Outstanding, end of period...................................... 10 $ 3,006,614
========= =============
</TABLE>
Written Cross Currency Option Transactions
-----------------------------------------------------------------------
<TABLE>
<CAPTION>
Number of Contracts Premiums
--------------------- --------------
<S> <C> <C>
Outstanding, beginning of period................................ 14 $ 5,631,852
Options written................................................. 24 14,872,205
Options expired................................................. (7) (1,501,790)
Options closed.................................................. (16) (6,318,259)
--------- -------------
Outstanding, end of period...................................... 15 $ 12,684,008
========= =============
</TABLE>
Forward 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 counterparties
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 value of 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.
18
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
At December 31, 1998, the Fund held the following forward foreign
currency and cross currency exchange contracts:
Forward Foreign Currency Exchange Contracts
<TABLE>
<CAPTION>
U.S.$ U.S.$ U.S.$
Local Principal Contract Market Aggregate Unrealized
Contracts to Receive Amount Value Date Value Face Amount Gain/(Loss)
------------------------------ --------------- ---------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Argentinian Peso 11,961,463 1/06/99 11,967,686 11,895,455 72,231
Australian Dollar 19,285,000 3/11/99 11,814,892 13,624,527 (1,809,635)
Canadian Dollar 20,763,586 1/29/99 13,575,555 13,679,153 (103,598)
Danish Krone 165,350,157 3/16/99 26,113,623 26,477,207 (363,584)
German Mark 43,865,494 2/17/99 26,377,454 26,900,000 (522,546)
Hong Kong Dollar 115,060,300 10/14/99 14,702,708 14,066,428 636,280
Italian Lira 21,851,900,700 4/29/99 13,287,075 13,243,576 43,499
Japanese Yen 10,689,644,351 1/11-3/09/99 94,955,013 90,188,215 4,766,798
New Zealand Dollar 25,395,484 3/11-11/05/99 13,342,767 13,477,009 (134,242)
Polish Zloty 13,768,165 7/24/00 3,695,656 3,350,000 345,656
------------- ------------- -----------
Total $ 229,832,429 $ 226,901,570 $ 2,930,859
============= ============= ===========
<CAPTION>
U.S.$ U.S.$ U.S.$
Local Principal Contract Market Aggregate Unrealized
Contracts to Deliver Amount Value Date Value Face Amount Gain/(Loss)
------------------------------ --------------- ---------- -------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Argentinian Peso 17,960,638 1/06-4/06/99 17,925,948 17,663,791 (262,157)
Bristish Pound Sterling 164,881,455 1/20-11/05/99 273,406,074 271,609,603 (1,796,471)
Canadian Dollar 20,763,586 1/29/99 13,575,555 13,400,185 (175,370)
Danish Krone 824,255,363 1/11-5/06/99 130,168,295 126,161,250 (4,007,045)
European Currency Unit 12,000,000 4/30/99 14,158,000 14,334,000 176,000
French Franc 73,657,160 2/12/99 13,197,782 13,153,064 (44,718)
German Mark 653,981,908 1/20-5/06/99 393,751,805 394,614,327 862,522
Greek Drachma 318,910,000 4/22/99 1,118,075 1,029,946 (88,129)
Hong Kong Dollar 177,926,000 10/14/99 22,735,855 22,375,000 (360,855)
Italian Lira 33,146,880,000 4/29/99 20,155,001 20,297,156 142,155
Japanese Yen 27,708,317,501 2/5-3/29/99 246,902,373 212,612,024 (34,290,349)
Netherlands Guilder 101,525,298 4/15/99 54,302,491 55,027,262 724,771
New Zealand Dollar 157,128,012 2/11-4/15/99 82,674,334 84,262,316 1,587,982
Norwegian Krone 31,067,528 1/19/99 4,092,904 4,033,434 (59,470)
Polish Zlotty 13,768,165 7/24/00 3,695,656 3,267,244 (428,412)
Swedish Krona 657,460,464 1/19-3/02/99 81,551,042 83,065,625 1,514,583
-------------- -------------- ------------
Total $1,373,411,190 $1,336,906,227 $(36,504,963)
============== ============== ============
</TABLE>
19
<PAGE>
Standish, Ayer & Wood Investment Trust
Standish International Fixed Income Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
Forward Foreign Cross Currency Exchange Contracts
<TABLE>
<CAPTION>
U.S.$ U.S.$ U.S.$
Market Market Contract Unrealized
Contracts to Deliver Value In Exchange For Value Value Date Gain/(Loss)
--------------------------- ------------- -------------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Australian Dollar 11,814,892 New Zealand Dollar 12,042,204 3/11/99 227,312
German Mark 27,749,119 Greek Drachma 29,879,430 4/22/99 2,130,311
Greek Drachma 28,761,357 German Mark 27,749,120 4/22/99 (1,012,237)
----------- ----------- -----------
Total $68,325,368 $69,670,754 $ 1,345,386
=========== =========== ===========
</TABLE>
Futures contracts
The Fund may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices
at a fixed price on a future date. Pursuant to margin requirements, the
Fund deposits either in cash or securities an amount equal to a certain
percentage of the contract amount. Subsequent payments are made or
received by the Fund each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Fund. There are
several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged
investments. Buying futures tends to increase the Fund's exposure to
the underlying instrument, while selling futures tends to decrease the
Fund's exposure to the underlying instrument or hedge other Fund
investments. In addition, there is the risk that the Fund may not be
able to enter into a closing transaction because of an illiquid
secondary market. Losses may arise if there is an illiquid secondary
market or if the counterparties do not perform under the contract's
terms. The Fund enters into financial futures transactions primarily to
manage its exposure to certain markets and to changes in security
prices and foreign currencies. Gains and losses are realized upon the
expiration or closing of the futures contracts. At December 31, 1998,
the Fund held no open futures contracts:
Interest rate swap contracts
Interest rate swaps involve the exchange by the Fund with another party
of their respective commitments to pay or receive interest, e.g., an
exchange of floating rate payments for fixed rate payments with respect
to a notional amount of principal. Credit and market risk exist with
respect to these instruments. If forecasts of interest rates and other
market factors are incorrect, investment performance will diminish
compared to what performance would have been if these investment
techniques were not used. Even if the forecasts are correct, there are
risks that the positions may correlate imperfectly with the asset or
liability being hedged, a liquid secondary market may not always exist,
or a counterparty to a transaction may not perform. The Fund expects to
enter into these transactions primarily for hedging purposes including,
but not limited to, preserving a return or spread on a particular
investment or portion of its portfolio, protecting against currency
fluctuations, as a duration management technique or protecting against
an increase in the price of securities the Fund anticipates purchasing
at a later date. Gains and losses are realized upon the expiration or
closing of the swap contracts. At December 31, 1998, the Fund held no
open interest rate swap contracts.
- --------------------------------------------------------------------------------
Supplemental Tax Information -- (Unaudited)
Pursuant to section 852 of the Internal Revenue Code, the Fund
designates $585,083 as capital gain dividends for the year ended
December 31, 1998. This represents a 20% tax rate gain on distribution.
20
<PAGE>
Report of Independent Accountants
To the Trustees of Standish, Ayer & Wood Investment Trust and the
Shareholders of Standish International Fixed Income 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 International Fixed
Income 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
21
<PAGE>
[This page intentionally left blank]
22
<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> 6
<NAME> Standish International Fixed Income Fund Series
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,332,821,811
<INVESTMENTS-AT-VALUE> 1,381,815,918
<RECEIVABLES> 39,244,487
<ASSETS-OTHER> 11,717,991
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 1,432,778,396
<PAYABLE-FOR-SECURITIES> 32,480
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 80,362,490
<TOTAL-LIABILITIES> 80,394,970
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,309,342,518
<SHARES-COMMON-STOCK> 58,238,602
<SHARES-COMMON-PRIOR> 51,419,630
<ACCUMULATED-NII-CURRENT> 35,089,632
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 499,887
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 7,451,389
<NET-ASSETS> 1,352,383,426
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 86,254,550
<OTHER-INCOME> 0
<EXPENSES-NET> 6,942,987
<NET-INVESTMENT-INCOME> 79,311,563
<REALIZED-GAINS-CURRENT> 38,368,751
<APPREC-INCREASE-CURRENT> (6,782,554)
<NET-CHANGE-FROM-OPS> 110,897,760
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 69,004,032
<DISTRIBUTIONS-OF-GAINS> 19,243,045
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 19,937,369
<NUMBER-OF-SHARES-REDEEMED> (16,178,171)
<SHARES-REINVESTED> 3,059,774
<NET-CHANGE-IN-ASSETS> 179,688,365
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 7,681,493
<OVERDISTRIB-NII-PRIOR> (1,556,611)
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 5,359,632
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 6,942,987
<AVERAGE-NET-ASSETS> 1,340,410,304
<PER-SHARE-NAV-BEGIN> 22.81
<PER-SHARE-NII> 1.38
<PER-SHARE-GAIN-APPREC> 0.58
<PER-SHARE-DIVIDEND> (1.21)
<PER-SHARE-DISTRIBUTIONS> (0.34)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 23.22
<EXPENSE-RATIO> 0.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
