STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999
[LOGO]
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
January 27, 2000
Dear Standish, Ayer & 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 1999 Markets
The past year has been as tumultuous as 1998, although in different ways. World
stock markets have been euphoric. The S&P 500 advanced about 21% but the
technology-driven Nasdaq composite soared 86%. For the second year in a row,
larger capitalization growth stocks have performed brilliantly, and small or
middle capitalization value stocks have been left far behind. In striking
contrast to some of the equity markets, the bond market suffered one of its
worst years in history, with prices of ten-year Treasuries dropping 13%. Yield
spreads, which had widened sharply during the crisis in the fall of 1998,
narrowed during the early months of 1999 but then widened again as the year
progressed, with distressingly poor liquidity in the secondary bond market.
Securities that suffered even a slight short-term tarnishing in their attributes
often dropped dramatically in price - investors displayed very little appetite
for any bond or stock that had evidenced any degree of adversity.
Standish Investment Disciplines
Many of Standish's investment disciplines are directed to applying fundamental
research to uncover relatively cheap securities where the fundamentals are
improving. This methodology has generally been quite successful over long
periods of time in the past. However, the investment environment of the last two
years has produced significant headwinds for some of our disciplines. While
there has been enormous pressure on Standish and other value investors to
capitulate and to become momentum investors, we have not wavered in our focus on
fundamentals and value. Of course, we and other investors make misjudgments
along the way, and we are doing our best to learn the correct lessons from the
inevitable mistakes. We have applied new investment tools and made modest
alterations to the investment process. We have added investment talent and
quantitative resources. We believe that our approach is correct, that our
portfolios are attractively priced relative to the benchmarks, and that it is
our obligation to adhere to the philosophy we have consistently represented to
you.
Major Developments at Standish during 1999
We are pleased that Standish is able to report continued stability of both our
clients and our professional team. Assets under management for our clients are
approximately $45 billion, a slight decline during 1999 but up from $39 billion
at the beginning of 1998. These statistics include $3.3 billion of assets
managed through Standish International Management Company, LLC, or SIMCO. The
Standish Funds returned to 1997's level of $5.8 billion of assets from $6.5
billion in 1998. While we had some client turnover, a substantial portion of the
assets lost related to corporate events or restructuring as opposed to
terminations because of investment performance. We have also added a substantial
number of distinguished new clients.
We continue to build our professional resources both by adding new people and
through our long-term commitment to education and professional training. The
Standish team has grown to 292 members from 232 at the beginning of 1998. Our
109 investment officers average experience of 16 years. Sixty-seven of those
officers have advanced degrees (typically an MBA) and 72 have some advanced
professional accreditation.
1
<PAGE>
At the end of the year, the Standish board of directors elected two new
directors: Lavinia Chase and Cathy Powers. During the last year, we were sorry
to lose the services of Mark Flaherty, Director, who accepted a position of
great responsibility at a very large investment management organization. In
addition, we anticipate the retirement of both Arthur Parker and Barr Clayson
from their positions as stockholders and directors of Standish in June 2000. In
line with other professional service firms, Standish is attempting to maintain
the best balance between retaining the wisdom of senior investment managers and
assuring generational change.
Standish's Strategies for the Future
Standish's top priorities include:
o meeting the needs of our clients and working closely with them to
assure that their investment expectations are realistic;
o developing new investment products that add value in today's
environment; and
o investigating strategic business alliances to augment our research
and penetrate foreign markets as well as expand our domestic
distribution channels.
We believe that all investors and investment management firms are facing very
challenging times. However, the characteristics that have served Standish and
our clients well for sixty-seven years are still intact. We remain dedicated to
fulfilling your needs.
Sincerely,
/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
1999 was an eventful year for the fixed income markets. Early on, interest rates
began moving significantly higher as the market priced in the increasing
likelihood of tightening moves by the Federal Reserve. With the onset of a new
year, liquidity from the dealer community improved and yield spreads began to
narrow. Also in the first half, investor appetite for incremental yield picked
up and subsequently, non-Treasury assets performed well. However, as we
approached the latter part of the year, the market's calm unraveled. New issue
corporate supply ballooned and the negative effect on spreads extended to the
mortgage market and related sectors. Fortunately, this spread widening event was
short lived and the market again stabilized by year-end.
Because we have seen significant fluctuations in yield spreads and interest rate
volatility during the course of the year, there have been very attractive
opportunities to move between mortgage related sectors and Treasuries. The
Fund's active sector rotation has played an important role in the past year in
our effort to enhance portfolio returns. On a relative return basis, the
Securitized Fund performed quite well in 1999. On a gross and net of fees basis,
the Fund returned .12% and (.35%), respectively. In comparison, the Fund's
primary benchmark, the Lehman Aggregate Index, was (.83%). Given significantly
higher interest rates and a much shorter duration than the Fund, the Lehman
Mortgage Index posted a 1.85% return.
Entering the year, the Fund was overweighted across mortgage sectors. As a
result of 1998's market turmoil, valuations across mortgages, asset backed
securities and commercial mortgages were very attractive. For example, due to
1998's large decline in bond yields below 5%, mortgage spreads widened to
historically wide levels which we viewed as a compelling case to overweight the
sector. Similarly, due to the previous year's flight to quality, yield spreads
in commercial mortgage and asset backed securities were at unusually wide
levels. As compelling valuations in these markets attracted investors, risk
premiums declined and non-Treasury sectors outperformed. By the end of June,
mortgage returns, in particular, had considerably benefited from higher interest
rates which implied slowing prepayments and lower interest rate volatility as it
implied the embedded options were less valuable.
Taking advantage of favorable performance, we swapped out of mortgages and into
the agency sector. Unlike the spread tightening seen in mortgages, agency bonds
had widened with the prospect of increased supply from FNMA and FHLMC. By
mid-year, weaker agency spreads turned out to be just the beginning of a
significant spread widening movement across fixed income sectors. Driven largely
by a tremendous surge in corporate supply, spread widening occurred rapidly and
market liquidity became greatly diminished. Amid extreme spread widening, which
we did not view as sustainable, we moved the Fund to an overweight in agencies.
We also purchased 2% Treasury Inflation-Protected Securities (TIPS). We viewed
inflation indexed bonds as offering very attractive relative value with real
yields at approximately 4% and a break-even inflation rate of 2% compared to a
year-over-year inflation rate of 2.6%.
By September's month-end, as it became apparent that we had seen the bulk of
corporate supply, market conditions began improving. For the remainder of the
year, we maintained our overweight across mortgages, asset backed and commercial
mortgage securities. With improving market technicals and attractive risk
premiums, we look to enhance the Fund's performance via excess yield and
potentially, with capital appreciation from spread narrowing in the months
ahead.
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 $100,000 investment in
Standish Securitized Fund, the Lehman Aggregate Index, and the Lehman Mortgage
Index
[GRAPHIC OMITTED]
Standish Lehman Lehman
Securitized Aggregate Mortgage
Fund Index Index
100000 100000 100000
100000 100510 100710
102464 102983 103006
103318 103961 104119
104022 104242 104733
103351 103001 104000
104074 103331 104613
104487 103403 104875
103643 102452 103931
106649 105484 107153
108232 107183 108846
109903 108662 110740
1 Year 108663 107206 109566
109634 108095 110464
111233 109468 111713
113825 111822 114059
115976 113566 115975
117561 114974 117738
118636 115952 118727
119326 116752 119534
120650 118013 120634
121514 118697 121695
121514 118638 121805
123343 120287 123863
2 Year 125527 122885 126118
127770 125380 128476
130115 126771 130609
130656 127938 131549
134008 131737 134193
130621 129946 132637
132346 130790 133897
131901 130058 133040
132360 130994 134344
135377 133470 136762
137673 135312 138376
137740 138073 139593
3 Year 139476 139467 141408
140144 141127 142511
137090 139250 141257
137023 139278 141695
139466 141492 143523
142443 144209 145403
144867 146732 146871
145560 147349 147767
146684 148380 148536
146473 148573 149382
149283 151262 150518
150209 152124 151120
4 Year 152632 154787 151830
152846 155204 151967
153425 155779 152407
152122 154455 152102
153429 155289 153334
155476 157385 154852
153126 154647 153769
149563 150827 149771
148253 149620 148662
148716 149605 149257
148330 149276 148929
150597 152247 151907
5 Year 151066 152429 152393
149659 150189 150229
149659 150053 150139
149105 149723 149674
150156 150756 150871
152818 153741 154100
156126 157400 158029
157337 158361 158772
159220 160578 161026
164872 166792 166099
165691 168010 167046
165857 167640 167331
6 Year 167769 169663 169063
169266 171309 170550
171205 173536 172068
172892 176139 174029
174663 178605 176205
176130 179783 177536
173973 176655 176062
172507 175419 175428
171459 174436 174937
170847 174087 174430
173380 176420 176837
174088 176896 177491
7 Year 173646 176596 177491
177007 179669 180455
180680 183657 183992
183905 186798 186623
182365 185060 185653
183291 185634 187027
183754 186098 187644
181329 184033 185880
184423 186793 188835
186017 188568 190686
188079 190812 192917
192826 195963 196544
8 Year 191212 194298 196072
194631 197173 198562
197034 200032 200766
197610 200953 201429
199695 202982 203262
202676 205580 205274
201881 205416 205705
202677 206114 206569
203582 207190 207740
205795 209148 209120
207808 210926 210124
208215 211369 211195
9 Year 211677 214810 213113
215866 219836 215692
213187 218671 215411
213806 219918 216488
214740 220578 217419
216436 222144 218963
213362 218256 218087
214957 219457 219548
215708 220159 220558
214313 218221 219323
213257 217523 218555
212061 216609 217069
10 Year 212061 216501 217069
214339 219013 220586
215000 219823 221865
214890 219801 221976
YTD 213982 218746 221443
----------------------------------------------------------
Aveage Annual total Return
(for periods ended 12/31/1999)
Since
Inception
1 Year 3 Year 5 Year 08/31/1989
------- -------- -------- ------------
(0.35)% 5.47% 7.34% 7.64%
----------------------------------------------------------
Past performance is not predictive of future performance.
4
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
ASSETS
Investments, at value (Note 1A) (identified cost,
$43,334,852) $41,761,427
Receivable for investments sold 1,228,621
Interest receivable 337,888
Receivable for variation margin on open financial
futures contracts 578
Prepaid expenses 4,084
-----------
Total assets 43,332,598
LIABILITIES
Payable for investments purchased $ 347,535
Payable for delayed delivery transactions (Note 7) 2,391,213
Options written, at value (Note 6) (premiums
received, $55,427) 81,183
Accrued accounting, custody and transfer agent fees 7,071
Accrued trustees' fees and expenses (Note 2) 2,184
Accrued expenses and other liabilities 25,087
----------
Total liabilities 2,854,273
-----------
NET ASSETS $40,478,325
===========
NET ASSETS CONSIST OF:
Paid-in capital $43,987,268
Accumulated net realized loss (1,923,422)
Undistributed net investment income 2,159
Net unrealized depreciation (1,587,680)
-----------
TOTAL NET ASSETS $40,478,325
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 2,131,474
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 18.99
===========
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
INVESTMENT INCOME
Interest income $ 2,980,485
-----------
Total investment income 2,980,485
EXPENSES
Investment advisory fee (Note 2) $ 106,235
Accounting, custody and transfer agent fees 90,958
Legal and audit services 31,849
Registration fees 11,475
Trustees' fees and expenses (Note 2) 6,355
Insurance expense 6,215
Miscellaneous 5,218
-----------
Total expenses 258,305
Deduct:
Waiver of investment advisory fee (Note 2) (67,083)
-----------
Net expenses 191,222
-----------
Net investment income 2,789,263
-----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Investment security transactions (851,945)
Financial futures contracts (143,429)
Written options transactions 100,510
-----------
Net realized loss (894,864)
Change in unrealized appreciation (depreciation)
Investment securities (1,955,552)
Financial futures contracts 26,469
Written options (56,994)
-----------
Net change in unrealized appreciation
(depreciation) (1,986,077)
-----------
Net realized and unrealized loss (2,880,941)
-----------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (91,678)
===========
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, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 2,789,263 $ 2,580,881
Net realized gain (loss) (894,864) 881,611
Change in unrealized appreciation (depreciation) (1,986,077) (534,892)
----------- -----------
Net increase (decrease) in net assets from investment
operations (91,678) 2,927,600
----------- -----------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income (2,648,382) (2,580,881)
In excess of net investment income -- (32,653)
----------- -----------
Total distributions to shareholders (2,648,382) (2,613,534)
----------- -----------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 5,215,276 80,000
Value of shares issued to shareholders in payment of
distributions declared 552,669 311,696
Cost of shares redeemed (2,600,277) (779,817)
----------- -----------
Net increase (decrease) in net assets from Fund share
transactions 3,167,668 (388,121)
----------- -----------
TOTAL INCREASE (DECREASE) IN NET ASSETS 427,608 (74,055)
NET ASSETS
At beginning of year 40,050,717 40,124,772
----------- -----------
At end of year (including undistributed net
investment income of $2,159 and distributions in
excess of net investment income of $144,411) $40,478,325 $40,050,717
=========== ===========
</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,
----------------------------------------------------------------------
1999(1) 1998(1) 1997 1996 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 20.26 $ 20.10 $ 19.70 $ 20.25 $ 18.61
---------- ---------- ---------- ---------- ----------
FROM INVESTMENT OPERATIONS:
Net investment income* 1.30 1.31 1.46 1.43 1.32
Net realized and unrealized gain
(loss) on investments (1.36) 0.18 0.37 (0.57) 1.66
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.06) 1.49 1.83 0.86 2.98
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.21) (1.31) (1.43) (1.41) (1.34)
In excess of net investment income -- (0.02) -- -- --
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (1.21) (1.33) (1.43) (1.41) (1.34)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 18.99 $ 20.26 $ 20.10 $ 19.70 $ 20.25
========== ========== ========== ========== ==========
TOTAL RETURN+ (0.35)% 7.53% 9.50% 4.41% 16.32%
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)* 6.56% 6.39% 6.47% 6.99% 6.78%
Portfolio Turnover 153% 123% 100% 212% 225%
Net Assets, End of Year (000's
omitted) $ 40,478 $ 40,051 $ 40,125 $ 50,617 $ 55,201
<FN>
- -----------------
* For the periods indicated, the investment adviser did not impose a portion
of its advisory fee and/or reimbursed a portion of the Fund's operating
expenses. If this voluntary reduction had not been taken, the investment
income per share and the ratios would have been:
</FN>
Net investment income per share $ 1.27 $ 1.29 $ 1.43 $ 1.40 $ 1.22
Ratios (to average daily net
assets):
Expenses 0.61% 0.56% 0.57% 0.51% 0.51%
Net investment income 6.40% 6.28% 6.35% 6.93% 6.72%
</TABLE>
(1) Calculated based on average shares outstanding.
+ Total return would have been lower in the absence of expense waivers.
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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 100.7%
ASSET BACKED -- 11.3%
ARG Funding 1999-1A A3 6.020% 05/20/2005 $ 400,000 $ 381,766
Advanta Home Equity Trust 1999-3 A4 7.750% 10/26/2026 325,000 325,203
Advanta Home Equity Trust 1997-2 M1 7.550% 06/25/2027 400,000 393,625
CIT Holdings 98-1 M2 Non-ERISA+ 6.720% 09/15/2027 400,000 376,375
CIT Marine Trust 1999-A4 6.250% 11/15/2019 400,000 364,250
Chase Credit Card Master Trust 1999-3 B 6.950% 01/15/2007 725,000 712,313
Ford Credit Auto Owner Trust 6.650% 10/15/2003 400,000 394,625
Greentree Home Equity 1997-D M2 Non-ERISA 7.450% 09/15/2028 500,000 439,375
Residential Fund Mortgage Sec Inc. 1999-KS1 6.320% 04/25/2030 425,000 383,297
Vanderbilt Mortgage Fin 98-C 1M1+ 6.900% 10/07/2028 375,000 342,539
World Omni Auto Lease 1997-A B Non-ERISA 144A 7.300% 06/25/2003 488,245 488,245
-----------
Total Asset Backed (Cost $4,845,030) 4,601,613
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 3.0%
Bear Stearns Mtg. 1998-2 B 6.750% 04/30/2030 369,131 340,985
FNMA P/O Trust 108 0.000% 03/01/2020 498,892 399,218
GE Capital 1996-17 2A5 ERISA 7.250% 12/25/2011 430,309 425,468
Sears Credit Account 1987-B CL1 8.000% 05/25/2017 39,024 37,707
-----------
Total Collateralized Mortgage Obligations (Cost $1,257,623) 1,203,378
-----------
NON-AGENCY -- 18.6%
PASS THRU SECURITIES -- 18.6%
Chase 1997-1 E Non ERISA 7.370% 12/19/2007 500,000 452,031
Chase Commercial Mortgage Sec 6.6 1997-2D
Non-ERISA 6.600% 12/25/2007 425,000 380,773
FDIC REMIC Trust 1994-C1 2C Non-ERISA+ 8.450% 09/25/2025 800,000 801,500
FDIC REMIC Trust 1994-C1 2D Non-ERISA+ 8.700% 09/25/2025 500,000 497,500
First Union/Lehman 1997-C1 D Non-ERISA+ 7.500% 10/18/2008 600,000 569,625
GMAC Mortgage Corp. 1997-C1 E Non-ERISA 7.085% 11/15/2010 400,000 361,250
Lehman Brothers Commercial Conduit Mortgage
Trust 1995-C2 Non-ERISA+,(a) 7.110% 05/25/2005 575,000 546,654
Merrill Lynch Mortgage Investments 1996-C2 E
Non-ERISA+ 6.960% 11/21/2028 700,000 582,260
Midland 96 C2 A2 Seq 7.233+ 7.233% 01/25/2029 200,000 197,000
Morgan Stanley Capital I 1997-WF1 E+ 7.490% 05/15/2009 475,000 427,797
Morgan Stanley Capital I 1998-WF1 A1 6.250% 07/15/2007 388,714 375,716
Mortgage Capital Funding 1996 MC1A-C
Non-ERISA 7.800% 04/15/2006 497,000 495,136
Mortgage Capital Funding 1997-MC2 D
Non-ERISA+ 7.117% 11/20/2007 800,000 730,563
Resolution Trust Corp. 1991-6 C-1 9.000% 09/25/2028 231,168 230,012
Resolution Trust Corp. 1995-C1 D 6.900% 02/25/2027 546,000 526,805
Resolution Trust Corp. P-T Ser. 1992-5 Sr. A6 9.239% 05/25/2026 184,012 183,035
Structured Asset Security Corp. 1994-C1 D
Non-ERISA+ 6.870% 08/25/2026 174,622 174,029
-----------
Total Non-Agency (Cost $7,929,830) 7,531,686
-----------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY -- 52.1%
PASS THRU SECURITIES -- 52.1%
FHLMC + 5.750% 03/15/2009 $2,075,000 $1,895,388
FMAC Loan Rec Trust 98-C Class A2 6.660% 01/15/2012 425,000 392,660
FNMA+ 5.125% 02/13/2004 1,600,000 1,504,256
FNMA+ 5.625% 05/14/2004 350,000 334,467
FNMA 6.500% 08/15/2004 - 08/01/2029 1,836,961 1,741,169
FNMA 7.000% 10/01/2014 - 11/01/2014 818,007 808,542
FNMA# 7.500% 01/01/2030 800,000 791,000
GNMA 7.000% 11/15/2022 - 12/15/2026 381,907 370,248
GNMA 7.000% 01/15/2028 - 03/15/2028 2,047,029 1,976,652
GNMA 7.000% 05/15/2028 - 07/15/2029 1,104,750 1,066,768
GNMA 7.500% 08/15/2029 - 10/15/2029 1,794,880 1,774,687
GNMA 8.000% 07/15/2029 - 11/15/2029 2,512,649 2,537,459
GNMA 8.000% 12/15/2029 - 12/15/2029 800,040 808,040
GNMA 9.000% 09/15/2016 173,279 182,808
GNMA 9.000% 12/15/2017 410,218 432,776
GNMA # 8.000% 12/15/2029 800,000 808,000
GNMA # 8.000% 01/15/2030 775,000 782,750
GNMA + 8.000% 01/15/2026 539,186 544,578
GNMA + 9.000% 12/15/2017 1,385,782 1,459,401
GNMA + 7.000% 01/15/2028 115,256 111,293
GNMA + 7.000% 05/15/2028 646,406 624,183
GNSF 8.000% 06/15/2026 122,562 123,788
-----------
Total U.S. Government Agency (Cost $21,610,739) 21,070,913
-----------
U.S. TREASURY OBLIGATIONS -- 15.7%
TREASURY BONDS -- 10.1%
U.S. Treasury Bond+ 7.625% 02/15/2025 225,000 249,363
U.S. Treasury Bond+ 8.125% 05/15/2021 2,575,000 2,951,594
U.S. Treasury Bond+ 11.250% 02/15/2015 625,000 883,494
-----------
4,084,451
-----------
TREASURY NOTES -- 5.6%
U.S. Treasury Inflation Index Note 3.967% 01/15/2009 865,000 857,106
U.S. Treasury Note+ 4.625% 11/30/2000 1,025,000 1,011,542
U.S. Treasury Note+ 6.250% 10/31/2001 200,000 200,032
U.S. Treasury Note+ 6.375% 05/15/2000 200,000 200,468
-----------
2,269,148
-----------
Total U.S. Treasury Obligations (Cost $6,654,845) 6,353,599
-----------
TOTAL BONDS AND NOTES (COST $42,298,067) 40,761,189
-----------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT VALUE
SECURITY SIZE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
PURCHASED OPTIONS -- 0.0%
UST 6.00% Call, Strike Price 100.65, 05/05/2000 9,000 $ 3,231
UST 6.00% Call, Strike Price 100.75, 03/03/2000 9,000 891
UST 6.00% Call, Strike Price 98.72, 02/15/2000 6,070 1,660
UST 6.00% Call, Strike Price 99.16, 04/17/2000 1,500 792
UST 6.00% Call, Strike Price 99.18, 02/15/2000 5,380 1,044
-----------
TOTAL PURCHASED OPTIONS (COST $44,164) 7,618
-----------
<CAPTION>
PAR
RATE MATURITY VALUE
------- -------------------- ----------
SHORT-TERM INVESTMENTS -- 2.5%
U.S. GOVERNMENT AGENCY -- 2.0%
<S> <C> <C> <C> <C>
FHLMC Discount Note=/= 5.600% 01/25/2000 $ 790,000 784,099
-----------
REPURCHASE AGREEMENTS -- 0.5%
Prudential-Bache Repurchase Agreement, dated
12/31/99, due 01/03/00, with a maturity value
of $208,555 and an effective yield of 2.00%,
collateralized by a U.S. Government Agency
Obligation with a rate of 7.00%, maturity
date of 12/01/28 and market value of
$212,853. 208,521
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $992,621) 992,620
-----------
TOTAL INVESTMENTS -- 103.2% (COST $43,334,852) $41,761,427
OTHER ASSETS, LESS LIABILITIES -- (3.2%) (1,283,102)
-----------
NET ASSETS -- 100.0% $40,478,325
===========
</TABLE>
NOTES TO 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.
FDIC - Federal Depository Insurance Corporation
FHLMC - Federal Home Loan Mortgage Corporation
FMAC - Federal Mortgage Acceptance Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
GNSF - Government National Mortgage Association
P/O - Principal Only
REMIC - Real Estate Mortgage Conduit
UST - United States Treasury
+ 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 12/31/99.
# All or a portion of these securities are delayed delivery contracts (Note
7).
=/= Rate noted is yield to maturity.
The accompanying notes are an integral part of the financial statements.
11
<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 its financial statements. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. INVESTMENT SECURITY VALUATIONS
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are primarily traded. Securities
(including illiquid 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, which approximates
market value. 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 value 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 and accrued interest 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 accretion of 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, 1999, 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, $234,501 and $656,610 which expire on December 31, 2002, 2004
and 2007 respectively. The Fund elected to defer to its fiscal year ending
December 31, 2000, $132,906 of losses recognized during the period
November 1, 1999 to December 31, 1999.
12
<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, which may result in distribution reclassifications, are
primarily due to differing treatments for foreign currency transactions,
passive foreign investment companies (PFIC), litigation proceeds, market
discount, non-taxable dividends, capital loss carryforwards, losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
(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
Funds total operating expenses to 0.45% of the Fund's average daily net
assets for the year ended December 31, 1999. Pursuant to this agreement,
SA&W voluntarily waived $67,083 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, 1999 were as follows:
PURCHASES SALES
----------- -----------
U.S. Government Securities $63,262,055 $56,787,139
=========== ===========
Investments (non-U.S.Government Securities) $ 3,698,805 $ 6,696,281
=========== ===========
(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:
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
Shares sold 261,259 3,904
Shares issued to shareholders in
payment of distributions declared 28,464 15,319
Shares redeemed (135,495) (38,245)
-------- -------
Net increase (decrease) 154,228 (19,022)
======== =======
At December 31, 1999, two shareholders were record owners of approximately
66% and 21% of the total outstanding shares of the Fund, respectively.
Investment activity of these shareholders could have a material impact on
the fund.
13
<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, 1999, as computed on a federal
income tax basis, were as follows:
Aggregate Cost $43,419,420
===========
Gross unrealized appreciation 22,940
Gross unrealized depreciation (1,680,933)
-----------
Net unrealized depreciation $(1,657,993)
===========
(6) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to enhance
potential gain in circumstances where hedging is not involved. The nature,
risks and objectives of these instruments are set forth more fully in the
Fund's Prospectus and Statement of Additional Information.
The Fund trades the following 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 options is shown in the Schedule of Investments. This
amount reflects each contract's exposure to the underlying instrument at
period end. Losses may arise from changes in the value of the underlying
instruments, if there is an illiquid secondary market for the contract, or
if the counterparty does 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,
1999 is as follows:
WRITTEN PUT OPTION TRANSACTIONS
--------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
------------------- ---------------
Outstanding, beginning of period 5 $ 39,828
Options written 10 116,062
Options expired (2) (22,250)
Options closed (9) (100,335)
----- ---------
Outstanding, end of period 4 $ 33,305
===== =========
14
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH SECURITIZED FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
WRITTEN CALL OPTION TRANSACTIONS
--------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
------------------- ---------------
Outstanding, beginning of period 6 $ 46,250
Options written 21 116,220
Options exercised (1) (14,875)
Options expired (8) (45,300)
Options closed (13) (80,173)
------ --------
Outstanding, end of period 5 $ 22,122
====== ========
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.
At December 31, 1999, 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 the margin requirements, the
Fund deposits either cash or securities in 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
securities prices and foreign currencies. Gains and losses are realized
upon the expiration or closing of the futures contracts.
At December 31, 1999, the Fund held the following futures contracts:
<TABLE>
<CAPTION>
UNDERLYING FACE
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE UNREALIZED GAIN (LOSS)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. 5 Yr. Note (8 Contracts) Long 03/31/2000 $ 784,125 $(10,642)
U.S. 2 Yr. Note (19 Contracts) Long 04/03/2000 3,773,578 (21,564)
U.S. 10 Yr. Note (20 Contracts) Short 03/31/2000 1,917,188 43,707
--------
$ 11,501
========
</TABLE>
At December 31, 1999, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
15
<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, delayed delivery 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, 1999, the Fund entered into the following delayed delivery
transactions:
TYPE SECURITY SETTLEMENT DATE PAYABLE AMOUNT
-----------------------------------------------------------------------
Buy FNMA 01/25/2000 $ 793,000
Buy GNMA 01/25/2000 810,438
Buy GNMA 01/25/2000 787,775
----------
$2,391,213
==========
16
<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 the 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, 1999, the results
of its operations, the changes in its net assets and the financial highlights
for the periods indicated therein, in conformity with accounting principles
generally accepted in the United States. These financial statements and
financial highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, 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, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
17
<PAGE>
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18
<PAGE>
[LOGO] Standish Funds(R)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
www.standishfunds.com
