STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME 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
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
MANAGEMENT DISCUSSION AND ANALYSIS
We just completed a year in which the bond market averages returned their second
worst absolute return since 1980. The Lehman Aggregate returned (0.83%), as
interest rates rose roughly 85 to 180 basis points during the year, depending on
the maturity. In addition, there was continued volatility in the non-Treasury
sectors, with strong outperformance early in the year, a lag through the middle
part of the year and a relatively strong finish for November and December. This,
combined with the crisis environment we experienced in 1998, has led to quite a
difficult market environment over the last two years.
The Standish Fixed Income Fund outperformed its benchmark by 13 basis points net
of fees during 1999. This is well below our long-term expectations, and is
disappointing for our shareholders and us. Through the full year, we continued
to utilize our philosophy of sector rotation and security selection in order to
add value versus the index. Our performance attribution shows that our sector
decisions were generally quite good throughout the year. However, on the
security selection front, we had a small number of securities with negative
credit events that had a disproportionate negative impact on performance.
During 1999, we were generally overweight in corporate bond securities versus
the index, which contributed substantially to performance. As the year
progressed, we gradually reduced our weightings in corporate securities as we
saw them "richen" in the market. Within that context, we were generally
upgrading the quality of our portfolio, cutting back on our below investment
grade exposure and buying investment grade securities. As we look at historical
data and consider current fundamentals, we believe that high grade securities
are more attractive than high yield securities, which are trading at levels
close to their long term averages. In addition, we have begun to see some
deterioration in the credit quality of high yield - the default rate on these
securities reached 5.5% for 1999, a level not seen since the recession of the
early 1990's.
We also were overweight in mortgage pass-through securities in the early part of
the year, which contributed to performance. During the second half of the year,
as mortgages approached fair value, we reduced our exposure to a benchmark
weighting. This was generally positive for performance during the year. Our
exposure to the international sector was also a positive on balance for the
year, as interest rates rose faster in the US than they did elsewhere, causing
non-US issues to outperform. Again, we have been gradually reducing this
position, given the strong relative performance of international bonds over the
last few years.
Our posture on duration and yield curve positioning generally negatively
impacted performance for the year. Although we had shortened duration early in
1999, we did not shorten enough to offset the dramatic rise in rates,
particularly in February. This detracted from performance. In addition, we
maintained an underweight in the long end of the yield curve, believing that the
yield curve was likely to steepen throughout the year. However, we continued to
see a flattening of the curve, with long rates not increasing as quickly as
short rates, and this was a drag on our performance.
As mentioned earlier, we experienced credit difficulties in a small number of
securities. Although these names comprised a quite small percentage of the
portfolio, they did negatively impact performance. We have seen a strong
dichotomy in the market between companies that report good news and those having
disappointing news. Whereas in the past, these companies were treated similarly
on the positive and negative side, we are now seeing very little positive
reaction to good news, and dramatic drops in pricing when bad news is reported.
Compounding this, many investors have become more risk averse and when there is
a whiff of trouble, they are selling securities, even at levels that we consider
to be below fair value, in an attempt to avoid any future problems. We have
devoted additional resources to our credit review process, which we believe will
enhance our performance in the future.
Although the last two years have produced somewhat disappointing returns for the
Fund, we believe that the outlook is bright. The yield on the Fund is well in
excess of 129 basis points over the Lehman Aggregate Index and we believe it
should provide attractive relative returns over the long term. Our outlook calls
for continued outperformance of high grade spread sectors relative to the index,
and we are well positioned to take advantage of this, with overweights in both
corporate and mortgage securities. We would like to assure you that we are
working hard to achieve the returns that you expect from us, and appreciate your
continued patience and support.
/S/Caleb F. Aldrich
Caleb F. Aldrich
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STANDISH FIXED INCOME FUND, LEHMAN GOV'T/CORP INDEX, AND LEHAMN AGGREGATE INDEX
[The following table was originally depicted as a line graph in the printed
material.]
Standish Fixed Income Lehman Gov't Corp Lehman Aggregate
Fund Index Index
---- ----- -----
100000 100000 100000
98600 97340 97260
97700 96902 96881
98850 98104 98218
98850 97888 98139
98698 97340 97609
96613 95247 95530
98647 98819 98931
99581 99451 99722
100619 100813 101079
104275 104261 104637
105811 105460 105882
1 Year 105016 104416 104886
104692 103811 104320
104150 103115 103621
106261 105445 106118
105985 104844 105567
106040 105117 105841
108365 107419 108233
110175 109320 110268
109044 108085 108934
109213 108453 109053
110778 109895 110624
110199 109060 109827
2 Year 110547 109649 110300
112506 111962 112605
115474 114717 115566
118918 118456 119080
121286 120920 121616
119586 119046 119816
120254 119570 120427
122988 122607 123390
123921 123710 124562
124231 123896 124898
122960 122186 123412
123278 122455 123807
3 Year 123596 122467 123893
122815 121340 122754
126196 124859 126387
128147 126882 128422
130473 128455 130194
128811 126593 128450
129277 127643 129516
130636 129341 131160
133491 132161 133980
135666 134156 136071
137816 135659 137758
139550 136826 138929
4 Year 139966 137770 139887
141873 139354 141398
142861 140009 142218
142367 139855 142147
144591 141617 144123
147677 144874 147236
151193 147902 150225
153243 149219 151892
154488 150711 153290
159638 155790 157843
157201 153484 155696
158952 154298 156708
5 Year 158127 153449 155830
158980 154370 156952
162857 157364 159919
165960 159678 162126
168724 163765 165433
170620 165223 167104
171647 167470 169092
168106 164908 166843
167865 164759 166877
170632 167593 169530
174784 171247 172785
179184 174808 175809
6 Year 180679 175403 176547
182285 176753 177783
182792 176665 178014
186848 180675 181236
189083 181832 182269
193294 186014 185459
193208 186665 185960
195306 187430 186648
193558 185312 185061
195586 186128 186061
198808 188920 188572
193929 184801 185291
7 Year 187763 180273 180715
185513 178777 179269
184950 178455 179251
184224 178045 178857
187561 181624 182416
187847 181696 182635
185464 178953 179950
185367 178756 179788
184979 178434 179393
186045 179612 180630
189193 183060 184207
193325 187307 188591
8 Year 194211 188562 189741
197507 191183 192398
204900 199194 199844
205699 200787 201302
206105 200013 200859
208741 202572 203283
210768 204630 205255
214060 207638 207923
217352 211064 211042
220540 214166 213997
222438 215494 215409
218643 210926 211661
9 Year 217062 209154 210180
216313 207711 209003
215885 207358 208585
218880 210136 211380
219749 210620 211950
219857 210114 211590
224526 213854 215272
229594 218837 220051
234111 222870 223814
232616 220396 221732
233862 220661 222419
235109 221124 222975
10 Year 232249 218493 220500
235354 221683 223808
237883 223745 225934
240987 226429 228623
247403 233358 234796
245303 230745 232800
249267 234367 236245
251397 238117 239671
252343 239379 240773
254818 241893 243205
257635 245303 246318
257390 244813 246121
11 Year 259109 245572 246958
260476 246807 248247
262713 249458 250593
264545 252002 252723
264924 252204 253254
264292 257132 257377
268606 264486 263399
262580 262608 262003
267837 264184 263497
268195 264818 264287
270726 266698 266164
266197 260350 261506
12 Year 269004 261652 262944
271168 262306 263785
269004 259604 261464
267438 258800 260627
265512 258075 259533
264411 257869 259403
266886 260189 262412
265768 260866 263383
266746 260709 263357
YTD 266307 259119 262093
- --------------------------------------------------------------------------------
Average Annual Total Return
(for periods ended 12/31/1999)
Since
Inception
1 Year 3 Year 5 Year 10 Year 03/30/1987
------ ------ ------ ------- ----------
(0.70)% 4.61% 7.44% 7.92% 7.98%
- --------------------------------------------------------------------------------
Past performance is not predictive of future performance.
4
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investment in Standish Fixed Income Portfolio
("Portfolio"), at value (Note 1A) $2,911,705,290
Receivable for Fund shares sold 110,356
Prepaid expenses 1,347
--------------
Total assets 2,911,816,993
LIABILITIES
Payable for Fund shares redeemed $1,227,717
Accrued accounting, custody and transfer agent fees 12,589
Accrued trustees' fees and expenses (Note 2) 1,000
Accrued expenses and other liabilities 30,431
---------
Total liabilities 1,271,737
--------------
NET ASSETS $2,910,545,256
==============
NET ASSETS CONSIST OF:
Paid-in capital $3,211,495,598
Accumulated net realized loss (116,954,047)
Distributions in excess of net investment income (815,272)
Net unrealized depreciation (183,181,023)
--------------
TOTAL NET ASSETS $2,910,545,256
==============
SHARES OF BENEFICIAL INTEREST OUTSTANDING 156,937,908
==============
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 18.55
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1B)
Interest income allocated from Portfolio $ 227,058,223
Dividend income allocated from Portfolio 5,197,028
Expenses allocated from Portfolio (11,293,049)
-------------
Net investment income allocated from Portfolio 220,962,202
EXPENSES
Accounting, custody, and transfer agent fees $ 160,899
Legal and audit services 92,488
Registration fees 40,885
Trustees' fees and expenses (Note 2) 4,000
Insurance expense 3,566
Miscellaneous 80,227
-------------
Total expenses 382,065
-------------
Net investment income 220,580,137
-------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss) allocated from Portfolio on:
Investment security transactions (137,130,755)
Financial futures contracts 4,969,423
Written options transactions 7,319,149
Foreign currency transactions and forward foreign
currency exchange contracts 11,524,518
-------------
Net realized loss (113,317,665)
Change in unrealized appreciation (depreciation)
allocated from Portfolio on:
Investment securities (138,148,349)
Financial futures contracts 2,329,380
Written options (4,833,274)
Foreign currency and forward foreign currency
exchange contracts 11,100,131
-------------
Change in net unrealized appreciation
(depreciation) (129,552,112)
-------------
Net realized and unrealized loss on investments (242,869,777)
-------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (22,289,640)
=============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 220,580,137 $ 224,925,663
Net realized gain (loss) (113,317,665) 63,199,662
Change in net unrealized appreciation (depreciation) (129,552,112) (113,212,330)
-------------- --------------
Net increase (decrease) in net assets from investment
operations (22,289,640) 174,912,995
-------------- --------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1E)
From net investment income (229,095,302) (226,127,502)
From net realized gains on investments (5,299,644) (59,722,110)
-------------- --------------
Total distributions to shareholders (234,394,946) (285,849,612)
-------------- --------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 362,270,388 721,049,156
Value of shares issued to shareholders in payment of
distributions declared 183,394,637 239,600,910
Cost of shares redeemed (771,004,811) (745,461,464)
-------------- --------------
Net increase (decrease) in net assets from Fund share
transactions (225,339,786) 215,188,602
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (482,024,372) 104,251,985
NET ASSETS
At beginning of year 3,392,569,628 3,288,317,643
-------------- --------------
At end of year (including distributions in excess of
net investment income of $815,272 and undistributed
net investment income of $5,803,081, respectively) $2,910,545,256 $3,392,569,628
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1999(1) 1998(1) 1997 1996(1) 1995
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 20.13 $ 20.80 $ 20.53 $ 20.92 $ 18.91
---------- ---------- ---------- ---------- ----------
FROM INVESTMENT OPERATIONS:
Net investment income 1.34 1.37 1.46 1.46 1.35
Net realized and unrealized gain
(loss) on investments (1.47) (0.30) 0.45 (0.37) 2.08
---------- ---------- ---------- ---------- ----------
Total from investment operations (0.13) 1.07 1.91 1.09 3.43
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.42) (1.38) (1.52) (1.48) (1.42)
From net realized gain on investments (0.03) (0.36) (0.12) -- --
---------- ---------- ---------- ---------- ----------
Total distributions to shareholders (1.45) (1.74) (1.64) (1.48) (1.42)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 18.55 $ 20.13 $ 20.80 $ 20.53 $ 20.92
========== ========== ========== ========== ==========
TOTAL RETURN (0.70)% 5.25% 9.54% 5.48% 18.54%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net
assets) (2) 0.36% 0.36% 0.37% 0.38% 0.38%
Net Investment Income (to average
daily net assets) 6.85% 6.54% 6.76% 7.13% 7.80%
Portfolio Turnover (3) -- -- -- 49% 132%
Net Assets, End of Year
(000's omitted) $2,910,545 $3,392,570 $3,288,318 $2,603,628 $2,267,107
</TABLE>
- -----------------
(1) Calculated based on average shares outstanding.
(2) Includes the Fund's share of Standish Fixed Income Portfolio's allocated
expenses for the periods since May 3, 1996.
(3) Portfolio turnover represents the rate of portfolio activity for the period
while the Fund was investing directly in securities, including the period
from January 1, 1996 through May 2, 1996. The portfolio turnover rates for
the period since the Fund transferred substantially all of its investable
assets to the Portfolio is shown in the Portfolio's financial statements
which are included elsewhere in this report.
The accompanying notes are an integral part of the financial statements.
8
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH 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 Fixed Income Fund (the "Fund") is a separate diversified
investment series of the Trust.
The Fund invests all of its investable assets in an interest of the
Standish Fixed Income Portfolio (the "Portfolio"), a subtrust of Standish,
Ayer & Wood Master Portfolio (the "Portfolio Trust"), which is organized
as a New York trust, and has the same investment objective as the Fund.
The value of the Fund's investment in the Portfolio reflects the Fund's
proportionate interest in the net assets of the Portfolio (approximately
100% at December 31, 1999). The performance of the Fund is directly
affected by the performance of the Portfolio. The financial statements of
the Portfolio are included elsewhere in this report and should be read in
conjunction with the Fund's financial statements.
The following is a summary of significant accounting policies followed by
the Fund in the preparation of its financial statements. The preparation
of financial statements in accordance with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures in the financial statements.
Actual results could differ from those estimates.
A. INVESTMENT SECURITY VALUATIONS
The Fund records its investment in the Portfolio at value. The method by
which the Portfolio values its securities is discussed in Note 1A of the
Portfolio's Notes to Financial Statements, which are included elsewhere in
this report.
B. SECURITIES TRANSACTIONS AND INCOME
Securities transactions are recorded as of the trade date. Currently, the
Fund's net investment income consists of the Fund's pro rata share of the
net investment income of the Portfolio, less all actual and accrued
expenses of the Fund determined in accordance with generally accepted
accounting principles. 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.
C. FEDERAL TAXES
As a regulated investment company qualified under Subchapter M of the
Internal Revenue Code, the Fund is not subject to income taxes to the
extent that it distributes all of its taxable income for its fiscal year.
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. The capital loss carryover is
$75,043,000 which expires on December 31, 2007. The Fund elected to defer
to its fiscal year ending December 31, 2000, $35,466,153 of losses
recognized during the period November 1, 1999 to December 31, 1999.
D. OTHER
All net investment income and realized and unrealized gains and losses of
the Portfolio are allocated pro rata among the investors in the Portfolio.
9
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income will be declared and distributed
quarterly. The Fund's dividends from short-term and long-term capital
gains, if any, after reduction by capital losses will be declared and
distributed at least annually. In determining the amounts of its
dividends, the Fund will take into account its share of the income, gains
or losses, expenses, and any other tax items of the Portfolio. Dividends
from net investment income and capital gains distributions, if any, are
reinvested in additional shares of the Fund unless a shareholder elects to
receive them in cash. Income and capital gain distributions are determined
in accordance with income tax regulations which may differ from generally
accepted accounting principles. These differences, 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 Fund does not directly pay any investment advisory fees, but
indirectly bears its pro rata share of the compensation paid by the
Portfolio to Standish, Ayer & Wood, Inc. ("SA&W") for investment advisory
services. See Note 2 of the Portfolio's Notes to Financial Statements
which are included elsewhere in this report. 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 of the trustees and officers of the Trust are
directors or officers of SA&W.
(3) INVESTMENT TRANSACTIONS:
Increases and decreases in the Fund's investment in the Portfolio for the
year ended December 31, 1999, aggregated $362,632,305 and $845,467,317,
respectively.
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
<S> <C> <C>
Shares sold 18,581,997 34,411,735
Shares issued to shareholders in payment of
distributions declared 9,583,305 11,692,563
Shares redeemed (39,761,867) (35,637,930)
------------ -----------
Net increase (decrease) (11,596,565) 10,466,368
============ ===========
</TABLE>
10
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the
Shareholders of Standish Fixed Income Fund:
In our opinion, the accompanying statement of assets and liabilities 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 Fixed Income
Fund (the "Fund") at December 31, 1999, and 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, provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
11
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 96.7%
ASSET BACKED -- 5.3%
ARG Funding 1999-1A A3 6.020% 05/20/2005 $ 31,075,000 $ 29,658,417
First U.S. Credit Card 144A 1999-3C 6.450% 01/19/2007 13,967,000 13,351,474
Green Tree Acceptance Corp. 1997-7 B2 Non-
ERISA 7.590% 07/15/2029 11,050,000 7,879,755
Green Tree Acceptance Corp. 1998-6 M1 6.630% 08/01/2028 9,675,000 8,581,649
Green Tree Acceptance Corp. 1998-7 B1 7.680% 07/01/2030 15,500,000 13,927,598
Green Tree Acceptance Corp. 1998-8 B1 7.690% 09/01/2030 6,265,000 5,448,044
Green Tree Acceptance Corp.1999-2 M1 6.800% 12/01/2030 10,550,000 9,394,033
Greentree Home Equity 1997-D M2 Non-ERISA 7.450% 09/15/2028 15,400,000 13,532,750
MBNA Master Credit Trust 1999-A B 6.600% 12/15/2006 1,700,000 1,651,922
Team Fleet Financing 97-1A+ 7.350% 05/15/2003 28,850,000 28,755,336
Team Fleet Financing 98-3 A 6.130% 10/25/2004 24,925,000 23,818,953
-------------
Total Asset Backed (Cost $169,254,836) 155,999,931
-------------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 1.6%
Bear Stearns Mtg. 1998-2 B 6.750% 04/30/2030 7,105,538 6,563,741
Bear Stearns Mtg. 1998-2C 6.750% 04/30/2030 23,070,686 21,199,797
FNMA P/O Trust 108 0.000% 03/01/2020 818,232 654,757
Prudential Home Mortgage 1993-B 3B 144A(a) 7.860% 04/28/2023 16,135,025 15,933,337
-------------
Total Collateralized Mortgage Obligations (Cost $47,128,621) 44,351,632
-------------
CONVERTIBLE CORPORATE BONDS -- 0.1%
Tenet Healthcare Corp. Sub CVT Notes 6.000% 12/01/2005 5,150,000 4,223,000
-------------
Total Convertible Corporate Bonds (Cost $4,398,900) 4,223,000
-------------
CORPORATE -- 22.2%
BANK BONDS -- 4.2%
Advanta Corp. 7.000% 05/01/2001 5,850,000 5,487,592
Bank United Corp. Notes 8.875% 05/01/2007 5,175,000 4,748,062
Commercial Federal Sub Notes 7.950% 12/01/2006 1,750,000 1,728,125
Firstar Bank 7.125% 12/01/2009 16,000,000 15,487,360
GS Escrow Corp. 144A Notes 7.125% 08/01/2005 19,455,000 17,382,533
GS Escrow Corp. 144A Senior Notes+ 7.000% 08/01/2003 40,995,000 37,893,177
Imperial Credit Capital Trust Notes 9.980% 12/31/2026 8,425,000 7,627,249
North Fork Capital Trust Notes 8.000% 12/15/2027 7,000,000 6,135,251
Popular Inc. Medium Term Notes 6.625% 10/27/2002 4,425,000 4,313,313
U.S. Bancorp Notes NCL 6.000% 05/15/2004 15,075,000 14,325,605
Webster Financial Capital 144A Notes 9.360% 01/29/2027 4,975,000 4,683,017
Wells Fargo & Co. Notes NCL 6.625% 07/15/2004 3,875,000 3,792,501
-------------
123,603,785
-------------
FINANCIAL -- 7.8%
Advanta Capital Trust I 8.990% 12/17/2026 3,500,000 2,415,000
Amresco Inc. Corp. Senior Sub Notes 9.875% 03/15/2005 6,000,000 3,840,000
Amresco Inc. Corp. Senior Sub Notes 10.000% 03/15/2004 2,175,000 1,326,750
Chartwell Real Estate Holdings Senior Notes 10.250% 03/01/2004 3,448,000 3,516,960
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL (continued)
Conseco Finance Trust Cap. Notes+ 8.796% 04/01/2027 $ 26,943,000 $ 24,402,827
Conseco Finance Trust II 8.700% 11/15/2026 16,775,000 15,047,140
Conseco Finance Trust Notes 6.800% 06/15/2005 2,000,000 1,863,128
Crescent Real Estate Notes 7.125% 09/15/2007 15,525,000 12,288,726
Ford Motor Credit Corp. 6.700% 07/16/2004 39,850,000 39,003,187
Fresenius Medical Capital Trust Notes 7.875% 02/01/2008 427,500 3,954,375
Goldman Sachs Group Notes 7.200% 11/01/2006 5,125,000 5,005,485
Interpool Capital Trust Notes 7.350% 08/01/2007 4,175,000 3,238,155
Interpool Capital Trust Notes 9.875% 02/15/2027 4,500,000 3,303,421
Lehman Bros Holding Inc. 6.625% 04/01/2004 10,875,000 10,527,435
Liberty Mutual Insurance Co. 144A Notes 7.697% 10/15/2097 14,050,000 11,757,321
MMI Capital Trust Notes 7.625% 12/15/2027 7,225,000 5,563,250
Meditrust, REIT 7.820% 09/10/2026 5,350,000 4,012,500
Meditrust, REIT 144A Notes 7.114% 08/15/2004 19,950,000 14,962,500
Paine Webber Notes 6.375% 05/15/2004 4,085,000 3,894,884
Phoenix Re-Insurance Corp. NC '07 8.850% 02/01/2027 7,400,000 5,190,495
Shopping Center Associates, REIT 144A 6.750% 01/15/2004 16,400,000 15,491,932
Trenwick Capital Trust 8.820% 02/01/2037 9,375,000 7,485,844
U.S. Home Corp. 8.250% 08/15/2004 11,080,000 10,526,000
UCFC Home Equity Loan 1996{*} 7.700% 01/15/2004 7,000,000 2,450,000
World Financial Properties 144A 1996 WFP-B 6.910% 09/01/2013 16,674,093 15,817,044
-------------
226,884,359
-------------
INDUSTRIAL BONDS -- 10.2%
Adelphia Communications Senior Notes 9.250% 10/01/2002 2,575,000 2,575,000
Allied Waste Industries 144A Notes 7.375% 01/01/2004 5,000,000 4,600,000
Allied Waste Industries 144A Notes 7.625% 01/01/2006 11,550,000 10,366,125
American Standard Corp. Senior Notes 7.125% 02/15/2003 3,175,000 3,032,125
Aramark Services Inc. 7.000% 07/15/2006 7,250,000 6,766,932
Aramark Services Notes 6.750% 08/01/2004 8,310,000 7,808,907
Building Materials Corp. Senior Notes 8.000% 10/15/2007 1,875,000 1,706,250
CBS Inc. 7.150% 05/20/2005 5,550,000 5,445,271
Charter Communications Holdings LLC 8.250% 04/01/2007 12,800,000 11,840,000
Conmed Corp. Notes 9.000% 03/15/2008 4,400,000 4,070,000
Cox Enterprises 144A Notes 6.625% 06/14/2002 14,250,000 13,967,280
Delta Air Lines 8.300% 12/15/2029 14,675,000 14,233,415
Enterprise Corp. 144A Notes 6.950% 03/01/2004 15,500,000 15,043,032
Enterprise Corp. Notes 6.375% 05/15/2003 5,000,000 4,803,450
Foodmaker Inc. Senior Sub Notes 8.375% 04/15/2008 1,625,000 1,467,804
Fort James Corp. 6.700% 11/15/2003 7,400,000 7,211,226
Global Crossing Holding Ltd. Notes 9.625% 05/15/2008 11,800,000 11,770,500
Grove Worldwide Senior Sub Notes 9.250% 05/01/2008 5,750,000 1,725,000
Horseshoe Gaming Holdings 8.625% 05/15/2009 5,000,000 4,775,000
Lear Corp. 8.110% 05/15/2009 3,575,000 3,370,751
McLeod USA Inc. 144A Senior Notes 9.500% 11/01/2008 7,405,000 7,423,512
McLeod USA Senior Notes 8.375% 03/15/2008 11,395,000 10,825,250
McLeod USA Senior Step Up Notes(b) 0.000% 03/01/2007 3,475,000 2,814,750
NVR Inc. Senior Notes 8.000% 06/01/2005 2,550,000 2,422,500
News America Inc. Deb Notes NCL 7.125% 04/08/2028 6,500,000 5,673,720
Nextlink Communications(b) 12.250% 06/01/2009 14,300,000 8,723,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL BONDS (continued)
Nextlink Communications Step Up Notes(b) 0.000% 04/15/2008 $ 17,200,000 $ 10,922,000
Park Place Entertainment 7.950% 08/01/2003 11,900,000 11,718,573
Republic Service 7.125% 05/15/2009 6,400,000 5,751,146
Revlon Consumer Products 8.125% 02/01/2006 7,825,000 5,673,125
Revlon Worldwide Senior Notes+ 0.000% 03/15/2001 16,325,000 3,183,375
Safeway Stores Notes 6.050% 11/15/2003 3,225,000 3,073,554
Salem Communications Corp. Senior Sub Notes 9.500% 10/01/2007 2,475,000 2,475,000
Southland Corp. Senior Sub Notes 5.000% 12/15/2003 4,650,000 3,999,000
TRW Inc. 7.125% 06/01/2009 5,050,000 4,786,693
Tenet Healthcare Corp. Notes 8.625% 12/01/2003 4,385,000 4,330,187
Time Warner Inc. 7.750% 06/15/2005 5,550,000 5,611,216
Time Warner Inc. Notes 6.625% 05/15/2029 10,925,000 9,315,529
USA Waste Services Inc. Senior Notes 6.500% 12/15/2002 8,000,000 7,391,474
Viacom Inc. Senior Notes 7.750% 06/01/2005 3,475,000 3,497,692
WMX Technologies 144A 6.875% 05/15/2009 15,000,000 12,648,845
Walt Disney Notes 5.125% 12/15/2003 17,975,000 16,806,625
Westinghouse Credit Corp. Deb. Notes 8.875% 06/14/2014 2,750,000 2,918,218
Williams Communications Group Notes 10.700% 10/01/2007 6,250,000 6,562,500
Williams Communications Group Notes 10.875% 10/01/2009 1,275,000 1,333,969
-------------
296,459,521
-------------
Total Corporate (Cost $724,152,989) 646,947,665
-------------
GOVERNMENT/OTHER -- 15.1%
AUSTRALIA -- 0.1%
St. Georges Bank 5.750% 10/15/2002 3,600,000 2,274,214
-------------
DENMARK -- 0.9%
Danske Kredit 5.000% 10/01/2029 7,598,000 892,854
Denmark Bullet 7.000% 11/15/2007 28,400,000 4,198,578
Denmark Nykredit 5.000% 10/01/2029 5,340,000 627,512
Denmark Nykredit 7.000% 10/01/2026 19,446,000 2,625,269
Denmark Realkredit 7.000% 10/01/2026 1,894,000 255,696
Denmark Realkredit 8.000% 10/01/2026 1,000 141
Denmark Realkredit Notes NCL 6.000% 10/01/2029 32,288,000 4,063,047
Denmark Unikredit Realkredit 6.000% 10/01/2029 29,567,000 3,720,643
Kingdom of Denmark 6.000% 11/15/2002 42,275,000 5,874,374
Kingdom of Denmark 8.000% 03/15/2006 23,200,000 3,550,748
-------------
25,808,862
-------------
EURODOLLAR -- 0.9%
Bonos DEL Tesoro Notes 8.750% 05/09/2002 1,950,000 1,843,979
Enron Corp. 4.375% 04/08/2005 2,100,000 1,980,451
Ford Motor Credit Co. 3.750% 07/12/2004 2,354,000 2,225,331
Fort James Corp. Notes 4.750% 06/29/2004 2,490,000 2,397,726
International Lease Finance Corp. 4.125% 07/12/2004 2,100,000 2,006,494
Italian Government BTPS Notes NCL 3.250% 02/01/2004 6,100,000 5,749,787
Italian Government BTPS Notes NCL 4.000% 10/01/2003 6,120,000 5,995,634
Italian Government BTPS Notes NCL 5.000% 02/15/2003 2,200,000 2,232,458
Lafarge Corp. 5.125% 06/26/2006 1,000,000 981,712
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
EURODOLLAR (continued)
Metromedia Fiber Network 10.000% 12/15/2009 $ 400,000 $ 418,279
Republic of Brazil(a) 6.500% 01/01/2001 1,018,440 1,006,983
UPM-Kymmene Corp. Notes 6.350% 10/01/2009 1,400,000 1,395,304
-------------
28,234,138
-------------
FRANCE -- 0.1%
France Oat 6.000% 10/25/2025 2,012,327 2,037,757
-------------
GERMANY -- 1.7%
Baden Nurttemberg 6.200% 11/22/2013 1,533,875 1,654,212
Bundes Obligation Ser 117 Notes 5.125% 11/21/2000 1,000,000 1,019,692
Depfa Pfandbriefbank Notes NCL 5.500% 01/15/2010 2,425,000 2,407,776
Deutschland Republic 4.750% 07/04/2008 400,000 387,155
Deutschland Republic 6.000% 01/05/2006 10,200,000 10,761,711
Deutschland Republic 6.000% 01/04/2007 2,200,000 2,318,936
Deutschland Republic 6.250% 01/04/2024 1,300,000 1,356,129
Deutschland Republic 6.500% 07/04/2027 500,000 537,513
Deutschland Republic 6.750% 04/22/2003 6,250,000 6,631,982
Deutschland Republic 7.375% 01/03/2005 2,100,000 2,335,657
Federal Republic of Germany 6.875% 05/12/2005 5,722,043 6,258,040
Fresenius Med Global 7.375% 02/01/2008 930,000 481,654
Treuhandanstalt 6.625% 07/09/2003 2,210,000 2,355,538
Treuhandanstalt 7.125% 01/29/2003 7,752,756 8,353,169
Treuhandanstalt 7.500% 09/09/2004 1,500,000 1,667,873
-------------
48,527,037
-------------
JAPAN -- 1.2%
Italy Euroyen Notes 5.000% 12/15/2004 40,000,000 468,539
Italy Euroyen Notes 5.125% 07/29/2003 652,000,000 7,404,015
Italy Euroyen Notes NCL 3.750% 06/08/2005 1,052,000,000 11,754,956
Mexican Notes NCL 3.100% 04/24/2002 315,000,000 3,115,932
Republic of Finland 6.000% 01/29/2002 737,000,000 8,062,712
South Africa 3.350% 06/17/2004 150,000,000 1,487,935
Spanish Government 4.750% 03/14/2005 120,000,000 1,397,975
-------------
33,692,064
-------------
NETHERLANDS -- 0.1%
Netherlands Government Notes NCL 3.750% 07/15/2009 500,000 440,150
PTC International Finance II SA 144A 11.250% 12/01/2009 1,500,000 1,564,765
-------------
2,004,915
-------------
NEW ZEALAND -- 0.2%
Fernz Capital 9.800% 04/15/2002 3,800,000 2,034,311
Fletcher Challenge 11.250% 12/15/2002 3,100,000 1,765,744
Fletcher Challenge CVT 10.000% 04/30/2005 1,500,000 800,272
New Zealand Government 8.000% 04/15/2004 5,600,000 3,027,800
-------------
7,628,127
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
15
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NORWAY -- 0.0%
Vital Forsikring 7.850% 09/22/2003 $ 8,100,000 $ 1,017,557
SINGAPORE -- 0.1%
Singapore Government 3.500% 02/01/2004 4,490,000 2,674,607
Singapore Government 5.125% 11/15/2004 2,085,000 1,315,789
-------------
3,990,396
-------------
SWEDEN -- 0.5%
Sweden Government Bond #1030 13.000% 06/15/2001 17,100,000 2,238,657
Sweden Government Bond #1038 6.500% 10/25/2006 51,500,000 6,359,344
Sweden Government Bond #1039 5.500% 04/12/2002 17,400,000 2,065,679
Sweden Government Bond #1042 5.000% 01/15/2004 37,000,000 4,295,039
-------------
14,958,719
-------------
UNITED KINGDOM -- 1.4%
European Investment Bank 7.625% 12/07/2006 1,380,000 2,371,248
FNMA Global Bond 6.875% 06/07/2002 3,700,000 5,976,433
IPC Magazines 144A(b) 0.000% 03/15/2008 3,000,000 1,550,592
Lehman Brothers Holdings PLC 6.950% 06/22/2004 1,905,000 2,939,338
Merrill Lynch Notes 7.375% 12/17/2007 1,500,000 2,474,642
National Westminister Bank 5.125% 06/30/2011 3,135,000 2,826,101
Stagecoach Holdings PLC 7.625% 10/31/2007 2,175,000 3,463,983
Tate & Lyle International Finance 5.750% 10/06/2006 2,100,000 2,074,385
UK Treasury Gilt 7.750% 09/08/2006 4,275,000 7,562,334
UK Treasury Gilt 9.000% 10/13/2008 2,545,000 5,005,169
UK Treasury Gilt Stock 6.000% 12/07/2028 1,600,000 3,161,140
-------------
39,405,365
-------------
YANKEE BONDS -- 7.9%
Abbey National PLC+ 7.350% 10/29/2049 13,000,000 12,372,230
Amvescap Senior Notes+ 6.600% 05/15/2005 25,550,000 24,189,463
Asia Pulp and Paper Global Financial Notes 11.750% 10/01/2005 3,450,000 2,898,000
British Sky Broadcasting 8.200% 07/15/2009 6,300,000 6,067,069
British Sky Broadcasting + 7.300% 10/15/2006 13,050,000 12,144,200
Colt Telecom Group PLC Senior Step Up
Notes(b) 0.000% 12/15/2006 5,200,000 4,576,000
Cominco Ltd. Notes+ 6.875% 02/15/2006 17,350,000 15,168,932
Edperbrascan Ltd. Notes+ 7.375% 10/01/2002 12,125,000 11,902,385
Fuji JGB Inv. L.L.C. Pfd 144A FLIRB 9.870% 12/31/2049 8,350,000 8,287,375
Guangdong Enterprises 144A Senior Notes{*} 8.750% 12/15/2003 2,945,000 942,400
Guangdong Enterprises 144A Senior Notes NCL{*} 8.875% 05/22/2007 16,755,000 5,184,332
ICI Wilmington Notes NCL 6.950% 09/15/2004 17,600,000 17,092,060
Nordbanken 8.950% 11/29/2049 12,125,000 11,944,095
Pindo Deli Financial Notes 10.250% 10/01/2002 5,700,000 4,446,000
Royal Caribbean Cruise Senior Notes 7.500% 10/15/2027 13,375,000 12,098,223
SE Banken 144A FLIRB 6.500% 12/29/2049 27,500,000 25,689,125
Societe General Step Up 144A NC '07 7.850% 04/29/2049 8,325,000 8,019,806
St. Georges Bank 144A 7.150% 10/15/2005 19,375,000 18,890,993
</TABLE>
The accompanying notes are an integral part of the financial statements.
16
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YANKEE BONDS (continued)
Tyco International 7 Yr. Notes NCL 6.375% 06/15/2005 $ 6,075,000 $ 5,690,939
Tyco International Ltd. 144A 6.875% 09/05/2002 23,050,000 22,649,817
-------------
230,253,444
-------------
Total Government/Other (Cost $473,955,737) 439,832,595
-------------
NON-AGENCY -- 4.2%
PASS THRU SECURITIES -- 4.2%
Amresco Communication Mortgage 1997-b A1 144A 6.728% 04/15/2014 16,777,013 15,959,133
Chase Commercial Mortgage Sec 6.6 1997-2D
Non-ERISA 6.600% 12/25/2007 13,419,581 12,023,106
Enterprise Mortgage 1999-1 A1 6.420% 09/15/2008 22,702,167 21,595,436
First Chicago/Lennar Trust 1997-CHL1-D 8.129% 05/29/2008 9,720,000 7,739,550
First Union/Lehman 1997-C1 D Non-ERISA 7.500% 10/18/2008 7,350,000 6,977,906
GMAC Mortgage Corp. 1997-C1 E Non-ERISA 7.085% 11/15/2010 31,109,000 28,095,316
Lehman Brothers Commercial Conduit Mortgage
Trust 1995-C2 Non-ERISA(a) 7.110% 05/25/2005 1,930,000 1,834,857
Merrill Lynch Investment Trust 1995-C2 E 8.154% 06/15/2021 1,015,081 926,870
Merrill Lynch Mortgage Investments 1997-C1 D
Non-ERISA 7.120% 06/18/2029 4,475,000 4,093,730
Morgan Stanley Capital 1998-HF1 E 7.600% 02/15/2008 5,500,000 4,958,594
Resolution Trust Corp. 1994 C2 E Non-ERISA 8.000% 04/25/2025 4,784,395 4,742,532
Resolution Trust Corp. 1994-1 Cl M2 7.750% 09/25/2029 2,990,515 2,868,091
Resolution Trust Corp. 1995 Cl E 6.900% 02/25/2027 10,545,397 9,527,107
Structured Asset Security Corp. 1994-C1 D
Non-ERISA 6.870% 08/25/2026 2,196,010 2,188,547
-------------
Total Non-Agency (Cost $130,674,649) 123,530,775
-------------
U.S. GOVERNMENT AGENCY -- 39.6%
PASS THRU SECURITIES -- 39.6%
FHLMC + 5.750% 03/15/2009 132,550,000 121,076,472
FMAC Loan Rec Trust 98-C Class A2 6.660% 01/15/2012 15,000,000 13,858,594
FNMA 5.125% 02/13/2004 4,975,000 4,677,296
FNMA+ 5.625% 05/14/2004 56,025,000 53,538,611
FNMA 6.000% 06/01/2003 - 07/01/2003 112,111 109,579
FNMA 6.500% 08/15/2004 - 08/01/2029 87,821,010 83,377,678
FNMA 7.000% 10/01/2014 - 11/01/2014 57,237,493 56,575,256
FNMA 7.500% 01/01/2030 54,125,000 53,516,094
FNMA 9.000% 11/01/2025 11,015,721 11,463,179
GNMA 7.000% 09/15/2022 - 05/15/2029 274,003,089 264,766,034
GNMA 7.500% 08/15/2029 - 10/15/2029 89,305,220 88,300,537
GNMA 8.000% 01/15/2024 - 06/15/2025 22,475,983 22,738,082
GNMA 8.000% 06/15/2025 - 09/15/2025 13,871,874 14,027,975
GNMA 8.000% 10/15/2025 - 09/15/2029 95,819,538 96,766,509
GNMA 8.000% 12/15/2029 - 01/15/2030 121,850,000 123,068,500
GNMA+ 9.000% 12/15/2016 - 11/15/2017 4,151,635 4,376,869
GNMA 9.000% 12/15/2017 - 02/15/2021 4,397,967 4,639,056
GNMA + 7.000% 06/15/2029 44,369,888 42,844,452
</TABLE>
The accompanying notes are an integral part of the financial statements.
17
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PASS THRU SECURITIES (continued)
GNMA + 8.000% 06/15/2025 3,180,567 3,216,349
GNMA + 8.000% 09/15/2025 $ 2,993,267 $ 3,029,725
GNMA # 8.000% 12/15/2029 53,875,000 54,413,750
GNMA + 9.000% 12/15/2017 29,737,738 31,373,313
-------------
Total U.S. Government Agency (Cost $1,178,155,690) 1,151,753,910
U.S. TREASURY OBLIGATIONS -- 8.6%
TREASURY BONDS -- 3.6%
U.S. Treasury Bond+ 8.125% 05/15/2021 90,185,000 103,374,556
U.S. Treasury Bond+ 11.250% 02/15/2015 725,000 1,024,853
-------------
104,399,409
-------------
TREASURY NOTES -- 5.0%
U.S. Treasury Inflation Index Note(a) 3.809% 07/15/2002 675,000 701,665
U.S. Treasury Inflation Index Note 3.967% 01/15/2009 55,600,000 55,092,597
U.S. Treasury Note+ 6.625% 04/30/2002 52,950,000 53,355,597
U.S. Treasury Note+ 7.875% 11/15/2004 33,975,000 35,923,127
-------------
145,072,986
-------------
Total U.S. Treasury Obligations (Cost $258,954,391) 249,472,395
-------------
TOTAL BONDS AND NOTES (COST $2,986,675,813) 2,816,111,903
-------------
<CAPTION>
SHARES
-------------
PREFERRED STOCKS -- 2.0%
<S> <C> <C> <C> <C>
Australia & New Zealand Bank 293,350 7,297,081
California Federal 9.125 216,000 4,671,000
Equity Office Properties Trust 144A CVT 748,000 28,798,000
Global Crossing PIK Pfd 144A 68,325 6,832,500
Natexis Ambs Co. Perp 4,260,000 4,013,900
Pinto Totta Intl Pfd 144A 6,450 6,104,925
-------------
TOTAL PREFERRED STOCKS (COST $67,790,753) 57,717,406
-------------
<CAPTION>
CONTRACT
SIZE
-------------
PURCHASED OPTIONS -- 0.1%
<S> <C> <C> <C> <C>
AUD Put/USD Call, Strike Price 0.64, 07/20/2000 3,800,000 42,412
BTPS 6.75% Put, Strike Price 105.29, 01/31/2000 4,950,000,000 4,950
BTPS 6.75% Put, Strike Price 105.49, 02/03/2000 4,950,000,000 4,950
BTPS 6.75% Put, Strike Price 107.69, 02/07/2000 9,775,000,000 58,650
DBR 4.75% Call, Strike Price 106.99, 02/08/2000 2,500,000 0
DBR 4.75% Call, Strike Price 95.78,0 3/13/2000 2,525,000 255
DBR 5.25% Call, Strike Price 112.07, 01/25/2000 3,650,000 0
DBR 5.25% Call, Strike Price 112.08, 01/26/2000 4,850,000 0
</TABLE>
The accompanying notes are an integral part of the financial statements.
18
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
CONTRACT VALUE
SECURITY SIZE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
PURCHASED OPTIONS -- (CONTINUED)
<S> <C> <C>
DEM 3.75% Call, Strike Price 90.20, 09/13/2000 4,200,000 $ 39,367
DEM 3.75% Call, Strike Price 91.05, 09/29/2000 2,200,000 17,917
DEM 3.75% Call, Strike Price 99.15, 04/17/2000 2,500,000 0
DEM 4% Call, Strike Price 93.99, 07/07/2000 5,000,000 17,235
DEM 4% Call, Strike Price 95.43, 07/21/2000 4,700,000 7,106
DEM 4% Call, Strike Price 96.26, 06/23/2000 2,400,000 2,299
DEM 4% Call, Strike Price 99.01, 08/03/2000 2,350,000 4,477
DEM 4.5% Call, Strike Price 101.20, 08/14/2000 2,500,000 2,293
DEM 4.5% Call, Strike Price 94.76, 10/06/2000 2,000,000 22,980
DEM 4.5% Call, Strike Price 95.42, 11/02/2000 2,000,000 17,940
DEM 4.5% Call, Strike Price 95.54, 10/13/2000 1,975,000 18,314
DEM 4.75% Call, Strike Price 85.93, 09/11/2000 2,076,600 33,280
DEM 4.75% Call, Strike Price 95.85, 05/11/2000 2,400,000 1,694
DEM 4.75% Call, Strike Price 99.39, 04/27/2000 3,450,000 348
DEM 5.25% Call, Strike Price 111.26, 01/10/2000 4,250,000 0
EUR Put/JPY Call, Strike Price 146.70, 04/13/2000 5,050,285 2,188,778
EUR Put/USD Call, Strike Price 0.89, 07/10/2001 4,775,000 35,813
EUR Put/USD Call, Strike Price 0.95, 08/16/2000 2,500,000 23,750
JPY 1.8% Call, Strike Price 104.67, 05/08/2000 635,000,000 18,415
JPY 3% Call, Strike Price 110.43, 06/30/2000 585,000,000 25,740
JPY Put, Strike Price 121.50, 04/06/2000 3,000,000 300
JPY Put, Strike Price 150.00, 02/08/2001 2,775,000 277
JPY Put/EUR Call, Strike Price 110.25, 12/06/2001 2,100,000 58,206
JPY Put/EUR Call, Strike Price 125.00, 08/29/2000 4,200,000 10,584
JPY Put/USD Call, Strike Price 115.00, 09/01/2000 2,200,000 9,240
JPY Put/USD Call, Strike Price 115.80, 08/14/2000 2,500,000 9,250
JPY Put/USD Call, Strike Price 120.00, 11/07/2001 2,100,000 21,836
JPY Put/USD Call, Strike Price 122.00, 03/08/2000 2,600,000 260
JPY Put/USD Call, Strike Price 125.00, 02/09/2000 2,500,000 0
USD Put/CAD Call, Strike Price 1.42, 10/19/2000 2,150,000 25,155
UST 5.25% Call, Strike Price 94.38, 02/29/2000 28,000 181
UST 6.00% Call, Strike Price 100.65, 05/05/2000 612,000 219,708
UST 6.00% Call, Strike Price 100.75, 03/03/2000 580,000 57,420
UST 6.00% Call, Strike Price 98.72, 02/15/2000 386,320 105,634
UST 6.00% Call, Strike Price 99.16, 04/17/2000 262,200 138,442
UST 6.00% Call, Strike Price 99.18, 02/15/2000 280,390 54,396
-------------
TOTAL PURCHASED OPTIONS (COST $6,181,699) 3,299,852
-------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
19
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -------------------------------------------------------------------------------------------------------------
SHORT-TERM INVESTMENTS -- 5.4%
<S> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY -- 5.1%
FHLMC Discount Note=/= 5.600% 01/25/2000 $ 149,260,000 $ 148,698,442
-------------
REPURCHASE AGREEMENTS -- 0.3%
Prudential-Bache Repurchase Agreement, dated 12/31/99, due 01/03/00, with a
maturity value of $8,969,905 and an effective yield of 2.00%, collateralized by
a U.S. Government Agency Obligation with a rate of 6.5%, maturity date of
01/01/2014 and market value of $9,148,323. 8,968,410
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $157,666,852) 157,666,852
-------------
TOTAL INVESTMENTS -- 104.2% (COST $3,218,315,117) $3,034,796,013
OTHER ASSETS, LESS LIABILITIES -- (4.2%) (123,090,601)
-------------
NET ASSETS -- 100.0% $2,911,705,412
=============
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.
CVT - Convertible
FHLMC - Federal Home Loan Mortgage Corporation
FLIRB - Front Loaded Interest Reduction Bond
FMAC - Federal Mortgage Acceptance Corporation
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
NCL - Non-callable
PIK - Payment-in-kind
REIT - Real Estate Investment Trust
UST - United States Treasury
AUD - Australian Dollar
CAD - Canadian Dollar
DBR - Deutsche Bundes Republik
DEM - German Deutsche Mark
EUR - Euro
JPY - Japanese Yen
USD - United States Dollar
</TABLE>
{.} Denominated in United States dollars except for foreign country specific
bonds which are denominated in their respective local currency.
+ Denotes all or part of security pledged as a margin deposit (Note 5) or
collateral for delayed delivery transactions (Note 6).
(a) Variable Rate Security; rate indicated is as of 12/31/99.
{*} Defaulted security.
(b) Debt obligation initially issued in zero coupon form which converts to
coupon form at a specified rate and date. The rate shown is the rate at
period end. The maturity date shown is the ultimate maturity.
# Delayed delivery contract (Note 6).
=/= Rate noted is yield to maturity.
The accompanying notes are an integral part of the financial statements.
20
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Note 1A) (identified cost,
$3,218,315,117) $3,034,796,013
Receivable for investments sold 54,122,197
Interest and dividends receivable 35,602,855
Receivable for variation margin on open financial
futures contracts (Note 5) 542,344
Unrealized appreciation on forward foreign currency
exchange contracts (Note 5) 8,628,315
Deferred organization costs (Note 1F) 19,959
Prepaid expenses 7,072
--------------
Total assets 3,133,718,755
LIABILITIES
Unrealized depreciation on forward foreign currency
exchange contracts (Note 5) $ 4,548,969
Payable for delayed delivery transactions (Note 6) 204,459,931
Options written, at value (premiums received,
$6,793,423) (Note 5) 12,838,503
Accrued accounting and custody fees 71,131
Accrued trustees' fees and expenses (Note 2) 21,747
Accrued expenses and other liabilities 73,062
-----------
Total liabilities 222,013,343
--------------
NET ASSETS (APPLICABLE TO INVESTORS' BENEFICIAL
INTERESTS) $2,911,705,412
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
21
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME (NOTE 1C)
Interest income $227,058,347
Dividend income 5,197,031
------------
Total income 232,255,378
EXPENSES
Investment advisory fee (Note 2) $ 10,049,882
Accounting and custody fees 1,010,528
Trustees' fees and expenses (Note 2) 93,279
Legal and audit services 77,747
Insurance expense 31,401
Amortization of organization expenses (Note 1F) 14,936
Miscellaneous 15,282
------------
Total expenses 11,293,055
------------
Net investment income 220,962,323
------------
REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss)
Investment security transactions (137,130,765)
Financial futures contracts 4,969,420
Written options transactions 7,319,151
Foreign currency transactions and forward foreign
currency exchange contracts 11,524,521
------------
Net realized loss (113,317,673)
Change in unrealized appreciation (depreciation)
Investment securities (138,148,390)
Financial futures contracts 2,329,387
Written options (4,833,270)
Foreign currency and forward foreign currency
exchange contracts 11,100,142
------------
Change in net unrealized appreciation
(depreciation) (129,552,131)
------------
Net realized and unrealized loss (242,869,804)
------------
NET DECREASE IN NET ASSETS FROM OPERATIONS $(21,907,481)
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
22
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM INVESTMENT OPERATIONS
Net investment income $ 220,962,323 $ 225,672,566
Net realized gain (loss) (113,317,673) 63,203,263
Change in net unrealized appreciation (depreciation) (129,552,131) (113,239,799)
-------------- --------------
Net increase (decrease) in net assets from investment
operations (21,907,481) 175,636,030
-------------- --------------
CAPITAL TRANSACTIONS
Contributions 362,632,347 726,662,277
Withdrawals (845,481,415) (811,459,061)
-------------- --------------
Net decrease in net assets from capital transactions (482,849,068) (84,796,784)
-------------- --------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (504,756,549) 90,839,246
NET ASSETS
At beginning of year 3,416,461,961 3,325,622,715
-------------- --------------
At end of year $2,911,705,412 $3,416,461,961
============== ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
23
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
SUPPLEMENTAL DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1999 1998 1997 1996(1)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RATIOS:
Expenses (to average daily net assets) 0.35% 0.34% 0.36% 0.37%+
Net Investment Income (to average daily net
assets) 6.86% 6.56% 6.77% 7.14%+
Portfolio Turnover 159% 148% 89% 69%
Net Assets, End of Year (000's omitted) $ 2,911,705 $3,416,462 $3,325,623 $2,616,112
</TABLE>
- -----------------
(1) For the period May 3, 1996 (commencement of operations) through
December 31, 1996.
+ Computed on an annualized basis.
The accompanying notes are an integral part of the financial statements.
24
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(1) SIGNIFICANT ACCOUNTING POLICIES:
Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust") was
organized as a master trust fund under the laws of the state of New York
on December 31, 1999 and is registered under the Investment Company Act of
1940, as amended, as an open-end, management investment company. Standish
Fixed Income Portfolio (the "Portfolio") is a separate diversified
investment series of the Portfolio Trust.
At December 31, 1999, there was one fund, Standish Fixed Income Fund (the
"Fund"), invested in the Portfolio. The value of the Fund's investment in
the Portfolio reflects the proportionate interest in the net assets of the
Portfolio. The Fund's proportionate interest at December 31, 1999 was
approximately 100%.
The following is a summary of significant accounting policies followed by
the Portfolio in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures in the
financial statements. Actual results could differ from those estimates.
A. INVESTMENT SECURITY VALUATIONS
Securities for which quotations are readily available are valued at the
last sale price, or if no sale price, at the closing bid price in the
principal market in which such securities are normally traded. Securities
(including 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 Portfolio are valued at amortized cost, which
approximates market value. If the Portfolio acquires a short-term
instrument with more than sixty days remaining to its maturity, it is
valued at current market value until the sixtieth day prior to maturity
and will then be valued at amortized 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 Portfolio to require the custodian bank to take
possession, to have legally segregated in the Federal Reserve Book Entry
System, or to have segregated within the custodian bank's vault, all
securities held as collateral in support of repurchase agreement
investments. Additionally, procedures have been established by the
Portfolio to monitor on a daily basis, the market value 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 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. Dividend income is recorded on the ex-dividend date.
Realized gains and losses from securities sold are recorded on the
identified cost basis. The Portfolio 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. INCOME TAXES
The Portfolio is treated as a partnership for federal tax purposes. No
provision is made by the Portfolio for federal or state taxes on any
taxable income of the Portfolio because each investor in the Portfolio is
ultimately responsible for the payment of any taxes. Since at least one of
the Portfolio's investors is a regulated investment company that invests
all or substantially all of its assets in the Portfolio, the Portfolio
normally must satisfy the source of income and diversification
25
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
requirements applicable to regulated investment companies (under the
Internal Revenue Code) in order for its investors to satisfy them. The
Portfolio allocates at least annually among its investors each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss deduction or
credit.
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.
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. DEFERRED ORGANIZATION EXPENSE
Costs incurred by the Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis through
April 2001.
(2) INVESTMENT ADVISORY FEE:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. ("SA&W")
for overall investment advisory services is paid monthly at the annual
rate of 0.40% of the Portfolio's first $250,000,000 of average daily net
assets, 0.35% of the next $250,000,000 of average daily net assets, and
0.30% of the average daily net assets in excess of $500,000,000. The
Portfolio Trust pays no compensation directly to its trustees who are
affiliated with SA&W or to its officers, all of whom receive remuneration
for their services to the Portfolio Trust from SA&W. Certain of the
trustees and officers of the Portfolio Trust are directors or officers of
SA&W.
(3) PURCHASES AND SALES OF INVESTMENTS:
Purchases and proceeds from sales of investments, other than short-term
obligations, for the year ended December 31, 1999 were as follows:
<TABLE>
<CAPTION>
PURCHASES SALES
-------------- --------------
<S> <C> <C>
U.S. Government Securities $4,082,666,768 $4,044,025,647
============== ==============
Investments (non-U.S.Government Securities) $ 913,751,966 $1,034,877,038
============== ==============
</TABLE>
(4) 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:
<TABLE>
<S> <C>
Aggregate Cost $3,222,638,480
=============
Gross unrealized appreciation 7,402,747
Gross unrealized depreciation (195,245,214)
-------------
Net unrealized depreciation $(187,842,467)
=============
</TABLE>
26
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) FINANCIAL INSTRUMENTS:
In general, the following instruments are used for hedging purposes as
described below. However, these instruments may also be used to seek to
enhance potential gain in circumstances where hedging is not involved. The
nature, risks and objectives of these instruments are set forth more fully
in Parts A and B of the Portfolio Trust's registration statement.
The Portfolio trades the following financial instruments with off-balance
sheet risk:
OPTIONS
Call and put options give the holder the right to purchase or sell,
respectively, a security or currency at a specified price on or before a
certain date. The Portfolio may use options to seek to hedge against risks
of market exposure and changes in security prices and foreign currencies,
as well as to seek to enhance returns. Writing puts and buying calls tend
to increase the Portfolio's exposure to the underlying instrument. Buying
puts and writing calls tend to decrease the Portfolio's exposure to the
underlying instrument, or hedge other Portfolio investments. Options, both
held and written by the Portfolio, are reflected in the accompanying
Statement of Assets and Liabilities at market value. The underlying face
amount at value of any open purchased options is shown in the Schedule of
Investments. This amount reflects each 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
contract's terms.
Premiums received from writing options which expire are treated as
realized gains. Premiums received from writing options which are exercised
or are closed are added to or offset against the proceeds or amount paid
on the transaction to determine the realized gain or loss. Realized gains
and losses on purchased options are included in realized gains and losses
on investment securities, except purchased options on foreign currency
which are included in realized gains and losses on foreign currency
transactions. If a put option written by the Portfolio is exercised, the
premium reduces the cost basis of the securities purchased by the
Portfolio. The Portfolio, as a writer of an option, has no control over
whether the underlying securities may be sold (call) or purchased (put)
and as a result bears the market risk of an unfavorable change in the
price of the security underlying the written option.
A summary of such transactions for the year ended December 31, 1999 is as
follows:
WRITTEN PUT OPTION TRANSACTIONS
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS PREMIUMS
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 16 $ 3,216,788
Options written 24 9,388,568
Options expired (3) (969,204)
Options closed (26) (8,454,895)
---- -----------
Outstanding, end of period 11 $ 3,181,257
==== ===========
</TABLE>
WRITTEN CALL OPTION TRANSACTIONS
--------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF CONTRACTS PREMIUMS
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 14 $ 4,205,751
Options written 42 9,459,514
Options exercised (1) (1,193,719)
Options expired (14) (3,362,330)
Options closed (29) (7,268,471)
---- -----------
Outstanding, end of period 12 $ 1,840,745
==== ===========
</TABLE>
27
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WRITTEN CROSS CURRENCY OPTION TRANSACTIONS
--------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
------------------- ------------------
<S> <C> <C>
Outstanding, beginning of period 15 $ 2,561,649
Options written 30 4,564,872
Options exercised (2) (1,506,925)
Options expired (6) (365,369)
Options closed (27) (3,482,806)
---- -----------
Outstanding, end of period 10 $ 1,771,421
==== ===========
</TABLE>
FORWARD CURRENCY EXCHANGE CONTRACTS
The Portfolio 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 Portfolio primarily to protect the value of the Portfolio'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, the Portfolio held the following forward foreign
currency and cross currency exchange contracts:
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
<TABLE>
<CAPTION>
LOCAL PRINCIPAL CONTRACT MARKET AGGREGATE
CONTRACTS TO RECEIVE AMOUNT VALUE DATE VALUE FACE AMOUNT
<S> <C> <C> <C> <C>
-----------------------------------------------------------------------------------------------------------------------
Argentinian Peso 8,300,019 01/19-03/09/2000 $ 8,265,861 $ 8,238,777
Canadian Dollar 3,100,000 03/16/2000 2,150,403 2,100,840
Euro 14,899,838 01/14-01/19/2000 15,031,305 15,542,833
Hong Kong Dollar 10,482,538 01/14/2000 1,348,329 1,343,433
Japanese Yen 1,601,483,611 01/18-01/19/2000 15,714,339 15,545,613
New Zealand Dollar 14,617,052 01/14-01/18/2000 7,639,038 7,467,929
Polish Zloty 2,876,930 07/24/2000 656,097 700,000
Swedish Krona 44,200,000 01/18/2000 5,208,161 5,298,397
Thai Baht 41,778,000 09/11/2000 1,110,133 1,100,000
---------------- ----------------
TOTAL $ 57,123,666 $ 57,337,822
================ ================
<CAPTION>
UNREALIZED
CONTRACTS TO RECEIVE GAIN/(LOSS)
----------------------------------------
Argentinian Peso $ 27,084
Canadian Dollar 49,563
Euro (511,528)
Hong Kong Dollar 4,896
Japanese Yen 168,726
New Zealand Dollar 171,109
Polish Zloty (43,903)
Swedish Krona (90,236)
Thai Baht 10,133
--------------
TOTAL $ (214,156)
==============
</TABLE>
28
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LOCAL PRINCIPAL CONTRACT MARKET AGGREGATE UNREALIZED
CONTRACTS TO DELIVER AMOUNT VALUE DATE VALUE FACE AMOUNT GAIN/(LOSS)
<S> <C> <C> <C> <C> <C>
------------------------------------------------------------------------------------------------------------------------
Australian Dollar 3,510,000 03/15/2000 $ 2,302,928 $ 2,245,965 $ (56,963)
British Pound Sterling 22,718,992 01/18-02/07/2000 36,681,286 37,199,895 518,609
Danish Krone 192,518,129 01/13-02/07/2000 26,099,342 27,371,956 1,272,614
Euro 95,738,593 01/14-03/15/2000 96,599,371 102,030,442 5,431,071
Hong Kong Dollar 75,235,271 01/14/2000-08/13/2001 9,594,165 9,511,006 (83,159)
Japanese Yen 3,763,829,306 01/18/2000-05/17/2001 38,787,854 35,217,613 (3,570,241)
New Zealand Dollar 30,573,327 01/14-01/18/2000 15,977,813 16,020,504 42,691
Norwegian Krone 8,900,000 01/18/2000 1,111,389 1,159,942 48,553
Polish Zloty 2,876,930 07/24/2000 656,097 682,708 26,611
Singapore Dollar 6,841,134 01/14/2000 4,106,159 4,085,479 (20,680)
Swedish Krona 174,103,680 01/18-02/28/2000 20,530,530 21,387,185 856,655
Thai Baht 89,276,000 09/11/2000 2,372,259 2,200,000 (172,259)
------------ ------------ -----------
TOTAL $254,819,193 $259,112,695 $ 4,293,502
============ ============ ===========
</TABLE>
FUTURES CONTRACTS
The Portfolio may enter into financial futures contracts for the delayed
sale or delivery of securities or contracts based on financial indices at
a fixed price on a future date. Pursuant to margin requirements the
Portfolio deposits either cash or securities in an amount equal to a
certain percentage of the contract amount. Subsequent payments are made or
received by the Portfolio each day, dependent on the daily fluctuations in
the value of the underlying security, and are recorded for financial
statement purposes as unrealized gains or losses by the Portfolio. There
are several risks in connection with the use of futures contracts as a
hedging device. The change in value of futures contracts primarily
corresponds with the value of their underlying instruments or indices,
which may not correlate with changes in the value of hedged investments.
Buying futures tends to increase the Portfolio's exposure to the
underlying instrument, while selling futures tends to decrease the
Portfolio's exposure to the underlying instrument or hedge other
investments. In addition, there is the risk that the Portfolio may not be
able to enter into a closing transaction because of an illiquid secondary
market. Losses may arise if there is an illiquid secondary market or if
the counterparty does not perform under the contracts terms. The Portfolio
enters into financial futures transactions primarily to seek to manage its
exposure to certain markets and to changes in securities prices and
foreign currencies. Gains and losses are realized upon the expiration or
closing of the futures contracts.
At December 31, 1999, the Portfolio held the following financials futures
contracts:
<TABLE>
<CAPTION>
UNDERLYING FACE
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE UNREALIZED GAIN
<S> <C> <C> <C> <C>
-------------------------------------------------------------------------------------------------------------------
U.S. 10 Year Note (1,000 Contracts) Short 03/31/2000 $95,859,375 $2,185,352
U.S. 10 Year Note (335 Contracts) Short 03/31/2000 32,112,891 127,523
----------
$2,312,875
==========
</TABLE>
At December 31, 1999, the Portfolio had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
(6) DELAYED DELIVERY TRANSACTIONS:
The Portfolio 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 Portfolio
instructs its custodian to segregate securities having a value at least
equal to the amount of the purchase commitment.
29
<PAGE>
STANDISH, AYER & WOOD MASTER PORTFOLIO
STANDISH FIXED INCOME PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
At December 31, 1999, the Fund had entered into the following delayed
delivery transactions:
<TABLE>
<CAPTION>
TYPE SECURITY SETTLEMENT DATE PAYABLE AMOUNT
<S> <C> <C> <C>
---------------------------------------------------------------------------
Buy FNMA 01/25/2000 $ 53,651,406
Buy GNMA 01/25/2000 54,577,900
Buy GNMA 01/25/2000 40,659,375
Buy GNMA 01/25/2000 55,571,250
------------
$204,459,931
============
</TABLE>
30
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Master Portfolio and the Investors
of Standish Fixed Income Portfolio:
In our opinion, the accompanying statement of asset and liabilities,
including the schedule of investments, and related statements of operations
and of changes in net assets and the supplemental data present fairly, in all
material respects, the financial position of Standish, Ayer & Wood Master
Portfolio: Standish Fixed Income Portfolio (the "Portfolio") at December 31,
1999, the results of its operations, the changes in its net assets and the
supplemental data for the periods indicated therein, in conformity with
accounting principles generally accepted in the United States. These
financial statements and supplemental data (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these financial statements in
accordance with 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
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[LOGO] Standish Funds(R)
One Financial Center
Boston, MA 02111-2662
(800) 729-0066
www.standishfunds.com
