STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
FINANCIAL STATEMENTS FOR THE YEAR ENDED
DECEMBER 31, 1999
[LOGO]
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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
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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 CONTROLLED MATURITY FUND
MANAGEMENT DISCUSSION AND ANALYSIS
1999 was an unfavorable environment to bondholders, with bond prices generally
declining as interest rates rose throughout the year. During the year the
Federal Reserve Bank raised the target Federal Funds rate by 75 basis points,
completely reversing the rate cuts instituted during the 1999 capital market
crisis. From a low of 4.60% in January, yields on 3 year U.S. Treasury notes
rose to a high of 6.35% at year-end. Broad fixed income indices finished with
the worst total returns since 1994. Within this environment of rising rates and
liquidity concerns over Y2K, the Standish Controlled Maturity Fund generated
strong relative performance. For the year ended December 31, 1999 the Controlled
Maturity Fund returned 3.67% versus 3.06% for the Merrill Lynch 1-3 Year
Treasury Index.
The Fund began the year with an average maturity slightly longer than its
benchmark, but early in the year this position was reduced, first to neutral,
and by mid-year the Fund had an average maturity shorter than the benchmark.
While the longer positioning was a drag on performance, this was recaptured as
we shortened the Fund's maturity. Our general strategy is to avoid making major
shifts in duration, making modest changes as conditions warrant.
In addition to rising rates, the first half of the year was characterized by
returning stability in the capital markets, following the volatility of late
1998. As the desire to hold highly liquid instruments fell, U.S. Treasury Notes
underperformed other market sectors. This market activity benefited the Fund
which typically invests a significant amount in non-U.S. Treasury holdings, such
as corporate bonds and asset-backed securities. In addition to the positive
price returns, these investments provided higher levels of income, further
cushioning the blow of rising interest rates.
During July and August corporate bonds lagged as treasurers, trying to avoid Y2K
uncertainties, rushed to the market, causing a glut in supply. We used this
opportunity to add high quality bonds to the portfolio. These issues were top
performers during the remainder of the year.
In the fourth quarter, the non-Treasury sectors again outperformed. A reduction
in corporate bond issuance combined with diminished fears about year-end factors
contributed to narrowing yield spreads for agency debt, corporate bonds and
asset-backed securities. During the quarter, we maintained our asset-backed and
Treasury exposure. To improve liquidity in anticipation of any year-end and Y2K
disruptions, we reduced corporate bonds slightly in favor of U.S. agency debt.
Agency and corporate bonds both performed very well, with Yankees and
industrials leading the charge along with finance-related securities.
We are pleased that we were able to earn relatively attractive returns for our
shareholders in such a volatile environment. We appreciate your support and
continue in our efforts to add value. The near-term prospects for the Fund are
attractive. The strength of the economy and lack of short, high-quality bond
supply should benefit short corporate and ABS securities. In addition, the
growing likelihood of higher interest rates and volatile equity markets, make
short- to intermediate-term bond funds more desirable.
/s/ Barbara J. McKenna /s/ Howard B. Rubin
Barbara J. McKenna Howard B. Rubin
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STAQNDISH CONTROLLED MATURITY FUND AND THE MERRILL LYNCH 1-3 YEAR INDEX
[The following table was represented as a line graph in the printed materials.]
Standish Controlled Merrill Lynch 1-3 Year
Maturity Fund Treasury Index
------------- --------------
100000 100000
100350 100414
100950 101011
101550 101502
102411 102359
103372 103264
104200 104057
105075 104941
104612 104498
104458 104405
104562 104492
104771 104706
1 Year 105558 105458
106036 105874
106354 106237
107362 107200
108763 108408
109679 109238
109542 109238
110035 109750
110364 110003
110251 109960
111141 110858
111976 111612
2 Year 112699 112382
113997 113618
114110 113720
115071 114585
115873 115433
116103 115710
116834 116497
117830 117627
117947 117728
118476 118207
119070 118760
119784 119393
3 Year 120439 120014
121040 120576
122122 122091
123205 123709
122597 124316
122779 124208
123359 124647
124042 125140
123670 124530
124914 125395
125482 125799
125419 125718
YTD 125738 126111
125866 126510
126122 126876
126889 127701
----------------------------------------
Average Annual Total Return
(for periods ended 12/31/1999)
Since
Inception
1 Year 3 Year 07/01/1995
------ ------ ----------
3.67% 5.30% 5.62%
---------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
4
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Note 1A) (identified cost,
$37,978,166) $37,536,296
Receivable for investments sold 6,722
Receivable for Fund shares sold 33
Interest receivable 578,188
Deferred organization costs (Note 1E) 1,197
Prepaid expenses 15,700
-----------
Total assets 38,138,136
LIABILITIES
Accrued accounting, custody and transfer agent fees $6,775
Accrued trustees' fees and expenses (Note 2) 2,081
Accrued expenses and other liabilities 19,827
------
Total liabilities 28,683
-----------
NET ASSETS $38,109,453
===========
NET ASSETS CONSIST OF:
Paid-in capital $38,923,059
Accumulated net realized loss (403,696)
Undistributed net investment income 31,960
Net unrealized depreciation (441,870)
-----------
TOTAL NET ASSETS $38,109,453
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 1,968,675
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 19.36
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income $1,553,953
----------
Total investment income 1,553,953
EXPENSES
Investment advisory fee (Note 2) $ 70,908
Accounting, custody and transfer agent fees 76,055
Legal and audit services 24,598
Registration fees 20,729
Trustees' fees and expenses (Note 2) 5,953
Insurance expense 4,815
Amortization of organization expenses (Note 1E) 2,336
Miscellaneous 5,381
--------
Total expenses 210,775
Deduct:
Waiver of investment advisory fee (Note 2) (70,908)
Reimbursement of Fund operating expenses (Note 2) (68,958)
--------
Total expense deductions (139,866)
--------
Net expenses 70,909
----------
Net investment income 1,483,044
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Investment security transactions (291,873)
Financial futures contracts (3,579)
Written options transactions 1,762
--------
Net realized loss (293,690)
Change in unrealized appreciation (depreciation)
Investment securities (327,779)
--------
Net change in unrealized appreciation
(depreciation) (327,779)
----------
Net realized and unrealized loss (621,469)
----------
NET INCREASE IN NET ASSETS FROM OPERATIONS $ 861,575
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY 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 $ 1,483,044 $ 1,545,299
Net realized loss (293,690) (1,724)
Change in unrealized appreciation (depreciation) (327,779) (127,618)
------------ ------------
Net increase in net assets from investment operations 861,575 1,415,957
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1F)
From net investment income (1,449,025) (1,561,525)
------------ ------------
Total distributions to shareholders (1,449,025) (1,561,525)
------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 24,780,932 27,446,026
Value of shares issued to shareholders in payment of
distributions declared 1,198,378 1,249,284
Cost of shares redeemed (13,861,624) (15,886,520)
------------ ------------
Net increase in net assets from Fund share
transactions 12,117,686 12,808,790
------------ ------------
TOTAL INCREASE IN NET ASSETS 11,530,236 12,663,222
NET ASSETS
At beginning of year 26,579,217 13,915,995
------------ ------------
At end of year (including undistributed net
investment income of $31,960 and distributions in
excess of net investment income of $1,636,
repectively) $ 38,109,453 $ 26,579,217
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY 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 $ 19.87 $ 19.95 $ 19.99 $ 20.24 $20.00
------- ------- ------- ------- ------
FROM INVESTMENT OPERATIONS:
Net investment income* 1.24 1.25 1.34 1.27 0.57
Net realized and unrealized gain
(loss) on investments (0.53) (0.16) (0.04) (0.27) 0.24
------- ------- ------- ------- ------
Total from investment operations 0.71 1.09 1.30 1.00 0.81
------- ------- ------- ------- ------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.22) (1.17) (1.34) (1.24) (0.57)
From net realized gain on investments -- -- -- (0.01) --
------- ------- ------- ------- ------
Total distributions to shareholders (1.22) (1.17) (1.34) (1.25) (0.57)
------- ------- ------- ------- ------
NET ASSET VALUE, END OF YEAR $ 19.36 $ 19.87 $ 19.95 $ 19.99 $20.24
======= ======= ======= ======= ======
TOTAL RETURN+++ 3.67% 5.58% 6.66% 5.13% 4.20%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net
assets)* 0.30% 0.30% 0.37% 0.40% 0.40%++
Net Investment Income (to average
daily net assets)* 6.27% 6.19% 6.60% 6.60% 6.29%++
Portfolio Turnover 147% 145% 94% 107% 127%
Net Assets, End of Year
(000's omitted) $38,109 $26,579 $13,916 $12,525 $8,868
</TABLE>
- -----------------
* 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:
<TABLE>
<S> <C> <C> <C> <C> <C>
Net investment income per share $ 1.12 $ 1.15 $ 1.18 $ 1.11 $ 0.38
RATIOS (TO AVERAGE DAILY NET ASSETS):
Expenses 0.89% 0.81% 1.28% 1.25% 2.51%++
Net investment income 5.68% 5.68% 5.69% 5.75% 4.18%++
</TABLE>
(1) Calculated based on average shares outstanding.
+ For the period from July 3, 1995 (start of business) to December 31, 1995.
++ Computed on an annualized basis.
+++ Total return would have been lower in the absense of expense waivers.
The accompanying notes are an integral part of the financial statements.
8
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY 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 -- 98.2%
ASSET BACKED -- 25.4%
ARG Funding 1999-1A A3 6.020% 05/20/2005 $ 600,000 $ 572,648
Advanta Mortgage Loan Trust 1997-4 A4 6.660% 03/25/2022 350,000 348,141
Amresco Residential Securities 1998-2 B1A(a) 7.630% 06/25/2028 575,000 517,500
BankBoston Home Equity Loan 1998-1 A2 6.220% 02/25/2013 450,000 444,656
Chase Manhattan Auto Owner 1997-B 6.750% 01/15/2004 600,000 597,539
Chase Manhattan Credit Card Master Trust
1996-3 A 7.040% 02/15/2004 555,000 556,691
Chemical Master Credit Card Trust 1995-2 A 6.230% 06/15/2003 200,000 199,436
Discover Credit Card 1999-1B 5.550% 08/15/2004 600,000 578,808
First USA 1998-1 C 144A 6.500% 05/18/2003 450,000 431,644
Ford Credit Auto Owner Trust 1997-B B 6.400% 05/15/2002 500,000 495,155
Green Tree Lease Finance 1997-1 C 6.850% 09/20/2005 327,795 320,931
Gulf States Auto Grantor Trust 1996-B A 6.600% 05/25/2003 84,846 84,727
Independent National Mortgage Corp. 1998-2 A2 6.170% 12/25/2011 350,000 342,891
MMCA Automobile Trust 1998-1 A3 5.860% 08/16/2004 350,000 347,375
MMCA Automobile Trust 1999-2 A2 6.800% 08/15/2003 600,000 597,844
Premier Auto Trust 1997-1B ERISA 6.550% 09/06/2003 700,000 694,540
Standard Credit Card 1998-1 A6(a) 6.810% 03/23/2003 500,000 497,656
TMS Home Equity Trust 1996-A A5 ERISA 6.850% 06/15/2019 76,890 76,770
Toyota Auto Lease 1997-A B 6.750% 09/25/2001 500,000 488,150
UCFC Home Equity Loan Trust 1993-B A1 6.075% 07/25/2014 268,592 268,592
UCFC Home Equity Loan Trust 1994-D1 A4 8.775% 02/10/2016 699,862 704,236
UCFC Home Equity Loan Trust 1996-A1 A5 6.500% 03/15/2016 161,073 160,520
World Omni Auto Lease 1997-A B Non-ERISA 144A 7.300% 06/25/2003 341,772 341,772
-----------
Total Asset Backed (Cost $9,798,590) 9,668,222
-----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.0%
Collateralized Mortgage Obligation Trust
13-A(a) 7.000% 01/20/2003 2,966 2,951
-----------
Total Collateralized Mortgage Obligations
(Cost $2,944) 2,951
-----------
CORPORATE -- 39.9%
BANK BONDS -- 10.8%
Aristar Inc. 6.000% 08/01/2001 600,000 588,306
Branch Banking & Trust 5.700% 02/01/2001 250,000 247,015
Chase Manhattan Corp. Sub. Notes NCL 9.375% 07/01/2001 600,000 620,832
Firstar Corp. Medium Term Notes(a) 6.410% 08/03/2001 600,000 600,797
NationsBank Corp. 5.750% 03/15/2001 350,000 345,604
NationsBank Corp. Sub. Notes NCL 8.125% 06/15/2002 270,000 276,110
US Bancorp Notes NCL 6.350% 09/28/2001 850,000 839,026
Wells Fargo & Co. 8.375% 05/15/2002 600,000 617,220
-----------
4,134,910
-----------
FINANCIAL -- 17.6%
AT& T Capital Corp. 6.250% 05/15/2001 500,000 495,215
Avalon Bay Comm Notes 6.500% 07/15/2003 500,000 477,675
BankBoston Corp. Medium Term Notes(a) 6.230% 08/24/2001 500,000 499,706
Bear Stearns Co. 6.500% 08/01/2002 725,000 710,833
Carramerica Realty Corp. 6.625% 10/01/2000 160,000 158,490
Chartwell Real Estate Holdings Senior Notes 10.250% 03/01/2004 650,000 663,000
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE{.} (NOTE 1A)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chelsea GCA Realty 7.750% 01/26/2001 $ 600,000 $ 597,012
Conseco Inc. 6.400% 06/15/2001 150,000 145,263
Conseco Inc. 6.400% 02/10/2003 600,000 564,856
Ford Motor Credit 8.200% 02/15/2002 350,000 357,980
General Electric Capital Corp. Medium Term
Notes 6.520% 10/08/2002 625,000 618,575
IBM Credit Corp. 6.450% 11/12/2002 625,000 618,431
Lehman Brothers Holding Inc. Medium Term
Notes 6.000% 02/26/2001 600,000 593,700
Salomon Brothers Inc. Senior Notes 7.750% 05/15/2000 75,000 75,361
Spieker Properties REIT 6.650% 12/15/2000 75,000 74,466
Wellsford Residential Property REIT 7.250% 08/15/2000 50,000 49,831
-----------
6,700,394
-----------
INDUSTRIAL BONDS -- 11.5%
COMDISCO Inc. Notes NCL 6.000% 01/30/2002 500,000 484,625
Cox Communications Inc. 7.000% 08/15/2001 250,000 249,468
DeepTech International 12.000% 12/15/2000 600,000 611,346
Enron Corp. 6.450% 11/15/2001 500,000 492,830
Enterprise Corp. Notes 7.000% 06/15/2000 250,000 250,533
Safeway Store Notes NCL 7.000% 09/15/2002 600,000 597,336
Tele-Commun Inc. 8.250% 01/15/2003 450,000 465,656
Tyco International Ltd. 6.500% 11/01/2001 600,000 590,568
WMX Technologies 7.100% 08/01/2026 350,000 324,328
Wheeling-Pittsburgh Corp. 9.375% 11/15/2003 325,000 332,546
-----------
4,399,236
-----------
Total Corporate (Cost $15,467,741) 15,234,540
-----------
GOVERNMENT/OTHER -- 3.5%
EURODOLLAR -- 1.1%
Argentina Notes NCL 0.000% 04/15/2001 450,000 402,750
-----------
YANKEE BONDS -- 2.4%
Banco Latinoamericano 144A Notes 6.500% 04/02/2001 300,000 295,150
Edperbrascan Ltd. Notes 7.375% 10/01/2002 625,000 613,525
-----------
908,675
-----------
Total Government/Other (Cost $1,333,262) 1,311,425
-----------
NON-AGENCY -- 0.7%
PASS THRU SECURITIES -- 0.7%
MLMI Mortgage Inv. 1995-C2 D Non-ERISA 7.495% 06/15/2021 271,497 268,131
Resolution Trust Corp. 1995-1 A2C ERISA 7.500% 10/25/2028 5,422 5,397
-----------
Total Non-Agency (Cost $284,359) 273,528
-----------
U.S. GOVERNMENT AGENCY -- 14.9%
FHLB 5.875% 08/15/2001 3,100,000 3,071,914
FHLB 6.000% 11/15/2001 1,200,000 1,185,936
FHLMC 5.500% 05/15/2002 900,000 878,346
FNMA 6.140% 06/12/2002 450,000 443,529
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY 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 (CONTINUED)
Private Export Funding Corp. 6.860% 04/30/2004 $ 90,000 $ 90,073
-------------
Total U.S. Government Agency (Cost $5,699,511) 5,669,798
-------------
U.S. TREASURY OBLIGATIONS -- 13.8%
TREASURY NOTES -- 13.8%
U.S. Treasury Note 5.375% 02/15/2001 4,400,000 4,362,864
U.S. Treasury Note 5.625% 11/30/2000 900,000 896,202
-------------
Total U.S. Treasury Obligations (Cost $5,274,993) 5,259,066
-------------
TOTAL BONDS AND NOTES (COST $37,861,400) 37,419,530
-------------
SHORT-TERM INVESTMENTS -- 0.3%
REPURCHASE AGREEMENTS -- 0.3%
Prudential-Bache Repurchase Agreement, dated 12/31/99, due 01/03/00, with a
maturity value of $116,785 and an effective yield of 2.00%, collateralized by a
U.S. Government Agency Obligation with a rate of 6.00%, a maturity date of
03/01/14 and a market value of $119,484. 116,766
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $116,766) 116,766
-------------
TOTAL INVESTMENTS -- 98.5%
(COST $37,978,166) $ 37,536,296
OTHER ASSETS, LESS LIABILITIES -- 1.5% 573,157
-------------
NET ASSETS -- 100.0% $ 38,109,453
=============
</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.
FHLB - Federal Home Loan Bank
FHLMC - Federal Home Loan Mortgage Corporation
FNMA - Federal National Mortgage Association
MLMI - Merrill Lynch Mortgage Investors, Inc.
MMCA - Mitsubishi Motors Credit of America
NCL - Non-callable
REIT - Real Estate Investment Trust
TMS - The Money Store
UCFC - United Companies Financial Corporation
{.} Denominated in United States dollars except for foreign country specific
bonds which are denominated in their respective local currency.
(a) Variable Rate Security; rate indicated is as of 12/31/99.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY 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 Controlled Maturity 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. Realized gains
and losses from securities sold are recorded on the identified cost basis.
Interest income is determined on the basis of interest accrued, adjusted
for accretion of discount or amortization of premium on debt securities
when required for federal income tax purposes.
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
$5,003, $88,743 and $236,142 which will expire on December 31, 2004, 2005
and 2007, respectively. The Fund elected to defer to its fiscal year
ending December 31, 2000, $61,378 of losses recognized during the period
November 1, 1999 to December 31, 1999.
12
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
E. DEFERRED ORGANIZATION EXPENSE
Costs incurred by the Fund in connection with its organization and initial
registration are being amortized on a straight-line basis through June
2000.
F. DISTRIBUTIONS TO SHAREHOLDERS:
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. 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, administrative services, and general
office facilities, is paid monthly at the annual rate of 0.30% of the
Fund's average daily net assets. SA&W voluntarily agreed to waive its
investment advisory fee and to limit the Fund's total operating expenses
to 0.30% of the Fund's average daily net assets for the year ending
December 31, 1999. Pursuant to this agreement, SA&W voluntarily waived
$70,908 of its investment advisory fee and reimbursed the Fund for $68,958
of operating expenses. 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) 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 $20,795,363 $16,336,287
=========== ===========
Investments (non-U.S.Government Securities) $24,785,127 $16,968,981
=========== ===========
</TABLE>
13
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(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, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Shares sold 1,269,370 1,364,193
Shares issued to shareholders in payment of
distributions declared 61,360 62,459
Shares redeemed (700,006) (786,222)
------------- -------------
Net increase 630,724 640,430
============= =============
</TABLE>
At December 31, 1999, three shareholders were record owners of
approximately 33%, 23%, and 14% of the total outstanding shares of the
Fund, respectively.
(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:
<TABLE>
<S> <C>
Aggregate Cost $37,990,595
===========
Gross unrealized appreciation 7,835
Gross unrealized depreciation (462,134)
-----------
Net unrealized depreciation $ (454,299)
===========
</TABLE>
(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
14
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH CONTROLLED MATURITY FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
basis of the securities purchased by the Fund. The Fund, as writer of an
option, has no control over whether the underlying securities may be sold
(call) or purchased (put) and as a result bears the market risk of an
unfavorable change in the price of the security underlying the written
option.
A summary of such transactions for the year ended December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
WRITTEN CALL OPTION TRANSACTIONS
--------------------------------------------------------------------------------------
NUMBER OF CONTRACTS PREMIUMS
------------------- --------
<S> <C> <C>
Outstanding, beginning of period 0 $ --
Options written 1 1,777
Options closed (1) (1,777)
-- -------
Outstanding, end of period 0 $ --
== =======
</TABLE>
FUTURES CONTRACTS
The Fund may enter into financial futures contracts for the delayed sale
or delivery of securities or contracts based on financial indices at a
fixed price on a future date. Pursuant to 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.
There were no outstanding futures contracts at December 31, 1999.
15
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Controlled Maturity 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 Controlled Maturity 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, 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, Massachusetts 02111-2662
(800) 729-0066
www.standishfunds.com
