STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
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
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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 FIXED INCOME FUND II
MANAGEMENT DISCUSSION AND ANALYSIS
In 1999, 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 maturity. In addition, there
was continued volatility in non-Treasury sectors, with strong out-performance
early in the year, a lag through the middle part of the year and a relatively
strong finish for November and December. In tandem with the crisis environment
of 1998, the fixed income markets have been quite challenging over the last two
years.
The Standish Fixed Income Fund II outperformed its benchmark by 66 basis points
(net of fees) during 1999. 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 both our sector
decisions and our security selection were positive attributes throughout the
year.
During 1999, we were overweight in corporate bond securities versus the index,
which contributed substantially to Fund performance. Importantly, our security
selection (driven by our corporate research effort) was a positive contributor
to performance as well. Throughout the year, we remained very active from a
trading perspective and continued to upgrade the credit quality and liquidity of
the Portfolio. Currently, corporate bonds seem fairly valued, with higher
quality securities trading at levels wider than their long-term averages. We
expect to selectively add exposure subject to credit and value considerations.
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. Mortgage
spreads have widened since year end, and we believe mortgages currently offer
attractive value.
Our posture on duration and yield curve positioning 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. 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 - this also negatively impacted
performance.
We are pleased with the level of outperformance for 1999 and believe that the
outlook is bright for the Fund. The yield on the Fund is well in excess of 64
basis points over the Lehman Aggregate Index and should provide attractive
relative returns over the long term. Our outlook calls for continued
outperformance of non-Treasury sectors relative to the index, and we are well
positioned to take advantage of this, with overweights in both corporate and
mortgage securities. We are working hard to continue to achieve the returns that
you expect from us, and appreciate your continued support.
/s/ Caleb F. Aldrich /s/ David C. Stuehr
Caleb F. Aldrich David C. Stuehr
3
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
COMPARISON OF CHANGE IN VALUE OF $100,000 INVESTMENT IN
STANDISH FIXED INCOME FUND II, LEHMAN GOV'T/CORP INDEX,
AND LEHMAN AGGREGATE INDEX
[The following table was represented as a line graph in the printed materials.]
Standish Fixed Lehman Lehman
Income Fund II Aggregate Index Gov't/Corp. Index
-------------- --------------- -----------------
100000 100000 100000
99550 99780 99615
100500 100984 100889
101350 101964 101914
102757 103289 103412
104315 104838 105118
1 Year 105785 106306 106663
106611 107008 107325
104701 105146 105050
103773 104410 104168
103039 103825 103449
102777 103618 103273
104176 105006 104657
104631 105289 104898
104460 105111 104646
106449 106939 106509
108818 109313 108990
110839 111183 110999
2 Year 109771 110149 109767
110122 110490 109899
110591 110766 110129
109232 109537 108819
110598 111180 110408
111727 112236 111434
113217 113572 112772
116350 116638 116222
115206 115647 114921
116951 117358 116725
117867 119060 118593
118233 119608 119221
3 Year 119196 120816 120473
120377 122362 122172
120253 122264 121927
121249 122680 122305
121753 123320 122921
122824 124486 124241
123461 125544 125508
123461 125808 125608
124100 127856 128063
125764 130848 131725
123241 130154 130790
124600 130896 131575
4 Year 125046 131289 131891
126188 132221 132827
123903 129907 129666
125387 130621 130314
126002 131039 130640
124977 129886 129294
124331 129471 128893
123703 128927 128533
123145 128862 128430
124606 130357 129586
124960 130839 129923
YTD 124960 130826 129845
124837 130198 129053
-------------------------------------
AVERAGE ANNUAL TOTAL RETURN
(FOR PERIODS ENDED 12/31/99)
SINCE
INCEPTION
1 YEAR 3 YEAR 7/3/1995
------ ------ --------
(0.17)% 4.38% 5.05%
-------------------------------------
PAST PERFORMANCE IS NOT PREDICTIVE OF FUTURE PERFORMANCE.
4
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
ASSETS
Investments, at value (Note 1A) (identified cost,
$68,407,989) $65,753,196
Receivable for investments sold 1,883,049
Receivable for Fund shares sold 62
Interest receivable 651,836
Receivable for variation margin on open financial
futures contracts 4,875
Deferred organization costs (Note 1E) 1,257
Prepaid expenses 1,851
-----------
Total assets 68,296,126
LIABILITIES
Payable for delayed delivery transactions (Note 7) $4,897,863
Options written, at value (Note 6) (premiums
received, $112,953) 134,561
Accrued accounting, custody and transfer agent fees 8,866
Accrued trustees' fees and expenses (Note 2) 2,873
Accrued expenses and other liabilities 22,382
----------
Total liabilities 5,066,545
-----------
NET ASSETS $63,229,581
===========
NET ASSETS CONSIST OF:
Paid-in capital $69,042,226
Accumulated net realized loss (3,470,117)
Undistributed net investment income 307,649
Net unrealized depreciation (2,650,177)
-----------
TOTAL NET ASSETS $63,229,581
===========
SHARES OF BENEFICIAL INTEREST OUTSTANDING 3,646,828
===========
NET ASSET VALUE, OFFERING PRICE AND REDEMPTION PRICE
PER SHARE
(Net Assets/Shares outstanding) $ 17.34
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest income $4,867,776
Dividend income 34,124
----------
Total investment income 4,901,900
EXPENSES
Investment advisory fee (Note 2) $ 281,324
Accounting, custody and transfer agent fees 115,403
Legal and audit services 27,181
Trustees' fees and expenses (Note 2) 8,797
Insurance expense 7,810
Registration fees 7,706
Amortization of organization expenses (Note 1E) 2,478
Miscellaneous 5,544
----------
Total expenses 456,243
Deduct:
Waiver of investment advisory fee (Note 2) (174,928)
----------
Net expenses 281,315
----------
Net investment income 4,620,585
----------
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS
Net realized gain (loss)
Investment security transactions (3,994,292)
Financial futures contracts 214,353
Written options transactions 48,035
----------
Net realized loss (3,731,904)
Change in unrealized appreciation (depreciation)
Investment securities (1,047,645)
Financial futures contracts 20,380
Written options (61,391)
----------
Net change in unrealized appreciation
(depreciation) (1,088,656)
----------
Net realized and unrealized loss (4,820,560)
----------
NET DECREASE IN NET ASSETS FROM OPERATIONS $ (199,975)
==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
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 $ 4,620,585 $ 4,856,783
Net realized gain (loss) (3,731,904) 1,314,163
Change in unrealized appreciation (depreciation) (1,088,656) (2,613,653)
------------ ------------
Net increase (decrease) in net assets from investment
operations (199,975) 3,557,293
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS (NOTE 1F)
From net investment income (4,312,416) (4,892,262)
From net realized gains on investments (301,075) (1,061,939)
------------ ------------
Total distributions to shareholders (4,613,491) (5,954,201)
------------ ------------
FUND SHARE (PRINCIPAL) TRANSACTIONS (NOTE 4)
Net proceeds from sale of shares 13,164,618 17,951,155
Value of shares issued to shareholders in payment of
distributions declared 4,153,439 4,428,536
Cost of shares redeemed (27,183,678) (16,654,350)
------------ ------------
Net increase (decrease) in net assets from Fund share
transactions (9,865,621) 5,725,341
------------ ------------
TOTAL INCREASE (DECREASE) IN NET ASSETS (14,679,087) 3,328,433
NET ASSETS
At beginning of year 77,908,668 74,580,235
------------ ------------
At end of year (including undistributed net
investment income of $307,649 and $0,
respectively) $ 63,229,581 $ 77,908,668
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
7
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
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 $ 18.60 $ 19.17 $ 18.73 $ 20.52 $ 20.00
------- ------- ------- ------- -------
FROM INVESTMENT OPERATIONS:
Net investment income* 1.19 1.23 1.11 1.16 0.53
Net realized and unrealized gain
(loss) on investments (1.23) (0.30) 0.46 (0.52) 0.64
------- ------- ------- ------- -------
Total from investment operations (0.04) 0.93 1.57 0.64 1.17
------- ------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS:
From net investment income (1.15) (1.24) (1.11) (1.15) (0.53)
In excess of net investment income -- -- -- -- (0.12)
From net realized gain on investments (0.07) (0.26) (0.02) (1.28) --
------- ------- ------- ------- -------
Total distributions to shareholders (1.22) (1.50) (1.13) (2.43) (0.65)
------- ------- ------- ------- -------
NET ASSET VALUE, END OF YEAR $ 17.34 $ 18.60 $ 19.17 $ 18.73 $ 20.52
======= ======= ======= ======= =======
TOTAL RETURN+++ (0.17)% 4.91% 8.59% 3.77% 5.79%
RATIOS/SUPPLEMENTAL DATA:
Expenses (to average daily net
assets)* 0.40% 0.40% 0.40% 0.40% 0.40%++
Net Investment Income (to average
daily net assets)* 6.57% 6.36% 6.58% 6.57% 6.64%++
Portfolio Turnover 190% 162% 103% 124% 389%
Net Assets, End of Year (000's
omitted) $63,230 $77,909 $74,580 $35,485 $ 8,046
</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 $ 1.14 $ 1.19 $ 1.06 $ 1.04 $ 0.29
RATIOS (TO AVERAGE DAILY NET ASSETS):
Expenses 0.65% 0.62% 0.74% 1.06% 1.29%++
Net investment income 6.32% 6.14% 6.24% 5.91% 5.75%++
</TABLE>
(1) Calculated based on average shares outstanding.
+ For the period from July 3, 1995 (commencement of operations) to
December 31, 1995.
++ Computed on an annualized basis.
+++ Total return would have been lower in the absence 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 FIXED INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BONDS AND NOTES -- 96.4%
ASSET BACKED -- 4.8%
ARG Funding 1999-1A A3 6.020% 05/20/2005 $ 700,000 $ 668,090
Chase Credit Card Master Trust 1999-3 B 6.950% 01/15/2007 725,000 712,312
Citibank Credit Card Master 1999-7 A 6.650% 11/15/2006 625,000 612,106
Green Tree Financial Corp. 1997-6 B2
Non-ERISA 7.750% 01/15/2029 250,000 189,473
Preferred Credit Corp. 1997-1 A6 Non-ERISA 7.590% 07/25/2026 300,000 293,812
Residential Funding 1997-HS5 M1 7.010% 05/25/2027 550,000 532,039
----------
Total Asset Backed (Cost $3,141,527) 3,007,832
----------
COLLATERALIZED MORTGAGE OBLIGATIONS -- 0.3%
Housing Securities, Inc. 1994-2 A1 6.500% 07/25/2009 227,519 221,924
----------
Total Collateralized Mortgage Obligations
(Cost $219,087) 221,924
----------
CORPORATE -- 26.7%
BANK BONDS -- 4.5%
Bank United Corp. Notes+ 8.875% 05/01/2007 525,000 481,687
Branch Bank & Trust Notes(a) 6.375% 06/30/2005 600,000 563,832
First Union Bank Sub. Notes NCL 5.800% 12/01/2008 650,000 575,100
Firstar Bank 7.125% 12/01/2009 450,000 435,582
U.S. Bancorp Notes NCL 6.000% 05/15/2004 600,000 570,173
Union Planters Corp. Sub. Notes NCL 6.250% 11/01/2003 240,000 229,058
----------
2,855,432
----------
FINANCIAL -- 7.1%
American Annuity Group Senior Notes 6.875% 06/01/2008 300,000 268,947
Conseco Finance Trust Cap. Notes 8.796% 04/01/2027 550,000 498,146
Equity Office Properties Trust+ 6.625% 02/15/2005 250,000 235,800
Florida Windstorm 144A Notes 7.125% 02/25/2019 200,000 185,361
Florida Windstorm 144A Notes NCL+ 6.700% 08/25/2004 225,000 215,154
Ford Motor Credit Corp. 6.700% 07/16/2004 725,000 709,594
General Electric Credit Corp. Notes 6.267% 07/23/2003 350,000 341,159
MMI Capital Trust Notes 7.625% 12/15/2027 725,000 558,250
Meditrust REIT Notes 7.375% 07/15/2000 275,000 242,000
Morgan Stanley Corp. 7.125% 01/15/2003 600,000 599,526
Phoenix Re-Insurance Corp. NC '07+ 8.850% 02/01/2027 550,000 385,780
Simon Debartolo Notes NCL 6.750% 06/15/2005 250,000 233,152
----------
4,472,869
----------
INDUSTRIAL BONDS -- 15.1%
CSX Notes 6.250% 10/15/2008 650,000 588,178
CVS Corp. 5.500% 02/15/2004 275,000 256,006
Coastal Corp. Notes NCL 6.200% 05/15/2004 400,000 379,564
Cox Enterprises 144A Notes 6.625% 06/14/2002 725,000 710,616
Daimler Chrysler National Holding 6.900% 09/01/2004 650,000 640,548
Electronic Data System 7.450% 10/15/2029 250,000 242,295
Enron Corp. 6.450% 11/15/2001 350,000 344,981
Fort James Corp. Senior Notes 6.875% 09/15/2007 375,000 356,002
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
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STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INDUSTRIAL BONDS (CONTINUED)
Great Lakes Chemical Corp. Notes 7.000% 07/15/2009 $ 725,000 $ 691,664
ICI Wilmington 6.750% 09/15/2002 325,000 318,617
Idex Corp. Senior Notes NCL 6.875% 02/15/2008 650,000 571,967
La Quinta Inns, Inc. Medium Term Notes 7.110% 10/17/2001 300,000 263,801
Norfolk Southern Corp. 6.950% 05/01/2002 375,000 373,380
Safeway Store Notes 7.250% 09/15/2004 1,075,000 1,064,648
TRW Inc. 6.625% 06/01/2004 600,000 577,302
Times Mirror Co. 7.450% 10/15/2009 175,000 173,910
USA Waste Services Inc. Senior Notes 6.500% 12/15/2002 350,000 323,377
Viacom Inc. Senior Notes 7.750% 06/01/2005 300,000 301,959
WMX Technologies 7.100% 08/01/2026 350,000 324,327
WMX Technologies 144A 6.875% 05/15/2009 375,000 316,221
Wisconsin Central Transportation Notes+ 6.625% 04/15/2008 800,000 739,656
----------
9,559,019
----------
Total Corporate (Cost $18,076,262) 16,887,320
----------
GOVERNMENT/OTHER -- 9.4%
YANKEE BONDS -- 9.4%
Amvescap Senior Notes 6.600% 05/15/2005 575,000 544,381
Edperbrascan Ltd. Notes+ 7.375% 10/01/2002 1,100,000 1,079,804
Lite-On Tech 144A CVT* 0.000% 12/15/2002 700,000 726,250
Merita Bank FLIRB 144A Notes 7.150% 12/29/2049 325,000 314,067
Merita Bank Perpetual FLIRB 144A 7.500% 12/29/2049 200,000 189,716
National Westminster Bank Perpetual 10 Yr.
FLIRB(a) 7.750% 04/29/2049 900,000 872,649
Nova Chemical Ltd. Notes 6.500% 09/22/2000 200,000 198,812
Province of Quebec 7.500% 09/15/2029 350,000 339,280
Province of Quebec 8.800% 04/15/2003 250,000 261,295
Royal Caribbean Cruise Senior Notes 7.500% 10/15/2027 550,000 497,497
Stagecoach Holdings 8.625% 11/15/2009 300,000 299,010
Tyco International Ltd. 144A 6.875% 09/05/2002 625,000 614,149
----------
5,936,910
----------
Total Government/Other (Cost $6,116,309) 5,936,910
----------
NON-AGENCY -- 4.0%
PASS THRU SECURITIES -- 4.0%
Chase Commercial Mortgage 1996-1E Non-ERISA 7.600% 06/18/2006 725,000 665,641
Franchise Mortgage Acceptance Corp. 1997-1A 7.350% 04/15/2019 415,768 407,713
Merrill Lynch Mortgage Investments 1996-C2 E
Non-ERISA 6.960% 11/21/2028 400,000 332,720
Merrill Lynch Mortgage Investments 1997-C1 D
Non-ERISA 7.120% 06/18/2029 500,000 457,400
Morgan Stanley Capital I 1997-WF1 E 7.490% 05/15/2009 500,000 450,313
Mortgage Capital Funding 1996 MC1A-C
Non-ERISA 7.800% 04/15/2006 100,000 99,625
Resolution Trust Corp. 1994-C2 C Non-ERISA 8.000% 04/25/2025 3,873 3,853
Resolution Trust Corp. 1995-2 CA1 7.450% 05/25/2029 117,626 115,127
----------
2,532,392
----------
Total Non-Agency (Cost $2,743,625) 2,532,392
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
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 -- 40.7%
PASS THRU SECURITIES -- 40.7%
FHLMC + 5.750% 06/15/2001 - 03/15/2009 $4,425,000 $4,157,277
FNMA 6.500% 08/15/2004 - 08/01/2029 2,368,261 2,237,712
FNMA 7.000% 10/01/2014 - 11/01/2014 1,288,905 1,273,992
FNMA++ 7.500% 01/01/2030 2,525,000 2,496,594
FNMA+ 9.000% 11/01/2025 509,477 530,172
GNMA+ 7.000% 11/15/2027 - 07/15/2028 4,289,986 4,144,188
GNMA 7.500% 08/15/2029 - 10/15/2029 2,439,039 2,411,601
GNMA+,++ 8.000% 04/15/2023 - 01/15/2030 7,493,111 7,569,637
GNMA+ 9.000% 12/15/2017 883,985 932,604
----------
25,753,777
----------
Total U.S. Government Agency (Cost $26,273,691) 25,753,777
----------
U.S. TREASURY OBLIGATIONS -- 10.5%
TREASURY BONDS -- 6.0%
U.S. Treasury Bond+ 8.125% 05/15/2021 3,300,000 3,782,625
----------
TREASURY NOTES -- 4.5%
U.S. Treasury Inflation Index Note 3.967% 01/15/2009 1,175,000 1,164,277
U.S. Treasury Note+ 4.625% 11/30/2000 800,000 789,496
U.S. Treasury Note+ 5.250% 05/31/2001 525,000 518,275
U.S. Treasury Note+ 6.625% 04/30/2002 375,000 377,873
----------
2,849,921
----------
Total U.S. Treasury Obligations (Cost $6,829,288) 6,632,546
----------
TOTAL BONDS AND NOTES (COST $63,399,789) 60,972,701
----------
<CAPTION>
SHARES
---------
<S> <C> <C>
PREFERRED STOCKS -- 0.8%
Equity Office Properties Trust 144A CVT 13,000 500,500
----------
TOTAL PREFERRED STOCKS (COST $650,000) 500,500
----------
<CAPTION>
CONTRACT
SIZE
---------
<S> <C> <C>
PURCHASED OPTIONS -- 0.0%
UST 6.00% Call, Strike Price 100.65, 05/05/2000 12,000 4,308
UST 6.00% Call, Strike Price 100.75, 03/03/2000 17,000 1,683
UST 6.00% Call, Strike Price 98.72, 02/15/2000 8,560 2,340
UST 6.00% Call, Strike Price 99.16, 04/17/2000 19,000 10,032
UST 6.00% Call, Strike Price 99.18, 02/15/2000 8,210 1,593
----------
TOTAL PURCHASED OPTIONS (COST $98,161) 19,956
----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
SCHEDULE OF INVESTMENTS - DECEMBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PAR VALUE
SECURITY RATE MATURITY VALUE (NOTE 1A)
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS -- 6.8%
U.S. GOVERNMENT AGENCY -- 5.8%
FHLMC Discount Note 5.600% 01/25/2000 $2,380,000 $ 2,371,115
FNMA Discount Note 5.610% 01/19/2000 1,300,000 1,296,353
-----------
3,667,468
-----------
REPURCHASE AGREEMENTS -- 1.0%
Prudential-Bache Repurchase Agreement, dated 12/31/99, due 01/03/00, with a
maturity value of $592,670 and an effective yield of 2.00%, collateralized by
U.S. Government Agency Obligations with a rate of 6.50%, maturity dates
ranging from 05/01/2013 to 01/01/2014 and an aggregate market value of
$604,551. 592,571
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $4,260,039) 4,260,039
-----------
TOTAL INVESTMENTS -- 104.0% (COST $68,407,989) $65,753,196
OTHER ASSETS, LESS LIABILITIES -- (4.0%) (2,523,615)
-----------
NET ASSETS -- 100.0% $63,229,581
===========
</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.
CVT - Convertible
FHLMC - Federal Home Loan Mortgage Corporation
FLIRB - Front Loaded Interest Reduction Bond
FNMA - Federal National Mortgage Association
GNMA - Government National Mortgage Association
NCL - Non-callable
REIT - Real Estate Investment Trust
UST - United States Treasury
{.} 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 6) or
collateral for delayed delivery transactions (Note 7).
(a) Variable Rate Security; rate indicated is as of 12/31/99.
* Non-income producing security.
++ Denotes all or part of a delayed delivery contract (Note 7).
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
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 II (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 carryover is
$2,806,245 which expires on December 31, 2007. The Fund elected to defer
to its fiscal year ending December 31, 2000, $348,791 of losses recognized
during the period November 1, 1999 to December 31, 1999.
E. DEFERRED ORGANIZATION COST
Costs incurred by the Fund in connection with its organization and initial
registration are being amortized on a straight-line basis through June
2000.
13
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
F. DISTRIBUTIONS TO SHAREHOLDERS
Dividends from net investment income and capital gains distributions, if
any, are reinvested in additional shares of the Fund unless the
shareholder elects to receive them in cash. Distributions to shareholders
are recorded on the ex-dividend date. Income and capital gain
distributions are determined in accordance with income tax regulations
which may differ from generally accepted accounting principles. These
differences, which may result in distribution reclassifications, are
primarily due to differing treatments for foreign currency transactions,
passive foreign investment companies (PFIC), litigation proceeds, market
discount, non-taxable dividends, capital loss carryforwards, losses
deferred due to wash sales and excise tax regulations.
Permanent book and tax basis differences relating to shareholder
distributions will result in reclassifications to paid in capital.
Undistributed net investment income and accumulated undistributed net
realized gain (loss) on investments and foreign currency transactions may
include temporary book and tax basis differences which will reverse in a
subsequent period. Any taxable income or gain remaining at fiscal year end
is distributed in the following year.
(2) INVESTMENT ADVISORY FEE:
The investment advisory fee paid to Standish, Ayer & Wood, Inc. (SA&W) for
overall investment advisory and administrative services, and general
office facilities, is paid monthly at the annual rate of 0.40% of the
Fund's average daily net assets. SA&W voluntarily agreed to limit the
Fund's total operating expense to 0.40% of the Fund's average daily net
assets for the year ended December 31, 1999. Pursuant to this agreement,
SA&W voluntarily waived $174,928 of its investment advisory fee. The Trust
pays no compensation directly to its trustees who are affiliated with SA&W
or to its officers, all of whom receive remuneration for their services to
the Trust from SA&W. Certain 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 $104,833,318 $94,405,419
============ ===========
Investments (non-U.S.Government Securities) $ 26,328,920 $47,014,380
============ ===========
</TABLE>
(4) SHARES OF BENEFICIAL INTEREST:
The Declaration of Trust permits the trustees to issue an unlimited number
of full and fractional shares of beneficial interest having a par value of
one cent per share. Transactions in Fund shares were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998
----------------- -----------------
<S> <C> <C>
Shares sold 722,572 926,615
Shares issued to shareholders in payment of
distributions declared 234,263 234,244
Shares redeemed (1,499,739) (861,503)
------------ --------
Net increase (decrease) (542,904) 299,356
============ ========
</TABLE>
At December 31, 1999, one shareholder was record owner of approximately
51% of the total outstanding shares of the Fund. Investment activity of
this shareholder could have a material impact on the Fund.
14
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(5) FEDERAL INCOME TAX BASIS OF INVESTMENT SECURITIES:
The cost and unrealized appreciation (depreciation) in value of the
investment securities owned at December 31, 1999, as computed on a federal
income tax basis, were as follows:
<TABLE>
<S> <C>
Aggregate Cost $68,680,622
===========
Gross unrealized appreciation 30,577
Gross unrealized depreciation (2,958,003)
-----------
Net unrealized depreciation $(2,927,426)
===========
</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 basis of the securities purchased by the Fund.
The Fund, as writer of an option, has no control over whether the
underlying securities may be sold (call) or purchased (put) and as a
result bears the market risk of an unfavorable change in the price of the
security underlying the written option.
A summary of written option transactions for the year ended December 31,
1999 is as follows:
<TABLE>
<CAPTION>
WRITTEN PUT OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of period 2 $ 81,445
Options written 11 240,827
Options expired (2) (10,500)
Options closed (7) (243,022)
---- ----------
Outstanding, end of period 4 $ 68,750
==== ==========
</TABLE>
15
<PAGE>
STANDISH, AYER & WOOD INVESTMENT TRUST
STANDISH FIXED INCOME FUND II
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
WRITTEN CALL OPTION TRANSACTIONS NUMBER OF CONTRACTS PREMIUMS
-----------------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding, beginning of period 5 $ 107,219
Options written 21 235,552
Options exercised (1) (29,750)
Options expired (6) (106,432)
Options closed (14) (162,386)
---- ----------
Outstanding, end of period 5 $ 44,203
==== ==========
</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.
At December 31, 1999, the Fund held the following futures contracts:
<TABLE>
<CAPTION>
UNDERLYING FACE
CONTRACT POSITION EXPIRATION DATE AMOUNT AT VALUE UNREALIZED GAIN
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. 10 Yr. Note (12 contracts) Short 3/31/2000 $1,150,313 $26,224
</TABLE>
At December 31, 1999, the Fund had segregated sufficient cash and/or
securities to cover margin requirements on open futures contracts.
(7) DELAYED DELIVERY TRANSACTIONS:
The Fund may purchase securities on a when-issued, delayed delivery or
forward commitment basis. Payment and delivery may take place a month or
more after the date of the transactions. The price of the underlying
securities and the date when the securities will be delivered and paid for
are fixed at the time the transaction is negotiated. The Fund segregates
securities having a value at least equal to the amount of the purchase
commitment.
At December 31, 1999, the Fund had the following delayed delivery
transactions outstanding:
<TABLE>
<CAPTION>
TYPE SECURITY SETTLEMENT DATE PAYABLE AMOUNT
-----------------------------------------------------------------------
<S> <C> <C> <C>
Buy FNMA 1/19/2000 $1,298,883
Buy FNMA 1/25/2000 1,214,281
Buy GNMA 1/25/2000 1,194,369
Buy GNMA 1/25/2000 1,190,330
-----------
$4,897,863
===========
</TABLE>
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees of Standish, Ayer & Wood Investment Trust and the Shareholders
of Standish Fixed Income Fund II:
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 Fixed Income Fund II (the "Fund"), at December 31, 1999, the
results of its operations, the changes in its net assets and the financial
highlights for the periods indicated therein, in conformity with accounting
principles generally accepted in the United States. These financial statements
and financial highlights (hereafter referred to as "financial statements") are
the responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at December
31, 1999 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 18, 2000
17
<PAGE>
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18
<PAGE>
[Logo] Standish Funds(R)
One Financial Center
Boston, Massachusetts 02111-2662
(800) 729-0066
www.standishfunds.com
