Merrimac Cash Portfolio
Schedule of Investments - December 31, 1998
<TABLE>
<CAPTION>
==========================================================================================================================
Yield to Par
Security Maturity Maturity Value Value
==========================================================================================================================
<S> <C> <C> <C> <C>
Commercial Paper - 35.4%
Atlantis One Funding .......................... 5.52% 1/27/99 $ 7,500,000 $ 7,470,100
Atlantis One Funding .......................... 5.37% 3/31/99 7,500,000 7,400,431
Atlantis One Funding .......................... 5.15% 4/26/99 5,000,000 4,917,743
Barton Capital Corporation .................... 5.42% 2/19/99 10,000,000 9,926,228
Budget Funding Corporation .................... 5.40% 2/05/99 15,000,000 14,921,250
Credit Suisse First Boston .................... 5.19% 1/27/99 5,000,000 4,981,258
Equilon Enterprises LLC ....................... 5.27% 2/25/99 15,000,000 14,879,229
Frontier Corporation .......................... 5.10% 3/29/99 10,000,000 9,876,750
General Electric Capital Corporation .......... 4.94% 2/12/99 5,000,000 4,971,183
General Electric Capital Corporation .......... 5.15% 3/09/99 20,000,000 19,808,305
GTE Corporation ............................... 5.47% 2/05/99 4,500,000 4,476,069
Iowa Student Loan Liquidation Company ......... 5.60% 1/20/99 15,000,000 14,955,667
Jefferson Smurfit Financial ................... 5.44% 2/24/99 11,500,000 11,406,160
Lexington Parker Capital ...................... 5.51% 1/04/99 3,500,000 3,498,393
Liberty Lighthouse U.S. Capital .............. 5.41% 2/12/99 11,000,000 10,930,572
Morgan Stanley Dean Witter .................... 5.35% 1/22/99 14,000,000 13,956,309
Paine Webber Group ............................ 5.59-5.60% 3/15/99 30,000,000 29,659,840
Pegasus Four Limited .......................... 5.38% 1/25/99 10,000,000 9,964,133
Pegasus Four Limited .......................... 5.43% 2/26/99 12,446,000 12,340,873
Pegasus Two Limited ........................... 5.47% 1/27/99 12,000,000 11,952,593
Sharp Electronics Corporation ................. 5.48% 1/07/99 13,000,000 12,988,127
Sharp Electronics Corporation ................. 5.42% 3/03/99 10,000,000 9,908,162
Songs Fuel Company ............................ 5.02% 6/21/99 9,000,000 8,785,395
Uniao de Banco Brasilieros SA Grand Cayman .... 5.18% 4/21/99 3,000,000 2,952,517
Westways Funding I Limited .................... 5.32% 1/29/99 8,000,000 7,966,898
Westways Funding IV Limited ................... 5.46% 1/27/99 15,000,000 14,940,850
---------------
279,835,035
---------------
Variable Rate Notes - 21.2%
Bankers Trust Corporation ..................... 4.97-5.80% 1/04/99 16,000,000 15,948,201
Bear Stearns Company .......................... 5.75% 2/17/99 20,000,000 20,000,000
Beneficial Corporation ........................ 5.46% 1/12/99 5,000,000 4,998,146
Donaldson Lufkin & Jenrette ................... 5.56% 1/05/99 33,000,000 33,000,000
General American Life Insurance Company ....... 5.17% 1/04/99 30,000,000 30,000,000
Liberty Lighthouse U.S. Capital .............. 5.60% 1/19/99 5,000,000 4,997,083
Liberty Lighthouse U.S. Capital .............. 5.23% 3/09/99 14,000,000 14,000,000
Morgan Stanley Dean Witter .................... 5.30% 1/15/99 20,000,000 20,000,000
New England Educational Loan Marketing ........ 5.32% 3/08/99 7,500,000 7,500,000
Paine Webber Group ............................ 6.05% 1/21/99 13,000,000 13,000,000
Pittsburgh National Corporation ............... 4.85% 3/11/99 5,000,000 4,998,632
---------------
168,442,062
---------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
9
<PAGE>
Merrimac Cash Portfolio
Schedule of Investments - December 31, 1998
<TABLE>
<CAPTION>
==========================================================================================================================
Yield to Par
Security Maturity Maturity Value Value
==========================================================================================================================
<S> <C> <C> <C> <C>
Corporate Debt - 13.6%
Aetna Services ................................ 5.66% 11/29/99 $ 10,000,000 $ 10,000,000
Bankers Trust Corporation ..................... 5.63% 7/30/99 10,000,000 10,055,813
Bear Stearns Company .......................... 5.56% 3/15/99 9,460,000 9,473,722
Bear Stearns Company .......................... 5.31% 9/15/99 1,540,000 1,564,346
Caterpillar Financial Service Corporation ..... 5.39% 7/01/99 1,000,000 1,006,802
Chemical New York Corporation ................. 5.20% 6/15/99 1,600,000 1,632,336
First Chicago NBD Corporation ................. 5.21-5.40% 7/01/99 9,000,000 9,200,576
First Union Corporation ....................... 5.20% 6/15/99 1,000,000 1,018,881
Fleet Mortgage Group .......................... 5.16-5.32% 9/15/99 6,442,000 6,499,458
Ford Motor Credit Company ..................... 5.32% 9/15/99 1,000,000 1,007,248
General Motors Acceptance Corporation ......... 5.17% 6/22/99 2,585,000 2,609,827
General Motors Acceptance Corporation ......... 4.95-5.32% 9/09/99 4,000,000 4,059,933
Household International BV .................... 5.30% 3/15/99 7,000,000 7,009,827
KeyCorp ....................................... 5.69% 4/01/99 5,680,000 5,717,044
Morgan Stanley Group .......................... 5.22% 9/01/99 1,575,000 1,598,160
Norwest Financial ............................. 5.31% 9/15/99 2,000,000 2,012,101
Salomon Brothers .............................. 5.31% 10/01/99 9,000,000 9,061,274
Sunamerica Corporation ........................ 5.21-5.29% 10/31/99 13,450,000 13,551,554
Texaco Capital Corporation .................... 5.18% 11/01/99 2,500,000 2,556,470
Travelers Property Casualty Corporation ....... 5.23% 10/01/99 5,000,000 5,036,903
Walt Disney Company ........................... 5.05% 6/21/99 3,522,000 3,541,248
------------
108,213,523
------------
Certificates of Deposit - 12.7%
Bayerische Vereinsbank New York ............... 5.21% 5/07/99 5,000,000 5,009,201
National Bank Canada NY ....................... 5.19% 2/17/99 20,000,000 20,000,259
Sanwa Bank, New York .......................... 5.99% 3/02/99 25,000,000 25,000,607
Sanwa Bank, New York .......................... 5.65% 4/05/99 5,500,000 5,500,139
Societe Generale .............................. 5.67% 2/09/99 30,000,000 29,998,463
Svenska Handelsbanken ......................... 5.30% 4/26/99 15,000,000 15,020,986
------------
100,529,655
------------
Yankee Certificates of Deposit - 10.1%
Commerzbank ................................... 5.60% 2/11/99 50,000,000 49,997,305
Credit Agricole ............................... 5.71% 2/26/99 30,000,000 29,997,795
------------
79,995,100
------------
Time Deposits - 2 8%
National City Bank ............................ 4.00% 1/04/99 22,000,000 22,000,000
------------
U.S. Government Agency Obligations - 2.0%
Federal Home Loan Bank ........................ 4.83% 2/03/99 15,000,000 15,000,000
Federal Home Loan Bank ........................ 5.11% 8/18/99 1,035,000 1,040,812
------------
16,040,812
------------
</TABLE>
The accompanying notes are an integral part of the financial statements.
10
<PAGE>
Merrimac Cash Portfolio
Schedule of Investments - December 31, 1998
<TABLE>
<CAPTION>
==========================================================================================================================
Yield to Par
Security Maturity Maturity Value Value
==========================================================================================================================
<S> <C> <C> <C> <C>
Asset Backed Securities - 0.9%
First Sierra Receivables ...................... 5.21% 1/12/00 $ 7,500,000 $ 7,500,000
------------
TOTAL INVESTMENTS, at amortized cost - 98.7% 782,556,187
Other Assets and Liabilities (net) - 1.3% 10,643,660
------------
TOTAL NET ASSETS - 100.0% $793,199,847
============
</TABLE>
Notes to the Schedule of Investments:
* Variable rate securities - maturity dates on these types of securities
reflect the next interest rate reset date or, when applicable, the final
maturity date. Yield to maturity for these securities is determined on the
date of the most recent interest rate change.
The accompanying notes are an integral part of the financial statements.
11
<PAGE>
Merrimac Treasury Portfolio
Schedule of Investments - December 31, 1998
<TABLE>
<CAPTION>
==============================================================================================================
Yield to Par
Security Maturity Maturity Value Value
==============================================================================================================
<S> <C> <C> <C> <C>
U.S. Government Obligations - 78.6%
U.S. Treasury Bill ...................................... 4.32% 1/14/99 $ 5,000,000 $ 4,992,200
U.S. Treasury Bill ...................................... 4.47-4.68% 1/21/99 23,000,000 22,941,133
U.S. Treasury Bill ...................................... 4.40% 2/04/99 20,181,000 20,097,137
U.S. Treasury Note ...................................... 4.08% 1/15/99 4,000,000 4,003,358
U.S. Treasury Note ...................................... 4.69% 1/31/99 14,000,000 14,002,496
U.S. Treasury Note ..................................... 4.36-5.03% 2/15/99 13,000,000 13,016,380
U.S. Treasury Note ...................................... 4.51% 3/31/99 5,000,000 5,020,335
U.S. Treasury Note ...................................... 4.46% 4/15/99 3,000,000 3,021,312
U.S. Treasury Note ...................................... 4.47% 4/30/99 3,000,000 3,019,448
------------
Total U.S. Government Obligations 90,113,799
------------
U.S. Government Agency Obligations - 20.7%
Student Loan Marketing Association ...................... 4.28% 1/04/99 23,788,000 23,779,516
------------
TOTAL INVESTMENTS, at amortized cost - 99.3% 113,893,315
Other Assets and Liabilities (net) - 0.7% 832,626
------------
TOTAL NET ASSETS - 100.0% $114,725,941
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Merrimac Master Portfolio
Statements of Assets and Liabilities
December 31, 1998
<TABLE>
<CAPTION>
======================================================================================================
Cash Portfolio Treasury Portfolio
-------------------- ------------------
<S> <C> <C>
Assets
Investments, at value (Note 1) $ 782,556,187 $ 113,893,315
Cash 155,730 717
Interest receivable 10,539,721 858,458
Deferred organization expense (Note 1) 35,052 4,735
Prepaid assets 111,216 21,167
-------------------- ------------------
Total assets 793,397,906 114,778,392
-------------------- ------------------
Liabilities
Management fee payable (Note 2) 139,469 14,218
Other accrued expenses 58,590 38,233
-------------------- ------------------
Total liabilities 198,059 52,451
-------------------- ------------------
Net Assets Applicable to Investors' Beneficial Interests $ 793,199,847 $ 114,725,941
==================== ==================
</TABLE>
Statements of Operations
For the Year Ended December 31, 1998
================================================================================
<TABLE>
<CAPTION>
Cash Portfolio Treasury Portfolio
-------------------- ------------------
<S> <C> <C>
Income
Interest $ 58,239,893 $ 2,884,352
---------------------- ------------------
Expenses
Management fee (Note 2) 1,760,305 98,068
Trustee fees and expenses 59,497 5,903
Insurance 55,995 6,720
Audit 29,054 23,393
Transaction fees 21,130 7,428
Amortization of organization expense (Note 1) 12,150 1,526
Legal 2,112 2,498
Miscellaneous 5,405 4,266
-------------------- ------------------
Total expenses 1,945,648 149,802
Less: Management fee waived (Note 2) (384,213) --
-------------------- ------------------
Net expenses 1,561,435 149,802
-------------------- ------------------
Net Investment Income 56,678,458 2,734,550
Net Realized Gain on Investments 13,660 966
-------------------- ------------------
Net Increase in Net Assets from Operations $ 56,692,118 $ 2,735,516
==================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Merrimac Master Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
==================================================================================================================================
Cash Portfolio Treasury Portfolio
----------------------------------- --------------------------------------
For the Period
April 2, 1997
Year Ended December 31, (Commencement
----------------------------------- Year Ended of Operations) to
1998 1997 December 31, 1998 December 31, 1997
----------------- -------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 56,678,458 $ 74,983,944 $ 2,734,550 $ 2,361,756
Net realized gain (loss) on investments 13,660 -- 966 (2,590)
---------------- ---------------- ------------------ ----------------
Net increase in net assets from operations 56,692,118 74,983,944 2,735,516 2,359,166
---------------- ---------------- ------------------ ----------------
Transactions in Investors'
Beneficial Interest
Contributions 3,737,889,197 2,193,287,654 360,772,130 255,362,805
Withdrawals (4,386,229,061) (1,889,734,150) (322,698,051) (183,805,625)
---------------- ---------------- ------------------ ----------------
Net increase (decrease) from investors'
transactions (648,339,864) 303,553,504 38,074,079 71,557,180
---------------- ---------------- ------------------ ----------------
Net Increase (Decrease) in Net Assets (591,647,746) 378,537,448 40,809,595 73,916,346
Net Assets
Beginning of period 1,384,847,593 1,006,310,145 73,916,346 --
================ ================ ================== ================
End of period $ 793,199,847 $ 1,384,847,593 $ 114,725,941 $ 73,916,346
================ ================ ================== ================
</TABLE>
Supplementary Data
<TABLE>
<CAPTION>
==================================================================================================================================
Cash Portfolio Treasury Portfolio
----------------------------------------- --------------------------------------
November 12, 1996 April 2, 1997
Year Ended December 31, (Commencement (Commencement
---------------------- of Operations) to Year Ended of Operations) to
1998 1997 December 31, 1996 December 31, 1998 December 31, 1997
--------- ----------- ----------------- ----------------- -------------------
<S> <C> <C> <C> <C> <C>
Annualized Ratios to Average Net Assets
Net expenses 0.15% 0.16% 0.12% 0.26% 0.29%
Net investment income 5.47% 5.51% 5.45% 4.74% 5.06%
Net expenses, before waiver 0.19% 0.19% 0.21% NA NA
Net assets, end of period (000s omitted) $793,200 $1,384,848 $1,006,310 $114,726 $73,916
</TABLE>
The accompanying notes are an integral part of the financial statements.
14
<PAGE>
Merrimac Master Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
The Merrimac Master Portfolio (the "Portfolio Trust") was organized as a
common law trust under the laws of the State of New York and is registered
under the Investment Company Act of 1940 ("1940 Act"), as an open-end
management investment company with its principal offices in the Cayman
Islands. The Merrimac Cash Portfolio (the "Cash Portfolio") and the
Merrimac Treasury Portfolio (the "Treasury Portfolio" and collectively, the
"Portfolios") are separate diversified investment series of the Portfolio
Trust.
The following is a summary of significant accounting policies followed by
the Portfolio Trust in the preparation of its financial statements. The
preparation of financial statements in accordance with generally accepted
accounting principles ("GAAP") 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
Portfolio securities are valued using the amortized cost method, which
involves initially valuing an investment at its cost and thereafter
assuming a constant amortization to maturity of any premium or discount.
This method results in a value approximating market value. Each Portfolio's
use of amortized cost is subject to compliance with certain conditions
specified under Rule 2a-7 of the 1940 Act.
B. Securities Transactions and Income
Interest income consists of interest accrued and discount earned (including
both the original issue and market discount) less premium amortized on the
investments of the Portfolios, accrued ratably to the date of maturity.
Purchases, maturities and sales of money market instruments are accounted
for on the date of transaction. Expenses of the Portfolios are accrued
daily. All investment income, expenses, and realized capital gains and
losses of the Portfolios are allocated pro rata to their investors.
C. Federal Income Taxes
Each Portfolio is considered a partnership under the U.S. Internal Revenue
Code. Accordingly, no provision for federal income taxes is necessary. Each
Portfolio also intends to conduct its operations such that each investor
will be able to qualify as a regulated investment company.
D. Repurchase Agreements
It is the policy of the Cash Portfolio to require the custodian bank to
take possession of all securities held as collateral in support of
repurchase agreement investments. Additionally, procedures have been
established by the Cash Portfolio to monitor, on a daily basis, the market
value of the repurchase agreement's underlying investments to ensure the
existence of a proper level of collateral. The Treasury Portfolio does not
invest in repurchase agreements.
E. Deferred Organization Expense
Costs incurred by each Portfolio in connection with its organization and
initial registration are being amortized on a straight-line basis over a
five year period beginning at the commencement of operations of each
Portfolio.
15
<PAGE>
Merrimac Master Portfolio
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Management Fee and Affiliated Transactions
The Portfolios retain Investors Bank & Trust Company ("Investors Bank") as
investment adviser to continuously review and monitor the Portfolios'
investment program. Allmerica Asset Management, Inc. ("AAM") serves as the
sub-adviser to the Cash Portfolio and Aeltus Investment Management, Inc.
("Aeltus") serves as sub-adviser to the Treasury Portfolio. For its
services to the Portfolios, each sub-adviser is paid a monthly fee by
Investors Bank. For its services as investment sub-adviser to the Cash
Portfolio, AAM is rendered an annual fee, computed and paid monthly by
Investors Bank, based on the average net assets of the Portfolio according
to the following schedule: 0.09% on the first $500,000,000 in assets; 0.07%
on the next $500,000,000 in assets; and 0.06% on assets exceeding
$1,000,000,000 of the Cash Portfolio. For its services as investment
sub-adviser to the Treasury Portfolio, Aeltus is paid a monthly fee by
Investors Bank computed at an annual rate of 0.08% of the average daily net
assets of the Treasury Portfolio. The Portfolios do not pay a fee directly
to either sub-adviser for such services.
Prior to September 1, 1998, The Bank of New York ("BNY") served as
sub-adviser to the Cash Portfolio. A new Sub-Adviser Agreement with AAM was
approved by the Board of Trustees at a meeting held on July 30, 1998 and by
shareholders at a meeting of shareholders held on August 28, 1998.
Investors Bank serves as custodian for the Portfolio Trust. Investor's Fund
Services (Ireland) Limited, a subsidiary of Investors Bank, serves as
administrator. IBT Fund Services (Canada) Inc., a subsidiary of Investors
Bank, serves as fund accounting and transfer agent. For these services,
Investors Bank and its subsidiares are paid a monthly fee at an annual rate
of 0.17% of the average daily assets of the Portfolios. Investors Bank and
BNY voluntarily collectively reduced their fees by $384,213 for the Cash
Portfolio during the year ended December 31, 1998.
Certain trustees and officers of the Portfolio Trust are directors or
officers of Investors Bank. The Portfolio Trust does not pay compensation
to the trustees or officers who are affiliated with the investment adviser.
(3) Investment Transactions
Purchases and combined maturities and sales for the respective Portfolios
for the year ended December 31, 1998 were aggregated as follows:
<TABLE>
<CAPTION>
Cash Portfolio Treasury Portfolio
----------------------- -----------------------
<S> <C> <C>
Purchases $ 47,041,977,701 $ 3,117,322,595
Combined Maturities and Sales (47,664,010,769) (2,978,683,229)
</TABLE>
(4) Subsequent Events
Effective January 4, 1999, M&I Investment Management Corp. ("M&I") replaced
Aeltus as sub-adviser of the Treasury Portfolio. The new Sub-Adviser
Agreement with M&I was approved by the Board of Trustees at a meeting held
on October 26, 1998 and by shareholders at a meeting of shareholders held
on December 18, 1998.
Effective January 4, 1999, the Treasury Portfolio will only invest in
direct obligations of the U.S. Treasury. This non-fundamental investment
policy change was approved by the Board of Trustees at a meeting held on
October 26, 1998.
16
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Trustees and
Owners of Beneficial Interest of
Merrimac Master Portfolio
We have audited the accompanying statements of assets and liabilities, including
the schedule of investments, of the Merrimac Cash Portfolio and the Merrimac
Treasury Portfolio (collectively, the "Portfolios"), the two series comprising
the Merrimac Master Portfolio (the "Portfolio Trust"), as of December 31, 1998,
and the related statements of operations for the year then ended, the statements
of changes in net assets for each of the two years in the period then ended, and
the financial highlights for each of the periods indicated therein. These
financial statements and financial highlights are the responsibility of the
Portfolio Trust's management. Our responsibility is to express an opinion on
these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements and financial highlights. Our procedures included confirmation of
securities owned as of December 31, 1998, by correspondence with the custodian
and brokers, or other appropriate auditing procedures where replies from brokers
were not received. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of each
of the Portfolios at December 31, 1998, the results of their operations for the
year then ended, the changes in their net assets for each of the two years in
the period then ended, and their financial highlights for each of the periods
indicated therein, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
February 18, 1999
17
