[MERRIMAC LOGO]
January 27, 1999
Dear Shareholder:
We are pleased to provide you with the 1998 Annual Report of the Merrimac Cash
Fund. The fund purchases an interest in the Merrimac Cash Portfolio with its
investable assets rather than creating its own portfolio of investment
securities. In this way, the fund obtains the economies and efficiencies of
investment by a larger pool of assets. The investment objective of Merrimac Cash
Fund and Merrimac Cash Portfolio are identical. They seek as high a level of
current income as is consistent with the preservation of capital and liquidity.
On September 1, 1998, Allmerica Asset Management, Inc. replaced The Bank of New
York as sub-adviser for the Merrimac Cash Portfolio. We thank BNY both for their
investment management expertise since the start of the portfolio's operations in
November 1996 and for their overall support in the development of the Merrimac
products.
Allmerica began its tenure at a time of great industry anticipation of a move by
3the Federal Reserve on the interest rate front. We applaud Allmerica for their
efforts in structuring and managing the investment portfolio to achieve
excellent performance through three easings of the Federal Funds target rate
between September 29 and November 17 and onward to the end of the year.
We thank our shareholders for your support and participation. We look forward to
continuing to serve you in the future.
Very truly yours,
/s/ Paul J. Jasinski
Paul J. Jasinski
President
200 Clarendon Street o Boston, MA 02116
1.888.MERRMAC o Fax 617.587.4402
<PAGE>
Merrimac Cash Fund
Statement of Assets and Liabilities
December 31, 1998
================================================================================
<TABLE>
<S> <C>
Assets
Investment in Merrimac Cash Portfolio, at value (Note 1) $668,469,824
Deferred organization expense (Note 1) 39,375
------------
Total assets 668,509,199
Liabilities
Distributions payable to shareholders 3,572,992
Accrued expenses 32,417
------------
Total liabilities 3,605,409
------------
Net Assets $664,903,790
============
Net Assets Consist of
Paid in capital $664,894,034
Accumulated net realized gain on investments 9,756
------------
Total net assets $664,903,790
============
Total Net Assets
Premium Class $655,046,958
============
Institutional Class $ 9,856,832
============
Shares of Beneficial Interest Outstanding
Premium Class 655,037,216
============
Institutional Class 9,856,818
============
Net Asset Value, Maximum Offer and Redemption Price per Share $ 1.00
============
</TABLE>
Statement of Operations
For the Year Ended December 31, 1998
================================================================================
<TABLE>
<S> <C>
Net Investment Income Allocated from Portfolio (Note 1)
Interest $ 51,436,463
Expenses (1,354,366)
------------
Net investment income from Portfolio 50,082,097
------------
Fund Expenses
Accounting, transfer agency, and administration fees (Note 4) 91,223
Legal 30,678
Insurance 24,414
Trustees fees and expenses 13,324
Audit and tax return preparation fees 21,888
Printing 1,153
Amortization of organization expenses (Note 1) 13,501
Miscellaneous 7,331
------------
Total expenses common to all classes 203,512
Shareholder servicing fee-Institutional Class 234,939
------------
Total expenses 438,451
------------
Net Investment Income 49,643,646
Net Realized Gain on Investments from Portfolio 9,756
------------
Net Increase in Net Assets from Operations $ 49,653,402
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE>
Merrimac Cash Fund
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
========================================================================================================
Year Ended December 31,
------------------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 49,643,646 $ 72,603,059
Net realized gain from Portfolio 9,756 --
------------------ ------------------
Net increase in net assets from operations 49,653,402 72,603,059
------------------ ------------------
Dividends Declared from Net Investment Income
Premium Class (44,674,176) (64,735,055)
Institutional Class (4,969,470) (7,868,004)
------------------ ------------------
Total dividends declared (49,643,646) (72,603,059)
------------------ ------------------
Fund Share Transactions (Note 7)
Proceeds from shares sold 3,205,476,292 2,131,629,146
Proceeds from shares reinvested 6,112,095 1,658,508
Payment for shares redeemed (3,864,677,195) (1,818,650,746)
------------------ ------------------
Net increase (decrease) in net assets
derived from share transactions (653,088,808) 314,636,908
------------------ ------------------
Net increase (decrease) in net assets (653,079,052) 314,636,908
Net Assets
Beginning of period 1,317,982,842 1,003,345,934
------------------ ------------------
End of period $ 664,903,790 $1,317,982,842
================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE>
Merrimac Cash Fund
Financial Highlights
================================================================================
Selected data for a share of beneficial interest outstanding throughout each
period is presented below:
<TABLE>
<CAPTION>
Premium Class Institutional Class
-------------------------------------------- ------------------------------------------------
Year Ended Nov. 12, 1996 Year Ended Nov. 12, 1996
December 31, (Commencement December 31, (Commencement
------------------------ of Operations) to ------------------------ of Operations) to
1998 1997 December 31, 1996 1998 1997 December 31, 1996
-------- ---------- ----------------- -------- --------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Net Asset Value, Beginning of
Period $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- ---------- ---------- -------- --------- ----------
Net investment income 0.055 0.055 0.006 0.052 0.052 0.006
Dividends from net investment
income (0.055) (0.055) (0.006) (0.052) (0.052) (0.006)
-------- ---------- ---------- -------- --------- ----------
Net Asset Value, End of Period $1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ========== ========== ======== ========= ==========
Total Return (1) 5.59% 5.64% 5.42% 5.33% 5.37% 5.17%
Annualized Ratios to Average
Net Assets/Supplemental Data
Net expenses 0.16% 0.18% 0.15% 0.41% 0.43% 0.40%
Net investment income 5.46% 5.49% 5.42% 5.21% 5.24% 5.17%
Net expenses, before waiver 0.20% 0.21% 0.24% 0.45% 0.46% 0.49%
Net assets, end of period
(000s omitted) $655,049 $1,119,556 $875,936 $ 9,857 $198,427 $127,410
</TABLE>
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions are assumed reinvested at the
net asset value on the payable date. Total return is computed on an
annualized basis.
The accompanying notes are an integral part of the financial statements.
4
<PAGE>
Merrimac Cash Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(1) Significant Accounting Policies
The Merrimac Funds (the "Trust") was organized as a Delaware business trust
and is registered under the Investment Company Act of 1940, as an open-end
management investment company. The Merrimac Cash Fund (the "Fund") is a
separate diversified investment portfolio or series of the Trust. The Fund
consists of three classes of shares, the Premium Class, the Institutional
Class and the Placement Class.
The Fund seeks to achieve its investment objective by investing all of its
investable assets in the Merrimac Cash Portfolio (the "Portfolio"), an
open-end management investment company and a series of the Merrimac Master
Portfolio. The Fund has the same investment objective as the Portfolio. The
performance of the Fund is directly affected by the performance of the
Portfolio. The Portfolio seeks to achieve a high level of current income,
consistent with the preservation of capital and liquidity. The financial
statements of the Portfolio are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements. At
December 31, 1998 the investment by the Fund represents ownership of a
proportionate interest of 84.3% of the Portfolio.
It is the policy of the Fund to maintain a net asset value of $1.00 per
share; the Fund has adopted certain investment, valuation, dividend and
distribution policies which conform to general industry practice, to enable
it to do so. However, there is no assurance that the Fund will be able to
maintain a stable net asset value.
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 ("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
The Fund records investments in the Portfolio at value. Valuation of
securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes
to Financial Statements, which are included elsewhere in this report.
B. Securities Transactions and Income
The Portfolio records securities transactions as of the trade date.
Interest income, including the accretion of discount or the amortization of
premium, is recognized when earned. Gains or losses on sales of securities
are calculated on the identified cost basis. The Fund's net investment
income consists of its pro rata share of the net investment income of the
Portfolio, less all expenses of the Fund determined in accordance with
GAAP.
C. Federal Income Taxes
The Fund intends to qualify annually as a regulated investment company
under Subchapter M of the Internal Revenue Code, and thus not be subject to
income taxes. To qualify, the Fund must distribute 90% of its taxable
income for its fiscal year and meet certain other requirements.
Accordingly, no provision for federal income taxes is required.
D. Deferred Organization Expense
Costs incurred by the Fund 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.
E. Expense Allocation
Expenses directly attributable to the Fund are charged to the Fund.
Expenses not directly attributable to a specific fund within the Trust are
allocated, based on relative net assets, to each fund.
5
<PAGE>
Merrimac Cash Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(2) Dividends and Distributions to Shareholders
Dividends on the shares of the Fund are declared each business day to
shareholders of record on that day, and paid or reinvested as of the last
business day of the month. Distributions of net realized gains, if any, may
be declared annually. Dividends and distributions are determined in
accordance with federal income tax regulations, which may differ from GAAP.
(3) Shareholder Servicing and Placement Plans
The Trust has adopted Shareholder Servicing Plans with respect to the
Institutional Class and Placement Class under which certain service
organizations may be compensated for providing shareholder accounting and
other administrative services for their clients. The Institutional Class
and Placement Class will pay an annual fee of up to 0.25% of the value of
the assets that an organization services on behalf of its clients. Under a
Placement Agreement, the Placement Class will also pay an annual placement
fee of up to 0.25% of the value of the assets that an organization invests
in the funds on behalf of its clients. The Placement Class has not yet
commenced operations.
(4) Management Fee and Affiliated Transactions
The Portfolio retains Investors Bank & Trust Company ("Investors Bank") as
investment adviser. Allmerica Asset Management, Inc. ("AAM") serves as
sub-adviser to the Portfolio. The Fund pays no direct fees for such
services, but indirectly bears its pro rata share of the compensation paid
by the Portfolio. See Note 2 of the Portfolio's Notes to Financial
Statements which are included elsewhere in this report.
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 administrator, custodian and transfer agent to the
Trust. IBT Fund Services (Canada) Inc., a subsidiary of Investors Bank,
provides fund accounting for the Fund. For these services, Investors Bank
and its subsidiary are paid a monthly fee at an annual rate of 0.01% of the
average daily net assets of the Fund.
Certain trustees and officers of the Trust are directors or officers of
Investors Bank. The Fund does not pay compensation to its trustees or
officers who are affiliated with the investment adviser.
(5) Investment Transactions
The Fund's investments in and withdrawals from the Portfolio for the period
from January 1, 1998 to December 31, 1998 aggregated $3,211,588,387 and
$3,917,797,476 respectively.
(6) Line of Credit
The Fund has an agreement with BNY which provides the Fund with an
unsecured line of credit for advances to the Fund of up to $100 million.
The proceeds of advances made under this line of credit may be used only
for extraordinary or emergency purposes and to provide temporary liquidity
for redemptions of the Fund's securities. Since the line of credit was
established, there have been no borrowings.
6
<PAGE>
Merrimac Cash Fund
Notes to Financial Statements
- --------------------------------------------------------------------------------
(7) Shares of Beneficial Interest
The Declaration of Trust permits the Trustees to issue an unlimited number
of shares of beneficial interest having a par value of $0.001 per share.
Transactions in Fund shares at $1.00 per share for each class were as
follows:
<TABLE>
<CAPTION>
Premium Class Institutional Class
------------------------------------ ---------------------------------
Year Ended December 31, Year Ended December 31,
------------------------------------ ---------------------------------
1998 1997 1998 1997
----------------- ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Proceeds from shares sold............ 2,762,456,356 1,359,423,000 443,019,936 772,206,146
Proceeds from shares reinvested...... 5,086,657 303,648 1,025,438 1,354,860
Payment for shares redeemed.......... (3,232,061,975) (1,116,106,470) (632,615,220) (702,544,276)
----------------- ------------------ ----------------- ---------------
Net increase (decrease) in shares.... (464,518,962) 243,620,178 (188,569,846) 71,016,730
================= ================== ================= ===============
</TABLE>
At December 31, 1998, Investors Bank, as agent for its clients, and
affiliates of AAM were record holders of 93.9% of the outstanding
shares of the Fund.
OTHER INFORMATION
-----------------
Shareholder Voting Results: (Unaudited)
A special meeting of the Merrimac Cash Fund's shareholders was held on
August 28, 1998 at which shareholders considered the following proposal.
The voting results were as follows:
To approve a new Investment Sub-Adviser Agreement between Investors Bank &
Trust Company (the "Adviser") and Allmerica Asset Management, Inc. (the
"Sub-Adviser"), with respect to the assets of the Merrimac Cash Portfolio,
a series of the Merrimac Master Portfolio:
<TABLE>
<CAPTION>
Shares Shares
Shares For Against Abstaining
---------- ------- ----------
<S> <C> <C>
579,404,567 0 292,000,000
</TABLE>
7
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
To the Board of Trustees and
Shareholders of Merrimac Funds
We have audited the accompanying statement of assets and liabilities of the
Merrimac Cash Fund (the "Fund"), a series of the Merrimac Funds (the "Trust"),
as of December 31, 1998, and the related statement 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 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. 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 the
Fund at December 31, 1998, and the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its 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
8
<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>
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 Cash Portfolio
Statement of Assets and Liabilities
December 31, 1998
=======================================================================
<TABLE>
<S> <C>
Assets
Investments, at value (Note 1) $782,556,187
Cash 155,730
Interest receivable 10,539,721
Deferred organization expense (Note 1) 35,052
Prepaid assets 111,216
------------
Total assets 793,397,906
------------
Liabilities
Management fee payable (Note 2) 139,469
Other accrued expenses 58,590
------------
Total liabilities 198,059
------------
Net Assets Applicable to Investors' Beneficial Interests $793,199,847
============
</TABLE>
Statement of Operations
For the Year Ended December 31, 1998
=======================================================================
<TABLE>
<S> <C>
Income
Interest $ 58,239,893
------------
Expenses
Management fee (Note 2) 1,760,305
Trustee fees and expenses 59,497
Insurance 55,995
Audit and tax return preparation fees 29,054
Transaction fees 11,498
Amortization of organization expense (Note 1) 12,150
Legal 11,744
Miscellaneous 5,405
------------
Total expenses 1,945,648
Less: Management fee waived (Note 2) (384,213)
------------
Net expenses 1,561,435
------------
Net Investment Income 56,678,458
Net Realized Gain on Investments 13,660
------------
Net Increase in Net Assets from Operations $ 56,692,118
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
12
<PAGE>
Merrimac Cash Portfolio
Statements of Changes in Net Assets
<TABLE>
<CAPTION>
================================================================================================
Year Ended December 31,
--------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Increase (Decrease) in Net Assets
Operations
Net investment income $ 56,678,458 $ 74,983,944
Net realized gain on investments 13,660 --
---------------- ----------------
Net increase in net assets from operations 56,692,118 74,983,944
---------------- ----------------
Transactions in Investors' Beneficial Interest
Contributions 3,737,889,197 2,193,287,654
Withdrawals (4,386,229,061) (1,889,734,150)
---------------- ----------------
Net increase (decrease) from investors'
transactions (648,339,864) 303,553,504
---------------- ----------------
Net Increase (Decrease) in Net Assets (591,647,746) 378,537,448
Net Assets
Beginning of period 1,384,847,593 1,006,310,145
---------------- ----------------
End of period $ 793,199,847 $ 1,384,847,593
================ ================
</TABLE>
Supplementary Data
<TABLE>
<CAPTION>
===========================================================================================================
For the Period
November 12, 1996
Year Ended December 31, (Commencement
-------------------------------------- of Operations) to
1998 1997 December 31, 1996
------------------ ------------------ --------------------------
<S> <C> <C> <C>
Annualized Ratios to Average Net Assets/
Supplemental Data
Net expenses 0.15% 0.16% 0.12%
Net investment income 5.47% 5.51% 5.45%
Net expenses, before waiver 0.19% 0.19% 0.21%
Net assets, end of period (000s omitted) $793,200 $1,384,848 $1,006,310
</TABLE>
The accompanying notes are an integral part of the financial statements.
13
<PAGE>
Merrimac Cash 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 Treasury Portfolio is not included in this report.
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. The Cash
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 Cash Portfolio, 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 portfolio are accrued
daily. All investment income, expenses, and realized capital gains and
losses of the Cash Portfolio are allocated pro rata to its investors.
C. Federal Income Taxes
The Cash Portfolio is considered a partnership under the U.S. Internal
Revenue Code. Accordingly, no provision for federal income taxes is
necessary. The Cash 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.
E. Deferred Organization Expense
Costs incurred by the Cash 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.
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Merrimac Cash Portfolio
Notes to Financial Statements
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(2) Management Fee and Affiliated Transactions
The Cash Portfolio retains Investors Bank & Trust Company ("Investors
Bank") as investment adviser to continuously review and monitor the Cash
Portfolio's investment program. Allmerica Asset Management, Inc. ("AAM")
serves as the Cash Portfolio's sub-adviser. For its services, 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. The Cash Portfolio does not pay a fee directly to its
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 subsidiaries are paid a monthly fee at an annual
rate of 0.17% of the average daily net assets of the Cash Portfolio.
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 Fund does not pay compensation to its
trustees or officers who are affiliated with the investment adviser.
(3) Investment Transactions
Purchases and combined maturities and sales of money market instruments
aggregated $47,041,977,701 and $47,664,010,769 respectively for the Cash
Portfolio for the year ended December 31, 1998.
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Report of Ernst & Young, LLP, Independent Auditors
To the Board of Trustees
Merrimac Master Portfolio and Owners of Beneficial Interest of
Merrimac Cash Portfolio
We have audited the accompanying statement of assets and liabilities, including
the schedule of investments, of the Merrimac Cash Portfolio (the "Portfolio"),
one of the series comprising the Merrimac Master Portfolio (the "Trust"), as of
December 31, 1998, and the related statement 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 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 the
Portfolio at December 31, 1998, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its 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
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