As filed with the Securities and Exchange Commission on April 28, 2000
1940 Act File No. 811-07939
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 3
MERRIMAC FUNDS
(Exact Name of Registrant as Specified in Charter)
200 Clarendon Street, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (888) 637-7622
Susan C. Mosher, Secretary
Merrimac Funds
200 Clarendon Street
Mail Code LEG13
Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Philip H. Newman
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, Massachusetts 02109
(i)
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MERRIMAC FUNDS
EXPLANATORY NOTE
This Registration Statement has been filed by the Registrant pursuant to
Section 8(b) of the Investment Company Act of 1940, as amended (the "1940
Act"). However, beneficial interests in the Registrant are not being registered
under the Securities Act of 1933, as amended (the "1933 Act") since such
interests will be issued solely in private placement transactions which do not
involve any "public offering" within the meaning of Section 4(2) of the 1933
Act. Investments in the Registrant's series may only be made by "accredited
investors" within the meaning of Regulation D under the 1933 Act which
generally includes institutional investors and high net worth individuals. This
Registration Statement does not constitute an offer to sell, or the
solicitation of an offer to buy, any beneficial interests in any series of the
Registrant.
Pursuant to General Instruction B2 of Form N-1A, a registration statement filed
under only the 1940 Act shall consist of the facing sheet of the Form,
responses to all items of Parts A and B except Items 1, 2, 3, 5 and 9 of Part A
thereof, responses to all items of Part C except Items 23(e) and (i)-(k) and
the required signatures, and all other documents that are required or which the
Registrant may file as part of the registration statement.
(ii)
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PART A
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PART A
May 1, 2000
Responses to Items 1, 2, 3, 5 and 9 have been omitted pursuant to paragraph (b)
of Instruction B.2. of the General Instructions to Form N-1A.
Item 4. INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES AND RELATED
RISKS
MERRIMAC CASH FUND
INVESTMENT OBJECTIVE
The investment objective of the Merrimac Cash Fund (the "Cash Fund") is to
achieve a high level of current income consistent with preserving principal and
liquidity. In view of the risks inherent in all investments in securities,
there is no assurance that the Fund's objective will be achieved.
IMPLEMENTATION OF INVESTMENT OBJECTIVES
The Cash Fund is a series of Merrimac Funds (the "Trust"). Unlike other mutual
funds which directly acquire and manage their own portfolios of securities, the
Cash Fund seeks to achieve its investment objective by investing all of its
investable assets in the Merrimac Cash Portfolio (the "Cash Portfolio") which
is a series of the Merrimac Master Portfolio, an open-end management investment
company which is treated as a partnership for federal tax purposes. The Cash
Portfolio has the same investment objective and policies as the Cash Fund.
Allmerica Asset Management, Inc. ("AAM") acts as sub-adviser to the Cash
Portfolio and manages its investment program.
The Cash Portfolio's principal investment strategy is to invest in high quality
U.S. dollar-denominated, money market instruments with remaining maturities of
397 calendar days or less that in the opinion of AAM present minimal credit
risk.
The Cash Portfolio may invest in the following U.S. dollar denominated
instruments:
o variable rate obligations;
o commercial paper;
o corporate debt;
o certificates of deposits;
o obligations of the U.S. Government or its agencies or instrumentalities;
o U.S. Treasury bill, notes and bonds
o variable rate municipal obligation;
o municipal obligations;
o securities of U.S. and foreign banks or thrift organizations (such as
bankers' acceptances, time deposits and certificates of deposits);
o time deposits;
o asset-backed securities;
o other short-term debt securities; and
o repurchase agreements that are collateralized by the securities listed
above.
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Further description of these securities is found in APPENDIX A.
The Securities and Exchange Commission (SEC) has set certain diversification
requirements for money market funds. Generally, these requirements limit a
money market fund's investments in securities of any issuer to no more than 5%
of a fund's assets. Also, strict SEC guidelines do not permit AAM to invest,
with respect to 75% of the Cash Portfolio's assets, greater than 10% of the
Cash Portfolio's assets in securities issued by or subject to guarantees by the
same institution. Purchases of securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities are not counted toward these
limitations.
The Cash Portfolio's investments consist of high-quality securities that
qualify as "first-tier" securities under the SEC rules that apply to money
market funds. In general, a first-tier security is defined as a security that
is:
o issued or guaranteed by the U.S. Government or any agency or
instrumentality thereof;
o rated or subject to a guarantee that is rated in the highest category for
short-term securities by at least two Nationally Recognized Statistical
Rating Organizations (NRSROs), or by one NRSRO if the security is rated
by only one NRSRO;
o unrated but issued by an issuer or guaranteed by a guarantor that has
other comparable short-term obligations so rated; or
o unrated but determined by AAM to be of comparable quality to other
first-tier securities.
In addition, AAM must consider whether a particular investment presents minimal
credit risk.
The current NRSROs are:
o Moody's Investors Service, Inc.;
o Standard & Poor's Ratings Group;
o Fitch's IBCA Investors Service;
o Duff & Phelps; and
o Thomson Bank Watch.
If the rating of a security is downgraded after purchase, AAM will determine
whether it is in the best interest of the Cash Portfolio's shareholders (i.e.,
the Cash Fund) to continue to hold the security.
While AAM will endeavor to maintain a constant Fund NAV of $1 per share, there
is no assurance that they will be able to do so. The shares are neither insured
nor guaranteed by the U.S. Government. As such, the Cash Fund carries some
risk. For example, there is always a risk that the issuer of a security held by
the Cash Portfolio will fail to pay interest or principal when due. The Cash
Portfolio attempts to minimize credit risk by investing only in securities
rated in the highest category for short-term securities, or, if not rated, of
comparable quality, at the time of purchase. Additionally, the Cash Portfolio
will not purchase a security unless AAM has determined that the security
presents minimal credit risk. There is also a risk that rising interest rates
will cause the value of the Cash Portfolio's securities to decline. The Cash
Portfolio attempts to minimize interest rate risk by limiting the maturity of
each security to 397 calendar days or less and maintaining a dollar-weighted
average portfolio maturity for the Cash Portfolio of 90 days or less.
In arriving at a decision to buy or sell a security, factors are balanced such
as credit quality and maturity to purchase the best relative value available in
the market at any given time. While rare, sell decisions
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are usually based on a change in credit analysis or to take advantage of an
opportunity to reinvest at a higher yield.
MERRIMAC TREASURY PLUS FUND (formerly "Merrimac Treasury Fund")
INVESTMENT OBJECTIVE
The investment objective of the Merrimac Treasury Plus Fund (the "Treasury Plus
Fund") is to achieve a high level of current income consistent with preserving
principal and liquidity. In view of the risks inherent in all investments in
securities, there is no assurance that the Treasury Plus Fund's objective will
be achieved.
IMPLEMENTATION OF INVESTMENT OBJECTIVES
The Treasury Plus Fund is a series of the Merrimac Funds (the "Trust"). Unlike
other mutual funds which directly acquire and manage their own portfolios of
securities, the Treasury Plus Fund seeks to achieve its investment objective by
investing all of its investable assets in the Merrimac Treasury Plus Portfolio
(the "Treasury Plus Portfolio") which is a series of the Merrimac Master
Portfolio, an open-end management investment company which is treated as a
partnership for federal tax purposes. The Treasury Plus Portfolio has the same
investment objective and policies as the Treasury Plus Fund. M&I Investment
Management Corp. ("M&I") acts as sub-adviser to the Treasury Plus Portfolio and
manages its investment program.
The Treasury Plus Portfolio's principal investment strategy is to invest its
assets in high-quality, U.S. dollar-denominated Treasury securities with
maturities of 397 calendar days or less.
The Treasury Plus Portfolio will invest at least 65% of its total assets in
direct obligations of the U.S. Treasury (U.S. Treasury bills, notes and bonds)
or in repurchase agreements that are collateralized by these instruments. It
may invest the remaining assets in securities issued or guaranteed by the U.S.
Government or its agencies or in repurchase agreements that are collateralized
by these instruments.
While M&I will endeavor to maintain a constant Fund NAV of $1 per share, there
is no assurance that they will be able to do so. The shares are neither insured
nor guaranteed by the U.S. Government. As such, the Treasury Plus Fund carries
some risk. There is a risk that rising interest rates will cause the value of
the Treasury Plus Portfolio's securities to decline. M&I attempts to minimize
interest rate risk by limiting the maturity of each security to 397 calendar
days or less and maintaining a dollar-weighted average portfolio maturity for
the Treasury Plus Portfolio of 90 days or less.
In arriving at a decision to buy or sell a security, factors are balanced such
as the Treasury Plus Portfolio's objective of maximizing current income while
maintaining safety and liquidity. M&I evaluates the government securities
market compared to the repurchase agreement market to determine which provides
the most value to the Treasury Plus Portfolio.
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ITEM 6. MANAGEMENT, ORGANIZATION AND CAPITAL STRUCTURE
MANAGEMENT
INVESTMENT ADVISER
The Cash Fund and the Treasury Plus Fund (each a "Fund" and collectively the
"Funds") have not retained the services of an investment adviser because each
invests all of its investable assets in its corresponding Portfolio. The Cash
Portfolio and the Treasury Plus Portfolio (each a "Portfolio" and collectively
the "Portfolios") have each retained the services of Investors Bank & Trust
Company ("Investors Bank") as investment adviser. Investors Bank continuously
reviews and supervises the Portfolios' investment program. Investors Bank
discharges its responsibilities subject to the supervision of, and policies
established by, the Board of Trustees. Investors Bank's business address is 200
Clarendon Street, Boston, Massachusetts 02116. Investors Bank began acting as
an investment adviser at the commencement of operations of the Cash Portfolio
(November 21, 1996). The Portfolios each pay Investors Bank a unitary fee for
services as Investment Adviser, Administrator, Custodian, Fund Accountant and
Transfer Agent. The fee is computed at an annual rate of 0.17% of average net
assets (ANA) of each such Portfolio.
The investment adviser and sub-advisers may pay out of their respective fees a
transaction, service, administrative, or other similar fee charged by a
financial intermediary, or other financial representative with respect to the
purchase or sale of shares of each Fund. The financial intermediaries also may
impose requirements on the purchase or sale of shares that are different from,
or in addition to, those imposed by each Fund, including requirements as to the
minimum initial and subsequent investment amounts.
INVESTMENT SUB-ADVISERS
AAM serves as investment sub-adviser to the Cash Portfolio. AAM manages the
Cash Portfolio, selects investments and places all orders for the purchase and
sale of the Cash Portfolio's securities, subject to the general supervision of,
and policies established by the Board of Trustees and Investors Bank. The
business address of AAM is 440 Lincoln Street, Worcester, Massachusetts 01653.
AAM has been providing investment advisory services since it was established in
1993 as an indirect, wholly-owned subsidiary of Allmerica Financial
Corporation. AAM receives a fee from Investors Bank (and not from Cash
Portfolio) for its services as investment sub-adviser. Prior to September 1,
1998, The Bank of New York acted as investment sub-adviser for the Cash
Portfolio.
M&I serves as investment sub-adviser to the Treasury Plus Portfolio. M&I
manages the Treasury Plus Portfolio, selects investments and places all orders
for the purchase and sale of the Treasury Plus Portfolio's securities, subject
to the general supervision of, and policies established by the Board of
Trustees and Investors Bank. The business address of M&I is 1000 North Water
Street, Milwaukee, Wisconsin 53202. M&I has been providing investment advisory
services since it was established in 1973 as a first tier wholly-owned
subsidiary of Marshall & Isley Corporation, a publicly held bank holding
company. M&I receives fees from Investors Bank (and not from Treasury Plus
Portfolio) for its services as investment sub-adviser.
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ITEM 7. SHAREHOLDER INFORMATION
PRICING OF FUND SHARES
Shares of the Funds are sold at the net asset value ("NAV") per share next
computed after the purchase order is received in good order by Investors Bank.
NAV per share is determined once each Business Day as of 4:00 p.m. (ET). A
Business Day is any day on which both the New York Stock Exchange and the New
York Federal Reserve Bank are open.
Securities purchased by the Portfolios are stated at amortized cost, which
approximates market value.
PURCHASE OF FUND SHARES
Shares of the Funds may be purchased by "accredited investors" within the
meaning of Regulation D under the 1933 Act, which generally includes
institutional investors and high net worth individuals, that have opened
accounts with the Funds. The Funds each offer two classes of shares: Premium
Class and Institutional Class. The minimum initial investment for Premium Class
shares is $10 million. Institutions may satisfy the minimum investment by
aggregating their fiduciary accounts. The minimum initial investment for the
Institutional Class shares is $10,000. Subsequent purchases may be in any
amount. The Funds reserve the right to waive the minimum initial investment.
When a Premium Class shareholder's account balance falls below $1 million due
to redemption, the shareholder's account may be closed. Such shareholder will
be notified if the minimum balance is not being maintained and will be allowed
60 days to make additional investments before the account is closed.
Share purchase orders are deemed to be in good order on the date a completed
Subscription Agreement is received (along with other required documents) and
federal funds become available in the Funds' account with Investors Bank.
PURCHASES MAY BE MADE ONLY BY WIRE. A bank may impose a charge to execute a
wire transfer. A purchaser must call 1-888-MERRMAC to inform Investors Bank of
an incoming wire transfer. A purchase order for shares received in proper form
by 4:00 p.m. (ET) on a Business Day will be executed at the NAV per share next
determined after receipt of the order, provided that Investors Bank receives
the wire by the close of business on the day the purchase order is received.
Purchase orders received after 4:00 p.m. (ET), will be effected on the next
Business Day if cleared funds are received before the close of business on the
next Business Day. Purchase orders for shares for which payment has not been
received by the close of business will not be accepted, and notice thereof will
be given to the purchaser. The Funds also may limit the amount of a purchase
order received between 3:00 p.m. (ET) and 4:00 p.m. (ET).
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all purchase orders must be received by 12:00
noon (ET).
The Funds reserve the right in their sole discretion (i) to suspend the
offering of shares, (ii) to reject purchase orders when in its best interest
and (iii) to modify or eliminate the minimum initial investment. Purchase
orders may be refused if, for example, they are of a size that could disrupt
management of the Portfolios.
REDEMPTION OF FUND SHARES
Shareholders may redeem all or a portion of their shares on any Business Day.
Shares will be redeemed
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at the NAV next determined after Investors Bank has received a proper notice of
redemption as described below. If notice of redemption is received prior to
4:00 p.m. (ET) for each Fund on a Business Day, the redemption will be
effective on the date of receipt. Proceeds of the redemption will ordinarily be
made by wire on the date of receipt, but in any event within three Business
Days from the date of receipt.
Shareholder redemption requests received after 4:00 p.m. (ET) for each Fund on
a Business Day, will ordinarily receive payment by wire on the next Business
Day, but, in any event, within four Business Days from the date of receipt of a
proper notice of redemption. All redemption requests placed between 3:00 p.m.
and 4:00 p.m. (ET) may only be placed by telephone.
Each Fund reserves the right in its sole discretion to suspend redemptions or
postpone payments when the NYSE is closed or when trading is restricted for any
reason or under emergency circumstances as determined by the SEC. Each Fund
reserves the right to postpone payments for redemption requests received
between 3:00 p.m. and 4:00 p.m. (ET) until the next Business Day.
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all redemption orders must be received by 12:00
noon (ET).
A shareholder may elect to receive payment in the form of a wire or check.
There is no charge imposed by a Fund to redeem shares; however, in the case of
redemption by wire, a shareholder's bank may impose its own wire transfer fee
for receipt of the wire.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare as a dividend substantially all of its net
investment income at the close of each Business Day and will pay such dividends
monthly. Substantially all of a Fund's distributions will be from net
investment income. Shareholders of the Funds shall be entitled to receive
dividends on the Business Day their purchase is effected but shall not receive
dividends on the Business Day that their redemption is effected. Distributions
of net capital gains, if any, are made annually at the discretion of the
officers of the Funds. Dividends and/or capital gain distributions will be
reinvested automatically in additional shares at NAV and such shares will be
automatically credited to a shareholder's account, unless a shareholder elects
to receive either dividends or capital gains distributions (or both) in cash.
Shareholders may change their distribution option at any time by writing to
Investors Bank with a Signature Guarantee prior to the record date of any such
dividend or distribution.
TAX CONSEQUENCES
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TRANSACTIONS TAX STATUS
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Sales or exchanges of shares. Usually capital gain or loss. Tax rate
depends on how long shares are held.
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Distributions of long-term capital Taxable as long-term capital gain.
gain.
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Distributions of short-term capital Taxable as ordinary income.
gain.
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Dividends from net investment income. Taxable as ordinary income.
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Every January, the Funds provide information to their shareholders about
dividends and distributions, which are taxable even if reinvested, and about
the shareholders; redemptions during the previous calendar year. Any
shareholder who does not provide a correct taxpayer identification number and
required certification may be subject to federal backup withholding tax.
Shareholders should generally avoid investing in a fund shortly before an
expected taxable dividend or capital gain distribution. Otherwise, a
shareholder may pay taxes on dividends or distributions that are economically
equivalent to a partial return of the shareholder's investment.
Shareholders should consult their tax advisers about their own particular tax
situations.
DISTRIBUTION EXPENSES
Shares of each Fund are sold on a private placement basis in accordance with
Regulation D under the 1933 Act, directly by the Funds without a distributor
and are not subject to a sales load or redemption fee; assets of the
Institutional Class of shares are subject to a shareholder servicing fee of up
to 0.25% of average daily net assets. The assets of the Premium Class of shares
are not subject to a Rule 12b-1 or shareholder servicing fee.
MASTER FEEDER FUNDS
The Funds are "feeder" funds that invest exclusively in corresponding "master"
portfolios with identical investment objectives. The master portfolio may
accept investments from multiple feeder funds, which bear the master
portfolio's expenses in proportion to their assets.
Each feeder fund and its master portfolio expect to maintain consistent
investment objectives, but if they do not, a Fund will withdraw from the master
portfolio, receiving either cash or securities in exchange for its interest in
the master portfolio. The Trustees of the Trust would then consider whether a
Fund should hire its own investment adviser, invest in a different portfolio,
or take other action.
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APPENDIX A
MONEY MARKET INSTRUMENTS. An investment in a Portfolio is subject to interest
rate risk and credit risk of the issuers of the money market instruments. All
money market instruments can change in value when interest rates or an issuer's
creditworthiness changes, or if an issuer or guarantor of a security fails to
pay interest or principal when due.
U.S. GOVERNMENT SECURITIES. The Cash Portfolio and the Treasury Plus Portfolio
each may invest in U.S. Government Securities. Not all U.S. Government
Securities are backed by the full faith and credit of the United States. For
example, securities issued by the Federal Farm Credit Bank or by the Federal
National Mortgage Association are supported by the agency's right to borrow
money from the U.S. Treasury under certain circumstances. Securities issued by
the Federal Home Loan Bank are supported only by the credit of the agency.
There is no guarantee that the U.S. Government will support these types of
securities, and therefore they involve more risk than "full faith and credit"
Government Securities.
BANKERS' ACCEPTANCES. The Cash Portfolio may invest in bankers' acceptances
which are bills of exchange or time drafts drawn on and accepted by a
commercial bank. They are used by corporations to finance the shipment and
storage of goods and to furnish dollar exchange. Maturities are generally six
months or less.
COMMERCIAL PAPER. The Cash Portfolio may invest in commercial paper, which is
the term used to designate unsecured short-term promissory notes issued by
corporations and other entities. The Cash Portfolio may invest in commercial
paper with maturities which vary from a few days to nine months. The Cash
Portfolio may also purchase U.S. dollar-denominated commercial paper of a
foreign issuer rated in the highest or second highest rating categories by at
least two NRSROs.
SECURITIES LENDING. Each Portfolio may lend up to 33 1/3% of its portfolio of
securities pursuant to agreements requiring that the loan be continuously
secured by cash or equivalent collateral or by a letter of credit or bank
guarantee in favor of the Portfolio at least equal at all times to 100% of the
market value plus accrued interest on the securities lent. The Portfolio will
continue to receive interest on the securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Collateral is
marked to market daily. Loans are subject to termination by the Portfolio or
the borrower at any time and are, therefore, not considered to be illiquid
investments.
TIME DEPOSITS. The Cash Portfolio may invest in time deposits ("TDs"), which
are non-negotiable receipts issued by a bank in exchange for the deposit of
funds. Like a certificate of deposit, a TD earns a specified rate of interest
over a definite period of time; however, it cannot be traded in the secondary
market.
CERTIFICATES OF DEPOSIT. The Cash Portfolio also may invest in certificates of
deposit ("CDs"), which are negotiable interest bearing instruments with a
specific maturity. CDs are issued by banks and thrift institutions in exchange
for the deposit of funds and normally can be traded in the secondary market
prior to maturity. Commercial Paper. The Portfolio may invest in commercial
paper, which is the term used to designate unsecured short-term promissory
notes issued by corporations and other entities. Maturities on these issues
vary from a few days to nine months.
CORPORATE DEBT OBLIGATIONS. Subject to its respective credit quality and
maturity limitations, the Cash Portfolio may invest in corporate bonds,
including obligations of industrial, utility, banking and other financial
issuers. Corporate bonds are subject to the risk of an issuer's inability to
meet principal and interest payments and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the credit worthiness of the issuer and general market liquidity.
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ASSET-BACKED SECURITIES. The Cash Portfolio also may invest in asset-backed
securities, which consist of securities secured by company receivables, home
equity loans, truck and auto loans, leases, credit card receivables and other
securities backed by other types of receivables or other assets. Credit support
for asset-backed securities may be based on the underlying assets and/or
provided through credit enhancements such as letters of credit, insurance
bonds, limited issuer guarantees, senior-subordinated structures and over
collateralization. Asset-backed securities are normally traded over-the-counter
and typically have a short-intermediate maturity structure depending on the
paydown characteristics of the underlying financial assets which are passed
through to the security holder. Asset-backed securities may be subject to
prepayment risk, particularly in a period of declining interest rates.
Prepayments, which occur when unscheduled payments are made on the underlying
debt instruments, may shorten the effective maturities of these securities and
may lower their total returns. Asset-backed securities generally do not have
the benefit of a security interest in collateral that is comparable to mortgage
assets and there is the possibility that recoveries on repossessed collateral
may not be available to support payments on these securities. There is no limit
on the extent to which the Portfolio may invest in asset-backed securities;
however, the Portfolio will only invest in asset-backed securities that carry a
rating in the highest category from at least two NRSROs.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. The Cash Portfolio may invest in
Eurodollar and Yankee Dollar instruments. Eurodollar instruments are bonds of
foreign corporate and government issuers that pay interest and principal in
U.S. dollars held in banks outside the United States, primarily in Europe.
Yankee Dollar instruments are U.S. dollar denominated bonds typically issued in
the U.S. by foreign governments and their agencies and foreign banks and
corporations. The Portfolio may invest in Eurodollar Certificates of Deposit
("ECDs"), Eurodollar Time Deposits ("ETDs") and Yankee Certificates of Deposit
("Yankee CDs"). ECDs are U.S. dollar-denominated certificates of deposit issued
by foreign branches of domestic banks; ETDs are U.S. dollar-denominated
deposits in a foreign branch of a U.S. bank or in a foreign bank; and Yankee
CDs are U.S. dollar-denominated certificates of deposit issued by a U.S. branch
of a foreign bank and held in the U.S. These investments involve risks that are
different from investments in securities issued by U.S. issuers, including
potential unfavorable political and economic developments, foreign withholding
or other taxes, seizure of foreign deposits, currency controls, interest
limitations or other governmental restrictions which might affect payment of
principal or interest.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Cash Portfolio and the
Treasury Plus Portfolio each may invest in when-issued and delayed delivery
securities, which are securities purchased for delivery beyond the normal
settlement date at a stated price and yield, thereby involving the risk that
the yield obtained will be less than that available in the market at delivery.
Although the purchase of securities on a when-issued basis is not considered
leveraging, it has the effect of leveraging. When such a security is purchased,
the Custodian will set aside cash or liquid securities to satisfy the purchase
commitment unless the relevant Portfolio has entered into an offsetting
agreement to sell the securities. These segregated securities will be valued at
market and additional cash or securities will be segregated if necessary so
that the market value of the account will continue to satisfy the purchase
commitment. A Portfolio generally will not pay for such securities or earn
interest on them until received. Commitments to purchase when-issued securities
will not, under normal market conditions, exceed 25% of the Portfolio's total
assets, and a commitment will not exceed 90 days. A Portfolio will only
purchase when-issued securities for the purpose of acquiring portfolio
securities and not for speculative purposes. However, a Portfolio may sell
these securities or dispose of the commitment before the settlement date if it
is deemed advisable as a matter of investment strategy. The market value of
when-issued or delayed delivery securities when they are delivered may be less
than the amount the Portfolios paid for them.
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VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by
the Cash Portfolio and the Treasury Plus Portfolio may carry variable or
floating rates of interest and may include variable rate master demand notes. A
floating rate security provides for the automatic adjustment of its interest
rate whenever a specified interest rate changes. A variable rate security
provides for the automatic establishment of a new interest rate on set dates.
Variable and floating rate instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to
providing for periodic adjustments in the interest rate. There may be no active
secondary market with respect to a particular variable or floating rate
instrument. Nevertheless, the periodic readjustments of their interest rates
tend to assure that their value to a Portfolio will approximate their par
value. Further, some of the demand instruments purchased by a Portfolio derive
their liquidity from the ability of the holder to demand repayment from the
issuer or from a third party providing credit support. The creditworthiness of
issuers of variable and floating rate instruments and their ability to repay
principal and interest will be continuously monitored by each Portfolio's
investment adviser or sub-adviser.
REPURCHASE AGREEMENTS. The Cash Portfolio and the Treasury Plus Portfolio each
may enter into repurchase agreements, which are agreements by which a person
obtains a security and simultaneously commits to return the security to the
seller at an agreed upon price (including principal and interest) on an agreed
upon date within a number of days from the date of purchase. In substance, a
repurchase agreement is a loan by the Portfolio collateralized with securities.
The lending Portfolio's Custodian or its agent will hold the security as
collateral for the repurchase agreement. All repurchase transactions must be
collateralized initially at a value at least equal to 102% of the repurchase
price and counterparties are required to deliver additional collateral in the
event the market value of the collateral falls below 100%. The Portfolios bear
the risk of loss in the event the other party defaults on its obligations and
the Portfolio is delayed or prevented from its right to dispose of the
collateral securities or if the Portfolio realizes a loss on the sale of the
collateral securities. Each Portfolio will enter into repurchase agreements
with financial institutions deemed to present minimal risk of bankruptcy during
the term of the agreement based on guidelines established and periodically
reviewed by the Trustees. Each Portfolio will not invest more than 10% of its
net assets in repurchase agreements maturing in more than seven days because
such agreements would be considered "illiquid securities."
REVERSE REPURCHASE AGREEMENTS. The Cash Portfolio and the Treasury Plus
Portfolio each may borrow funds for temporary purposes by entering into reverse
repurchase agreements. Pursuant to such agreements, each Portfolio would sell
the securities to financial institutions such as banks and broker-dealers and
agree to repurchase them at a mutually agreed-upon date and price. Each
Portfolio will enter into reverse repurchase agreements to avoid otherwise
selling securities during unfavorable market conditions to provide cash to
satisfy redemption requests. At the time each Portfolio enters into a reverse
repurchase agreement, it would place in a segregated custodial account, assets
such as cash or liquid securities, consistent with each Portfolio's investment
restrictions and having a value equal to the repurchase price (including
accrued interest), and would subsequently monitor the account to ensure that
such equivalent value was maintained. Reverse repurchase agreements involve the
risk that the counterparty may default at a time when the market value of
securities sold by each Portfolio have increased in value. Reverse repurchase
agreements are considered by the SEC to be borrowings by the Portfolio under
the 1940 Act.
RESTRICTED AND ILLIQUID SECURITIES. The Cash Portfolio and the Treasury Plus
Portfolio each may invest up to 10% of its net assets in illiquid securities.
Illiquid securities are those that are not readily marketable, repurchase
agreements maturing in more than seven days, time deposits with a notice or
demand period of more than seven days and certain restricted securities. Based
upon continuing review
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of the trading markets for a specific restricted security, the security may be
determined to be eligible for resale to qualified institutional buyers pursuant
to Rule 144A under the Securities Act of 1933 and, therefore, to be liquid.
Also, certain illiquid securities may be determined to be liquid if they are
found to satisfy certain relevant liquidity requirements. The Board of Trustees
of the Portfolio Trust have adopted guidelines and delegated to each
Portfolio's investment adviser or sub-adviser, as applicable, the daily
function of determining and monitoring the liquidity of portfolio securities,
including restricted and illiquid securities. Each Portfolio's Board of
Trustees, however, retains oversight and is ultimately responsible for such
determinations. The purchase price and subsequent valuation of illiquid
securities normally reflect a discount, which may be significant, from the
market price of comparable securities for which a liquid market exists.
SHORT-TERM TRADING. Although the Cash Portfolio and the Treasury Plus Portfolio
each usually intend to hold securities purchased until maturity, at which time
they will be redeemable at their full principal value plus accrued interest,
they may, at times, engage in short-term trading to attempt to take advantage
of yield variations in the short-term market. Each Portfolio also may sell
portfolio securities prior to maturity based on a revised evaluation of the
creditworthiness of the issuer or to meet redemptions. In the event there are
unusually heavy redemption requests due to changes in interest rates or
otherwise, a Portfolio may have to sell a portion of its investment portfolio
at a time when it may be disadvantageous to do so. However, each Portfolio
believes that its ability to borrow funds to accommodate redemption requests
may mitigate in part the necessity for such portfolio sales during these
periods.
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PART B
B - 1
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ITEM 10. COVER PAGE AND TABLE OF CONTENTS
MERRIMAC FUNDS
Merrimac Cash Fund
Merrimac Treasury Plus Fund
PART B
STATEMENT OF ADDITIONAL INFORMATION
May 1, 2000
This Statement of Additional Information ("SAI") is not a Prospectus and is
only authorized for distribution when preceded or accompanied by the Merrimac
Fund's (the "Trust") current Prospectus dated May 1, 2000. Financial Statements
are incorporated by reference into this SAI from the Trust's most recent Annual
Report. This SAI supplements and should be read in conjunction with the
Prospectus, a copy of which may be obtained without charge by calling the Trust
at 1-888-MERRMAC or writing the Trust at 200 Clarendon Street, Boston,
Massachusetts 02116. This SAI is not an offer of any Fund for which an investor
has not received a Prospectus.
Information about the Funds' (including the SAI) may be reviewed and copied at
the SEC's Public Reference Room in Washington, D.C., or you may obtain copies,
upon payment of a duplicating fee, by writing to the Public Reference Room of
the SEC, Washington, D.C. 20549-0102 or by electronic request at the following
E-mail address: [email protected]. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 202-942-8090. Reports and
other information about the Fund may be obtained on the Commission's Internet
site at http://www.sec.gov.
------------------
TABLE OF CONTENTS
Page Page
Fund History 3 Capital Stock and Other Securities 12
Description of the Funds, Their 3 Purchase, Redemption and Valuation 13
Investments and Risks of Shares
Management of the Trust 6 Taxation of the Trust 14
Control Persons and Principal 8 Calculation of Performance Data 16
Holders of Securities
Investment Advisory and Other 9 Financial Statements 17
Services
Brokerage Allocation and Other 11 Appendix 18
Practices
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ITEM 11. FUND HISTORY
Merrimac Funds (the "Trust") is composed of two funds: Merrimac Cash Fund
("Cash Fund") and Merrimac Treasury Plus Fund ("Treasury Plus Fund") (formerly
"Merrimac Treasury Fund") (each, a "Fund" and collectively, the "Funds").
The Trust is a business trust organized under the laws of the State of Delaware
pursuant to a Master Trust Agreement dated October 30, 1996, as amended.
The Merrimac Cash Portfolio ("Cash Portfolio") and the Merrimac Treasury Plus
Portfolio ("Treasury Plus Portfolio") are each a series or sub-trust of the
Merrimac Master Portfolio (the "Portfolio Trust"), a common law trust organized
under New York law on October 30, 1996, registered as an open-end management
investment company under the 1940 Act.
The Cash Portfolio and the Treasury Plus Portfolio are collectively referred to
as the "Portfolios."
ITEM 12. DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS
CLASSIFICATION
Each Fund is a diversified open-end, management investment company under the
1940 Act and a separate series of the Trust.
MASTER/FEEDER STRUCTURE. The Cash Fund invests all of its investable assets in
the Cash Portfolio. The Treasury Plus Fund invests all of its investable assets
in the Treasury Plus Portfolio. Both Funds are sometimes referred to in this
SAI as feeder funds.
Each Portfolio has the same investment objective and restrictions as its
corresponding Fund. Because the feeder funds invest all of their investable
assets in their corresponding Portfolios, the description of each Fund's
investment policies, techniques, specific investments and related risks that
follows also applies to the corresponding Portfolio.
In addition to these feeder funds, other feeder funds may invest in these
Portfolios, and information about the other feeder funds is available by
calling 1-888-MERRMAC for each Portfolio. The other feeder funds invest in the
Portfolios on the same terms as the Funds and bear a proportionate share of the
Portfolio's expenses. The other feeder funds may sell shares on different terms
and under a different pricing structure than the Funds, which may produce
different investment results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment adviser or find a substitute master fund. Withdrawal of a fund's
interest in its Portfolio, which may be required by the Trust's Board of
Trustees without shareholder approval, might cause the fund to incur expenses
it would not otherwise be required to pay.
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INVESTMENT STRATEGIES AND RISKS
MATURITY AND DURATION. Duration of an individual portfolio security is a
measure of the security's price sensitivity taking into account expected cash
flow and prepayments under a wide range of interest rate scenarios. In
computing the duration a Portfolio will have to estimate the duration of
obligations that are subject to prepayment or redemption by the issuer taking
into account the influences of interest rates on prepayments and coupon flows.
Each of the Portfolios has a policy of investing in instruments with maturities
of 397 days or less. For purposes of complying with this policy, each Portfolio
will determine the maturity of an instrument in accordance with the
requirements of Rule 2a-7 under the 1940 Act. Rule 2a-7 permits each Portfolio
to shorten the maturity of a particular instrument in circumstances in which
the instrument is subject to certain types of demand features or interest-rate
reset provisions.
EXCHANGE COMMERCIAL NOTES ("ECNs"). The Cash Portfolio may invest in ECNs. ECNs
are short-term (90 days or less) securities that automatically extend to a
390-day maximum maturity if the issuer does not redeem the ECNs on the Initial
Redemption Date (the equivalent of a commercial paper maturity). The extension
feature substitutes for bank back-up. Investors receive a premium for giving
the issuer the option to extend the maturity. However, investors receive a
sizeable additional premium if the maturity is extended. ECNs carry the same
credit rating(s) as the issuer's commercial paper.
FUNDING AGREEMENTS. The Cash Portfolio may invest in funding agreements. A
funding agreement is, in substance, an obligation of indebtedness negotiated
privately between an investor and an insurance company. Funding agreements
often have maturity-shortening features, such as an unconditional put, that
permit the investor to require the insurance company to return the principal
amount of the funding agreement, together with accrued interest, within one
year or less. Most funding agreements are not transferable by the investor and,
therefore, are illiquid, except to the extent the funding agreement is subject
to a demand feature of seven days or less. An insurance company may be subject
to special protections under state insurance laws, which protections may impair
the ability of the investor to require prompt performance by the insurance
company of its payment obligations under the funding agreement.
MONEY MARKET INSTRUMENTS AND REPURCHASE AGREEMENTS. The money market
instruments in which the Cash Portfolio invests include short-term U.S.
Government Securities (defined below), commercial paper (promissory notes
issued by corporations to finance their short-term credit needs), negotiable
certificates of deposit, non-negotiable fixed time deposits, bankers'
acceptances and repurchase agreements. The Treasury Plus Portfolio invests
substantially all of its assets in direct obligations of the U.S. Treasury in
U.S. Government Securities and in repurchase agreements.
U.S. Government Securities include securities which are direct obligations of
the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. Government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal
Farm Credit Bank, the Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks and the Federal National Mortgage
Association ("FNMA").
A repurchase agreement is an agreement under which a Portfolio acquires money
market instruments (generally U.S. Government Securities) from a commercial
bank, broker or dealer, subject to resale to the
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seller at an agreed-upon price and date (normally the next business day). The
resale price reflects an agreed-upon interest rate effective for the period the
instruments are held by a Portfolio and is unrelated to the interest rate on
the instruments. The instruments acquired by a Portfolio (including accrued
interest) must have an aggregate market value in excess of the resale price and
will be held by the custodian bank for the Portfolio until they are
repurchased. The Board of Trustees of the Portfolio Trust will monitor the
standards that the investment adviser or sub-adviser will use in reviewing the
creditworthiness of any party to a repurchase agreement with a Portfolio. See
"Investment Advisory Services" for information regarding the investment adviser
and sub-adviser.
The use of repurchase agreements involves certain risks. For example, if the
seller defaults on its obligation to repurchase the instruments acquired by a
Portfolio at a time when their market value has declined, a Portfolio may incur
a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Portfolio are collateral for a loan by a Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Portfolio may not be able to substantiate its interest in the
instruments it acquires. It is expected that these risks can be controlled
through careful documentation and monitoring.
"WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES. Each Portfolio may invest in
securities purchased on a "when-issued" or "delayed delivery" basis. Delivery
and payment for securities purchased on a when-issued or delayed delivery basis
will normally take place 15 to 45 days after the date of the transaction. The
payment obligation and interest rate on the securities are fixed at the time
that a Portfolio enters into the commitment, but interest will not accrue to a
Portfolio until delivery of and payment for the securities. Although each such
Portfolio will only make commitments to purchase "when-issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
each such Portfolio may sell the securities before the settlement date if
deemed advisable by their investment adviser or sub-adviser. Each Portfolio may
also, with respect to up to 25% of its total assets, enter into contracts to
purchase securities for a fixed price at a future date beyond customary
settlement time.
Unless the Portfolios have entered into an offsetting agreement to sell the
securities purchased on a "when-issued" or "forward commitment" basis, cash or
liquid obligations with a market value equal to the amount of a Portfolio's
commitment will be segregated with a Portfolio's custodian bank. If the market
value of these securities declines, additional cash or securities will be
segregated daily so that the aggregate market value of the segregated
securities equals the amount of a Portfolio's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may have a
market value on delivery which is less than the amount paid by a Portfolio.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued", ,"delayed delivery" and "forward
commitment" securities will fluctuate inversely to changes in interest rates,
i.e., they will appreciate in value when interest rates fall and will decline
in value when interest rates rise.
FUND POLICIES
The Funds and the Portfolios have adopted the following fundamental policies.
Each of the Fund's and Portfolio's fundamental policies cannot be changed
unless the change is approved by a "vote of the outstanding voting securities"
of a Fund or a Portfolio, as the case may be, which phrase as used herein means
the lesser of (i) 67% or more of the voting securities of a Fund or Portfolio
present at a meeting, if
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the holders of more than 50% of the outstanding voting securities of a Fund or
Portfolio are present or represented by proxy, or (ii) more than 50% of the
outstanding voting securities of a Fund or Portfolio.
As a matter of fundamental policy, the Cash Portfolio (Fund) and the Treasury
Plus Portfolio (Fund) may not:
(1) purchase any securities that would cause more than 25% of the total
assets of the Portfolio at the time of such purchase to be invested in
securities of one or more issuers conducting their principal business
activities in the same industry, provided that there is no limitation
with respect to U.S. Government Securities, bank obligations or
repurchase agreements collateralized by any of such obligations as
applicable;
(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or to facilitate redemptions, provided that
borrowing does not exceed an amount equal to 33 1/3% of the current
value of the Portfolio's assets taken at market value, less
liabilities, other than borrowings;
(3) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions);
(4) make loans to any person or firm; provided, however, that the
making of a loan shall not include entering into repurchase agreements,
and provided further that a Portfolio may lend its portfolio securities
to broker-dealers or other institutional investors if the aggregate
value of all securities loaned does not exceed 33 1/3% of the value of
a Portfolio's total assets;
(5) engage in the business of underwriting the securities issued by
others, except that a Portfolio will not be deemed to be engaging in
the business of underwriting with respect to the purchase or sale of
securities subject to legal or contractual restrictions on disposition;
(6) issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the
1940 Act; and
(7) purchase or sell real estate, commodities, or commodity contracts
unless acquired as a result of ownership of securities, and provided
further that a Portfolio may invest in securities backed by real estate
and in financial futures contracts and options thereon.
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from
a change in the net assets of the Portfolios (Funds) will not constitute a
violation of the restriction. The above restrictions also apply to each Fund,
with the exception that a Fund may invest all of its investable assets without
limitation in its respective Portfolio.
ITEM 13. MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Funds rests with the Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish
services to the Trust or the Funds, including agreements with its custodian,
transfer agent, investment adviser, sub-adviser and administrator. The
day-to-day operations of the
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Funds are delegated to their Sub-Adviser. The SAI contains background
information regarding each of the Trustees and executive officers of the Trust.
TRUSTEES AND OFFICERS. The names, dates of birth and principal occupation(s)
during the last five years of the Trustees and officers of the Trust and the
Portfolio Trust are listed below. An asterisk (*) indicates that a Trustee is
an "interested person" of the Trust and the Portfolio Trust, as defined in the
1940 Act. The business address of the Trustees and officers of the Trust and
the Portfolio Trust is 200 Clarendon Street, Boston, Massachusetts 02116.
TRUSTEES AND OFFICERS OF THE PORTFOLIO TRUST
KEVIN J. SHEEHAN, TRUSTEE*, 6/22/51, Director since 1990, President June 1992 -
present, Chairman and Chief Executive Officer June 1995 - present, Investors
Bank & Trust Company, Chairman and Chief Executive Officer June 1995 - present,
Investors Financial Services Corp.
FRANCIS J. GAUL, JR., TRUSTEE, 9/25/43, Private Investor July 1998 - present,
Director and Principal, Triad Investment Management Company June 1997 - June
1998, Vice President, Triad Investment Management Company (Registered
Investment Adviser) July 1996 - May 1997, Vice President & Resident Manager,
Goldman Sachs & Co. (Investment Banking & Institutional Sales) June 1993 -
January 1995.
EDWARD F. HINES, JR., TRUSTEE, 9/5/45, Partner 1977 - present, Choate, Hall &
Stewart.
THOMAS E. SINTON, TRUSTEE, 8/26/32, Retired, Managing Director, Corporate
Accounting Policy, April 1993 - October 1996 and Consultant, January 1993 -
March 1996, Bankers Trust Company.
PAUL J. JASINSKI, PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER, 2/17/47,
Managing Director, Investors Bank & Trust Company, 1990 - present.
TIMOTHY J. COYNE, VICE PRESIDENT, 5/9/67, Director, Corporate Marketing,
Investors Bank & Trust Company, 1997 - present, Vice President, Corporate
Sales, Dreyfus Corporation, 1995 - 1997, Assistant Vice President, Concord
Financial Corp., 1992 - 1995.
CHRISTOPHER J. QUINN, ASSISTANT VICE PRESIDENT, 5/6/66, Manager, Advisory
Client Services, Investors Bank & Trust Company, 1996 - present, Service
Specialist Mutual Funds, Fleet Bank, 1994 - 1996, Executive Sales Assistant,
Concord Financial Corp., 1993 - 1994.
SUSAN C. MOSHER, SECRETARY, 1/29/55, Director, Mutual Fund Administration -
Legal Administration, Investors Bank & Trust Company, 1995 - present.
SANDRA I. MADDEN, ASSISTANT SECRETARY, 8/29/66, Associate Counsel, Mutual Fund
Administration - Legal Administration, Investors Bank & Trust Company, 1999 -
present; Associate Counsel at Scudder Kemper Investments, Inc. in the Mutual
Fund Administration Group of the Legal Department, 1996-1999.
COMPENSATION OF THE TRUSTEES AND OFFICERS. Neither the Trust nor the Portfolio
Trust compensates the Trustees or officers of the Trust and the Portfolio Trust
who are affiliated with Investors Bank. None of the Trustees or officers of the
Trust or the Portfolio Trust have engaged in any financial transactions with
the Trust or the Portfolio Trust, respectively, during the fiscal year ended
December 31, 1999.
The Trustees of the Portfolio Trust are paid an annual retainer of $10,000,
payable in equal quarterly installments, and a $2,500 meeting fee for each
quarterly meeting attended. Each Fund bears its pro rata allocation of
Trustees' fees paid by its corresponding Portfolio to the Trustees of the
Portfolio Trust. The Trustees of the Trust are paid a $1,000 meeting fee for
each quarterly meeting attended. The following table reflects the compensation
paid by the Trust, by the Portfolio Trust and by another related open-end
investment company, to each Trustee for the fiscal year ended December 31,
1999.
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Aggregate Pension or Retirement Total Compensation
Compensation Benefits Accrued as From Trust and Fund
Name of Trustee From the Trust Part of Portfolio's Complex *
- --------------- -------------- ------------------- ------------------
Expenses
---------
Kevin J. Sheehan $0 $0 $0
Francis J. Gaul, Jr. $2,033 $0 $26,250
Edward F. Hines, Jr. $2,033 $0 $26,250
Thomas E. Sinton $2,033 $0 $26,250
Kevin J. Sheehan
*Fund Complex consists of the Trust, the Portfolio Trust, the Merrimac Global
Cash Fund and the Merrimac Series, comprising eight series as of December 31,
1999.
ITEM 14. CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES
Control is defined by the 1940 Act as the beneficial ownership, either directly
or through one or more controlled companies, of more than 25 percent of the
voting securities of the company.
As of April 3, 2000, the Cash Fund beneficially owned approximately 65.9% of
the outstanding interests of the Cash Portfolio and was, therefore, deemed to
control the Cash Portfolio. As of April 3, 2000, Trustees and officers of the
Trust owned in the aggregate less than 1% of any of the Portfolios.
As of April 3, 2000 the following entities beneficially owned more than 5% of
the outstanding shares of the Cash Fund:
CASH FUND, PREMIUM CLASS
Name and Address Percentage Ownership
of Beneficial Owner Of Outstanding Shares
- ------------------- ---------------------
Investors Bank & Trust Co 62.19%
As Security Lending Agent
Attn: Bob Jackson
Mail Code TRD 18
200 Clarendon Street
Boston, MA 02116
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Allmerica Financial 28.86 %
FBO Allmerica Financial Life Ins & Ann
Attn: Investment Accounting N262
440 Lincoln Street
Worcester, MA 01653
Maril & Co 8.95%
FBO Sec Lending
Attn: ACM/Fund Acct
1000 N. Water Street - TR14
Milwaukee, WI 53202
CASH FUND, INSTITUTIONAL CLASS
Name and Address Percentage Ownership
of Beneficial Owner Of Outstanding Shares
Capital Network Services 100%
One Bush Street
11th Floor
San Francisco, CA 94104
As of April 3, 2000, there were no entities that beneficially owned more than
5% of the Treasury Plus Fund, Institutional Class.
ITEM 15. INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND SUBADVISERS
Each Portfolio retains Investors Bank & Trust Company ("Investors Bank" or the
"Adviser") as their investment adviser. The Investment Adviser Agreements (the
"Adviser Agreements") between Investors Bank and each Portfolio provides that
Investors Bank will manage the operations of each Portfolio, subject to the
policies established by the Board of Trustees of the Trust. Investors Bank also
provides office space, facilities, equipment and personnel necessary to
supervise each Portfolio's operations and pays the compensation of each such
Portfolio's officers, employees and directors affiliated with Investors Bank.
Each Portfolio pays Investors Bank a unitary fee for services as Investment
Adviser, Administrator, Custodian, Fund Accountant and Transfer Agent. For a
description of the rate of compensation that each Portfolio pays Investors Bank
under the Adviser Agreements, see "Administrator, Transfer Agent and Fund
Accountant" below.
The fee earned by Investors Bank from the Cash Portfolio for the fiscal year
ended December 31, 1997, December 31, 1998 and December 31, 1999 was $2,314,064
of which $381,468 was waived, $1,760,305 of which $384,213 was waived and
$2,117,982, respectively. The fee earned by Investors Bank from the Treasury
Plus Portfolio for the period beginning January 22, 1999 (commencemnt of
operations) to December 31, 1999 was $397,835.
Pursuant to an Investment Sub-Adviser Agreement (the "AAM Sub-Adviser
Agreement"), Investors Bank has retained Allmerica Asset Management, Inc.
("AAM") as sub-adviser to the Cash Portfolio. AAM is compensated by Investors
Bank at no additional cost to the Cash Portfolio. Subject to the
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supervision of Investors Bank and of the Portfolio Trust's Board of Trustees,
AAM furnishes to the Cash Portfolio investment research, advice and supervision
and determines what securities will be purchased, held or sold by the Cash
Portfolio. AAM is rendered an annual fee, computed and paid monthly, based on
the average net assets ("ANA") of the Cash Portfolio according to the following
schedule: 0.09% on the first $500 million in assets; 0.07% on the next $500
million in assets, and 0.06% on assets exceeding $1 billion. Prior to September
1, 1998, the Cash Portfolio was advised by The Bank of New York ("BNY") and BNY
was paid an annual fee, computed and paid monthly, based on 0.08% of the ANA of
the Cash Portfolio. The amount paid by Investors Bank to BNY for the period
January 1, 1998 to August 31, 1998 was $429,014. The amount paid by Investors
Bank to AAM for the period September 1, 1998 to December 31, 1998 was $233,588.
The amount paid by Investors Bank to AAM for the fiscal year ended December 31,
1999 was $ 947,094.
Pursuant to an Investment Sub-Adviser Agreement (the "M&I Sub-Adviser
Agreement"), Investors Bank has retained M&I Investment Management Corp.
("M&I") as sub-adviser to the Treasury Plus Portfolio. M&I is compensated by
Investors Bank at no additional cost to the Treasury Plus Portfolio. Subject to
the supervision of Investors Bank and of the Portfolio Trust's Board of
Trustees, M&I furnishes to the Treasury Plus Portfolio investment research,
advice and supervision and determines what securities will be purchased, held
or sold by Treasury Plus Portfolio. M&I is rendered an annual fee, computed and
paid monthly, based on 0.08% of the ANA of the Treasury Plus Portfolio. The
amount paid by Investors Bank to M&I for the period beginning January 22, 1999
(commencement of operations) to December 31, 1999 was $183,100.
Each Portfolio bears the expenses of its operations other than those incurred
by AAM or M&I, respectively. Among the other expenses, each Portfolio pays
share pricing and shareholder servicing fees and expenses; custodian fees and
expenses; legal and auditing fees and expenses; expenses of shareholder
reports; registration and reporting fees and expenses; and the Portfolio
Trust's Trustee fees and expenses.
ADMINISTRATOR, TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
Investors Bank serves as Administrator to the Funds and IBT Trust & Custodial
Services (Ireland) LMTD ("IBT Ireland"), a subsidiary of Investors Bank, serves
as Administrator to the Portfolios. The services provided by Investors Bank and
IBT Ireland include certain accounting, clerical and bookkeeping services, Blue
Sky, corporate secretarial services and assistance in the preparation and
filing of tax returns and reports to shareholders and the SEC.
Investors Bank also serves as transfer and dividend paying agent for the Funds
and IBT Fund Services (Canada) Inc., ("IBT Canada") a subsidiary of Investors
Bank, serves as transfer and dividend paying agent for the Portfolios. As
transfer agent, Investors Bank is responsible for the issuance, transfer and
redemption of interests, the establishment and maintenance of accounts and the
payment of distributions for each Fund and IBT Canada is responsible for
maintaining records of holders in interest and for the payment of distributions
for each Portfolio.
Investors Bank also acts as custodian for the Funds and for the Portfolios. As
custodian, Investors Bank holds cash, securities and other assets of the Funds
and the Portfolios as required by the 1940 Act. IBT Canada also serves as fund
accounting agent for the Funds and the Portfolios. As fund accounting agent,
IBT Canada performs certain accounting, clerical and bookkeeping services, and
the daily calculation of net asset value for each Fund and Portfolio.
For its services as Investment Adviser, Administrator, Transfer Agent,
Custodian and Fund Accounting
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Agent, each Portfolio pays Investors Bank an aggregate fee, which is calculated
daily and paid monthly, at an annual rate of 0.17% of the ANA of such
Portfolio. For its services as Administrator, Transfer Agent, Custodian and
Fund Accounting Agent, the Funds each pay Investors Bank an aggregate fee,
which is calculated daily and paid monthly, at an annual rate of 0.01% of ANA
of such Fund. The fees paid to Investors Bank by the Cash Fund for the fiscal
years ended December 31, 1999, December 31, 1998 and December 31, 1997 were
$97,092, $91,223 and $133,615, respectively. The Treasury Plus Fund had not yet
commenced operations as of December 31, 1999.
INDEPENDENT AUDITORS
For the fiscal year ended December 31, 1999, Ernst & Young LLP ("E&Y") served
as independent auditors to the Trust and the Portfolio Trust. E&Y is
responsible for performing annual audits of the financial statements and
financial highlights in accordance with generally accepted accounting
standards, and preparation of the Federal tax returns. Additionally, pursuant
to Rule 17f-2 of the 1940 Act, three security counts are performed for the
Portfolio Trust. The mailing address for E&Y is 200 Clarendon Street, Boston,
Massachusetts 02116.
COUNSEL
Goodwin, Procter & Hoar LLP serves as counsel to the Trust and the Portfolio
Trust.
SHAREHOLDER SERVICING PLAN
The Board of Trustees of the Trust have adopted a Shareholder Servicing Plan
(the "Servicing Plan") with respect to the Institutional Class shares of each
Fund after having concluded that there is a reasonable likelihood that the
Servicing Plan will benefit the Funds and their shareholders. The Servicing
Plan provides that the Shareholder Servicing Agent shall receive a fee from
each Fund at an annual rate not to exceed 0.25% of the average daily net assets
of such Fund. Assets of the Premium Class shares of each Fund are not subject
to the shareholder servicing fee.
The Servicing Plan continues in effect if such continuance is specifically
approved at least annually by a vote of both a majority of the Board of
Trustees of the Trust and a majority of the Qualified Trustees. The Servicing
Plan requires that at least quarterly, the Treasurer of the Trust provide to
the Trustees of the Trust and that the Trustees review a written report of the
amounts expended pursuant to the Servicing Plan and the purposes for which such
expenditures were made. The Servicing Plan further provides that the selection
and nomination of the Trust's Qualified Trustees is committed to the discretion
of the Trust's disinterested Trustees then in office. The Servicing Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees, or by
a vote of a majority of the outstanding voting shares of such Fund. The Plan
may not be amended to increase materially the amount of a Fund's permitted
expenses thereunder without the approval of a majority of the outstanding
voting securities of the affected Class of such Fund and may not be materially
amended in any case without a vote of the majority of both the Trust's Trustees
and the Trust's Qualified Trustees.
ITEM 16. BROKERAGE ALLOCATION AND OTHER PRACTICES
Purchases and sales of securities for the Portfolios usually are principal
transactions. Securities are normally purchased directly from the issuer or
from an underwriter or market maker for the securities. There usually are no
brokerage commissions paid for such purchases. Each Portfolio does not
anticipate paying brokerage commissions. Any transaction for which the
Portfolios pay a brokerage commission
B - 11
<PAGE>
will be effected at the best price and execution available. Purchases from
underwriters of securities include a commission or concession paid by the
issuer to the underwriter and purchases from dealers serving as market makers
include the spread between the bid and asked price.
Allocations of transactions, including their frequency, to various dealers is
determined by the respective Sub-Advisers in their best judgment and in a
manner deemed to be in the best interest of each Fund and the other investors
in either Portfolio rather than by any formula. The primary consideration is
prompt execution of orders in an effective manner at the most favorable price.
Investment decisions for the Portfolios will be made independently from those
for any other account or investment company that is or may in the future become
managed by the Sub-Advisers. If, however, either Portfolio and other accounts
managed by its Sub-Adviser are contemporaneously engaged in the purchase or
sale of the same security, the transactions may be averaged as to price and
allocated equitably to each account. In some cases, this policy might adversely
affect the price paid or received by either Portfolio or the size of the
position obtainable for either Portfolio. In addition, when purchases or sales
of the same security for either Portfolio and for other accounts managed by
their Sub-Adviser occur contemporaneously, the purchase or sale orders may be
aggregated in order to obtain any price advantages available to large
denomination purchases or sales.
ITEM 17. CAPITAL STOCK AND OTHER SECURITIES
Under the Master Trust Agreement, the Trustees of the Trust have authority to
issue an unlimited number of shares of beneficial interest, par value $0.001
per share, of each Fund. The Master Trust Agreement authorizes the Board of
Trustees to divide the shares into any number of classes or series, each class
or series having such designations, powers, preferences, rights,
qualifications, limitations and restrictions, as shall be determined by the
Board subject to the 1940 Act and other applicable law. The shares of any such
additional classes or series might therefore differ from the shares of the
present class and series of capital stock and from each other as to
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption, subject to applicable law, and might thus be superior or inferior
to the other classes or series in various characteristics.
The Trust generally is not required to hold meetings of its shareholders. Under
the Master Trust Agreement, however, shareholder meetings will be held in
connection with the following matters: (1) the election or removal of Trustees
if a meeting is called for such purpose; (2) the adoption of any investment
advisory contract; (3) any amendment of the Master Trust Agreement (other than
amendments changing the name of the Trust, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (4) such additional matters as may be required by law,
the Master Trust Agreement, the By-laws of the Trust or any registration of the
Trust with the SEC or any state, or as the Trust's Trustees may consider
necessary or desirable. The shareholders also would vote upon changes in
fundamental investment objectives, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing Trustees and until the election and qualification of
his successor or until such Trustee sooner dies, resigns or is removed by a
vote of two-thirds of the shares entitled to vote, or a majority of the
Trustees. In accordance with the 1940 Act (i) the Trust will hold a shareholder
meeting for the election of Trustees at such time as less than a majority of
the Trustees have been elected by shareholders, and (ii) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the Trustees have
been elected by the shareholders, that vacancy will be filled only by a vote of
the shareholders. A shareholders' meeting shall
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<PAGE>
be held for the purpose of voting upon the removal of a Trustee upon the
written request of the holders of not less than 10% of the outstanding shares.
Upon the written request of ten or more shareholders who have been such for at
least six months and who hold shares constituting at least 1% of the
outstanding shares of a Fund stating that such shareholders wish to communicate
with the other shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal of a Trustee, the Trust has
undertaken to disseminate appropriate materials at the expense of the
requesting shareholders.
The Master Trust Agreement provides that the presence at a shareholder meeting
in person or by proxy of at least 30% of the shares entitled to vote on a
matter shall constitute a quorum. Thus, a meeting of shareholders of the Trust
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority
of a quorum, such as the election of Trustees and ratification of the selection
of auditors. Some matters requiring a larger vote under the Master Trust
Agreement, such as termination or reorganization of the Trust and certain
amendments of the Master Trust Agreement, would not be affected by this
provision; nor would matters which under the 1940 Act require the vote of a
"majority of the outstanding voting securities" as defined in the 1940 Act.
The Master Trust Agreement specifically authorizes the Board of Trustees to
terminate the Trust (or any series Fund thereof) by notice to the shareholders
without shareholder approval. The Board of Trustees may by amendment to the
Master Trust Agreement add to, delete, replace or otherwise modify any
provisions relating to any series or class, provided that before adopting any
such amendment without shareholder approval, the Board of Trustees determined
that it was consistent with the fair and equitable treatment of all
shareholders and, if shares have been issued, shareholder approval shall be
required to adopt any amendments which would adversely affect to a material
degree the rights and preferences of the shares of any series or class.
Each share of a Fund has equal voting rights with every other share of a Fund,
and all shares of a Fund vote as a single group except where a separate vote of
any class is required by the 1940 Act, the laws of the State of Delaware, the
Master Trust Agreement or the By-Laws, or as the Board may determine in its
sole discretion. Where a separate vote is required with respect to one or more
classes, then the shares of all other classes vote as a single class, provided
that, as to any matter which does not affect the interest of a particular
class, only the holders of shares of the one or more affected classes is
entitled to vote.
Interests in each Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolio Trust normally will not hold meetings of holders of such interests
except as required under the 1940 Act. The Portfolio Trust would be required to
hold a meeting of holders in the event that at any time less than a majority of
its Trustees holding office had been elected by holders. The Trustees of the
Portfolio Trust continue to hold office until their successors are elected and
have qualified. Holders holding a specified percentage of interests in a
Portfolio may call a meeting of holders in such Portfolio for the purpose of
removing any Trustee. A Trustee of the Portfolio Trust may be removed upon a
majority vote of the interests held by holders in the Portfolio Trust qualified
to vote in the election. The 1940 Act requires the Portfolio Trust to assist
its holders in calling such a meeting. Upon liquidation of a Portfolio, holders
in a Portfolio would be entitled to share pro rata in the net assets of the
Portfolio available for distribution to holders. Each holder in a Portfolio is
entitled to a vote in proportion to its percentage interest in such Portfolio.
If at any time a Fund receives notice of a meeting of shareholders of a
Portfolio in which the Fund invests, the Fund will seek instructions from its
shareholders with regard to the voting of the Fund's interests in the Portfolio
and will vote such interests in accordance with such instructions.
Alternatively, the Fund may elect to vote its interests in the Portfolio in the
same proportion as the vote of all other
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holders of interests in the Portfolio.
ITEM 18. PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Information on how to purchase and redeem shares and the time at which net
asset value of each share is determined is included in the Prospectus.
The Trust may suspend the right to redeem Fund shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during
which the New York Stock Exchange ("NYSE") and the New York Federal Reserve
Bank ("Fed") are closed (other than customary weekend or holiday closings) or
trading on the exchange is restricted; (ii) for any period during which an
emergency exists as a result of which disposal by the Fund of securities owned
by it or determination by the Fund of the value of its net assets is not
reasonably practicable; or (iii) for such other periods as the SEC may permit
for the protection of shareholders of the Fund.
The Trust intends to pay redemption proceeds in cash for all Fund shares
redeemed. Portfolio securities paid upon redemption of Fund shares will be
valued at their then current market value. An investor may incur brokerage
costs in converting portfolio securities received upon redemption to cash. The
Portfolios have advised the Trust that the Portfolios will not redeem in-kind
except in circumstances in which a Fund is permitted to redeem in-kind or
except in the event a Fund completely withdraws its interest from a Portfolio.
VALUATION OF SHARES
The following is a description of the procedures used by the Funds in valuing
their assets.
The investment securities in each Portfolio are valued based upon the amortized
cost method which involves valuing a security at its cost and thereafter
assuming a constant amortization to maturity of any discount or premium.
Although the amortized cost method provides consistency in valuation, it may
result in periods during which the stated value of a security is higher or
lower than the price that each Portfolio would receive if the security were
sold. This method of valuation is used in order to stabilize the NAV of shares
of either Fund at $1.00; however, there can be no assurance that either Fund's
NAV will always remain at $1.00 per share.
ITEM 19. TAXATION OF THE TRUST
Each Fund is treated as a separate entity for accounting and tax purposes. Each
Fund has elected to be treated and to qualify as a "regulated investment
company" ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), and intends to continue to so qualify in the future. As
such and by complying with the applicable provisions of the Code regarding the
sources of its income, the timing of its distributions, and the diversification
of its assets, each Fund will not be subject to Federal income tax on its
investment company taxable income (i.e., all taxable income, after reduction by
deductible expenses, other than its "net capital gain," which is the excess, if
any, of its net long-term capital gain over its net short-term capital loss)
and net capital gain which are distributed to shareholders in accordance with
the timing and other requirements of the Code.
Each Portfolio is treated as a partnership for federal income tax purposes. As
such, a Portfolio is not subject to federal income taxation. Instead, a Fund
must take into account, in computing its federal
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<PAGE>
income tax liability (if any), its share of the Portfolio's income, gains,
losses, deductions, credits and tax preference items, without regard to whether
it has received any cash distributions from its corresponding Portfolio.
Because a Fund invests its assets in its corresponding Portfolio, the Portfolio
normally must satisfy the applicable source of income and diversification
requirements in order for its corresponding Fund to satisfy them. Each
Portfolio will allocate at least annually among its investors, each investor's
distributive share of the Portfolio's net investment income, net realized
capital gains, and any other items of income, gain, loss, deduction or credit.
A Portfolio will make allocations to its corresponding Fund in a manner
intended to comply with the Code and applicable regulations and will make
moneys available for withdrawal at appropriate times and in sufficient amounts
to enable the Fund to satisfy the tax distribution requirements that apply to
the Fund and that must be satisfied in order to avoid Federal income and/or
excise tax on the Fund. For purposes of applying the requirements of the Code
regarding qualification as a RIC, each Fund will be deemed (i) to own its
proportionate share of each of the assets of its corresponding Portfolio and
(ii) to be entitled to the gross income of the Portfolio attributable to such
share.
Each Fund will be subject to a 4% non-deductible federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a
timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by a Fund
during October, November or December but paid during the following January.
Such distributions will be taxable to taxable shareholders as if received on
December 31 of the year the distributions are declared, rather than the year in
which the distributions are received.
At the discretion of the officers of a Fund, each Fund will distribute net
realized capital gains. For federal income tax purposes, a Fund is permitted to
carry forward a net capital loss in any year to offset its own net capital
gains, if any, during the eight years following the year of the loss. To the
extent subsequent net capital gains are offset by such losses, they would not
result in federal income tax liability to a Fund and, as noted above, would not
be distributed as such to shareholders.
If a Portfolio invests in zero coupon securities, certain increasing rate or
deferred interest securities or, in general, other securities with an original
issue discount (or with market discount if an election is in effect to include
market discount in income currently), the Portfolio must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
the Fund must distribute, at least annually, all or substantially all of its
net income, including its distributive share of such income accrued by the
Portfolio, to shareholders to qualify as a regulated investment company under
the Code and avoid federal income and excise taxes. Therefore, the Portfolio
may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to enable the Fund to satisfy the distribution requirements.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Prospectus whether taken in shares or in cash. Distributions,
if any, in excess of E&P will constitute a return of capital, which will first
reduce an investor's tax basis in Fund shares and thereafter (after such basis
is reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected to receive the
distributions in cash, divided by the number of shares received.
It is anticipated that, due to the nature of each Portfolio's investments, no
portion of any Fund's
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<PAGE>
distributions will generally qualify for the dividends received deduction. A
Fund's distributions to its corporate shareholders would potentially qualify in
their hands for the corporate dividends received deduction, subject to certain
holding period requirements and limitations on debt financing under the Code,
only to the extent the Fund was allocated dividend income of its corresponding
Portfolio from stock investments in U.S. domestic corporations.
Dividends and certain other distributions may be subject to "backup
withholding" of federal income tax at a 31% rate for shareholders who fail to
provide required taxpayer identification numbers or related certifications,
provide incorrect information, or are otherwise subject to such withholding.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as
qualified retirement plans. Shareholders should consult their tax adviser for
more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to any foreign
investors (who may be subject to withholding or other taxes) or certain other
classes of investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions, and ownership of
or gains realized on the redemption (including an exchange) of Fund shares may
also be subject to state and local taxes. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent, if any, the Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) investments in certain U.S. Government Securities, provided in some states
that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fund's indirect ownership (through the Portfolio) of any
such obligations, the Federal, and any other state or local, tax consequences
of ownership of shares of, and receipt of distributions from, the Fund in their
particular circumstances.
ITEM 21. CALCULATION OF PERFORMANCE DATA
From time to time, each Fund may quote its "yield" and "effective yield"
information in reports and other communications to shareholders and compare
their performance figures to those of other funds or accounts with similar
objectives and to relevant indices. Such performance information will be
calculated as described below. Yield quotations are expressed in annualized
terms and may be quoted on a compounded basis.
YIELD
The current yield for each Fund is computed by (a) determining the net change
in the value of a hypothetical pre-existing account in the Fund having a
balance of one share at the beginning of a seven calendar day period for which
yield is to be quoted; (b) dividing the net change by the value of the account
at the beginning of the period to obtain the base period return; and (c)
annualizing the results (i.e., multiplying the base period return by 365/7).
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The Funds' 7-day yield for the period ended December 31, 1999 was as follows:
-----------------------------------------------------------------------
CLASS CASH FUND TREASURY PLUS FUND
-----------------------------------------------------------------------
Premium 5.68% N/A*
-----------------------------------------------------------------------
Institutional 5.43% N/A*
-----------------------------------------------------------------------
*The Treasury Plus Fund had not yet commenced operations as of December 31,
1999. The Institutional Class of the Treasury Plus Fund commenced operations
on January 22, 1999.
EFFECTIVE YIELD
In addition, each Fund may calculate a compound effective annualized yield by
determining the net change in the value of a hypothetical pre-existing account
in the Fund having a balance of one share at the beginning of a seven calendar
day period for which yield is to be quoted according to the following formula:
Effective Yield = [( Base Period return +1 ) (365/7 exponentional power)] -
1 (i.e. adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 365/7 and subtracting 1.)
The net change in the value of the account reflects the value of additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation.
The Funds' 7-day effective yield for the period ended December 31, 1999, was as
follows:
- -----------------------------------------------------------------------
CLASS CASH FUND TREASURY PLUS FUND
-----------------------------------------------------------------------
Premium 5.84% N/A*
-----------------------------------------------------------------------
Institutional 5.58% N/A*
-----------------------------------------------------------------------
*The Treasury Plus Fund had not yet commenced operations as of December 31,
1999. The Institutional Class of the Treasury Plus Fund commenced operations
on January 22, 1999.
Each Fund's performance will vary from time to time depending upon market
conditions, the composition of the Fund's portfolio and its operating expenses.
Consequently, any given performance quotation should not be considered as
representative of a Fund's performance for any specified period in the future.
Performance information may be useful as a basis for comparison with other
investment alternatives. However, a Fund's performance will fluctuate, unlike
certain bank deposits or other investments which pay a fixed yield for a stated
period of time.
ITEM 22. FINANCIAL STATEMENTS
The Cash Fund's financial statements contained in the 1999 Annual Report of the
Trust have been audited by Ernst & Young LLP, independent auditors, and are
incorporated by reference into this SAI. Copies of the Trust's 1999 Annual
Report may be obtained by calling 1-888-MERRMAC.
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APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of short-term debt ratings have been published by
Standard & Poor's Ratings Service ("Standard & Poor's"), Moody's Investors
Service ("Moody's"), Fitch's IBCA Investors Service ("Fitch"), and Duff and
Phelps ("Duff"), respectively. These obligations have an original maturity not
exceeding thirteen months, unless explicitly noted.
A -- Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Commercial paper issues rated A-1 by Standard & Poor's reflect a very
strong degree of safety of timely payment. Commercial paper issues rated A-2
reflect a strong degree of safety of timely payment but not as strong as for
issues designated A-1.
Commercial paper issues rated Prime-1 by Moody's are judged by Moody's to be of
the "highest" quality on the basis of relative repayment capacity with a
superior ability for repayment of senior short-term debt obligations.
Commercial paper issues rated Prime-2 are judged by Moody's to be of the
"second highest" quality with a strong ability for repayment of senior
short-term debt obligations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. Commercial paper issues rated Fitch-2 are
regarded as having only a slightly less assurance of timely payment than those
issues rated Fitch-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors that are supported by ample asset protection.
Risk factors are minor. The rating Duff-2 is regarded as having good certainty
of timely payment with sound liquidity factors supported by good asset
protection. Risk factors are small.
DESCRIPTION OF LONG-TERM DEBT RATINGS
The following is a description of Moody's debt instrument ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates
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a midrange ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
The following is a description of Standard & Poor's debt instrument ratings:
Standard & Poor's ratings are based, in varying degrees, on the following
considerations: (i) the likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligations; (ii) the nature of and provisions
of the obligation; and (iii) the protection afforded by, and relative position
of, the obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Plus (+) or minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
THOMSON BANK WATCH SHORT-TERM DEBT RATINGS
Thomson Bank Watch ratings represent an assessment of the likelihood of an
untimely payment of principal and interest. Important factors that may
influence this assessment are the overall financial health of the particular
company, and the probability that the government will come to the aid of a
troubled institution in order to avoid a default or failure. The probability of
government intervention stems from four primary factors:
o Government Guarantees
o Government Or Quasi-Government Ownership Or Control
o The Degree Of Concentration In The Banking System
o Government Precedent
As with the Issuer Ratings, the Short-Term Debt Ratings incorporate both
qualitative and quantitative factors. The ratings are not meant to be
"pass/fail" but rather to provide a relative indication of creditworthiness.
Therefore, obligations rated TBW-3 are still considered investment-grade.
These Short-Term Debt Ratings can also be restricted to local currency
instruments. In such cases, the ratings will be preceded by the designation LC
for Local Currency. Short-Term Debt Ratings are based on the following scale
and the definitions are:
TBW-1 LC-1
The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
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TBW-2 LC-2
The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
TBW-3 LC-3
The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal
and external) than those with higher ratings, the capacity to service
principal and interest in a timely fashion is considered adequate.
TBW-4 LC-4
The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
THOMSON BANK WATCH LONG-TERM DEBT RATINGS
Long-Term Debt Ratings assigned by Thomson Bank Watch also weigh heavily
government ownership and support. The quality of both the company's management
and franchise are of even greater importance in the Long-Term Debt Rating
decisions. Long-Term Debt Ratings look out over a cycle and are not adjusted
frequently for what is believed to be short-term performance aberrations.
Long-Term Debt Ratings can be restricted to local currency debt - ratings will
be identified by the designation LC. In addition, Long-Term Debt Ratings may
include a plus (+) or minus (-) to indicate where within the category the issue
is placed. Thomson Bank Watch Long-Term Debt Ratings are based on the following
scale:
INVESTMENT GRADE
AAA LC-AAA
Indicates that the ability to repay principal and interest on a timely
basis is extremely high.
AA LC-AA
Indicates a very strong ability to repay principal and interest on a
timely basis, within limited incremental risk compared to issues rated
in the highest category.
A LC-A
Indicates the ability to repay principal and interest is strong. Issues
rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
BBB LC-BBB
The lowest investment-grade category; indicates an acceptable capacity
to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
B - 20
<PAGE>
NON-INVESTMENT GRADE - MAY BE SPECULATIVE IN THE LIKELIHOOD OF TIMELY REPAYMENT
OF PRINCIPAL AND INTEREST.
BB LC-BB
While not investment grade, the BB rating suggests that the likelihood
of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to
adequately service debt obligations.
B LC-B
Issues rated B show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse
developments could negatively affect the payment of interest and
principal on a timely basis.
CCC LC-CCC
Issues rated CCC clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.
CC LC-CC
CC is applied to issues that are subordinate to other obligations rated
CCC and are afforded less protection in the event of bankruptcy or
reorganization.
D LC-D
Default
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<PAGE>
PART C
C - 1
<PAGE>
PART C
Item 23. Exhibits:
Exhibit No. Description
----------- -----------
(a1) Master Trust Agreement, effective as of
October 30, 1996(1)
(a2) Amendment No. 1 to the Master Trust
Agreement(1)
(a3) Amendment No. 2 to the Master Trust
Agreement(2)
(b) By-Laws(1)
(c) None
(d1) Investment Adviser Agreement between
Merrimac Master Portfolio and Investors Bank
& Trust Company ("Investors Bank")(1)
(d2) Investment Sub-Adviser Agreement between
Investors Bank and Allmerica Asset
Management, Inc. (Cash Portfolio)(3)
(d3) Investment Sub-Adviser Agreement between
Investors Bank and M&I Investment Management
Corp. (Treasury Plus Portfolio)(3)
(e) *
(f) Not Applicable
(g) Custodian Agreement between Registrant and
Investors Bank(1)
(h1) Administration Agreement between Registrant
and Investors Bank(1)
(h2) Transfer Agency Agreement between
Registrant and Investors Bank(1)
(i) *
(j) *
C - 2
<PAGE>
(k) *
(l) None
(m1) Shareholder Servicing Plan (Institutional
Class)(1)
(m2) Shareholder Servicing Plan (Placement
Class)(2)
(m3) Shareholder Servicing Agreement
(Institutional Class)(1)
(m4) Shareholder Servicing Agreement (Placement
Class)(2)
(m5) Plan of Distribution (Placement Class)(2)
(m6) Private Placement Agent Agreement
(Placement Class)(2)
(o1) Multiple Class Expense Allocation Plan
(Rule 18f-3)(1)
(o2) First Amended and Restated Multiple Class
Expense Allocation Plan(2)
(1) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed April 1, 1997 (Accession No. 0001029869-97-000412).
(2) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed April 21, 1998 (Accession No. 0001029869-98-000529).
(3) Incorporated by reference to the Registrant's Registration Statement on
Form N-1A filed April 23, 1999 (Accession No. 0000897436-99-103).
*Pursuant to General Instructions B2 of Form N-1A, a registration statement
filed under only the Investment Company Act of 1940 shall consist of the facing
sheet of the Form, responses to all items of Part A and B except Items 1, 2, 3,
5 and 9 of Part A thereof, responses to all items of Part C except Items 23(e)
and (i)-(k) and the required signatures and all other documents that are
required or which the Registrant may file as part of the registration
statement.
C - 3
<PAGE>
Item 24. Persons Controlled by or Under Common Control with Registrant
As of the close of business on April 1, 2000, the following are owners of
99.72% or more of the value of the outstanding shares of the Merrimac Cash
Fund.
Merrimac Cash Fund (Premium Class)
- ----------------------------------
Record Owner Percent Ownership
------------ -----------------
Investors Bank & Trust Company 62.19%
As Security Lending Agent
Attn: Bob Jackson
Mail Code TRD 18
200 Clarendon Street
Boston, MA 02116
Allmerica Financial 28.86%
FBO Allmerica Financial Life Ins & Ann
Attn: Investment Accounting N262
440 Lincoln Street
Worcester, MA 01653
Maril & Co 8.95%
FBO Sec Lending
Attn: ACM/Fund Acct
1000 N. Water Street - TR 14
Milwaukee, WI 53202
Merrimac Cash Fund (Institutional Class)
- ----------------------------------------
Record Owner Percent Ownership
------------ -----------------
Capital Network Services 100%
One Bush Street, 11th Floor
San Francisco, CA 94104
Since, as of April 1, 2000, the Merrimac Cash Fund is the owner of greater than
25% of the interests in the Merrimac Cash Portfolio, a series of the Merrimac
Master Portfolio, it controls the Merrimac Cash Portfolio and the shareholders
listed above may also be deemed to control the Merrimac Cash Portfolio. As of
April 1, 2000, the Merrimac Treasury Plus Fund was not operational.
C - 4
<PAGE>
Item 25. Indemnification
Under Article V of the Registrant's Declaration of Trust, the Trust shall
indemnify, to the fullest extent permitted by law (including the 1940 Act),
each Trustee, officer or employee of the Trust (including any Person who serves
at the Trust's request as a director, officer or trustee of another
organization in which the Trust has any interest as a shareholder, creditor or
otherwise) against all liabilities and expenses (including amounts paid in
satisfaction of judgments, in compromise, as fines and penalties, and as
counsel fees) reasonably incurred by such Person in connection with the defense
or disposition of any action, suit or other proceeding, whether civil or
criminal, in which such Person may be involved or with which such Person may be
threatened, while in office or thereafter, by reason of such Person being or
having been such a Trustee, officer, employee, except with respect to any
matter as to which such Person shall have been adjudicated to have acted with
bad faith, willful misfeasance, gross negligence or reckless disregard of such
Person's duties, such liabilities and expenses being liabilities only of the
Portfolio Series out of which such claim for indemnification arises; provided,
however, that as to any matter disposed of by a compromise payment by such
Person, pursuant to a consent decree or otherwise, no indemnification either
for such payment of for any other expenses shall be provided unless there has
been a determination that such Person did not engage in willful misfeasance,
bad faith, gross negligence or reckless disregard of the duties involved in the
conduct of such Person's office (i) by the court or other body approving the
settlement or other disposition; or (ii) based upon a review of readily
available facts (as opposed to a full trial-type inquiry), by written opinion
from independent legal counsel approved by the Trustees; or (iii) by a majority
of the Trustees who are neither Interested Persons of the Trust nor parties to
the matter, based upon a review of readily available facts (as opposed to a
full trial-type inquiry).
Item 26. Business and Other Connections of Investment Adviser
Investors Bank serves as investment adviser to the Merrimac Cash Portfolio (in
which the Merrimac Cash Fund has invested all of its assets) and the Merrimac
Treasury Plus Portfolio (in which the Merrimac Treasury Plus Fund has invested
all of its assets). Investors Bank was organized in 1969 as a
Massachusetts-chartered trust company and provides domestic and global custody,
multi-currency accounting, institutional transfer agency, performance
measurement, foreign exchange, securities lending and mutual fund
administration services to a variety of financial asset managers, including
mutual fund complexes, investment advisers, banks and insurance companies. The
business, profession, vocation or employment of a substantial nature that each
director or officer of Investors Bank is or has been, at any time during the
past two fiscal years, engaged in for his own account or in the capacity of
director, officer, employee, partner or trustee, is as follows:
C - 5
<PAGE>
Business and Other Positions
Name Position With Adviser Within Last Two Years
- ---- --------------------- ---------------------
Kevin J. Sheehan President & Chief Chief Executive Officer
Executive Officer since June 1995;
President since June 1992
Michael F. Rogers Executive Vice since September 1993
President
Karen C. Keenan Senior Vice President, Treasurer since September
Chief Financial 1997; Senior Vice President
Officer and Treasurer and Chief Financial Officer
since June 1995.
Edmund J. Maroney Senior Vice President, since July 1991
Technology
Robert D. Mancuso Senior Vice President, since September 1993
Marketing Client
Services
David F. Flynn Senior Vice President, since April 1992
Lending
John E. Henry General Counsel & since January 1997;
Secretary General Counsel &
Assistant Secretary
since February 1996
James M. Oates Director Chairman of IBEX Capital
Markets, LLC since 1996
Thomas P. McDermott Director Managing Director of TPM
Associates since 1994
Frank B. Condon Director Chief Executive Officer &
Chairman of The Woodstock
Corporation from 1993 to
April 1997
Phyllis S. Swersky Director President of The Meltech
Group since 1995; President
& Chief Executive Officer of
The NET Collaborative from
1996 to 1997
C - 6
Business and Other Positions
Name Position With Adviser Within Last Two Years
- ---- --------------------- ---------------------
Donald G. Friedl Director President of All Seasons
from 1986 until January 1997
Robert B. Fraser Director Retired, Formerly, Chairman
of Goodwin, Procter & Hoar,
LLP
Item 27. Principal Underwriters
Not Applicable
Item 28. Location of Accounts and Records
The accounts and records of the Registrant are located, in whole or in part, at
the office of the Registrant and the locations set forth below. (The Merrimac
Cash Fund and the Merrimac Treasury Plus Fund are referred to as the "Funds"
and the Merrimac Cash Portfolio and the Merrimac Treasury Plus Portfolio are
referred to as the Portfolios.)
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Investment Adviser to the Portfolios; Administrator, and Transfer Agent for
the Funds; Custodian for the Funds and the Portfolios)
Allmerica Asset Management, Inc.
440 Lincoln Street
Worcester, MA 01653
(Investment Sub-Adviser to the Merrimac Cash Portfolio)
M&I Investment Management Corp.
1000 North Water Street
Milwaukee, Wisconsin 53202
(Investment Sub-Adviser to the Merrimac Treasury Plus Portfolio)
IBT Trust & Custodial Services (Ireland) LMTD
Deloitte & Touche House
29 Earlsfort Terrace
Dublin 2, Ireland
(Administrator to the Portfolios)
IBT Fund Svs (Canada) Inc.
1 First Canadian, King Street West
Suite 2800 P.O. Box 231
Toronto, CA M5X1C8
(Transfer Agent for the Portfolios and Fund Accountant for the Portfolios and
the Funds)
Item 29. Management Services
Not Applicable
Item 30. Undertakings
Not Applicable
C - 7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Investment Company Act of 1940, the Fund
has duly caused this Amendment No. 3 to the Registration Statement on Form N-1A
to be signed on its behalf by the undersigned, thereto duly authorized in the
City of Boston, and Commonwealth of Massachusetts as of the 28th day of April,
2000.
MERRIMAC FUNDS
/s/Paul J. Jasinski
--------------------
By: Paul J. Jasinski
Its: President
