AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON June 18, 1998
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1
TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ X ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
MERRIMAC SERIES
(Exact Name of Registrant as Specified in Charter)
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code: (617) 330-6413
Susan C. Mosher, Secretary
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
Copy to:
Philip Newman, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, MA 02109
Approximate date of proposed public offering: June 22, 1998
Merrimac Master Portfolio and Standish, Ayer & Wood Master Portfolio also
executed this Registration Statement
===============================================================================
<PAGE>
MERRIMAC SERIES
FORM N-1A
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Part A
ITEM NO. HEADINGS IN PROSPECTUS
<S> <C>
1. Cover Page .......................... Cover Page
2. Synopsis ............................ Summary; Expense Information
3. Condensed Financial Information ..... Not applicable
4. General Description of Registrant ... Cover Page; Summary; The Funds
and the Portfolios; Investment
Objectives and Policies; Description
of Permitted Investments and Related
Risks; Additional Information Concerning
Investment Structure; Management
of the Funds and the Portfolios
5. Management of the Funds ............. Management of the Funds and the Portfolios
6. Capital Stock and Other Securities .. Cover Page; Purchases and Redemptions;
Management of the Funds and the Portfolios;
Dividends, Distributions and Taxes;
Performance Information
7. Purchase of Securities Being
Offered ............................ Purchases and Redemptions; Valuation of Shares
8. Redemption or Repurchase ............ Purchases and Redemptions; Valuation of Shares
9. Pending Legal Proceedings ........... Not applicable
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Part B HEADINGS IN STATEMENT OF
ITEM NO. ADDITIONAL INFORMATION
<S> <C>
10. Cover Page .......................... Cover Page
11. Table of Contents ................... Table of Contents
12. General Information and History ..... Not applicable
13. Investment Objectives and Policies .. Additional Information About Investment Policies;
Investment Restrictions
14. Management of the Fund .............. Management of the Funds and the Portfolios
15. Control Persons and Principal
Holders of Securities ............. Control Persons and Principal Holders of Securities
16. Investment Advisory and Other
Services .......................... Investment Advisory Services
17. Brokerage Allocation and Other
Practices ......................... Not applicable
18. Capital Stock and Other Securities .. Capital Stock and Other Securities
19. Purchase, Redemption and Pricing of
Securities Being Offered .......... Redemption of Shares; Portfolio Transactions;
Net Asset Value Determination
20. Tax Status .......................... Taxation
21. Underwriters ........................ Distributor
22. Calculations of Performance
Information ....................... Calculation of Performance Data
23. Financial Statements ................ Experts and Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
<PAGE>
MERRIMAC SERIES
200 Clarendon Street
Boston, Massachusetts 02116
1-888-MERRMAC
The Merrimac Series (the "Trust") is an open-end management investment company
consisting of the following three separate series of shares (each, a "Fund" and
collectively, the "Funds"):
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Short-Term Asset Reserve Series
Investment Objective. The investment objective of each Fund is to achieve a high
level of current income consistent with preserving principal and liquidity. The
Merrimac Cash Series and Merrimac Treasury Series are Money Market Funds, while
the Merrimac Short-Term Asset Reserve Series is a short term fixed income fund.
Classes of Shares. Each of the Funds offers three classes of shares: Premium
Class, Institutional Class and Investment Class. The minimum initial investment
for Premium Class shares of each Fund is $10 million. The minimum initial
investment for Institutional Class and Investment Class shares of each Fund is
$10,000. See "Purchases and Redemptions" for more information about each class
of shares.
This Prospectus sets forth basic information that a prospective investor should
know before investing in any of the Funds and should be read and retained for
future reference. A Statement of Additional Information (the "SAI"), dated June
22, 1998, has been filed with the Securities and Exchange Commission (the
"SEC") and is incorporated by reference into this Prospectus. A copy of the SAI
may be obtained free of charge by calling the toll-free number above.
Investment in the Funds is neither insured nor guaranteed by the U.S.
Government, and is not a deposit or obligation of, or guaranteed or endorsed by,
Investors Bank & Trust Company or The Bank of New York. Further, investment in
the Funds is not insured by the Federal Deposit Insurance Corporation or any
other government agency, and involves investment risks, including possible loss
of principal amount invested. The Merrimac Cash Series and the Merrimac Treasury
Series attempt to maintain a stable net asset value of $1.00 per share; however,
there can be no assurance that either Fund will be able to do so. The Merrimac
Short-Term Asset Reserve Series is not a money market fund and will not seek to
maintain a stable net asset value.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Prospectus dated June 22, 1998
Funds Distributor, Inc. (the "Distributor")
<PAGE>
Table of Contents
Page
Summary.............................................................. 3
Expense Information.................................................. 6
The Funds and the Portfolios......................................... 10
Investment Objectives and Policies................................... 10
Description of Permitted Investments and Related Risks............... 14
Who Should Invest.................................................... 23
Additional Information Concerning Investment Structure............... 24
Management of the Funds and the Portfolios........................... 25
Valuation of Shares.................................................. 28
Purchases and Redemptions............................................ 29
Dividends, Distributions and Taxes................................... 32
Performance Information.............................................. 34
2
<PAGE>
Summary
The following is a brief summary of the proposed terms for the Funds. It is
qualified in its entirety by the detailed information appearing elsewhere in
this Prospectus.
Investment Objective: The Funds will seek to achieve a high level of current
income consistent with preserving principal and liquidity.
Minimum Initial Investment: $10 million for the Premium Class, $10,000 for the
Institutional Class and $10,000 for the Investment Class.
Net Asset Value: The Merrimac Cash Series (the "Cash Series") and the Merrimac
Treasury Series (the "Treasury Series") will seek to maintain a $1.00 per share
net asset value; however, there can be no assurance that either Fund will be
able to do so. The net asset value of the Merrimac Short-Term Asset Reserve
Series (the "STAR Series") will not remain constant but will fluctuate, as
described below.
Master-Feeder Structure: Traditional mutual funds directly acquire and manage
their own portfolio securities. As part of a master-feeder structure, the Funds
seek to achieve their investment objective by investing all of their investable
assets in their corresponding Portfolio. The Cash Series and the Treasury Series
each seek to achieve their investment objective by investing all of their
investable assets in the Merrimac Cash Portfolio (the "Cash Portfolio") and the
Merrimac Treasury Portfolio (the "Treasury Portfolio"), respectively. The STAR
Series seeks to achieve its objective by investing all of its investable assets
in the Standish Short-Term Asset Reserve Portfolio (the "STAR Portfolio"). The
Cash Portfolio, the Treasury Portfolio and the STAR Portfolio are hereinafter
referred to singly as a "Portfolio," and collectively as the "Portfolios." Each
Fund's investment experience will correspond directly with the investment
experience of its corresponding Portfolio.
Investment Portfolios and Policies: The Cash Portfolio and the Treasury
Portfolio each invest in high quality money market instruments which represent
minimal credit risk. Currency exposure is restricted to U.S. dollars. When it is
anticipated that short-term interest rates will decrease, the average maturity
of the Cash Portfolio and the Treasury Portfolio may be increased to lock-in
prevailing rates prior to an anticipated decrease in rates. Conversely, when it
is anticipated that short-term interest rates will increase, the average
maturity of the Cash Portfolio and the Treasury Portfolio may be reduced. Both
Portfolios will maintain a dollar-weighted average maturity of 90 days or less
and will not invest in securities with remaining maturities of more than 397
days.
The STAR Portfolio invests in a broad range of investment grade money market
instruments and short-term fixed income securities. The STAR Portfolio may also
invest in tax-exempt securities and prime commercial paper of U.S. and foreign
companies, and may enter into reverse repurchase agreements. The STAR Portfolio
limits its investments in preferred stock and tax exempt securities to 10% of
its total assets.
Investment Advisers and Sub-Advisers: Investors Bank & Trust Company ("Investors
Bank") acts as Investment Adviser to the Cash Portfolio and the Treasury
Portfolio. Investors Bank's business address is 200 Clarendon Street, Boston,
Massachusetts 02116. As Investment Adviser, Investors Bank continuously reviews
and supervises the investment program for the Cash Portfolio and the Treasury
Portfolio. The Bank of New York ("BNY") and Aeltus Investment Management, Inc.
("Aeltus") act as Investment Sub-Adviser for the Cash Portfolio and the Treasury
Portfolio, respectively. BNY's business address is 48 Wall Street, New York, New
York 10286. Aeltus' business address is 242 Trumbull Street, Hartford,
Connecticut 06103. As Investment Sub-Adviser, BNY and Aeltus each select
investments and place all orders for the purchase and sale of their respective
Portfolio's investments.
3
<PAGE>
Standish, Ayer & Wood, Inc. ("Standish") acts as Investment Adviser to the STAR
Portfolio. Standish's business address is One Financial Center, Boston,
Massachusetts 02111. Standish continuously reviews and supervises the investment
program for the STAR Portfolio, selects investments and places all orders for
the purchase and sale of the STAR Portfolio's investments.
Purchase Orders and Related Dividend Timing: Purchase orders received by 2:00
p.m. Eastern Time (ET) for the Treasury Series and the Cash Series and by the
close of trading on the New York Stock Exchange ("NYSE") (normally 4:00 p.m.
(ET)) for the STAR Series, will be effected on that Business Day (as defined
below) at the net asset value computed next following the order, if cleared
funds are received that Business Day. Purchase orders received after 2:00 p.m.
(ET) for the Treasury Series and the Cash Series and after the close of trading
on the NYSE (normally 4:00 p.m. (ET)), for the STAR Series will be effected on
the next business day if cleared funds are received on the next Business Day.
Investors will receive the dividend on the Business Day their purchase is
effected. See "Purchases and Redemptions." Redemption requests received prior to
2:00 p.m. (ET) for the Treasury Series and the Cash Series and prior to the
close of trading on the NYSE (normally 4:00 p.m. (ET)), for the STAR Series on a
Business Day, will become effective the same Business Day. Redemption requests
received prior to 2:00 p.m. (ET) for the Treasury Series and the Cash Serieso
and prior to the close of trading on the NYSE (normally 4:00 p.m. (ET)), for the
STAR Series, will not earn a dividend for that Business Day. Requests received
after 2:00 p.m. (ET) for the Treasury Series and the Cash Series and after the
close of trading on the NYSE (normally 4:00 p.m. (ET)), for the STAR Series,
will be treated as received on the following Business Day. For shareholders
liquidating their account, dividends accrued up to the date of redemption shall
be payable with redemption proceeds.
Time of Net Asset Value Calculation: As of 2:00 p.m. (ET) for the Treasury
Series and the Cash Series and as of the close of trading on the NYSE (normally
4:00 p.m. (ET)), for the STAR Series on a Business Day. The Funds are open on
any day on which the NYSE is open (a "Business Day").
Redemption Methods: Telephone, wire and mail (no check writing privileges).
Custodian: Investors Bank & Trust Company, 200 Clarendon Street, Boston,
Massachusetts 02116.
Counsel: Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts
02109 is counsel to the Cash Series, Cash Portfolio, Treasury Series, Treasury
Portfolio and STAR Series. Hale and Dorr LLP, 60 State Street, Boston,
Massachusetts 02109 is counsel to the STAR Portfolio.
Auditors: Ernst & Young LLP, 200 Clarendon Street, Boston, Massachusetts 02116
serve as auditors for the Cash Series, Cash Portfolio, Treasury Series, Treasury
Portfolio and STAR Series. Coopers & Lybrand L.L.P. serve as auditors for the
STAR Portfolio.
4
<PAGE>
Expense Information
The following tables summarize shareholder transaction and annual operating
expenses for the Premium, Institutional and Investment Class shares of the Funds
and for the Portfolios. It is intended to assist investors in understanding the
various costs and expenses that a shareholder of a Fund will bear, either
directly or indirectly. Each Fund invests all of its investable assets in its
corresponding Portfolio. For more information on costs and expenses, see
"Organization and Management of the Funds and the Portfolios."
Premium Class
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Cash Treasury STAR
Series Series Series
<S> <C> <C> <C>
Sales Charge Imposed on Purchases None None None
Sales Charge Imposed on Reinvested Dividends None None None
Deferred Sales Charge Imposed on Redemptions None None None
Annual Fund (and Allocated Portfolio)
Operating Expenses
(as a percentage of average net assets)
Management Fee(1) 0.17% 0.17% 0.25%
12b-1 fees None None None
Other Expenses (after expense reimbursement)(2) 0.08% 0.23% 0.15%
Total Fund Operating Expenses 0.25% 0.40% 0.40%
---- ---- ----
</TABLE>
(1)The Management Fee of the Cash Series and the Treasury Series includes
fees payable to the relevant Investment Sub-Adviser.
(2)The amounts set forth for "Other Expenses" include fees for shareholder
servicing, legal and accounting services, printing and regulatory filings and
are based on estimates for the current fiscal year.
Investors Bank has voluntarily agreed to limit Total Fund Operating
Expenses (excluding litigation, indemnification, taxes and other extraordinary
expenses) of the STAR Series to 0.40% of average daily net assets. In the
absence of this agreement, Other Expenses and Total Fund Operating Expenses are
estimated to be equal, on an annual basis, to 0.20% and 0.45%, respectively, of
the Star Series' average daily net assets. This agreement is voluntary and
temporary and may be revised by Investors Bank at any time although it has no
current intention to do so.
5
<PAGE>
Example: A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) with or without redemption at the end of
each period:
1 Year 3 Years
Cash Series $3 $ 8
Treasury Series $4 $13
STAR Series $4 $13
Institutional Class
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Cash Treasury STAR
Series Series Series
<S> <C> <C> <C>
Sales Charge Imposed on Purchases None None None
Sales Charge Imposed on Reinvested Dividends None None None
Deferred Sales Charge Imposed on Redemptions None None None
Annual Fund (and Allocated Portfolio)
Operating Expenses (as a percentage of
average net assets)
Management Fee(1) 0.17% 0.17% 0.25%
12b-1 fees None None None
Other Expenses (after expense reimbursement)(2) 0.33% 0.48% 0.40%
Total Fund Operating Expenses 0.50% 0.65% 0.65%
---- ---- ----
</TABLE>
- ------------------
(1)The Management Fee of the Cash Series and the Treasury Series includes
fees payable to the relevant Investment Sub-Adviser.
(2)The amounts set forth for "Other Expenses" include fees for shareholder
servicing, legal and accounting services, printing and regulatory filings and
are based on estimates for the current fiscal year.
Investors Bank has voluntarily agreed to limit Total Operating Expenses
(excluding litigation, indemnification, taxes and other extraordinary expenses
of the STAR Series to 0.65% of average daily net assets. In the absence of this
agreement, Other Expenses and Total Fund Operating Expenses are estimated to be
equal, on an annual basis, to 0.45% and 0.70%, respectively, of the STAR Series'
average daily net assets. This agreement is voluntary and temporary and may be
revised by Investors Bank at any time although it has no current intention to do
so.
Example: A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) with or without redemption at the end of
each period:
6
<PAGE>
1 Year 3 Years
Cash Series $5 $16
Treasury Series $7 $21
STAR Series $7 $21
Investment Class
Shareholder Transaction Expenses:
<TABLE>
<CAPTION>
Cash Treasury STAR
Series Series Series
<S> <C> <C> <C>
Sales Charge Imposed on Purchases None None None
Sales Charge Imposed on Reinvested Dividends None None None
Deferred Sales Charge Imposed on Redemptions None None None
Annual Fund (and Allocated Portfolio)
Operating Expenses
(as a percentage of average net assets)
Management Fee(1) 0.17% 0.17% 0.25%
12b-1 fees 0.25% 0.25% 0.25%
Other Expenses (after expense reimbursement)(2) 0.33% 0.48% 0.40%
Total Fund Operating Expenses 0.75% 0.90% 0.90%
---- ---- ----
</TABLE>
- -----------------
(1)The Management Fee of the Cash Series and the Treasury Series includes
fees payable to the relevant Investment Sub-Adviser.
(2)The amounts set forth for "Other Expenses" include fees for shareholder
servicing, legal and accounting services, printing and regulatory filings and
are based on estimates for the current fiscal year.
Investors Bank has voluntarily agreed to limit Total Operating Expenses
(excluding litigation, indemnification, taxes and other extraordinary expenses)
of the STAR Series to 0.90% of average daily net assets. In the absence of this
agreement, Other Expenses and Total Fund Operating Expenses are estimated to be
equal, on an annual basis, to 0.45% and 0.95%, respectively, of the STAR Series'
average daily net assets. This agreement is voluntary and temporary and may be
revised by Investors Bank at any time although it has no current intention to do
so.
The payment of a Rule 12b-1 fee by the Investment Class of each Fund may
result in a long-term shareholder paying more than the economic equivalent of
the maximum initial sales charge permitted under the Conduct Rules of the
National Association of Securities Dealers, Inc.
Example: A shareholder would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) with or without redemption at the end of
each period:
1 Year 3 Years
Cash Series $8 $24
Treasury Series $9 $29
STAR Series $9 $29
7
<PAGE>
The Examples are based on assumed performance levels and should not be
considered a representation of past or future expenses of the Funds. Actual
expenses may be greater or less than those shown.
8
<PAGE>
The Funds and the Portfolios
Each Fund is a diversified series of the Trust, an open-end, management
investment company registered under the Investment Company Act of 1940, as
amended (the "1940 Act"). The Trust was organized under the laws of the state of
Delaware on March 31, 1998 and is currently authorized to issue shares in three
series: the Cash Series, the Treasury Series and the STAR Series. Shareholders
of each Fund are entitled to one vote for each share and to the appropriate
fractional vote for each fractional share of their respective Fund. There is no
cumulative voting. Shares have no preemptive or conversion rights. Shares are
fully paid and nonassessable by the Trust. The Trust does not intend to hold
meetings of shareholders, except as required under the 1940 Act.
The Cash Portfolio and the Treasury Portfolio are each diversified series of the
Merrimac Master Portfolio (the "Portfolio Trust"), an open-end, management
investment company registered under the 1940 Act. The Portfolio Trust is a
common law trust organized under the laws of the state of New York on October
30, 1996 and is currently authorized to issue interests in two series: the Cash
Portfolio and the Treasury Portfolio.
The STAR Portfolio is a diversified series of Standish, Ayer & Wood Master
Portfolio (the "Standish Portfolio Trust"), an open-end, management investment
company registered under the 1940 Act. The Standish Portfolio Trust is a common
law trust organized under New York law on January 18, 1996 and is authorized to
issue interests in seven series, including the STAR Portfolio. Interests in the
Portfolios have no preemptive or conversion rights, and are fully paid and
non-assessable by each Portfolio. Neither the Portfolio Trust nor the Standish
Portfolio Trust will hold meetings of holders of such interests, except as
required under the 1940 Act.
The Board of Trustees of each of the Trust, the Portfolio Trust and the Standish
Portfolio Trust is generally responsible for management of the business and
affairs of the Trust, the Portfolio Trust and the Standish Portfolio Trust,
respectively. Trustees formulate general policies, approve contracts and
authorize officers to carry out the decisions of such Board. See the SAI for
more information concerning the management of each of the Trust, the Portfolio
Trust and the Standish Portfolio Trust.
Investment Objectives and Policies
The investment objective of each Fund is to obtain a high level of current
income consistent with the preservation of principal and liquidity. There is no
assurance that the Funds will achieve their investment objectives. Each Fund's
investment objective and investment policies (other than the policies identified
under "Investment Restrictions" below) are not fundamental and may be changed at
any time by the Board of Trustees of the Trust (the "Board of Trustees" or the
"Trustees") upon at least 30 days prior written notice to shareholders of a
Fund.
Because each Fund invests all of its investable assets in its corresponding
Portfolio, the investment objective and characteristics of each Fund correspond
directly to those of its
9
<PAGE>
Portfolio. See "Additional Information Concerning Investment Structure" for more
information. The Cash Portfolio and the Treasury Portfolio seek to achieve the
same objectives as their corresponding Funds by investing in high quality U.S.
dollar denominated money market instruments. The STAR Portfolio seeks to achieve
the same objective as the STAR Series by investing in a broad range of
investment grade money market instruments and short-term fixed income
securities.
Money Market Funds
The Cash Portfolio and the Treasury Portfolio will each operate as a "money
market mutual fund" and all investments will qualify as "eligible securities"
within the meaning of Rule 2a-7 under the 1940 Act. Consistent with Rule 2a-7,
neither the Cash Portfolio nor the Treasury Portfolio will purchase securities
of any issuer (except securities issued or guaranteed by the United States
government, its agencies or instrumentalities and with respect to the Cash
Portfolio, repurchase agreements involving such securities) if as a result more
than 5% of the total assets of either the Cash Portfolio or the Treasury
Portfolio would be invested in the securities of such issuer or the Cash
Portfolio or the Treasury Portfolio would own more than 10% of the outstanding
voting securities of such issuer.
Although the policies of the Cash Series, the Treasury Series, the Cash
Portfolio and the Treasury Portfolio are designed to maintain a stable net asset
value of $1.00 per share, 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. If these
changes in value were substantial, the Cash Series or the Treasury Series' net
asset value could deviate from $1.00.
Cash Portfolio. The Cash Portfolio may invest in U.S. Treasury bills, notes and
bonds, and other instruments issued or guaranteed by the U.S. Government or its
agencies or instrumentalities ("U.S. Government Securities"); securities of U.S.
and foreign banks or thrift organizations (such as bankers' acceptances, time
deposits and certificates of deposit); corporate debt obligations, including
commercial paper, notes and bonds and other money market instruments;
asset-backed securities; and variable rate obligations (defined as a security
whose coupon rate resets at least every six months). The Cash Portfolio also may
invest in repurchase agreements that are collateralized by the securities listed
above with no restrictions on the maturity of obligations collateralizing such
repurchase agreements and may engage in securities lending.
Treasury Portfolio. The Treasury Portfolio will invest substantially all of its
assets in U.S. Government Securities. In addition, under normal circumstances,
at least 65% of the Treasury Portfolio's assets will be invested in direct
obligations of the U.S. Government (i.e., obligations that are backed by the
"full faith and credit" of the U.S. Government). Under Federal law, the income
derived from obligations issued by the U.S. Government and certain of its
agencies and instrumentalities is exempt from state income taxes. All states
that tax personal income permit mutual funds to pass through this tax exemption
to shareholders, assuming appropriate state imposed threshold limits have been
met. To maximize the tax-effective yield for shareholders,
10
<PAGE>
under normal circumstances, the Treasury Portfolio will invest only in
obligations that qualify for the exemption from state taxation.
ALTHOUGH THE CASH PORTFOLIO, THE TREASURY PORTFOLIO AND THE STAR PORTFOLIO
INVEST IN U.S. GOVERNMENT SECURITIES, NEITHER AN INVESTMENT IN ANY OF THE FUNDS
NOR A FUND'S INVESTMENT IN ITS CORRESPONDING PORTFOLIO IS INSURED OR GUARANTEED
BY THE U.S. GOVERNMENT.
STAR Portfolio. The STAR Portfolio invests in a broad range of investment grade
money market instruments and short-term fixed-income securities. The STAR
Portfolio may invest in all types of fixed-income securities, including bonds,
notes (including structured or hybrid notes), mortgage-backed securities,
asset-backed securities, shares of real estate investment trusts ("REITs"),
convertible securities, Eurodollar and Yankee Dollar instruments, preferred
stocks (including convertible preferred stock), and money market instruments
(such as negotiable certificates of deposit, non-negotiable fixed time deposits,
bankers' acceptances and prime commercial paper). These fixed income securities
may be issued by the U.S. Government, its agencies, authorities,
instrumentalities or sponsored enterprises, U.S. and foreign banks, U.S. and
(solely with respect to prime commercial paper) foreign companies. The STAR
Portfolio limits its investments in each of tax-exempt securities and preferred
stocks to 10% of its total assets. The STAR Portfolio may purchase securities
that pay interest on a fixed, variable, floating, inverse floating, contingent,
in-kind or deferred basis. The STAR Portfolio may enter into repurchase
agreements, reverse repurchase agreements and forward dollar roll transactions,
may purchase zero coupon and deferred payment securities, and may buy securities
on a when-issued or delayed delivery basis. The STAR Portfolio may also purchase
shares of other investment companies and real estate investment trusts. The net
asset value of the STAR Series will not remain constant but will fluctuate with
the value of the assets of the STAR Portfolio.
In selecting investments for the STAR Portfolio, Standish's primary investment
management and research focus is at the security and industry/sector level.
Standish manages the STAR Portfolio by selecting undervalued investments, rather
than by varying the average maturity of the securities to reflect interest rate
forecasts. Fundamental credit and sector valuation techniques are used to
evaluate what are considered to be less efficient markets and sectors of the
fixed income marketplace in an attempt to select securities with the potential
for the highest return.
Maturity
Cash Portfolio and Treasury Portfolio. The Cash Portfolio and the Treasury
Portfolio will maintain a dollar-weighted average maturity of 90 days or less
and will not invest in securities with remaining maturities of more than 397
days (as determined in accordance with Rule 2a-7 under the 1940 Act.) The Cash
Portfolio and the Treasury Portfolio may invest in variable or floating rate
securities which bear interest at rates subject to periodic adjustment or which
provide for periodic recovery of principal on demand.
11
<PAGE>
STAR Portfolio. Securities held by the STAR Portfolio will generally have an
effective or remaining maturity of 3.25 years or less from the date of
settlement, except that up to 10% of the STAR Portfolio's total assets may be
represented by securities with effective maturities or redemption dates, put
dates or coupon dates of between 3.25 and five years. The maturity limitation
does not apply to U.S. Treasury notes or bonds with maturities of longer than
3.25 years, which may be purchased by the STAR Portfolio in conjunction with the
sale of note or bond futures contracts or with certain equivalent options
positions which are designed to hedge the notes or bonds in such a way as to
create a synthetic short-term instrument. The STAR Portfolio's average
dollar-weighted effective portfolio maturity will not exceed 18 months.
Quality
Cash Portfolio and Treasury Portfolio. The Cash Portfolio intends to incur
limited credit risk by only purchasing securities, in addition to U.S.
Government Securities, that are rated in the highest or second highest rating
categories (i.e., P-1 or P-2 by Moody's Investors Service, Inc. ("Moody's") or
A-1 or A-2 by Standard & Poor's Ratings Group ("Standard & Poor's")) for
short-term obligations by at least two nationally recognized statistical rating
organizations ("NRSROs"). As a matter of operating policy, however, the Cash
Portfolio will only invest in securities, exclusive of U.S. Government
Securities, that are rated in the highest rating category for short-term
obligations by at least two NRSROs. Investments in high quality, short-term
instruments may, in many circumstances, result in a lower yield than would be
available from investments in instruments with a lower quality or a longer term.
See "Description of Permitted Investments and Related Risks" in this Prospectus
for more information regarding the Cash Portfolio and Treasury Portfolio's
investment policies. See also Appendix A to the SAI for a description of NRSRO
ratings.
STAR Portfolio. The STAR Portfolio invests primarily in high grade securities,
which are those securities that are rated within the top three rating categories
(i.e., Aaa, Aa, A or P-1 by Moody's or AAA, AA, A, A-1 or Duff-1 by Standard &
Poor's, Duff & Phelps, Inc. ("Duff"), Fitch Investors Service, Inc. ("Fitch") or
IBCA, Ltd. ("IBCA") or, if unrated, determined by Standish to be of comparable
credit quality. The STAR Portfolio may also invest up to 15% of its total assets
in medium grade obligations rated Baa or P-2 by Moody's or BBB, A-2 or Duff-2 by
Standard & Poor's, Duff, Fitch or IBCA, or, if unrated, determined by Standish
to be of comparable credit quality. The average dollar-weighted credit quality
of the STAR Portfolio's portfolio securities is expected to be at least Aa
according to Moody's or AA according to Standard & Poor's, Duff, Fitch or IBCA.
If a security is rated differently by two or more rating agencies, Standish uses
the highest rating to compute the STAR Portfolio's credit quality and also to
determine a security's rating category. If the rating of a security is
downgraded below the minimum rating required for the STAR Portfolio, Standish
will determine whether to retain that security in the portfolio.
Securities rated in the lowest category of investment grade (Baa or P-2 by
Moody's or BBB, A-2 or Duff-2 by Standard & Poor's, Duff, Fitch or IBCA) are
generally considered medium grade obligations and have some speculative
characteristics. Adverse changes in economic conditions or other circumstances
are more likely to weaken the medium grade issuer's capability to pay interest
and repay principal than is the case for high grade securities.
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Description of Permitted Investments and Related Risks
General
Investment in the Funds involve certain risks. Each Portfolio invests in money
market instruments and the STAR Portfolio invests in high and medium grade fixed
income securities. Such securities 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. The risks involved with such
securities include interest rate risk, default risk and call and extension risk.
Interest Rate Risk. When interest rates decline, the market value of money
market instruments and fixed income securities tends to increase. Conversely,
when interest rates increase, market values tend to decline. The volatility of a
security's market value will differ depending upon the security's duration, the
issuer and the type of instrument.
Default/Credit Risk. Investments in money market instruments and fixed income
securities are subject to the risk that the issuer of the security could default
on its obligations causing a Portfolio to sustain losses on such investments. A
default could impact both interest and principal payments.
Call and Extension Risk. Fixed income securities may be subject to both call
risk and extension risk. Call risk exists when the issuer may exercise a right
to pay principal on an obligation earlier than scheduled which would cause cash
flows to be returned earlier than expected. This typically results when interest
rates have declined and the STAR Portfolio could suffer from having to reinvest
in lower yielding securities. Extension risk exists when the issuer may exercise
a right to pay principal on an obligation later than scheduled which would cause
cash flows to be returned later than expected. This typically results when
interest rates have increased and the STAR Portfolio could suffer from the
inability to invest in higher yielding securities.
Year 2000. Like other mutual funds, governmental and business organizations and
individuals around the world, the Funds could be adversely affected if the
computer systems used by the Investors Bank, BNY, Aeltus, Standish and other
service providers do not properly process and calculate date-related information
from and after January 1, 2000. This is commonly known as the "Year 2000
Problem." Each of the above entities is taking steps that it believes are
reasonably designed to address the Year 2000 Problem with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Funds' other major service providers. At this time,
however, there can be no assurance that these steps will be sufficient to avoid
any adverse impact to the Funds.
Permitted Investments and Related Risks
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The following paragraphs include descriptions of the specific risks that are
associated with the Portfolios' purchase of a particular type of security or the
utilization of a specific investment technique.
U.S. Government Securities. The Portfolios may invest in U.S. Government
Securities. The Portfolios may also invest in securities that are issued or
guaranteed by an agency or instrumentality of the U.S. Government established
under the authority of an act of Congress. 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. The Treasury Portfolio will generally invest in "full faith and
credit" securities.
Bankers' Acceptances. The Cash Portfolio and the STAR 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.
Time Deposits. The Cash Portfolio and the STAR 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 and the STAR 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 Cash Portfolio and the STAR 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. The STAR Portfolio may purchase U.S.
dollar denominated commercial paper of U.S. and foreign issuers rated A-2 by
Moody's or P-2 or Duff-2 by Standard & Poor's, Duff, Fitch or IBCA.
Corporate Debt Obligations. Subject to their respective credit quality and
maturity limitations, the Cash Portfolio and the STAR 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
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volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
Asset-Backed Securities. The Cash Portfolio and the STAR Portfolio 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 Cash and STAR Portfolios may invest in
asset-backed securities; however, the Cash Portfolio will only invest in
asset-backed securities that carry a rating in the highest category from at
least two NRSROs.
Mortgage-Backed Securities. The STAR Portfolio may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by the U.S. Government or any of its agencies, instrumentalities or sponsored
enterprises, including, but not limited to, the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed securities
represent direct or indirect participations in, or are collateralized by and
payable from, mortgage loans secured by real property. Mortgagors can generally
prepay interest or principal on their mortgages whenever they choose. Therefore,
mortgage-backed securities are often subject to more rapid repayment than their
stated maturity date would indicate as a result of principal prepayments on the
underlying loans. This can result in significantly greater price and yield
volatility than is the case with traditional fixed income securities. During
periods of declining interest rates, prepayments can be expected to accelerate,
and thus impair the STAR Portfolio's ability to reinvest the returns of
principal at comparable yields. Conversely, in a rising interest rate
environment, a declining prepayment rate will extend the average life of many
mortgage-backed securities, increase the STAR Portfolio's exposure to rising
interest rates and prevent the STAR Portfolio from taking advantage of such
higher yields.
GNMA securities are backed by the full faith and credit of the U.S. Government,
which means that the U.S. Government guarantees that the interest and principal
will be paid when due. FNMA securities and FHLMC securities are not backed by
the full faith and credit of the U.S. Government; however, these enterprises
have the ability to obtain financing from the U.S. Treasury. See the SAI for
additional descriptions of GNMA, FNMA and FHLMC certificates.
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Multiple class securities include collateralized mortgage obligations ("CMOs")
and Real Estate Mortgage Investment Conduit ("REMIC") pass-through or
participation certificates. CMOs provide an investor with a specified interest
in the cash flow from a pool of underlying mortgages or other mortgage-backed
securities. CMOs are issued in multiple classes, each with a specified fixed or
floating interest rate and a final scheduled distribution date. In most cases,
payments of principal are applied to the CMO classes in the order of their
respective stated maturities, so that no principal payments will be made on a
CMO class until all other classes having an earlier stated maturity date are
paid in full. A REMIC is a CMO that qualifies for special tax treatment under
the Internal Revenue Code of 1986, as amended (the "Code"), and invests in
certain mortgages principally secured by interests in real property and other
permitted investments. The STAR Portfolio does not intend to purchase residual
interests in REMICs.
Convertible Securities. The STAR Portfolio may invest in convertible securities
consisting of bonds, notes, debentures and preferred stocks. The STAR
Portfolio's investments in preferred stock are limited to no more than 10% of
its total assets. Convertible debt securities and preferred stock acquired by
the STAR Portfolio entitle the STAR Portfolio to exchange such instruments for
common stock of the issuer at a predetermined rate. Convertible securities are
subject both to the credit and interest rate risks associated with debt
obligations and to the stock market risk associated with equity securities.
Inverse Floating Rate Securities. The STAR Portfolio may invest in inverse
floating rate securities. the interest on which resets in the opposite direction
from the market rate of interest to which the inverse floater is indexed. An
inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in
the index rate of interest. The higher the degree of leverage of an inverse
floater, the greater the volatility of its market value.
Zero Coupon and Deferred Payment Securities. The STAR Portfolio may invest in
zero coupon and deferred payment securities. Zero coupon securities are
securities sold at a discount to par value and on which interest payments are
not made during the life of the security. Upon maturity, the holder is entitled
to receive the par value of the security. The STAR Portfolio is required to
accrue income with respect to these securities prior to the receipt of cash
payments. Because the STAR Series will distribute its share of this accrued
income to shareholders, to the extent that the STAR Series' shareholders and
shareholders of other mutual funds that invest in the STAR Portfolio elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the STAR Portfolio will have fewer assets with which to purchase income
producing securities. Deferred payment securities are securities that remain
zero coupon securities until a predetermined date, at which time the stated
coupon rate becomes effective and interest becomes payable at regular intervals.
Zero coupon and deferred payment securities may be subject to greater
fluctuation in value and may have less liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
Structured or Hybrid Notes. The STAR Portfolio may invest in structured or
hybrid notes. The distinguishing feature of a structured or hybrid note is that
the amount of interest and/or
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principal payable on the note is based on the performance of a benchmark asset
or market other than fixed income securities or interest rates. Examples of
these benchmarks include stock prices, currency exchange rates and physical
commodity prices. Investing in a structured note allows the STAR Portfolio to
gain exposure to the benchmark security while fixing the maximum loss that it
may experience in the event that the security does not perform as expected.
Depending on the terms of the note, the Portfolio may forego all or part of the
interest and principal that would be payable on a comparable conventional note;
the STAR Portfolio's loss cannot exceed this foregone interest and/or principal.
An investment in structured or hybrid notes involves risks similar to those
associated with a direct investment in the benchmark security.
Eurodollar and Yankee Dollar Investments. The Cash Portfolio and the STAR
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 Cash Portfolio and the STAR 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. In addition,
issuers of Eurodollar instruments are not subject to the same regulations as are
domestic banks.
Tax-Exempt Securities. The STAR Portfolio is managed without regard to potential
tax consequences. If Standish believes that tax-exempt securities will provide
competitive returns, the STAR Portfolio may invest up to 10% of its total assets
in tax-exempt securities. The STAR Series' distributions of its share of any
interest earned by the STAR Portfolio from these investments will be taxable.
Other Investment Companies. The STAR Portfolio may invest up to 10% of its total
assets in shares of investment companies and up to 5% of its total assets in any
one investment company as long as the investment does not represent more than 3%
of the total voting stock of the acquired investment company. Investments in the
securities of other investment companies may involve duplication of advisory
fees and other expenses.
Real Estate Investment Trusts. The STAR Portfolio may invest in Real Estate
Investment Trusts ("REITs") which are pooled investment vehicles that invest in
real estate or real estate loans or interests. Investing in REITs involves risks
similar to those associated with investing in equity securities of small
capitalization companies. REITs are dependent upon management skills, are not
diversified, and are subject to risks of project financing, default by
borrowers, self-liquidation, and the possibility of failing to qualify for the
exemption from taxation under Subchapter M of the Code.
When-Issued and Delayed Delivery Transactions. The Portfolios 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 then that available in
the market at delivery. The purchase of securities on a when-issued or delayed
delivery basis has the effect of leveraging. When such a security is purchased,
the
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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. The Portfolios 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 Treasury Portfolio's
or the Cash Portfolio's total assets or 10% of the STAR Portfolio's total
assets, and a commitment will not exceed 90 days. The Portfolios will only
purchase when-issued and delayed delivery securities for the purpose of
acquiring portfolio securities and not for speculative purposes. However, the
Portfolios 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.
Variable and Floating Rate Instruments. Certain of the obligations purchased by
the Portfolios may carry variable or floating rates of interest and may include
variable amount 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 the
Portfolios will approximate their par value. Further, some of the demand
instruments purchased by the Portfolios 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 STAR Portfolio 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 applicable 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 a Portfolio is
delayed in or prevented from disposing of the collateral securities or if a
Portfolio realizes a loss on the sale of the collateral securities. The Cash
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 of the
Portfolio Trust. The Cash Portfolio will not invest more than 10% of its net
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assets in repurchase agreements maturing in more than seven days. The STAR
Portfolio may invest up to 25% of its net assets in repurchase agreements.
Reverse Repurchase Agreements. The Cash Portfolio and the STAR Portfolio may
borrow funds for temporary purposes by entering into reverse repurchase
agreements. Pursuant to such agreements, the Portfolios 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. The Portfolios will
enter into reverse repurchase agreements to avoid otherwise selling securities
during unfavorable market conditions and to provide cash to satisfy redemption
requests. At the time a Portfolio enters into a reverse repurchase agreement, it
would place in a segregated custodial account, assets such as cash or liquid
securities, consistent with a 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 a Portfolio
have increased in value. Reverse repurchase agreements are considered by the SEC
to be borrowings by a Portfolio under the 1940 Act.
Forward Roll Transactions. To seek to enhance current income, the STAR Portfolio
may invest up to 10% of its net assets in forward roll transactions involving
mortgage-backed securities. In a forward roll transaction, the STAR Portfolio
sells a mortgage-backed security to a financial institution, such as a bank or
broker-dealer, and simultaneously agrees to repurchase a similar security from
the institution at a later date at an agreed-upon price. The mortgage-backed
securities that are repurchased will bear the same interest rate as those sold,
but generally will be collateralized by different pools of mortgages with
different prepayment histories than those sold. During the period between the
sale and repurchase, the Portfolio will not be entitled to receive interest and
principal payments on the securities sold. Proceeds of the sale will be invested
in short-term instruments, such as repurchase agreements or other short-term
securities, and the income from these investments, together with any additional
fee income received on the sale and the amount gained by repurchasing the
securities in the future at a lower price, will generate income and gain for the
Portfolio which is intended to exceed the yield on the securities sold. Forward
roll transactions involve the risk that the market value of the securities sold
by the Portfolio may decline below the repurchase price of those securities. At
the time that a Portfolio enters into a forward roll transaction, it will place
cash or liquid assets in a segregated account that is marked to market daily
having a value equal to the repurchase price (including accrued interest).
Leverage. The use of forward roll transactions and reverse repurchase agreements
involves leverage. Leverage allows any investment gains made with the additional
monies received (in excess of the costs of the forward roll transaction or
reverse repurchase agreement) to increase the net asset value of a Portfolio
faster than would otherwise be the case. On the other hand, if the additional
monies received are invested in ways that do not fully recover the costs of such
transactions to a Portfolio, the net asset value of the Portfolio would fall
faster than would otherwise be the case.
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Restricted and Illiquid Securities. Each Portfolio may invest up to 10% of its
net assets (15% of net assets with respect to the STAR Portfolio) 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 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 and the Standish
Portfolio Trust have adopted guidelines and delegated to BNY, Aeltus or
Standish, 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.
Securities Lending. The Cash 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 Cash Portfolio at least equal at all times to 100% of
the market value plus accrued interest on the securities lent. The Cash
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. There may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower of
the securities fail financially. However, loans will only be made to borrowers
deemed to be of good standing under guidelines established by the Trustees. In
addition, the Cash Portfolio will bear the risk of any decline in value of
securities acquired with cash collateral. Loans are subject to termination by
the Cash Portfolio or the borrower at any time and are, therefore, not
considered to be illiquid investments.
Short-Term Trading. Although the Cash and Treasury Portfolios 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. The STAR Portfolio may sell a portfolio security without
regard to the length of time such security has been held if, in Standish's view,
the security meets certain criteria for disposal. The Portfolios 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, the Portfolios may have to sell a portion of their 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.
Strategic Transactions. The STAR Portfolio may, but is not required to, utilize
various investment strategies to seek to hedge market risks (such as interest
rates, currency exchange rates and broad or specific fixed income market
movements), to manage the effective maturity or
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duration of fixed income securities, or to enhance potential gain. Such
strategies are generally accepted as part of modern portfolio management and are
regularly utilized by many mutual funds and other institutional investors.
Techniques and instruments used by the STAR Portfolio may change over time as
new instruments and strategies are developed or regulatory changes occur. In the
course of pursuing its investment objective, the STAR Portfolio may purchase and
sell (write) exchange-listed and over-the-counter put and call options on
securities, indices and other financial instruments; purchase and sell financial
futures contracts and options thereon; enter into various interest rate
transactions such as swaps, caps, floors or collars; and, to the extent the STAR
Portfolio invests in foreign securities, enter into currency transactions such
as forward foreign currency exchange contracts, currency futures contracts,
currency swaps and options on currencies or currency futures (collectively, all
the above are called "Strategic Transactions"). Strategic Transactions may be
used in to seek to protect against possible changes in the market value of
securities held in or to be purchased for the STAR Portfolio's portfolio
resulting from securities markets, currency exchange rate or interest rate
fluctuations, to seek to protect the STAR Portfolio's unrealized gains in the
value of portfolio securities, to facilitate the sale of such securities for
investment purposes, to seek to manage the effective maturity or duration of
STAR Portfolio's portfolio, or to establish a position in the derivatives
markets as a temporary substitute for purchasing or selling particular
securities. In addition to the hedging transactions referred to in the preceding
sentence, Strategic Transactions may also be used to enhance potential gain in
circumstances where hedging is not involved.
The ability of the STAR Portfolio to utilize Strategic Transactions successfully
will depend on Standish's ability to predict pertinent market and interest rate
movements, which cannot be assured. The STAR Portfolio will comply with
applicable regulatory requirements when implementing these strategies,
techniques and instruments. The STAR Portfolio's activities involving Strategic
Transactions may be limited in order to enable certain of its investors to
comply with the requirements of the Code for qualification as a regulated
investment company.
Strategic Transactions have risks associated with them including possible
default by the other party to the transaction, illiquidity and, to the extent
Standish's view as to certain market, interest rate or currency movements is
incorrect, the risk that the use of such Strategic Transactions could result in
losses greater than if they had not been used. The writing of put and call
options may result in losses to the STAR Portfolio, force the purchase or sale,
respectively, of portfolio securities at inopportune times or for prices higher
than (in the case of purchases due to the exercise of put options) or lower than
(in the case of sales due to the exercise of call options) current market
values, limit the amount of appreciation the STAR Portfolio can realize on its
investments or cause the STAR Portfolio to hold a security it might otherwise
sell.
The use of options and futures transactions entails certain other risks. Futures
markets are highly volatile and the use of futures may increase the volatility
of the STAR Portfolio's net asset value. In particular, the variable degree of
correlation between price movements of futures contracts and price movements in
the related portfolio position of the STAR Portfolio creates the possibility
that losses on the hedging instrument may be greater than gains in the value of
the STAR Portfolio's position. The writing of options could significantly
increase the STAR Portfolio's portfolio turnover rate and associated brokerage
commissions or spreads. In addition, futures
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and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the STAR Portfolio might not be able to close out a transaction without
incurring substantial losses, if at all. Losses resulting from the use of
Strategic Transactions could reduce the STAR Portfolio's net asset value and the
net result may be less favorable than if the Strategic Transactions had not been
utilized. Although the use of futures and options transactions for hedging and
managing effective maturity and duration should tend to minimize the risk of
loss due to a decline in the value of the position, at the same time, such
transactions can limit any potential gain which might result from an increase in
value of such position. The loss incurred by the STAR Portfolio in writing
options and entering into futures transactions is potentially unlimited. The use
of currency transactions can result in the STAR Portfolio incurring losses as a
result of a number of factors including the imposition of exchange controls,
suspension of settlements, or the inability to deliver or receive a specified
currency.
The STAR Portfolio will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for non-hedging purposes to 1% of its net
assets. See the SAI for further information regarding the use of Strategic
Transactions.
Temporary Defensive Investments. The STAR Portfolio may adopt a temporary
defensive position during adverse market conditions by investing without limit
in high quality money market instruments, including short-term U.S. Government
securities, negotiable certificates of deposit, non-negotiable fixed time
deposits, bankers' acceptances, commercial paper, floating-rate notes and
repurchase agreements.
Portfolio Turnover. A high rate of portfolio turnover (100% or more) involves
correspondingly higher transaction costs which must be borne directly by a
Portfolio and thus indirectly by its shareholders. It may also result in a
Portfolio's realization of larger amounts of short-term capital gains, a Fund's
distributions from which are taxable to a Fund's shareholders as ordinary
income.
Investment Restrictions. The investment objective and investment policies set
forth in this Prospectus of the Funds and the Portfolios are not fundamental and
may be changed by their respective Board of Trustees without approval of
shareholders. Each Fund and Portfolio have also adopted fundamental policies
which may not be changed without the approval of the Fund's shareholders. See
"Investment Restrictions" in the SAI. If any percentage restriction is adhered
to at the time of investment, a subsequent increase or decrease in the
percentage resulting from a change in the value of a Portfolio's assets will not
constitute a violation of the restriction. If there is a change in a Portfolio's
or Fund's investment objective, shareholders should consider whether the Fund
remains an appropriate investment in light of their current financial situation.
Who Should Invest
The potential advantages offered by each Fund include large scale purchasing
power and diversification, which can help avoid the greater expense of executing
a large number of small
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transactions. The Funds also make it possible for investors to participate in a
more diversified portfolio than the size of the investments might otherwise
permit. Also, investment in the Funds can relieve certain investors of many
management and administrative burdens usually associated with the direct
purchase and sale of money market instruments, including selecting portfolio
investments; obtaining favorable terms at which to buy and sell; scheduling and
monitoring maturities and reinvestments; safe-keeping of securities, and
portfolio recordkeeping.
Additional Information Concerning Investment Structure
Unlike other mutual funds which directly acquire and manage their own portfolio
securities, the Funds seek to achieve their investment objective by investing
all of their investable assets in their corresponding Portfolio, each of which
is, or is a series of, an open-end investment management company registered
under the 1940 Act. The Portfolios have the same investment objective and
policies as their corresponding Fund. In addition to selling its beneficial
interests to a Fund, a Portfolio may sell shares to other mutual funds,
collective investment vehicles, or institutional investors. These investors will
invest in a Portfolio on the same terms and conditions and will pay a
proportionate share of such Portfolio's expenses. However, these other investors
may be subject to different operating expenses than those of the Funds.
Therefore, investors in each Fund should be aware that these differences may
result in differences in returns experienced by institutional investors
investing directly in a Portfolio and investors investing in different funds and
other pooled investment vehicles that invest in a Portfolio. Such differences in
returns are also present in other mutual fund structures. Information concerning
other shareholders of the Portfolios can be obtained from the Funds by calling
1-888-637-7622 for the Cash and Treasury Portfolios and 1-800-221-4795 for the
STAR Portfolio.
Certain changes in a Portfolio's investment objective, policies or restrictions
may preclude its corresponding Fund from investing its investable assets in the
Portfolio and/or require the Fund to withdraw its interest in the Portfolio. Any
such withdrawal could result in an "in-kind" distribution of securities (as
opposed to a cash distribution) from the Portfolio. If securities are
distributed, the Fund could incur brokerage, tax or other charges in converting
the securities to cash. The in-kind distribution may result in the Fund having a
less diversified portfolio of investments or adversely affect the liquidity of
the Fund. Notwithstanding the above, there are other means for meeting
shareholder redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by the actions
of larger funds investing in a Portfolio. For example, if a large fund withdraws
from a Portfolio, the remaining funds may subsequently experience higher
pro-rata operating expenses, thereby producing lower returns. Additionally,
because the Portfolio would become smaller, it may become less diversified,
resulting in increased portfolio risk; however, these possibilities exist for
traditionally structured funds which have large or institutional investors who
may withdraw from a fund. Also, funds with a greater pro-rata ownership in a
Portfolio could have effective voting control of the operations of the
Portfolio. If a Fund is requested to vote on matters pertaining to its
corresponding Portfolio (other than a vote by the Fund to continue the operation
of the Portfolio upon the withdrawal of another investor in the Portfolio), the
Fund will hold a meeting of its shareholders and will cast all of its votes
proportionately as instructed by such
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shareholders. A Fund will vote the shares held by Fund shareholders who do not
give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Therefore, Fund shareholders who
do not vote will have no effect on the outcome of such matters.
A Fund may withdraw its investment from its corresponding Portfolio at any time,
if the Fund's Board of Trustees determines that it is in the best interest of
the Fund to do so. Upon any such withdrawal, the Board of Trustees would
consider what action might be taken, including the investment of all of the
investable assets of the Fund in another pooled investment entity having
substantially the same investment objective as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies described above. In the event the Trustees were unable to find a
substitute investment company in which to invest the Fund's assets or were
unable to secure directly the services of an investment adviser, the Trustees
would determine the best course of action under the circumstances.
In addition, each Fund offers three classes of shares to investors, Premium
Class, Institutional Class and Investment Class shares, all three of which
represent interests in such Fund. The three classes differ in that (i) the
Institutional Class shares impose a shareholder servicing fee equal to a maximum
of 0.25% of average daily net assets of the Institutional Class shares; (ii) the
Investment Class shares impose a shareholder servicing fee and a 12b-1 fee each
equal to a maximum of 0.25% of average daily net assets of the Investment Class
shares and; (iii) the Premium Class shares charge no shareholder servicing or
12b-1 fees but require a much higher initial investment than the other classes.
Management of the Funds and the Portfolios
Trustees and Officers
The business and affairs of each Fund are managed under the direction of the
Board of Trustees of the Trust. The business and affairs of the Cash Portfolio
and the Treasury Portfolio are managed under the direction of the Board of
Trustees of the Portfolio Trust. The business and affairs of the STAR Portfolio
are managed under the direction of the Board of Trustees of the Standish
Portfolio Trust. Each Board of Trustees approves all significant agreements
between each Fund or Portfolio and the persons and companies that furnish
services to a Fund or Portfolio, including (when applicable) agreements with its
investment adviser, administrator, fund accountant, custodian and transfer
agent. The day-to-day operations of each Fund are delegated to its corresponding
Portfolio's investment manager and such Fund's officers. See "Management of the
Funds and the Portfolios" in the SAI for more information about the Trustees and
officers of the Trust, the Portfolio Trust and the Standish Portfolio Trust.
Investment Adviser and Sub-Advisers
The Trust has not retained the services of an investment adviser with respect to
the Funds because each Fund seeks to achieve its investment objective by
investing all of its investable
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assets in its corresponding Portfolio. The Cash Portfolio and the Treasury
Portfolio have retained the services of Investors Bank as investment adviser
pursuant to investment adviser agreements (each an "Adviser Agreement"). Under
the Adviser Agreement, Investors Bank continuously reviews and supervises the
Cash Portfolio's and the Treasury Portfolio's investment program. Investors Bank
discharges its responsibilities subject to the supervision of, and policies
established by the Board of Trustees of the Portfolio Trust. 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.
Investors Bank is a wholly-owned subsidiary of Investors Financial Services
Corp., a publicly-held corporation and holding company registered under the Bank
Holding Company Act of 1956. The business address of Investors Bank 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) but otherwise has no previous experience in providing
investment advisory services. See "Administrator, Transfer Agent, Custodian and
Fund Accountant" for information regarding fees paid to Investors Bank by the
Portfolios.
The Cash Portfolio has retained the services of BNY as its investment
sub-adviser pursuant to an Investment Sub-Adviser Agreement (the "BNY
Sub-Adviser Agreement") between Investors Bank and BNY. In accordance with the
BNY Sub-Adviser Agreement, BNY 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 the Portfolio Trust's Board of
Trustees and Investors Bank and in accordance with the Cash Portfolio and Cash
Series' investment objective, policies and restrictions. BNY is a wholly-owned
subsidiary of The Bank of New York Company, Inc. As of December 31, 1997, BNY
had discretionary investment authority for the short-term money management of
accounts exceeding $50 billion. The business address of BNY is 48 Wall Street,
New York, New York 10286. For its services as investment sub-adviser to the Cash
Portfolio, BNY is paid a monthly fee by Investors Bank computed at an annual
rate of 0.08% of the average daily net assets of the Cash Series.
The Treasury Portfolio has retained the services of Aeltus as its investment
sub-adviser pursuant to an Investment Sub-Adviser Agreement (the "Aeltus
Sub-Adviser Agreement") between Investors Bank and Aeltus. Under the Aeltus
Sub-Adviser Agreement, Aeltus manages the Treasury Portfolio, selects
investments and places all orders for the purchase and sale of the Treasury
Portfolio's securities, subject to the general supervision of the Portfolio
Trust's Board of Trustees and Investors Bank and in accordance with the Treasury
Portfolio and Treasury Series' investment objective, policies and restrictions.
Aeltus, a registered investment adviser under the Investment Advisers Act of
1940, is an indirect wholly-owned subsidiary of Aetna Inc. As of December 31,
1997, Aeltus managed approximately $44.6 billion in assets for various
individual and institutional accounts, including registered investment
companies. The business address of Aeltus is 242 Trumbull Street, Hartford,
Connecticut 06103. For its services as investment sub-adviser to the Treasury
Portfolio, Aeltus is paid a monthly fee by Investors Bank computed at an annual
rate of 0.08% of the average daily net assets of the Treasury Series.
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Standish serves as investment adviser to the STAR Portfolio pursuant to an
investment adviser agreement (the "Standish Adviser Agreement") between the STAR
Portfolio and Standish. Under the Standish Adviser Agreement, Standish manages
the STAR Portfolio, selects investments and places all orders for the purchase
and sale of the STAR Portfolio's securities, subject to the general supervision
of the Standish Portfolio Trust's Board of Trustees and in accordance with the
STAR Portfolio and STAR Series' investment objective, policies and restrictions.
Standish is a Massachusetts corporation incorporated in 1933 and is a registered
investment adviser under the Investment Advisers Act of 1940. Standish provides
fully discretionary management services and counseling and advisory services to
a broad range of clients throughout the United States and abroad. As of December
31, 1997, Standish had approximately $39 billion in assets under management. The
business address of Standish is One Financial Center, Boston, Massachusetts
02111. For its services as investment adviser to the STAR Portfolio, Standish is
paid a monthly fee by the STAR Series, computed at an annual rate of 0.25% of
the average daily net assets of the STAR Series. The STAR Portfolio has two
portfolio managers, Ms. Jennifer Pline and Ms. Barbara J. McKenna. Ms. Pline has
been a portfolio manager of the STAR Portfolio's portfolio since January 1,
1991. During the past five years, Ms. Pline has served as a Vice President of
Standish. Ms. McKenna has been a portfolio manager of the STAR Portfolio's
portfolio since January 1998. Ms. McKenna has served as a Vice President of
Standish since 1996. Prior to joining Standish, from 1993 to 1996, Ms. McKenna
managed institutional fixed income accounts at BayBank.
Distributor
Pursuant to a Distribution Agreement, Funds Distributor, Inc. (the
"Distributor") serves as the distributor of shares of the Funds. The Distributor
is a broker-dealer registered with the SEC and is a member of the National
Association of Securities Dealers, Inc. ("NASD") The Distributor is authorized
by the NASD to act as a mutual fund underwriter and distributor. The principal
offices of the Distributor are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109. The Distributor does not receive a fee from the Trust
pursuant to the terms of the Distribution Agreement.
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 Cash and Treasury Portfolios. The services provided by
Investors Bank and IBT Ireland include certain accounting, clerical and
bookkeeping services, Blue Sky (for the Funds only), 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 agent for the Funds and IBT Fund Services
(Canada) Inc., ("IBT Canada") a subsidiary of Investors Bank, serves as transfer
agent for the Portfolios. As transfer agent, Investors Bank is responsible for
the issuance, transfer and redemption of interests and the establishment and
maintenance of accounts for each Fund and IBT Canada is responsible for
maintaining records of holders in interest for each Portfolio.
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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 Agent, the Cash Portfolio and the Treasury Portfolio each
pay Investors Bank an aggregate fee, which is calculated daily and paid monthly,
at an annual rate of 0.17% of the average daily net assets of such Portfolio.
For its services as Transfer Agent, Custodian and Fund Accounting Agent, the
STAR Portfolio pays Investors Bank an aggregate fee, which is calculated daily
and paid monthly, at an annual rate of 0.05% of the first $50 million of average
daily net assets, 0.03% of the next $100 million of average daily net assets and
.01% of average daily net assets over $150 million. For its services as
Administrator, Transfer Agent, Custodian and Fund Accounting Agent, the Cash
Series and the Treasury Series each pays Investors Bank an aggregate fee, which
is calculated daily and paid monthly, at an annual rate of 0.01% of the average
daily net assets of such Fund and the STAR Series pays Investors Bank an
aggregate fee, calculated daily and paid monthly, at an annual rate of 0.03% of
the average daily net assets of the STAR Series. Investors Bank is solely
responsible for the payment of all fees to BNY, Aeltus and to its subsidiaries.
Counsel and Independent Auditors
Goodwin, Procter & Hoar LLP serves as counsel to the Trust and the Portfolio
Trust. Ernst & Young LLP serves as the independent auditors to the Trust and the
Portfolio Trust. Coopers & Lybrand L.L.P. serves as the independent accountants
to the Standish Portfolio Trust and Hale and Dorr LLP serves as counsel to the
Standish Portfolio Trust.
Valuation of Shares
The net asset value per share of each Fund is determined each Business Day .
This determination is made once each day as of 2:00 p.m. (ET) for the Treasury
Series and the Cash Series and as of the close of trading on the NYSE (normally
4:00 p.m. (ET)) for the STAR Series.
The net asset value per share of a Fund for purposes of pricing sales and
redemptions is calculated by adding the value of all securities and other assets
of such Fund (including its interest in the corresponding Portfolio), then
subtracting the liabilities charged to the Fund, and then dividing the result by
the number of outstanding shares of the Fund.
The securities in the Cash Portfolio and the Treasury 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 the Cash Portfolio or Treasury Portfolio would
27
<PAGE>
receive if the security were sold. This method of valuation is used in order to
stabilize the net asset value of shares of the Cash Series or the Treasury
Series at $1.00; however, there can be no assurance that a Fund's net asset
value will always remain at $1.00 per share.
With respect to the STAR Portfolio, the fixed income securities (other than
money market instruments) for which accurate market prices are readily available
are valued at their current market value on the basis of quotations, which may
be furnished by a pricing service or provided by dealers in such securities.
Securities not listed on an exchange or national securities market, certain
mortgage-backed and asset-backed securities and securities for which there were
no reported transactions are valued at the last quoted bid prices. Fixed income
securities for which accurate market prices are not readily available and all
other assets are valued at fair value as determined in good faith by Standish in
accordance with procedures approved by the Trustees of the Standish Portfolio
Trust, which may include the use of yield equivalents or matrix pricing. Money
market instruments with less than sixty days remaining to maturity when acquired
by the Standish Portfolio are valued on an amortized cost basis unless the
Trustees of the Standish Portfolio Trust determine that amortized cost does not
represent fair value. If the Standish Portfolio acquires a money market
instrument with more than sixty days remaining to its maturity, it is valued at
current market value until the sixtieth day prior to maturity and will then be
valued at amortized cost based upon the value on such date unless the Trustees
of the Standish Portfolio Trust determine during such sixty-day period that
amortized cost does not represent fair value.
Purchases and Redemptions
Purchases
General Information. Investors may purchase Fund shares only through the
Distributor which offers each Fund's shares to the public on a continuous basis.
Shares of each Fund may be purchased only in those states where they may be
lawfully sold. Shares are sold at net asset value per share next computed after
the purchase order is received in good order by the Distributor and payment for
shares is received by Investors Bank, the Funds' Custodian. See the Account
Application or call 1-888-MERRMAC for instructions on how to make payment for
shares to the Custodian.
Investment Minimum. The minimum initial investment for Premium Class shares of
the Funds is $10 million. Institutions may satisfy the minimum investment by
aggregating their fiduciary accounts. The minimum initial investment for
Institutional Class and Investment Class shares is $10,000. Subsequent purchases
may be in any amount. Each Fund reserves the right to waive the minimum initial
investment. When a Premium Class shareholder's account balance falls below $1
million due to redemption, a Fund may close the account. Such shareholders 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.
Class level expenses. Assets of the Premium Class shares of each Fund are not
subject to a shareholder servicing or 12b-1 fee. Assets of the Institutional
Class shares of each Fund are
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subject to a shareholder servicing fee of up to 0.25% of average daily net
assets of the Institutional Class shares. Assets of the Investment Class shares
of each Fund are subject to a shareholder servicing fee and 12b-1 fee each up to
0.25% of average daily net assets of the Investment Class shares.
Share purchase orders are deemed to be in good order on the date a Fund receives
a completed Account Application (and other documents required by the Trust) and
federal funds become available to the Fund in the Fund's account with Investors
Bank.
Purchases may be made only by wire. Wiring instructions for purchases of shares
of a Fund are as follows:
Investors Bank & Trust Company
ABA #: 011001438
Attn: [Name of Fund]
DDA #: 717171333
Name of Account
Account #
Amount of 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 2:00 p.m. (ET) for the Treasury
Series and the Cash Series and by the close of trading on the NYSE (normally
4:00 p.m. (ET)), for the STAR Series, on a Business Day will be executed at the
net asset value per share next determined after receipt of the order and will
receive the dividend declared on the day of purchase, provided that Investors
Bank receives the wire on the day the purchase order is received.
Each Fund reserves the right in its sole discretion (i) to suspend the offering
of the Fund's shares, (ii) to reject purchase orders when in the best interest
of the Fund and (iii) to modify or eliminate the minimum initial investment in
Fund shares. Purchase orders may be refused if, for example, they are of a size
that could disrupt management of a Portfolio.
Redemptions
Shareholders may redeem all or a portion of their shares on any Business Day.
Shares will be redeemed at the net asset value next determined after Investors
Bank has received a proper notice of redemption as described below. If notice of
redemption is received prior to 2:00 p.m. (ET) for the Treasury Series and the
Cash Series and prior to the close of trading on the NYSE (normally 4:00 p.m.
(ET)) for the STAR Series, on a Business Day, the redemption will be effective
on the date of receipt and the shareholder will not receive the dividend for
that day. Proceeds of the redemption will ordinarily be made by wire on the next
Business Day, but in any event within three Business Days from the date of
receipt. Shareholder redemption requests received after 2:00 p.m. (ET) for the
Treasury Series and the Cash Series and after the close of trading on
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the NYSE (normally 4:00 p.m. (ET)), for the STAR Series, on a Business Day, will
receive upon redemption all dividends reinvested through the date of redemption
and payment will ordinarily be made by wire on the next Business Day, but, in
any case, within three Business Days from the date of receipt of a proper notice
of redemption.
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.
Redemption By Wire. To redeem shares by wire, a shareholder or any authorized
agent (so designated on the Account Application) must provide Investors Bank
with the dollar amount to be redeemed, the account to which the redemption
proceeds should be wired (such account must have been previously designated by
the shareholder on its Account Application, the name of the shareholder and the
shareholder's account number.
A shareholder may change its authorized agent, the address of record or the
account designated to receive redemption proceeds at any time by writing to
Investors Bank with a signature guaranteed by a national bank which is a member
firm of any national or regional securities exchange (a "Signature Guarantee").
If the guarantor institution belongs to one of the Medallion Signature Programs,
it must use the specific Medallion "Guaranteed" stamp. Notarized signatures are
not sufficient. Further documentation may be required when Investors Bank deems
it appropriate.
Redemption By Mail. A shareholder who desires to redeem shares by mail may do so
by mailing proper notice of redemption directly to Investors Bank, ATTN:
Transfer Agency, OPS 22, P.O. Box 9130, Boston, MA 02117-9130. Proper notice of
redemption includes written notice requesting redemption along with the
signature of all persons in whose names the shares are registered, signed
exactly as the shares are registered. In certain instances, Investors Bank may
require additional documents such as trust instruments or certificates of
corporate authority. Payment will be mailed to the address of record within
seven days of receipt of a proper notice of redemption.
Telephone Redemption. A shareholder may request redemption by calling Investors
Bank at 1-888-MERRMAC. The telephone redemption option is made available to
shareholders of a Fund on the Account Application. Each Fund reserves the right
to refuse a telephone request for redemption if it believes that it is advisable
to do so. Procedures for redeeming shares by telephone may be modified or
terminated at any time by a Fund. Neither the Funds nor Investors Bank will be
liable for following redemption instructions received by telephone that are
reasonably believed to be genuine, and the shareholder will bear the risk of
loss in the event of unauthorized or fraudulent telephone instructions. Each
Fund will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. A Fund may be liable for any losses due to
unauthorized or fraudulent instructions in the absence of following these
procedures. Such procedures may include requesting personal identification
information or recording telephone conversations. Redemption checks will be made
payable to the registered shareholder(s) and sent to the address of record on
file with Investors Bank. Payments by wire will only be made to the registered
shareholder through pre-existing bank account instructions.
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No bank instruction changes will be accepted over the telephone. See "Redemption
By Wire" for information on how to change bank instructions.
Dividends, Distributions and Taxes
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 to such Fund's shareholders
of record at 2:00 p.m. (ET) for the Treasury Portfolio and the Cash Portfolio
and as of the close of trading on the NYSE (normally 4:00 p.m. (ET)), for the
STAR Portfolio, on that day, and will pay such dividends monthly. Distributions
of net long term capital gains, if any, for the year are made at least annually.
Dividends and/or capital gain distributions will be reinvested automatically in
additional shares of a Fund at net asset value 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.
Taxes
The following summary of Federal income tax consequences is based on current tax
laws and regulations, which may be changed by legislative, judicial, or
administrative action. No attempt has been made to present a detailed
explanation of the Federal, state, or local income tax treatment of a Fund or
its shareholders. Accordingly, shareholders are urged to consult their tax
advisers regarding specific questions concerning their individual circumstances.
Tax Status of each Fund
Each Fund intends to qualify and elect to be treated as a "regulated investment
company" under the Code. If it so qualifies, a Fund will not be subject to U.S.
federal income taxes on its net investment income (i.e., its investment company
taxable income, as that term is defined in the Code, determined without regard
to the deduction for dividends paid) and net capital gain (the excess of net
realized long-term capital gain over net realized short-term capital loss), if
any, that it distributes to its shareholders in each taxable year, provided that
it distributes to its shareholders at least 90% of the sum of its net investment
income and any net tax-exempt interest for such taxable year. If in any year a
Fund fails to qualify as a regulated investment company, the Fund would incur
regular corporate federal income tax on its taxable income for that year and be
subject to certain additional distribution requirements upon requalification.
Each Fund is subject to a nondeductible 4% excise tax calculated as a percentage
of certain undistributed amounts of ordinary income and capital gain net income.
To the extent possible, each Fund intends to make sufficient distributions to
avoid the application of both the corporate income and excise taxes.
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Tax Status of Distributions
All dividends and distributions to shareholders of each Fund of investment
company taxable income will be taxable to shareholders whether paid in cash or
reinvested in additional shares. For federal income tax purposes, distributions
of net investment income, which includes the excess of a Fund's net realized
short-term capital gain over its net realized long-term capital loss, are
taxable to shareholders as ordinary income.
Distributions of net realized long-term capital gains designated by a Fund as
"capital gain dividends" will be taxable as long-term capital gains, whether
paid in cash or additional shares, regardless of how long the shares have been
held by such shareholders, capital gain dividends will not, and the Funds'
distributions of net investment income generally will not, be eligible for the
corporate dividends received deduction. For shareholders other than
corporations, long-term capital gain dividends currently are taxed at more
favorable federal income tax rates than ordinary income and short-term capital
gains. Recent changes in federal tax law, as applied to a Fund, allow for
capital gain dividends to be taxed to such shareholders at maximum rates of 20%
or 28%.
Gain or loss, if any, recognized on the sale or other disposition of shares of a
Fund will be taxed as capital gain or loss if the shares are capital assets in
the shareholder's hands and the transaction is treated as a sale for tax
purposes. Since the Cash Fund and the Treasury Fund attempt to maintain a stable
net asset value of $1.00 per share, it is anticipated that gain or loss would
generally not result upon dispositions of the shares of these Funds. Generally,
a shareholder's gain or loss, if any, will be a long term gain or loss if the
shares have been held for more than one year, although a holding period greater
than eighteen months will be necessary in order to benefit from the lowest
capital gain tax rate currently in effect for noncorporate shareholders. If a
shareholder sells or otherwise disposes of shares of a Fund before holding them
for more than six months, any loss on the sale or other disposition of such
shares will be treated as a long-term capital loss to the extent of any capital
gain dividends received by the shareholder with respect to such shares. A loss
realized on a sale or exchange of shares may be disallowed if other shares are
acquired within a 61-day period beginning 30 days before and ending 30 days
after the date that the shares are sold.
Performance Information
From time to time performance may be quoted in shareholder reports,
advertisements and other communications to shareholders or in other materials in
terms of yield, effective yield and average annual total return. Performance
figures are based upon historical earnings and are not intended to indicate
future performance.
The "yield" of the Treasury Fund and the Cash Fund refers to income generated by
an investment in such Fund over a seven-day period, which period will be stated
in the advertisement. This income is then annualized, which means that the
income generated during the seven-day period is assumed to be generated each
week over a 52-week period and is shown as a percentage of the
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investment. "Effective yield" of the Cash Fund or Treasury Fund is calculated
similarly to the yield, but the income earned by the investment is assumed to be
compounded weekly when annualized. Effective yield will be slightly higher than
yield due to this compounding effect.
The "yield" of the STAR Fund is computed by dividing the net investment income
per share earned during the period (generally 30 days or one month) stated in
the advertisement by the maximum offering price per share on the last day of the
period (using the average number of shares entitled to receive dividends).
In determining net investment income for purposes of calculating yield and
effective yield of any Fund, the calculation includes among expenses of the Fund
all recurring fees that are charged to all shareholder accounts and any
recurring charges for the period stated.
Average annual total return is determined by computing the average annual
percentage change in the value of $1,000 invested at the maximum public offering
price for specified periods ending with the most recent calendar quarter,
assuming reinvestment of all dividends and distributions at net asset value. The
total return calculation assumes a complete redemption of the investment at the
end of the relevant period. The Funds may also from time to time advertise total
return on a cumulative, average, year-by-year or other basis for various
specified periods by means of quotations, charts, graphs or schedules.
In reports or other communications to shareholders or in other materials,
performance of each class of a Fund may be compared with that of other mutual
funds tracked by mutual fund rating services, to broad groups of comparable
mutual funds or to unmanaged indices that may assume investment of dividends but
generally do not reflect deductions for administrative and management costs.
Additional performance information is also available in a Fund's Annual and
Semi-Annual Reports, which are sent to all shareholders and which can be
obtained without charge from each Fund by calling 1-888-MERRMAC.
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MERRIMAC SERIES
200 Clarendon Street
Boston, Massachusetts 02116
1-888-MERRMAC
Statement of Additional Information
June 22, 1998
Table of Contents
Additional Information About Investment Policies 2
Investment Restrictions 16
Management of the Funds and the Portfolios 20
Control Persons and Principal Holders of Securities 24
Investment Advisory Services 24
Distributor 27
Redemption of Shares 28
Portfolio Transactions 28
Net Asset Value Determination 30
Capital Stock and Other Securities 32
Taxation 34
Calculation of Performance Data 38
Additional Information 41
Legal Counsel, Independent Auditors/Accountants and
Financial Statements 41
Appendix 42
This Statement of Additional Information ("SAI") is not a prospectus and is only
authorized for distribution when preceded or accompanied by the Merrimac Series
(the "Trust") current Prospectus dated June 22, 1998 (the "Prospectus"). This
SAI supplements and should be read in conjunction with the Prospectus, a copy of
which may be obtained without charge by writing the Trust's distributor, Funds
Distributor, Inc. (the "Distributor") at the address, or by calling the
toll-free telephone number, listed above.
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Additional Information About Investment Policies
The Merrimac Series (the "Trust"), an open-end management investment company,
consists of the following series: the Merrimac Cash Series (the "Cash Series"),
the Merrimac Treasury Series (the "Treasury Series"), and the Merrimac
Short-Term Asset Reserve Series (the "STAR Series") (each, a "Fund" and
collectively, the "Funds").
Unlike other mutual funds which directly acquire and manage their own portfolios
of securities, the Funds seek to achieve their investment objective by investing
all of their investable assets in the Merrimac Cash Portfolio (the "Cash
Portfolio"), the Merrimac Treasury Portfolio (the "Treasury Portfolio"), and the
Standish Short-Term Asset Reserve Portfolio (the "STAR Portfolio") (hereinafter
each, a "Portfolio", and collectively, the "Portfolios"). The Cash Portfolio and
the Treasury Portfolio are each a series of the Merrimac Master Portfolio (the
"Portfolio Trust"), a separate open-end management investment company. The STAR
Portfolio is a series of the Standish, Ayer & Wood Master Portfolio (the
"Standish Portfolio Trust"), also a separate open-end management investment
company. Each Portfolio has the same investment objective and policies as its
corresponding Fund. The Funds offer Premium and Institutional and Investment
Class shares.
The information below supplements the information set forth in the Prospectus
under "Investment Objective and Policies" and "Description of Permitted
Investments and Related Risks." Since the investment characteristics of the
Funds correspond directly to those of their corresponding Portfolio, the
following discusses the various investment techniques employed by each
Portfolio.
Maturity and Duration. The effective maturity of an individual portfolio
security in which the STAR Portfolio invests is defined as the period remaining
until the earliest date when the Portfolio can recover the principal amount of
such security through mandatory redemption or prepayment by the issuer, the
exercise by the Portfolio of a put option, demand feature or tender option
granted by the issuer or a third party or the payment of the principal on the
stated maturity date. The effective maturity of variable rate securities is
calculated by reference to their coupon reset dates. Thus, the effective
maturity of a security may be substantially shorter than its final stated
maturity. Unscheduled prepayments of principal have the effect of shortening the
effective maturities of securities in general and mortgage-backed securities in
particular. Prepayment rates are influenced by changes in current interest rates
and a variety of economic, geographic, social and other factors and cannot be
predicted with certainty. In general, securities, such as mortgage-backed
securities, may be subject to greater prepayment rates in a declining interest
rate environment. Conversely, in an increasing interest rate environment, the
rate of prepayment may be expected to decrease. A higher than anticipated rate
of unscheduled principal prepayments on securities purchased at a premium or a
lower than anticipated rate of unscheduled payments on securities purchased at a
discount may result in a lower yield (and total return) to the Portfolio than
was anticipated at the time the securities were purchased. The Portfolio's
reinvestment of unscheduled prepayments may be made at rates higher or lower
than the rate payable on such security, thus affecting the return realized by
the Portfolio.
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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 of its
portfolio, the 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. The STAR Portfolio
may use various techniques to shorten or lengthen the option-adjusted duration
of its portfolio, including the acquisition of debt obligations at a premium or
discount, the use of mortgage swaps and interest rate swaps, caps, floors and
collars.
Money Market Instruments and Repurchase Agreements. The money market instruments
in which the Cash Portfolio and STAR Portfolio invest, include short-term U.S.
Government securities, 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 Portfolio invests substantially all of its assets in
U.S. Government securities as defined below which are backed by the full faith
and credit of the U.S. Government.
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.
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 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 and the Standish 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 and Other 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
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to substantiate its interest in the instruments it acquires. It is expected that
these risks can be controlled through careful documentation and monitoring.
Structured or Hybrid Notes. As more fully described in the Prospectus, the STAR
Portfolio may invest in structured or hybrid notes. It is expected that not more
than 5% of the Portfolio's net assets will be at risk as a result of such
investments. In addition to the risks associated with a direct investment in the
benchmark asset, investments in structured and hybrid notes involve the risk
that the issuer or counterparty to the obligation will fail to perform its
contractual obligations. Certain structured or hybrid notes may also be
leveraged to the extent that the magnitude of any change in the interest rate or
principal payable on the benchmark asset is a multiple of the change in the
reference price. Leverage enhances the price volatility of the security and,
therefore, the Portfolio's net asset value ("NAV"). Further, certain structured
or hybrid notes may be illiquid for purposes of the STAR Portfolio's limitation
on investments in illiquid securities.
Mortgage-Related Obligations. The STAR Portfolio may invest in mortgage-related
obligations. Some of the characteristics of mortgage-related obligations and the
issuers or guarantors of such securities are described below.
Life of Mortgage-Related Obligations. The average life of mortgage-related
obligations is likely to be substantially less than the stated maturities of the
mortgages in the mortgage pools underlying such securities. Prepayments or
refinancing of principal by mortgagors and mortgage foreclosures will usually
result in the return of the greater part of the principal invested long before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to GNMA Certificates,
statistics published by the FHA are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of GNMA
Certificates, however, will depend on the coupon rate of the financing.
GNMA Certificates. The Government National Mortgage Association ("GNMA") was
established in 1968 when the Federal National Mortgage Association ("FNMA") was
separated into two organizations, GNMA and FNMA. GNMA is a wholly-owned
government corporation within the Department of Housing and Urban Development.
GNMA developed the first mortgage-backed pass-through instruments in 1970 for
Farmers Home Administration-FHMA-insured, Federal Housing
Administration-FHA-insured and for Veterans Administration-or VA-guaranteed
mortgages ("government mortgages").
GNMA purchases government mortgages and occasionally conventional mortgages to
support the housing market. GNMA is known primarily, however, for its role as
guarantor of pass-through securities collateralized by government mortgages.
Under the GNMA securities guarantee program, government mortgages that are
pooled must be less than one year old by the date GNMA issues its commitment.
Loans in a single pool must be of the same type in terms of
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interest rate and maturity. The minimum size of a pool is $1 million for
single-family mortgages and $500,000 for manufactured housing and project loans.
Under the GNMA II program, loans with different interest rates can be included
in a single pool and mortgages originated by more than one lender can be
assembled in a pool. In addition, loans made by a single lender can be packaged
in a custom pool (a pool containing loans with specific characteristics or
requirements).
GNMA Guarantee. The National Housing Act authorizes GNMA to guarantee the timely
payment of principal of and interest on securities backed by a pool of mortgages
insured by FHA or FHMA, or guaranteed by VA. The GNMA guarantee is backed by the
full faith and credit of the United States. GNMA is also empowered to borrow
without limitation from the U.S. Treasury if necessary to make any payments
required under its guarantee.
Yield Characteristics of GNMA Certificates. The coupon rate of interest on GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed,
FHMA-insured or FHA-insured mortgages underlying the Certificates, but only by
the amount of the fees paid to GNMA and the issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06% of the outstanding principal for providing its guarantee,
and the issuer is paid an annual fee of 0.44% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will be
earned on the GNMA Certificates for several reasons. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after issuance,
GNMA Certificates may trade in the secondary market at a premium or discount.
Second, interest is paid monthly, rather than semi-annually as with traditional
bonds. Monthly compounding has the effect of raising the effective yield earned
on GNMA Certificates. Finally, the actual yield of each GNMA Certificate is
influenced by the prepayment experience of the mortgage pool underlying the GNMA
Certificate. If mortgagors prepay their mortgages, the principal returned to
GNMA Certificateholders may be reinvested at higher or lower rates.
Market for GNMA Certificates. Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active participation in the
secondary market by securities dealers and many types of investors make the GNMA
Certificates a highly liquid instrument. Prices of GNMA Certificates are readily
available from securities dealers and depend on, among other things, the level
of market rates, the GNMA Certificate's coupon rate and the prepayment
experience of the pools of mortgages backing each GNMA Certificate.
FHLMC Participation Certificates. The Federal Home Loan Mortgage Corporation
("FHLMC") was created by the Emergency Home Finance Act of 1970. It is a private
corporation, initially capitalized by the Federal Home Loan Bank System, charged
with supporting the mortgage lending activities of savings and loan associations
by providing an active secondary market for conventional mortgages. To finance
its mortgage purchases,
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FHLMC issues FHLMC Participation Certificates and Collateralized Mortgage
Obligations ("CMOs").
Participation Certificates represent an undivided interest in a pool of mortgage
loans. FHLMC purchases whole loans or participations in 30-year and 15-year
fixed rate mortgages, adjustable-rate mortgages ("ARMs") and home improvement
loans. Under certain programs, it will also purchase FHA and VA mortgages.
Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread for
the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.
FHLMC's CMOs are general obligations, and FHLMC will be required to use its
general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.
A CMO is a cash-flow bond in which mortgage payments from underlying mortgage
pools pay principal and interest to CMO bondholders. The CMO is structured to
address two major short-comings associated with traditional pass-through
securities: payment frequency and prepayment risk. Traditional pass-through
securities pay interest and amortized principal on a monthly basis whereas CMOs
normally pay principal and interest semi-annually. In addition, mortgage-backed
securities carry the risk that individual mortgagors in the mortgage pool may
exercise their prepayment privileges, leading to irregular cash flow and
uncertain average lives, durations and yields.
A typical CMO structure contains four tranches, which are generally referred to
as Classes A, B, C and Z. Each tranche is identified by its coupon and maturity.
The first three classes are usually current interest-bearing bonds paying
interest on a quarterly or semi-annual basis, while the fourth, Class Z, is an
accrual bond. Amortized principal payments and prepayments from the underlying
mortgage collateral redeem principal of the CMO sequentially; payments from the
mortgages first redeem principal on the Class A bonds. When principal of the
Class A bonds has been redeemed, the payments then redeem principal on the Class
B bonds. This pattern of using principal payments to redeem each bond
sequentially continues until the Class C bonds have been retired. At this point,
Class Z bonds begin paying interest and amortized principal on their accrued
value.
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The final tranche of a CMO is usually a deferred interest bond, commonly
referred to as the Z bond. This bond accrues interest at its coupon rate but
does not pay this interest until all previous tranches have been fully retired.
While earlier classes remain outstanding, interest accrued on the Z bond is
compounded and added to the outstanding principal. The deferred interest period
ends when all previous tranches are retired, at which point the Z bond pays
periodic interest and principal until it matures. The Adviser would purchase a Z
bond for the STAR Portfolio if it expected interest rates to decline.
FNMA Securities. FNMA was created by the National Housing Act of 1938. In 1968,
the agency was separated into two organizations, GNMA to support a secondary
market for government mortgages and FNMA to act as a private corporation
supporting the housing market.
FNMA pools may contain fixed-rate conventional loans on one-to-four-family
properties. Seasoned FHA and VA loans, as well as conventional growing equity
mortgages, are eligible for separate pools. FNMA will consider other types of
loans for securities pooling on a negotiated basis. A single pool may include
mortgages with different loan-to-value ratios and interest rates, though rates
may not vary beyond two percentage points.
Privately-Issued Mortgage Loan Pools. Savings associations, commercial banks and
investment bankers issue pass-through securities secured by a pool of mortgages.
Generally, only conventional mortgages on single-family properties are included
in private issues, though seasoned loans and variable rate mortgages are
sometimes included. Private placements allow purchasers to negotiate terms of
transactions. Maximum amounts for individual loans may exceed the loan limit set
for government agency purchase. Pool size may vary, but the minimum is usually
$20 million for public offerings and $10 million for private placements.
Privately-issued mortgage-related obligations do not carry government or
quasi-government guarantees. Rather, mortgage pool insurance generally is used
to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in force.
Each mortgage, regardless of original loan-to-value ratio, is insured to 100% of
principal, interest and other expenses, to a total aggregate loss limit stated
on the policy. The aggregate loss limit of the policy generally is 5% to 7% of
the original aggregate principal of the mortgages included in the pool.
In addition to the insurance coverage to protect against defaults on the
underlying mortgages, mortgage-backed securities can be protected against the
nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.
The rating received by a mortgage security will be a major factor in its
marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.
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Before rating an issue, a nationally recognized statistical rating organization
such as Standard & Poor's Rating Group ("Standard & Poor's") or Moody's
Investors Service, Inc. ("Moody's") will consider several factors, including:
the creditworthiness of the issuer; the issuer's track record as an originator
and servicer; the type, term and characteristics of the mortgages, as well as
loan-to-value ratio and loan amounts; the insurer and the level of mortgage
insurance and hazard insurance provided. Where an equity reserve account or
letter of credit is offered, the rating agency will also examine the adequacy of
the reserve and the strength of the issuer of the letter of credit.
Strategic Transactions. The STAR Portfolio may, but is not required to, utilize
various other investment strategies as described below to seek to hedge various
market risks (such as interest rates and broad or specific fixed-income market
movements), to manage the effective maturity or duration of fixed-income
securities, or to enhance potential gain. Such strategies are generally accepted
as part of modern portfolio management and are regularly utilized by many mutual
funds and other institutional investors. Techniques and instruments used by the
STAR Portfolio may change over time as new instruments and strategies are
developed or regulatory changes occur.
In the course of pursuing its investment objective, the STAR Portfolio may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, indices and other financial instruments; purchase and
sell financial futures contracts and options thereon; and enter into various
interest rate transactions such as swaps, caps, floors or collars (collectively,
all the above are called "Strategic Transactions"). Strategic Transactions may
be used to seek to protect against possible changes in the market value of
securities held in or to be purchased for the STAR Portfolio's portfolio
resulting from securities market or interest rate fluctuations, to protect the
STAR Portfolio's unrealized gains in the value of its portfolio securities, to
facilitate the sale of such securities for investment purposes, to manage the
effective maturity or duration of the STAR Portfolio's portfolio, or to
establish a position in the derivatives markets as a temporary substitute for
purchasing or selling particular securities.
In addition to the hedging transactions referred to in the preceding paragraph,
Strategic Transactions may also be used by the STAR Portfolio to seek to enhance
potential gain in circumstances where hedging is not involved although the STAR
Portfolio will attempt to limit its net loss exposure resulting from Strategic
Transactions entered into for such purposes to not more than 1% of its net
assets at any one time and, to the extent necessary, the STAR Portfolio will
close out transactions in order to comply with this limitation. (Transactions
such as writing covered call options are considered to involve hedging for the
purposes of this limitation.) In calculating the STAR Portfolio's net loss
exposure from such Strategic Transactions, an unrealized gain from a particular
Strategic Transaction position would be netted against an unrealized loss from a
related Strategic Transaction position. For example, if the STAR Portfolio's
Adviser believes that short-term interest rates as indicated in the forward
yield curve are too high, the STAR Portfolio may take a short position in a
near-term Eurodollar futures contract and a long position in a longer-dated
Eurodollar futures contract. Under such circumstances, any unrealized loss in
the near-term Eurodollar futures position would be netted
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against any unrealized gain in the near-term Eurodollar futures position (and
vice versa) for purposes of calculating the STAR Portfolio's net loss exposure.
The ability of the STAR Portfolio to utilize these Strategic Transactions
successfully will depend on its Adviser's ability to predict pertinent market
and interest rate movements, which cannot be assured. The STAR Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. The STAR Portfolio's activities
involving Strategic Transactions may be limited by the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"), that
apply to investors in the STAR Portfolio that intend to qualify as regulated
investment companies.
Risks of Strategic Transactions. The use of Strategic Transactions by the STAR
Portfolio has associated risks including possible default by the other party to
the transaction, illiquidity and, to the extent its Adviser's view as to certain
market or interest rate movements is incorrect, the risk that the use of such
Strategic Transactions could result in losses greater than if they had not been
used. Writing put and call options may result in losses to the STAR Portfolio,
force the purchase or sale, respectively, of portfolio securities at inopportune
times or for prices higher than (in the case of purchases due to the exercise of
put options) or lower than (in the case of sales due to the exercise of call
options) current market values, limit the amount of appreciation the STAR
Portfolio can realize on its investments or cause the STAR Portfolio to hold a
security it might otherwise sell.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
STAR Portfolio creates the possibility that losses on the hedging instrument may
be greater than gains in the value of the STAR Portfolio's position. Writing
options could significantly increase the STAR Portfolio's portfolio turnover
rate and, therefore, associated brokerage commissions or spreads. In addition,
futures and options markets may not be liquid in all circumstances and certain
over-the-counter options may have no markets. As a result, in certain markets,
the STAR Portfolio might not be able to close out a transaction without
incurring substantial losses, if at all. Although the use of futures and options
transactions for hedging should tend to minimize the risk of loss due to a
decline in the value of the hedged position, at the same time, in certain
circumstances, they tend to limit any potential gain which might result from an
increase in value of such position.
The loss incurred by the STAR Portfolio in writing options on futures and
entering into futures transactions is potentially unlimited; however, as
described above, the STAR Portfolio will attempt to limit its net loss exposure
resulting from Strategic Transactions entered into for non-hedging purposes to
not more than 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the STAR
Portfolio's NAV . Finally, entering into futures contracts would create a
greater ongoing potential financial risk than would purchases of options where
the exposure is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce NAV and the net result may
be less favorable than if the Strategic Transactions had not been utilized.
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General Characteristics of Options. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of the STAR Portfolio's assets in special accounts,
as described below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the payment
of a premium, the right to sell, and the writer the obligation to buy (if the
option is exercised), the underlying security, commodity, index or other
instrument at the exercise price. For instance, the STAR Portfolio's purchase of
a put option on a security might be designed to protect its holdings in the
underlying instrument (or, in some cases, a similar instrument) against a
substantial decline in the market value by giving the STAR Portfolio the right
to sell such instrument at the option exercise price. A call option, in
consideration for the payment of a premium, gives the purchaser of the option
the right to buy, and the seller the obligation to sell (if the option is
exercised), the underlying instrument at the exercise price. The STAR Portfolio
may purchase a call option on a security, futures contract, index or other
instrument to seek to protect the STAR Portfolio against an increase in the
price of the underlying instrument that it intends to purchase in the future by
fixing the price at which it may purchase such instrument. An American style put
or call option may be exercised at any time during the option period while a
European style put or call option may be exercised only upon expiration or
during a fixed period prior thereto. The STAR Portfolio is authorized to
purchase and sell exchange listed options and over-the-counter options ("OTC
options"). Exchange listed options are issued by a regulated intermediary such
as the Options Clearing Corporation ("OCC"), which guarantees the performance of
the obligations of the parties to such options. The discussion below uses the
OCC as an example, but is also applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security, although in the future cash settlement may
become available. Index options and Eurodollar instruments are cash settled for
the net amount, if any, by which the option is "in-the-money" (i.e., where the
value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at the
time the option is exercised. Frequently, rather than taking or making delivery
of the underlying instrument through the process of exercising the option,
listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The STAR Portfolio's ability to close out its position as a purchaser or seller
of an exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. There is no assurance that a liquid option
market on an exchange will exist. In the event that the relevant market for an
option on an exchange ceases to exist, outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the
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markets for the underlying financial instruments, significant price and rate
movements can take place in the underlying markets that cannot be reflected in
the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The STAR
Portfolio will generally sell (write) OTC options that are subject to a buy-back
provision permitting the STAR Portfolio to require the Counterparty to sell the
option back to the STAR Portfolio at a formula price within seven days. OTC
options purchased by the STAR Portfolio, and portfolio securities "covering" the
amount of the STAR Portfolio's obligation pursuant to an OTC option sold by it
(the cost of the sell-back plus the in-the-money amount, if any) are subject to
the STAR Portfolio's restriction on illiquid securities, unless determined to be
liquid in accordance with procedures adopted by the Board of Trustees of the
Standish Portfolio Trust. For OTC options written with "primary dealers"
pursuant to an agreement requiring a closing purchase transaction at a formula
price, the amount which is considered to be illiquid may be calculated by
reference to a formula price. The STAR Portfolio expects generally to enter into
OTC options that have cash settlement provisions, although it is not required to
do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other instrument underlying an OTC
option it has entered into with the STAR Portfolio or fails to make a cash
settlement payment due in accordance with the terms of that option, the STAR
Portfolio will lose any premium it paid for the option as well as any
anticipated benefit of the transaction. Accordingly, the STAR Portfolio's
Adviser must assess the creditworthiness of each such Counterparty or any
guarantor or credit enhancement of the Counterparty's credit to determine the
likelihood that the terms of the OTC option will be satisfied. The STAR
Portfolio will engage in OTC option transactions only with U.S. Government
securities dealers recognized by the Federal Reserve Bank of New York as
"primary dealers," or broker-dealers, domestic or foreign banks or other
financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard and Poor's or Moody's
or an equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO") or which issue debt that is determined to be of
equivalent credit quality by the STAR Portfolio's Adviser.
If the STAR Portfolio sells (writes) a call option, the premium that it receives
may serve as a partial hedge, to the extent of the option premium, against a
decrease in the value of the underlying securities or instruments in its
portfolio or will increase the STAR Portfolio's income. The sale (writing) of
put options can also provide income.
The STAR Portfolio may purchase and sell (write) put and call options on
securities, including U.S. Treasury and agency securities and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
OTC markets and on securities indices and futures contracts.
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All calls sold by the STAR Portfolio must be "covered" (i.e., the STAR Portfolio
must own the securities or the futures contract subject to the call) or must
meet the asset segregation requirements described below as long as the call is
outstanding. In addition, the STAR Portfolio may cover a written call option or
put option by entering into an offsetting forward contract and/or by purchasing
an offsetting option or any other option which, by virtue of its exercise price
or otherwise, reduces the STAR Portfolio's net exposure on its written option
position. Even though the STAR Portfolio will receive the option premium to help
offset any loss, the STAR Portfolio may incur a loss if the exercise price is
below the market price for the security subject to the call at the time of
exercise. A call sold by the STAR Portfolio also exposes the Portfolio during
the term of the option to possible loss of opportunity to realize appreciation
in the market price of the underlying security or instrument and may require the
STAR Portfolio to hold a security or instrument which it might otherwise have
sold.
The STAR Portfolio will not sell put options if, as a result, more than 50% of
the STAR Portfolio's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
STAR Portfolio may be required to buy the underlying security at a price above
the market price.
Options on Securities Indices and Other Financial Indices. The STAR Portfolio
may also purchase and sell (write) call and put options on securities indices
and other financial indices. Options on securities indices and other financial
indices are similar to options on a security or other instrument except that,
rather than settling by physical delivery of the underlying instrument, they
settle by cash settlement. For example, an option on an index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the index upon which the option is based exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the differential between the closing
price of the index and the exercise price of the option, which also may be
multiplied by a formula value. The seller of the option is obligated, in return
for the premium received, to make delivery of this amount upon exercise of the
option. In addition to the methods described above, the STAR Portfolio may cover
call options on a securities index by owning securities whose price changes are
expected to be similar to those of the underlying index, or by having an
absolute and immediate right to acquire such securities without additional cash
consideration (or for additional cash consideration held in a segregated account
by its custodian) upon conversion or exchange of other securities in its
portfolio.
General Characteristics of Futures. The STAR Portfolio may enter into financial
futures contracts or purchase or sell put and call options on such futures.
Futures are generally bought and sold on the commodities exchanges where they
are listed and involve payment of initial and variation margin as described
below. All futures contracts entered into by the STAR Portfolio are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") or on certain foreign exchanges.
The sale of futures contracts creates a firm obligation by the STAR Portfolio,
as seller, to deliver to the
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buyer the specific type of financial instrument called for in the contract at a
specific future time for a specified price (or, with respect to index futures
and Eurodollar instruments, the net cash amount). The purchase of futures
contracts creates a corresponding obligation by the STAR Portfolio, as
purchaser, to purchase a financial instrument at a specific time and price.
Options on futures contracts are similar to options on securities except that an
option on a futures contract gives the purchaser the right in return for the
premium paid to assume a position in a futures contract and obligates the seller
to deliver such position upon exercise of the option.
The STAR Portfolio's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the STAR
Portfolio may use commodity futures and option positions (i) for bona fide
hedging purposes without regard to the percentage of assets committed to margin
and option premiums, or (ii) for other purposes permitted by the CFTC to the
extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions (net of the amount that the positions were
"in the money" at the time of purchase) do not exceed 5% of the NAV of the STAR
Portfolio's portfolio, after taking into account unrealized profits and losses
on such positions. Typically, maintaining a futures contract or selling an
option thereon requires the STAR Portfolio to deposit, with its custodian for
the benefit of a futures commission merchant, or directly with the futures
commission merchant, as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
directly with the futures commission merchant thereafter on a daily basis as the
value of the contract fluctuates. The purchase of an option on financial futures
involves payment of a premium for the option without any further obligation on
the part of the STAR Portfolio. If the STAR Portfolio exercises an option on a
futures contract it will be obligated to post initial margin (and potential
subsequent variation margin) for the resulting futures position just as it would
for any position. Futures contracts and options thereon are generally settled by
entering into an offsetting transaction but there can be no assurance that the
position can be offset prior to settlement at an advantageous price, nor that
delivery will occur. The segregation requirements with respect to futures
contracts and options thereon are described below.
Combined Transactions. The STAR Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions, structured notes and any combination of
futures, options and interest rate transactions ("component transactions")
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the STAR Portfolio's Adviser, it is in the best
interests of the STAR Portfolio to do so. A combined transaction will usually
contain elements of risk that are present in each of its component transactions.
Although combined transactions are normally entered into by the STAR Portfolio
based on its Adviser's judgment that the combined strategies will reduce risk or
otherwise more effectively achieve the desired portfolio management goal, it is
possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
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Swaps, Caps, Floors and Collars. Among the Strategic Transactions into which the
STAR Portfolio may enter are interest rate, index and total return swaps and the
purchase or sale of related caps, floors and collars. The STAR Portfolio expects
to enter into these transactions primarily for hedging purposes, including, but
not limited to, preserving a return or spread on a particular investment or
portion of its portfolio, as a duration management technique or protecting
against an increase in the price of securities that the STAR Portfolio
anticipates purchasing at a later date. Swaps, caps, floors and collars may also
be used to enhance potential gain in circumstances where hedging is not involved
although, as described above, the STAR Portfolio will attempt to limit its net
loss exposure resulting from swaps, caps, floors and collars and other Strategic
Transactions entered into for such purposes to not more than 1% of its net
assets at any one time. The STAR Portfolio will not sell interest rate caps,
floors or collars where it does not own securities or other instruments
providing the income stream the STAR Portfolio may be obligated to pay. Interest
rate swaps involve the exchange by the STAR Portfolio with another party of
their respective commitments to pay or receive interest, e.g., an exchange of
floating rate payments for fixed rate payments with respect to a notional amount
of principal. An index swap is an agreement to swap cash flows on a notional
amount based on changes in the values of the reference indices. The purchase of
a cap entitles the purchaser to receive payments on a notional principal amount
from the party selling such cap to the extent that a specified index exceeds a
predetermined interest rate or amount. The purchase of a floor entitles the
purchaser to receive payments on a notional principal amount from the party
selling such floor to the extent that a specified index falls below a
predetermined interest rate or amount. A collar is a combination of a cap and a
floor that preserves a certain rate of return within a predetermined range of
interest rates or values.
The STAR Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the STAR Portfolio receiving or paying, as the
case may be, only the net amount of the two payments. The STAR Portfolio will
not enter into any swap, cap, floor or collar transaction unless, at the time of
entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by
Standard & Poor's or Moody's or has an equivalent rating from an NRSRO or the
Counterparty issues debt that is determined to be of equivalent credit quality
by the STAR Portfolio's Adviser. If there is a default by the Counterparty, the
STAR Portfolio may have contractual remedies pursuant to the agreements related
to the transaction. The swap market has grown substantially in recent years with
a large number of banks and investment banking firms acting both as principals
and as agents utilizing standardized swap documentation. As a result, the swap
market has become relatively liquid. Caps, floors and collars are more recent
innovations for which standardized documentation has not yet been fully
developed. Swaps, caps, floors and collars are considered illiquid for purposes
of the STAR Portfolio's policy regarding illiquid securities, unless it is
determined, based upon continuing review of the trading markets for the specific
security, that such security is liquid. The Trustees of the Standish Portfolio
Trust have adopted guidelines and delegated to the STAR Portfolio's Adviser the
daily function of determining and monitoring the liquidity of swaps, caps,
floors and collars. Such Trustees, however, retain oversight focusing on factors
such as valuation, liquidity and availability of information and they are
ultimately responsible for such determinations. The staff of the Securities and
Exchange Commission
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("SEC") currently takes the position that swaps, caps, floors and collars are
illiquid, and are subject to the STAR Portfolio's limitation on investing in
illiquid securities.
Eurodollar Contracts. The STAR Portfolio may make investments in Eurodollar
contracts. Eurodollar contracts are U.S. dollar-denominated futures contracts or
options thereon which are linked to the London Interbank Offered Rate ("LIBOR"),
although foreign currency-denominated instruments are available from time to
time. Eurodollar futures contracts enable purchasers to obtain a fixed rate for
the lending of funds and sellers to obtain a fixed rate for borrowings. The STAR
Portfolio might use Eurodollar futures contracts and options thereon to hedge
against changes in LIBOR, to which many interest rate swaps and fixed income
instruments are linked.
Use of Segregated Accounts. The STAR Portfolio will hold securities or other
instruments whose values are expected to offset its obligations under the
Strategic Transactions. The STAR Portfolio will cover Strategic Transactions as
required by interpretive positions of the staff of the SEC. The STAR Portfolio
will not enter into Strategic Transactions that expose the STAR Portfolio to an
obligation to another party unless it owns either (i) an offsetting position in
securities or other options, futures contracts or other instruments or (ii)
cash, receivables or liquid securities with a value sufficient to cover its
potential obligations. The STAR Portfolio may have to comply with any applicable
regulatory requirements for Strategic Transactions, and if required, will set
aside cash and other assets in a segregated account with its custodian bank (or
marked as segregated on the STAR Portfolio's books) in the amount prescribed. In
that case, the STAR Portfolio's custodian would maintain the value of such
segregated account equal to the prescribed amount by adding or removing
additional cash or other assets to account for fluctuations in the value of the
account and the STAR Portfolio's obligations on the underlying Strategic
Transactions. Assets held in a segregated account would not be sold while the
Strategic Transaction is outstanding, unless they are replaced with similar
assets. As a result, there is a possibility that segregation of a large
percentage of the STAR Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
"When-Issued" and "Delayed Delivery" Securities. Each Portfolio may invest up to
10% of its net assets 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 the Portfolio until delivery of and payment for the
securities. Although each Portfolio will only make commitments to purchase
"when-issued" and "delayed delivery" securities with the intention of actually
acquiring the securities, each 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 net 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
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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.
Portfolio Turnover. It is not the policy of the STAR Portfolio to purchase or
sell securities for trading purposes. However, the STAR Portfolio does not place
any restrictions on portfolio turnover and may sell any portfolio security
without regard to the period of time it has been held. The STAR Portfolio may
therefore generally change its portfolio investments at any time in accordance
with its Adviser's appraisal of factors affecting any particular issuer or
market, or relevant economic conditions. The portfolio turnover rate for the
STAR Portfolio is generally not expected to exceed 150% on an annual basis. A
rate of turnover of 100% would occur if the value of the lesser of purchases and
sales of portfolio securities for a particular year equaled the average monthly
value of portfolio securities owned during the year (excluding short-term
securities). A high rate of portfolio turnover (100% or more) involves a
correspondingly greater amount of brokerage commissions and other costs which
must be borne directly by the STAR Portfolio and thus indirectly by its
interestholders. It may also result in the realization of larger amounts of net
short-term capital gains, distributions of which by an interestholder in the
STAR Portfolio that is a regulated investment company are taxable as ordinary
income.
Investment Restrictions
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 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
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 or (for the Cash Portfolio (Fund)) bank
obligations or repurchase agreements collateralized by any of such
obligations;
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(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 for the Cash Portfolio (Fund) or
Treasury Portfolio (Fund) 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.
As a matter of fundamental policy, the STAR Portfolio (Fund) may not:
(1) Issue senior securities. For purposes of this restriction, borrowing money,
making loans, the issuance of shares of beneficial interest in multiple
classes or series, the deferral of Trustees' fees, the purchase or sale of
options, futures contracts, forward commitments and repurchase agreements
entered into in accordance with the Portfolio's (Fund's) investment
policies, are not deemed to be senior securities.
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(2) Borrow money, except (i) in amounts not to exceed 33 1/3% of the value of
the Portfolio's (Fund's) total assets (including the amount borrowed) taken
at market value from banks or through reverse repurchase agreements or
forward roll transactions, (ii) up to an additional 5% of its total assets
for temporary purposes, (iii) in connection with short-term credits as may
be necessary for the clearance of purchases and sales of portfolio
securities and (iv) the Portfolio (Fund) may purchase securities on margin
to the extent permitted by applicable law. For purposes of this investment
restriction, investments in short sales, roll transactions, futures
contracts, options on futures contracts, securities or indices and forward
commitments, entered into in accordance with the Portfolio's (Fund's)
investment policies, shall not constitute borrowing.
(3) Underwrite the securities of other issuers, except to the extent that, in
connection with the disposition of portfolio securities, the Portfolio
(Fund) may be deemed to be an underwriter under the Securities Act of 1933.
(4) Purchase or sell real estate except that the Portfolio (Fund) may (i)
acquire or lease office space for its own use, (ii)invest in securities of
issuers that invest in real estate or interests therein, (iii) invest in
securities that are secured by real estate or interests therein, (iv)
purchase and sell mortgage-related securities and (v) hold and sell real
estate acquired by the Portfolio (Fund) as a result of the ownership of
securities.
(5) Purchase or sell commodities or commodity contracts, except the Portfolio
(Fund) may purchase and sell options on securities, securities indices and
currency, futures contracts on securities, securities indices and currency
and options on such futures, forward foreign currency exchange contracts,
forward commitments, securities index put or call warrants and repurchase
agreements entered into in accordance with the Portfolio's (Fund's)
investment policies.
(6) Make loans, except that the Portfolio (Fund) (1) may lend portfolio
securities in accordance with the Portfolio's (Fund's) investment policies
up to 33 1/3% of the Portfolio's (Fund's) total assets taken at market
value, (2) enter into repurchase agreements, and (3) purchase all or a
portion of an issue of debt securities, bank loan participation interests,
bank certificates of deposit, bankers' acceptances, debentures or other
securities, whether or not the purchase is made upon the original issuance
of the securities.
(7) With respect to 75% of its total assets, purchase securities of an issuer
(other than the U.S. Government, its agencies, instrumentalities or
authorities or repurchase agreements collateralized by U.S. Government
securities and other investment companies), if: (a) such purchase would
cause more than 5% of the Portfolio's (Fund's) total assets taken at market
value to be invested in the securities of such issuer; or (b) such purchase
would at the time result in more than 10% of the outstanding voting
securities of such issuer being held by the Portfolio (Fund).
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(8) Invest more than 25% of its total assets in the securities of one or more
issuers conducting their principal business activities in the same industry
(excluding the U.S. Government or its agencies or instrumentalities).
The following restrictions are not fundamental policies and may be changed by
the Trustees of the Standish Portfolio Trust without investor approval in
accordance with applicable laws, regulations or regulatory policy. The STAR
Portfolio (Fund) may not:
a. Purchase securities on margin (except that the Portfolio (Fund) may obtain
such short-term credits as may be necessary for the clearance of purchases
and sales of securities).
b. Invest in the securities of an issuer for the purpose of exercising control
or management, but it may do so where it is deemed advisable to protect or
enhance the value of an existing investment.
c. Purchase the securities of any other investment company except to the
extent permitted by the 1940 Act.
d. Invest more than 15% of its net assets in securities which are illiquid.
e. Purchase additional securities if the Portfolio's (Fund's) borrowings
exceed 5% of its net assets.
It is expected that not more than 5% of the STAR Portfolio's net assets will
be at risk as a result of investment in inverse floating rate securities.
Notwithstanding any fundamental or non-fundamental policy, the STAR Fund may
invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an
open-end investment company with substantially the same investment objective as
the STAR Fund.
For the purposes of STAR Portfolio's (Fund's) fundamental restriction 8, state
and municipal governments and their agencies, authorities and instrumentalities
are not deemed to be industries; telephone companies are considered to be a
separate industry from water, gas or electric utilities; personal credit finance
companies and business credit finance companies are deemed to be separate
industries; and wholly-owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents. Fundamental restriction 8 does not apply to
investments in municipal securities which have been prefunded by the use of
obligations of the U.S. Government or any of its agencies or instrumentalities.
For purposes of fundamental restriction 8, the industry classification of an
asset-backed security is determined by its underlying assets. For example,
certificates for automobile receivables and certificates for amortizing
revolving debts constitute two different industries.
If any percentage restriction described above for the STAR Portfolio (Fund) is
adhered to at the time of investment, a subsequent increase or decrease in the
percentage resulting from a change in the value of the Portfolio's (Fund's)
assets will not constitute a violation of the restriction.
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Management of the Funds and the Portfolios
Trustees and Officers. The names, addresses, dates of birth and principal
occupation(s) during the last five years of the Trustees and officers of the
Trust, the Portfolio Trust and the Standish Portfolio Trust are listed below.
The business address of the Trustees and officers of the Trust and the Portfolio
Trust is 200 Clarendon Street, Boston, Massachusetts 02116. Unless otherwise
noted, the business address of the Trustees and officers of the Standish
Portfolio Trust is One Financial Center, Boston, Massachusetts 02111.
Trustees and Officers of the Trust
Kevin J. Sheehan, Trustee*, 6/22/51, Director since 1990, President since June
1992, Chairman and Chief Executive Officer since June 1995, Investors Bank &
Trust Company, Chairman and Chief Executive Officer since June 1995, Investors
Financial Services Corp.
Francis J. Gaul, Jr., Trustee, 9/25/43, Advisor, Triad Mutual Fund Investors
Corp. (Registered Investment Adviser) July 1996 - present, Vice President &
Resident Manager, Goldman Sachs & Co. (Investment Banking & Institutional Sales)
November 1987 - January 1996.
Edward F. Hines, Jr., Trustee, 9/5/45, Partner 1977 - present, Managing Partner
1983 - 87, Choate, Hall & Stewart.
Thomas E. Sinton, Trustee, 8/26/32, Retired, Managing Director, Corporate
Accounting Policy, April 1993 - October 1996 and Consultant, November 1992 -
March 1993, Bankers Trust Company, General Partner, 1967 - 1992, Ernst & Young
LLP.
George A. Rio, President, 1/2/55, Executive Vice President, Client Service
Director of Funds Distributor, Inc., April 1998 - present; Senior Vice
President, Senior Key Account Manager for Putnam Mutual Funds, June 1995 - March
1998; Director of Business Development for First Data Corporation, May 1994 -
June 1995; Senior Vice President and Manager of Client Services and Director of
Internal Audit at The Boston Company, September 1983 - May 1994.
Paul J. Jasinski, Treasurer and Chief Financial Officer, 2/17/47, Managing
Director, Investors Bank & Trust Company, 1990 - present.
Susan C. Mosher, Secretary, 1/29/55, Director, Mutual Fund Administration Legal
Administration, Investors Bank & Trust Company, 1995 - present, Associate
Counsel, 440 Financial Group of Worcester, Inc., 1993 - 95, Associate and
Partner, Gallagher, Callahan & Gartrell, P.A., 1986 - 1992.
Andrew S. Josef, Assistant Secretary, 2/25/64, Director, Mutual Fund
Administration - Legal Administration, Investors Bank & Trust Company, 1997
present, Senior Associate, Sullivan & Worcester LLP, 1995 - 97, Associate,
Goodwin, Procter & Hoar 1993 - 95, Associate, Simpson Thacher & Bartlett, 1989 -
93.
Trustees and Officers of the Portfolio Trust
Kevin J. Sheehan, Trustee**, 6/22/51, Director since 1990, President since June
1992, Chairman and Chief Executive Officer since June 1995, Investors Bank &
Trust Company, Chairman and Chief Executive Officer since June 1995, Investors
Financial Services Corp.
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Francis J. Gaul, Jr., Trustee, 9/25/43, Advisor, Triad Mutual Fund Investors
Corp. (Registered Investment Adviser) July 1996 - present, Vice President &
Resident Manager, Goldman Sachs & Co. (Investment Banking & Institutional Sales)
November 1987 - January 1996.
Edward F. Hines, Jr., Trustee, 9/5/45, Partner 1977 - present, Managing Partner
1983 - 87, Choate, Hall & Stewart.
Thomas E. Sinton, Trustee, 8/26/32, Retired, Managing Director, Corporate
Accounting Policy, April 1993 - October 1996 and Consultant, November 1992 March
1993, Bankers Trust Company, General Partner, 1967 - 1992, Ernst & Young.
Sean P. Brennan, President, 6/27/61, Director, Investors Bank & Trust Company,
1996 - present, Executive Vice President, Aspen Capital Management, 1995 - 96,
Director of International Mutual Funds, CS First Boston, 1993 - 94, Vice
President of Sales, Concord Financial Corp. 1989 - 93.
Timothy J. Coyne, Vice President, 5/9/67, Director, Corporate Marketing,
Investors Bank & Trust Company, 1997 present, Vice President, Corporate Sales,
Dreyfus Corporation, 1995 - 97, Assistant Vice President, Concord Financial
Corp., 1992 - 95.
Paul J. Jasinski, Treasurer and Chief Financial Officer, 2/17/47, Managing
Director, Investors Bank & Trust Company, 1990 - present.
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 - 96, Executive Sales Assistant, Concord
Financial Corp., 1993 - 94.
Susan C. Mosher, Secretary, 1/29/55, Director, Mutual Fund Administration Legal
Administration, Investors Bank & Trust Company, 1995 - present, Associate
Counsel, 440 Financial Group of Worcester, Inc., 1993 - 95, Associate and
Partner, Gallagher, Callahan & Gartrell, P.A., 1986 - 1992.
Andrew S. Josef, Assistant Secretary, 2/25/64, Director, Mutual Fund
Administration - Legal Administration, Investors Bank & Trust Company, 1997
present, Senior Associate, Sullivan & Worcester LLP, 1995 - 97, Associate,
Goodwin, Procter & Hoar 1993 - 95, Associate, Simpson Thacher & Bartlett, 1989 -
93.
Raymond O'Neill, Assistant Treasurer and Assistant Secretary, 4/12/62, Managing
Director, IBT Trust & Custodial Services (Ireland) LMTD 1994 - present; Vice
President, Atlantic Corporate Management Limited, 1991 - 1994.
21
<PAGE>
Trustees and Officers of the Standish Portfolio Trust
D. Barr Clayson, Vice President and Trustee***, 7/29/35, Vice President and
Managing Director, Standish, Ayer & Wood, Inc.; Chairman of the Board and Vice
President, Standish International Management Company, L.P.
Samuel C. Fleming, Trustee, 9/30/40, Chairman of the Board and Chief Executive
Officer, Decision Resources, Inc.; through 1989, Senior Vice President, Arthur
D. Little. His address is c/o Decision Resources, Inc., 1100 Winter Street,
Waltham, Massachusetts 02154.
Benjamin M. Friedman, Trustee, 8/5/44, William Joseph Maier Professor of
Political Economy, Harvard University. His address is c/o Harvard University,
Cambridge, Massachusetts 02138.
John H. Hewitt, Trustee, 4/11/35, Trustee, The Peabody Foundation; Trustee,
Visiting Nurse Alliance of Vermont and New Hampshire. His address is P.O. Box
307, South Woodstock, Vermont 05071.
Edward H. Ladd, Vice President and Trustee***, 1/3/38, Chairman of the Board and
Managing Director, Standish, Ayer & Wood, Inc.
Caleb Loring III, Trustee, 11/14/43, Trustee, Essex Street Associates (family
investment trust office); Director, Holyoke Mutual Insurance Company. His
address is c/o Essex Street Associates, P.O. Box 5600, Beverly Farms,
Massachusetts 01915.
Richard S. Wood, President and Trustee***, 5/21/54, Vice President and Managing
Director, (since 1995), Standish, Ayer & Wood, Inc.; Executive Vice President
and Director, Standish International Management Company, L.P.
James E. Hollis III, Executive Vice President, 11/21/48, Vice President and
Director, Standish, Ayer & Wood, Inc.
Anne P. Herrmann, Vice President and Secretary, 1/26/56, Mutual Fund
Administrator, Standish, Ayer & Wood, Inc.
Paul G. Martins, Vice President and Treasurer, 3/10/56, Vice President of
Finance, Standish, Ayer & Wood, Inc. since October 1996; formerly Senior Vice
President, Treasurer and Chief Financial Officer of Liberty Financial Bank
Group, 1993 - 95; prior to 1993, Corporate Controller, The Berkeley Financial
Group.
Beverly E. Banfield, Vice President, 7/6/56, Vice President and Compliance
Officer, Standish, Ayer & Wood, Inc.
22
<PAGE>
Lavinia B. Chase, Vice President, 6/4/46, Vice President and Associate Director,
Standish, Ayer & Wood, Inc.
Denise B. Kneeland, Vice President, 8/19/51, Senior Operations, Manager,
Standish, Ayer & Wood, Inc. since December 1995; formerly Vice President,
Scudder, Stevens and Clark.
David C. Stuehr, Vice President, 3/1/58, Vice President and Director, Standish,
Ayer & Wood, Inc.
Sarah Walcott Abramson, Vice President, 12/9/65, Compliance Administrator,
Standish, Ayer & Wood, Inc.
Kathleen M. Broccoli, Vice President, 4/13/65, Manager, Portfolio Accounting,
Standish, Ayer & Wood, Inc.
Thomas J. Hanlon, Vice President, 9/25/60, Manager, Trade Settlement and
Pricing, Standish, Ayer & Wood, Inc.
Rosalind J. Lillo, Vice President, 2/6/38, Broker/Dealer Administrator,
Standish, Ayer & Wood, Inc. (since 1995); Compliance Administrator, New England
Securities Corp.
Gigi K. Szekely, Vice President, 5/8/67, Manager, Client Communications,
Standish, Ayer & Wood, Inc.
- ----------------------
* Indicates that the Trustee is an "interested person" of the Trust as
defined in the 1940 Act.
** Indicates that the Trustee is an "interested person" of the Portfolio Trust
as defined in the1940 Act.
*** Indicates that the Trustee is an "interested person" of the Standish
Portfolio Trust as defined in the 1940 Act.
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 or the Distributor. Neither the Trust nor
the Standish Portfolio Trust compensates the Trustees and officers of the
Standish Portfolio Trust who are affiliated with Standish. None of the Trustees
or officers of the Portfolio Trust have engaged in any financial transactions
with the Portfolio Trust during the fiscal year ended December 31, 1997. None of
the Trustees or officers of the Standish Portfolio Trust have engaged in any
financial transactions with the Standish Portfolio Trust during the fiscal year
ended December 31, 1997. The Trust had not commenced operations as of December
31, 1997.
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.
It is anticipated that the Trustees of the Trust will be paid a $750 meeting
23
<PAGE>
fee for each quarterly meeting attended. The following table estimates the
compensation to be paid by the Trust to each Trustee of the Trust for the fiscal
year ending December 31, 1998.
<TABLE>
<CAPTION>
Aggregate Pension or Retirement
Compensation Benefits Accrued as Part of Total Compensation From
Name of Trustee From the Trust Fund's Expenses Trust and Fund Complex*
- --------------- -------------- --------------- -----------------------
<S> <C> <C> <C>
Kevin J. Sheehan $0 $0 $0
Francis J. Gaul, Jr. $1,500 $0 $1,500
Edward F. Hines, Jr. $1,500 $0 $1,500
Thomas E. Sinton $1,500 $0 $1,500
</TABLE>
*Fund Complex consists of the Trust which has three series.
Control Persons and Principal Holders of Securities
As of June 1, 1998, the Standish Short-Term Asset Reserve Fund owned
approximately 100% of the outstanding interests of the STAR Portfolio and,
therefore, was deemed to control the STAR Portfolio. As of June 1, 1998, the
Merrimac Cash Fund beneficially owned approximately 97.27% of the outstanding
interests of the Cash Portfolio and, therefore, was deemed to control the Cash
Portfolio. As of June 1, 1998, the Merrimac Treasury Fund owned approximately
100% of the outstanding interests of the Treasury Portfolio and, therefore, was
deemed to control the Treasury Portfolio. As controlling persons, Standish
Short-Term Asset Reserve Fund, Merrimac Cash Fund and the Merrimac Treasury Fund
each may be able to take actions regarding their corresponding Portfolio without
the consent or approval of other interest holders.
Investment Advisory Services
Cash Portfolio and Treasury Portfolio. The Cash Portfolio and the Treasury
Portfolio each retain Investors Bank & Trust Company ("Investors Bank" or the
"Adviser") as their investment adviser. The Investment Adviser Agreement (the
"Adviser Agreement") between Investors Bank and each of the Cash Portfolio and
the Treasury Portfolio provides that Investors Bank will manage the operations
of the Cash Portfolio and the Treasury 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 the
Cash and the Treasury Portfolios' operations and pays the compensation of each
such Portfolio's officers, employees and directors affiliated with Investors
Bank. For a description of the rate of compensation that the Cash Portfolio and
the Treasury Portfolio pay Investors Bank under the Adviser Agreement, see the
current Prospectus. Investors Bank's business address is 200 Clarendon Street,
Boston, Massachusetts 02116.
The Board of Trustees of the Portfolio Trust (including a majority of the
Trustees who are not "interested" persons of the Portfolio Trust) approved the
Adviser Agreement for the Cash
24
<PAGE>
Portfolio on October 30, 1996 and for the Treasury Portfolio on February 6,
1997. The Adviser Agreements each provide that they will continue initially for
two years from their date of execution, and from year to year thereafter as long
as they are approved at least annually (a) by vote of a majority of such
Portfolio's outstanding voting securities or by the Portfolio Trust's Board of
Trustees and (b) by the vote of a majority of the Portfolio Trust's Trustees who
are not parties to the Adviser Agreement or "interested persons" of any such
party. Each Adviser Agreement may be terminated on 60 days' written notice by
either party and will terminate automatically if assigned. Each Adviser
Agreement provides in substance that the Adviser shall not be liable for any
action or failure to act in accordance with its duties thereunder in the absence
of willful misfeasance, bad faith or gross negligence on the part of the Adviser
or of reckless disregard of its obligations thereunder.
Pursuant to an Investment Sub-Adviser Agreement (the "BNY Sub-Adviser
Agreement"), Investors Bank has retained The Bank of New York ("BNY") as
sub-adviser to the Cash Portfolio. BNY is compensated by Investors Bank at no
additional cost to the Cash Portfolio. Subject to the supervision of Investors
Bank and of the Portfolio Trust's Board of Trustees, BNY furnishes to the Cash
Portfolio investment research, advice and supervision and determines what
securities will be purchased, held or sold by the Cash Portfolio. For a
description of the rate of compensation that Investors Bank pays BNY under the
Sub-Adviser Agreement, see the Prospectus. BNY's business address is 48 Wall
Street, New York, New York 10286.
Pursuant to an Investment Sub-Adviser Agreement (the "Aeltus Sub-Adviser
Agreement"), Investors Bank has retained Aeltus Investment Management, Inc.
("Aeltus") as sub-adviser to the Treasury Portfolio. Aeltus is compensated by
Investors Bank at no additional cost to the Treasury Portfolio. Subject to the
supervision of Investors Bank and of the Portfolio Trust's Board of Trustees,
Aeltus furnishes to the Treasury Portfolio investment research, advice and
supervision and determines what securities will be purchased, held or sold by
the Treasury Portfolio. For a description of the rate of compensation that
Investors Bank pays Aeltus under the Sub-Adviser Agreement, see the Prospectus.
Aeltus' business address is 242 Trumbull Street, Hartford, Connecticut 06103.
The Cash and Treasury Portfolios bear the expenses of their operations other
than those incurred by BNY or Aeltus, respectively. Among the other expenses,
the Portfolios pay 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 Trustees' fees and expenses.
STAR Portfolio. The STAR Portfolio and Standish, Ayer & Wood, Inc. ("Standish")
have entered into an investment advisory agreement (the "Standish Advisory
Agreement") under which Standish serves as investment adviser. Prior to the
close of business on January 1, 1998, Standish managed directly the assets of
the Standish STAR Fund pursuant to an investment advisory agreement. This
agreement was terminated by the Standish STAR Fund on such date subsequent to
the approval by Standish STAR Fund's shareholders on December 17, 1997 to
implement certain changes in the Standish STAR Fund's investment restrictions
which would enable the Standish STAR Fund to invest all of its investable assets
in the newly-created STAR
25
<PAGE>
Portfolio. Each of the STAR Fund and the Standish STAR Fund invests all of its
investable assets in the STAR Portfolio as a separate management investment
company.
The following, constituting all of the Directors and all of the shareholders of
Standish, are Standish's controlling persons: Caleb F. Aldrich, Nicholas S.
Battelle, David H. Cameron, Karen K. Chandor, D. Barr Clayson, W. Charles Cook,
Joseph M. Corrado, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty, Maria
D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd, Laurence A.
Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin, Austin C. Smith,
Thomas P. Sorbo, David C. Stuehr, Ralph S. Tate, Michael W. Thompson and Richard
S. Wood.
For a description of the rate of compensation that the STAR Fund pays Standish
and the services provided by Standish under the Standish Advisory Agreement, see
the Prospectus. Standish's business address is One Financial Center, Boston,
Massachusetts 02111.
Unless terminated as provided below, the Standish Advisory Agreement continues
in full force and effect until December 31, 1999 and from year to year
thereafter, but only for so long as each such continuance is approved annually
(i) by the Trustees of the Standish Portfolio Trust or by the "vote of a
majority of the outstanding voting securities" of the STAR Portfolio and, in
either event (ii) by vote of a majority of the Trustees of the Portfolio Trust
who are not parties to the Standish Advisory Agreement or "interested persons"
(as defined in the 1940 Act) of any such party, cast in person at a meeting
called for the purpose of voting on such approval. The Standish Advisory
Agreement may be terminated at any time without the payment of any penalty by
vote of the Trustees of the Standish Portfolio Trust or by the "vote of a
majority of the outstanding voting securities" of the STAR Portfolio or by
Standish, on sixty days' written notice to the other party. The Standish
Advisory Agreement terminates in the event of its assignment as defined in the
1940 Act.
In an attempt to avoid any potential conflict with portfolio transactions for
the STAR Fund and the STAR Portfolio, Standish and the Standish Portfolio Trust
have each adopted restrictions on personal securities trading by personnel of
Standish and its affiliates. These restrictions include: pre-clearance of all
personal securities transactions and a prohibition of purchasing initial public
offerings of securities. These restrictions are a continuation of the basic
principle that the interests of the STAR Fund and its shareholders, and the STAR
Portfolio and its investors, come before those of Standish and its employees.
The STAR Portfolio bears expenses of its operations other than those incurred by
Standish. Among the other expenses, the Portfolio pays share pricing and
expenses; custodian fees and expenses; legal and auditing fees and expenses;
expenses of prospectuses, statements of additional information and shareholder
reports; registration and reporting fees and expenses; and Standish Portfolio
Trust's Trustees' fees and expenses.
26
<PAGE>
Distributor
The Premium, Institutional and Investment Class shares of the Funds are
continuously distributed by the Distributor pursuant to a Distribution Agreement
with the Trust dated June 1, 1998. The Distributor makes itself available to
receive purchase orders for the Funds' shares. Pursuant to the Distribution
Agreement, the Distributor has agreed to use its best efforts to obtain orders
for the continuous offering of the Funds' shares. The Distributor receives no
commissions or other compensation from the Funds for its services, but receives
compensation from Investors Bank for the expenses it incurs in acting as the
Funds' Distributor.
The Distribution Agreement shall continue in effect with respect to the Funds
until two years after its execution and for successive periods of one year
thereafter only if it is approved at least annually thereafter (i) by a vote of
the holders of a majority of the Trust's outstanding shares or by the Trustees
of the Trust or (ii) by a vote of a majority of the Trustees of the Trust who
are not "interested persons" (as defined by the 1940 Act) of the parties to the
Distribution Agreement, cast in person at a meeting called for the purpose of
voting on such approval. The Distribution Agreement will terminate automatically
if assigned by either party thereto and is terminable at any time without
penalty on not more than 60 days' written notice to the other party. The
offices of the Distributor are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
The Board of Trustees of the Trust has adopted Plan of Distribution (the
"Distribution Plan") under Rule 12b-1 of the 1940 Act with respect to the
Investment Class of shares of each Fund after having concluded that there is a
reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. The Distribution Plan provides that the Distribution Agent
(defined therein) 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 attributable to
shareholders who are clients of the Distribution Agent, plus reimbursement of
direct out of pocket expenditures incurred in connection with the offer or sale
or shares, including expenses relating to the preparation, printing and
distribution of sales literature and reports.
The Distribution Plan will initially be effective for one year from its
effective date. Thereafter, the Distribution Plan shall continue in effect only
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 Trustees
of the Trust who are not "interested persons" of the Trust (the "Disinterested
Trustees.") The Distribution Plan may be terminated with respect to a Fund at
any time by a vote of a majority of the Disinterested Trustees, or by a vote of
a majority of the outstanding voting shares of such Fund.
The Board of Trustees of the Trust have also adopted a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Institutional Class and
Investment 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.
27
<PAGE>
The Servicing Plan will initially be effective for one year from its effective
date. Thereafter, 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.
Redemption of Shares
Detailed information on redemption of shares 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 NYSE is 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 but, under certain conditions, the Trust, with respect to the STAR
Fund, may make payment wholly or partly in portfolio securities, in conformity
with a rule of the SEC. 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.
Portfolio Transactions
Cash Portfolio and Treasury Portfolio. Purchases and sales of securities for the
Cash and Treasury 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. The Cash Portfolio and the Treasury Portfolio do not anticipate
paying brokerage commissions. Any transaction for which the Cash Portfolio or
the Treasury Portfolio pays a brokerage commission will be effected at the best
price and execution available. Purchases from underwriters of securities include
a commission or
28
<PAGE>
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 of the Cash Fund and the Treasury Fund
and the other investors in the Cash Portfolio or the Treasury 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 Cash Portfolio and the Treasury Portfolio 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, the
Cash Portfolio or the Treasury 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 the Cash Portfolio or the Treasury Portfolio or the size of
the position obtainable for the Cash Portfolio or the Treasury Portfolio. In
addition, when purchases or sales of the same security for the Cash Portfolio or
the Treasury 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.
STAR Portfolio. Standish is responsible for placing the STAR Portfolio's
portfolio transactions and will do so in a manner deemed fair and reasonable to
the STAR Portfolio and not according to any formula. The primary consideration
in all portfolio transactions will be prompt execution of orders in an efficient
manner at the most favorable price. In selecting broker-dealers and in
negotiating commissions, Standish will consider the firm's reliability, the
quality of its execution services on a continuing basis and its financial
condition. If Standish determines in good faith that the amount of commissions
charged by a broker is reasonable in relation to the value of the brokerage and
research services provided by such broker, the STAR Portfolio may pay
commissions to such broker in an amount greater than the amount another firm may
charge. Research services may include (i) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of securities, (ii)
furnishing seminars, information, analyses and reports concerning issuers,
industries, securities, trading markets and methods, legislative developments,
changes in accounting practices, economic factors and trends, portfolio
strategy, access to research analysts, corporate management personnel, industry
experts and economists, comparative performance evaluation and technical
measurement services and quotation services, and products and other services
(such as third party publications, reports and analysis, and computer and
electronic access, equipment, software, information and accessories that
deliver, process or otherwise utilize information, including the research
described above) that assist Standish in carrying out its responsibilities and
(iii) effecting securities transactions and performing functions incidental
thereto (such as clearance and settlement). Research services furnished by firms
through which the STAR Portfolio effects its securities transactions may be used
by Standish in servicing other accounts; not all of these services may be used
by Standish in connection with the STAR
29
<PAGE>
Portfolio. The investment advisory fee paid by the STAR Portfolio under the
Standish Advisory Agreement will not be reduced as a result of Standish's
receipt of research services.
Standish also places portfolio transactions for other advisory accounts.
Standish will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the STAR
Portfolio and another advisory account. In some cases, this procedure could have
an adverse effect on the price or the amount of securities available to the STAR
Portfolio. In making such allocations, the main factors considered by Standish
will be the respective investment objectives, the relative size of portfolio
holdings of the same or comparable securities, the availability of cash for
investment, the size of investment commitments generally held, and opinions of
the persons responsible for recommending the investment. To the extent permitted
by law, securities to be sold or purchased for STAR Portfolio may be aggregated
with those to be sold or purchased for other investment clients of Standish and
Standish's personnel in order to obtain best execution.
Because most of the STAR Portfolio's securities transactions will be effected on
a principal basis involving a "spread" or "dealer mark-up," the Portfolio does
not expect to pay any brokerage commissions.
Net Asset Value Determination
Each Fund's NAV is calculated each day on which the New York Stock Exchange
("NYSE") is open. Currently, the NYSE is not open on weekends, New Year's Day,
Martin Luther King Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Thanksgiving Day and Christmas Day. The NAV of the Cash Series
and Treasury Series' shares is determined once each day as of 2:00 p.m (ET). The
NAV of the STAR Series' shares is determined as of the close of regular trading
on the NYSE (normally 4:00 p.m. ET).
The NAV of each Fund is computed by dividing the value of all securities and
other assets of each Fund (substantially all of which will be represented by
such Fund's interest in its corresponding Portfolio) less all liabilities, by
the number of Fund shares outstanding, and adjusting to the nearest cent per
share. Expenses and fees of each Fund are accrued daily and taken into account
for the purpose of determining NAV.
30
<PAGE>
The value of each Portfolio's net assets (i.e., the value of its securities and
other assets less its liabilities, including expenses payable or accrued) is
determined at the same time and on the same days as the NAV per share of its
corresponding Fund is determined (the "Business Day"). Each investor in a
Portfolio, may add to or reduce its investment in such Portfolio on each
Business Day. As of 2:00 p.m. ET (the close of regular trading on the NYSE, for
the STAR Portfolio) on each Business Day, the value of each investor's interest
in a Portfolio will be determined by multiplying the NAV of such Portfolio by
the percentage representing that investor's share of the aggregate beneficial
interests in the Portfolio. Any additions or reductions which are to be effected
on that day will then be effected. The investor's percentage of the aggregate
beneficial interests in the Portfolio will then be recomputed as the percentage
equal to the fraction (i) the numerator of which is the value of such investor's
investment in the Portfolio as of 2:00 p.m. (ET) (the close of regular trading
on the NYSE for the STAR Portfolio) on such day plus or minus, as the case may
be, the amount of net additions to or reductions in the investor's investment in
the Portfolio effected on such day, and (ii) the denominator of which is the
aggregate NAV of the Portfolio as of 2:00 p.m. (ET) (the close of regular
trading on the NYSE for the STAR Portfolio) on such day plus or minus, as the
case may be, the amount of the net additions to or reductions in the aggregate
investments in the Portfolio by all investors in the Portfolio. The percentage
so determined will then be applied to determine the value of the investor's
interest in the Portfolio as of 2:00 p.m. (ET) (the close of regular trading on
the NYSE for the STAR Portfolio) on the following Business Day.
The following is a description of the procedures used by each Portfolio in
valuing its assets.
Cash Portfolio and Treasury Portfolio. The investment securities in the Cash
Portfolio and the Treasury 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 the Cash Portfolio or Treasury Portfolio would receive if the security
were sold. This method of valuation is used in order to stabilize the NAV of
shares of the Cash Series or the Treasury Series at $1.00; however, there can be
no assurance that the Cash Series or the Treasury Series' NAV will always remain
at $1.00 per share.
STAR Portfolio. Securities that are fixed income securities (other than money
market instruments) for which accurate market prices are readily available are
valued at their current market value on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities.
Securities not listed on an exchange or national securities market, certain
mortgage-backed and asset-backed securities and securities for which there were
no reported transactions are valued at the last quoted bid prices. Fixed income
securities for which accurate market prices are not readily available and all
other assets are valued at fair value as determined in good faith by Standish in
accordance with procedures approved by the Trustees of the Standish Portfolio
Trust, which may include the use of yield equivalents or matrix pricing.
Money market instruments with less than sixty days remaining to maturity when
acquired by the STAR Portfolio are valued on an amortized cost basis unless the
Trustees determine that
31
<PAGE>
amortized cost does not represent fair value. If the STAR Portfolio acquires a
money market instrument with more than sixty days remaining to its maturity, it
is valued at current market value until the sixtieth day prior to maturity and
will then be valued at amortized cost based upon the value on such date unless
the Trustees determine during such sixty-day period that amortized cost does not
represent fair value.
The Board of Trustees of the Standish Portfolio Trust has approved determining
the current market value of securities with one year or less remaining to
maturity on a spread basis which will be employed in conjunction with the
periodic use of market quotations. Under the spread process, Standish determines
in good faith the current market value of these portfolio securities by
comparing their quality, maturity and liquidity characteristics to those of
United States Treasury bills.
Capital Stock and Other Securities
Each Fund is a diversified investment series of the Trust, an unincorporated
business trust organized under the laws of the State of Delaware pursuant to
Master Trust Agreement dated March 30, 1998 and registered as an open-end
management investment company under the 1940 Act. 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
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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 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.
The Cash Portfolio and the Treasury Portfolio are each a series or sub-trust of
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 STAR Portfolio is a series of the Standish Portfolio Trust which, like
the Trust and the Portfolio Trust, is an open-end management investment company
registered under the 1940 Act. The Standish Portfolio Trust
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was organized as a master trust fund under the laws of the State of New York on
January 18, 1996.
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 and the Standish Portfolio Trust normally will not hold meetings
of holders of such interests except as required under the 1940 Act. The
Portfolio Trust and the Standish 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 and the Standish 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 or the Standish Portfolio Trust may be removed upon a majority vote of the
interests held by holders in the Portfolio Trust or the Standish Portfolio Trust
qualified to vote in the election. The 1940 Act requires the Portfolio Trust and
the Standish 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.
Taxation
Each Fund is treated as a separate entity for accounting and tax purposes. Each
Fund will elect (when it files its initial federal tax return) to be treated and
to qualify as a "regulated investment company" ("RIC") under Subchapter M of 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 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
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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.
Each Fund will not distribute net capital gains realized in any year to the
extent that a capital loss is carried forward from prior years against such
gain. 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 the STAR 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 STAR Series must distribute, at least annually, all or
substantially all of its net income, including its distributive share of such
income accrued by the STAR Portfolio, to shareholders to qualify as a regulated
investment company under the Code and avoid federal income and excise taxes.
Therefore, the STAR 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 STAR Series to satisfy the
distribution requirements.
Limitations imposed by the Code on regulated investment companies may restrict
the STAR Portfolio's ability to enter into futures, options or currency forward
transactions.
Certain options or futures transactions undertaken by the STAR Portfolio may
cause the STAR Series to recognize gains or losses from marking to market even
though the STAR Portfolio's positions have not been sold or terminated and
affect the character as long-term or short-term and timing of some capital gains
and losses realized by the Portfolio and allocable to the Fund. Additionally,
the STAR Portfolio (and STAR Series) may be required to recognize gain if an
option, future, forward contract, short sale, swap or other strategic
transaction that is not subject to the mark to market rules is treated as a
"constructive sale" of an "appreciated financial position" held by the Portfolio
under Section 1259 of the Code. Any net mark-to-market gains and/or gains from
constructive sales may also have to be distributed by the STAR Series to
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satisfy the distribution requirements referred to above even though no
corresponding cash amounts may concurrently be received, possibly requiring the
disposition of portfolio securities or borrowing to obtain the necessary cash.
Also, certain losses on transactions involving options, futures or forward
contracts and/or offsetting or successor positions may be deferred rather than
being taken into account currently in calculating the STAR Series' taxable
income or gain. Certain of the applicable tax rules may be modified if the STAR
Portfolio is eligible and chooses to make one or more of certain tax elections
that may be available. These transactions may affect the amount, timing and
character of the STAR Series' distributions to shareholders. The STAR Series
will take into account the special tax rules applicable to options, futures,
forward contracts and constructive sales in order to minimize any potential
adverse tax consequences.
The Federal income tax rules applicable to dollar rolls, certain structured or
hybrid securities, interest rate swaps, caps, floors and collars, and possibly
other investments or transactions are unclear in certain respects, and the STAR
Portfolio will account for these instruments in a manner that is intended to
allow the STAR Series and other similar investors to qualify as RICs. Due to
possible unfavorable consequences under present tax law, the STAR Portfolio does
not currently intend to acquire "residual" interests in real estate mortgage
investment conduit ("REMICs"), although it may acquire "regular" interests in
REMICs.
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. As a result of the enactment of
the Taxpayer Relief Act of 1997 (the "1997 TRA") on August 5, 1997, gain
recognized after May 6, 1997 from the sale of a capital asset is taxable to
individual (noncorporate) investors at different maximum federal income tax
rates, depending generally upon the tax holding period for the asset, the
federal income tax bracket of the taxpayer, and the dates the asset was acquired
and/or sold. The Treasury Department has issued guidance under the 1997 TRA that
(subject to possible modification by any "technical corrections" that may be
enacted) will enable the Funds to pass through to their shareholders the
benefits of the capital gains tax rates contained in the 1997 TRA. Shareholders
should consult their own tax advisers on the correct application of these new
rules in their particular circumstances.
It is anticipated that, due to the nature of each Portfolio's investments, no
portion of any Fund's 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.
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At the time of an investor's purchase of STAR Series shares, a portion of the
purchase price may be attributable to undistributed realized or unrealized
appreciation in the STAR Series' share of the STAR Portfolio's portfolio.
Consequently, subsequent distributions by the STAR Series on such shares from
such appreciation may be taxable to such investor even if the NAV of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions economically represent a
return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the STAR Series in a
transaction that is treated as a sale for tax purposes, a shareholder may
realize a taxable gain or loss, depending upon the difference between the
redemption proceeds and the shareholder's tax basis in his shares. Such gain or
loss will generally be treated as capital gain or loss if the shares are capital
assets in the shareholder's hands. Any loss realized on a redemption may be
disallowed to the extent the shares disposed of are replaced with other shares
of the STAR Series within a period of 61 days beginning 30 days before and
ending 30 days after the shares are disposed of, such as pursuant to automatic
dividend reinvestments. In such a case, the basis of the shares acquired will be
adjusted to reflect the disallowed loss. Any loss realized upon the redemption
of shares with a tax holding period of six months or less will be treated as a
long-term capital loss to the extent of any amounts treated as distributions of
long-term capital gain with respect to such shares. Shareholders should consult
their own tax advisers regarding their particular circumstances to determine
whether a disposition of Fund shares is properly treated as a sale for tax
purposes, as is assumed in the foregoing discussion. Also, future Treasury
Department regulations issued to implement the 1997 TRA may contain rules for
determining different tax rates applicable to sales of Fund shares held for more
than one year, more than 18 months, and (for certain sales after the year 2000
or the year 2005) more than five years. These regulations may also modify some
of the provisions described above.
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 STAR Portfolio may be subject to withholding and other taxes imposed by
foreign countries with respect to any investments in foreign securities, and the
STAR Series does not expect to pass its share of such taxes or any related
deductions or credits through to its shareholders. Foreign exchange gains and
losses may be recognized by the STAR Portfolio in connection with hybrid or
structured securities or Strategic Transactions in which its return is dependent
upon changes in the value of a foreign currency. Such gains or losses may be
subject in particular cases to Section 988 of the Code, which generally would
cause them to be treated as ordinary income and losses and could affect the
amount, timing and character of the STAR Series' distributions to its
shareholders.
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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.
Calculation of Performance Data
As indicated in the Prospectus, from time to time, the Cash Series and the
Treasury Series may quote their "yield" and "effective yield" and the STAR
Series may quote certain "total return," "yield" and "yield-to-maturity"
information in advertisements, 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 the Cash Series and the Treasury Series 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).
The STAR Series' yield is computed by dividing the net investment income per
share earned during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of the period. For the purpose of
determining net investment income, the calculation includes, among expenses of
the Fund, all recurring fees that are charged to all shareholder
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accounts and any non-recurring charges for the period stated. In particular,
yield is determined according to the following formula:
Yield = 2[(A - B + 1)(6) - 1]
-----
CD
Where:
A=interest earned during the period; B=net expenses accrued for the
period; C=the average daily number of shares outstanding during the
period that were entitled to receive dividends;
D=the maximum offering price (net asset value) per share on the last
day of the period.
Effective Yield
In addition, the Cash Series and the Treasury Series 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.
Total Return
The average annual total return of the STAR Series for a period is computed by
subtracting the NAV per share at the beginning of the period from the NAV per
share at the end of the period (after adjusting for the reinvestment of any
income dividends and capital gain distributions), and dividing the result by the
NAV per share at the beginning of the period. In particular, the STAR Series'
average annual total return ("T") is computed by using the redeemable value at
the end of a specified period of time ("ERV") of a hypothetical initial
investment of $1,000 ("P") over a period of time ("n") according to the formula
P(1+T)n=ERV.
The STAR Series may also quote non-standardized yield, such as yield-to-maturity
("YTM"). YTM represents the rate of return an investor will receive if a
long-term, interest bearing investment, such as a bond, is held to its maturity
date. YTM does not take into account purchase price, redemption value, time to
maturity, coupon yield and the time between interest payments.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the STAR Portfolio accounts
for gain or loss attributable to actual monthly pay downs as an increase or
decrease to interest income during the period. In addition, the STAR Portfolio
may elect (i) to amortize the discount or premium remaining on a security, based
on the cost of the security, to the weighted average maturity date, if such
information is available, or to the
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remaining term of the security, if the weighted average maturity date is not
available, or (ii) not to amortize the discount or premium remaining on a
security.
In addition to average annual return quotations, the STAR Series may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis. The STAR Series may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis for
various specified periods by means of quotations, charts, graphs or schedules.
Past performance quotations should not be considered as representative of any
Fund's performance for any specified period in the future. The Funds'
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the STAR Series may compare
its performance to The IBC/Donoghue Money Market Average/All Taxable Index,
which is generally considered to be representative of the performance of
domestic, taxable money market funds, and the One Year Treasury Bills. However,
the average maturity of the STAR Series' portfolio is longer than that of a
money market fund and, unlike a money market fund, the NAV of the STAR Series'
shares may fluctuate.
Comparative performance may also be expressed by reference to a ranking prepared
by a mutual fund monitoring service or by one or more newspapers, newsletters or
financial periodicals. Performance comparisons may be useful to investors who
wish to compare a Fund's past performance to that of other mutual funds and
investment products. Of course, past performance is not a guarantee of future
results.
Each Fund is newly organized and has no operating or performance history.
However, another fund in the Standish Group of Funds currently invests all of
its investable assets in the STAR Portfolio. This fund, which has substantially
the same investment objective, policies and restrictions as the STAR Portfolio
and the STAR Series. This fund is referred to in this Statement of Additional
Information as a "Corresponding Fund." In accordance with positions expressed by
the staff of the SEC, the STAR Series has adopted the performance record of the
corresponding fund for periods prior to the STAR Series' commencement of
operations. Any quotation of performance data of the STAR Series relating to
these periods will include the performance record for the Corresponding Fund
for these periods. However, because the STAR Series incurs a service fee payable
at the annual rate equal to up to 0.25% of the Fund's average daily net assets,
which service fee is not incurred by the Corresponding Fund, such quotation of
performance will be adjusted downward to reflect the imposition of such service
fee. In addition, to the extent that the net assets of the STAR Series are lower
than the net assets of the Corresponding Fund, fixed expenses incurred by the
STAR Series would be higher as a percentage of average net assets than for the
corresponding fund. See "Investment Advisory Services" and "Distributor" in this
SAI for a description of the STAR Series's expenses. The Corresponding Fund's
performance record adopted by the STAR Series has not been adjusted to reflect
any higher relative expenses, other than the service fees, expected to be
incurred by the STAR Series. The STAR Series's performance would be lower if
adjusted to reflect any higher relative additional expenses.
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The Corresponding Fund's average annual total return for the one-, five- and
ten-year (or life-of-the-Fund, if shorter) periods ended on December 31, 1997
(adjusted to reflect the imposition of a service fee, distribution fee and other
estimated expenses of the STAR Series as discussed above) were as follows:
Average Annual Total Return
1-Year 5-Year Since Inception(1)
Corresponding Fund (without 5.94% 5.34% 6.53%
adjustment for service and
distribution fees)
Corresponding Fund (with 5.67% 5.01% 6.15%
adjustment for service
fees)
Corresponding Fund (with 5.41% 4.75% 5.88%
adjustment for service and
distribution fees)
- ----------------------------
(1)Corresponding Fund commenced operations on January 3, 1989.
The Corresponding Fund's adjusted yield for the 30 days ended December 31, 1997
was 5.91% (without adjustment for service and distribution fees), 5.66% (with
adjustment for service fees), and 5.41% (with adjustment for service and
distribution fees). These performance quotations should not be considered as
representative of the Fund's performance for any specified period in the future.
Additional Information
The Prospectus and this Statement of Additional Information omit certain
information contained in the registration statement filed with the SEC, which
may be obtained from the SEC's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of the fee prescribed by the rules and
regulations promulgated by the Commission.
Legal Counsel, Independent Auditors/Accountants and Financial Statements
Goodwin, Procter & Hoar LLP serves as counsel to the Trust and the Portfolio
Trust. Ernst & Young LLP serves as the independent auditors to the Trust and the
Portfolio Trust. Hale and Dorr LLP serves as counsel to the Standish Portfolio
Trust and Coopers & Lybrand L.L.P. serves as independent accountants to the
Standish STAR Portfolio.
The Cash Portfolio and Treasury Portfolio's financial statements contained in
the 1997 Annual Report of the Merrimac Master Portfolio have been audited by
Ernst & Young LLP, independent auditors, and are incorporated by reference into
this Statement of Additional Information. The Cash Series, Treasury Series and
STAR Series' financial statements for the current fiscal year will be audited by
Ernst & Young LLP, and the STAR Portfolio's financial statements for the current
fiscal year will be audited by Coopers & Lybrand L.L.P., independent
accountants.
A Statement of Assets and Liabilities of the Trust as of June 15, 1998 and
related footnotes is set forth below.
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Appendix
Description of Ratings
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 Investors Service ("Fitch"), Duff and Phelps
("Duff"), and IBCA Limited ("IBCA"), 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.
The designation A1 by IBCA indicates that the obligation is supported by a very
strong capacity for timely repayment. The designation A2 by IBCA indicates that
the obligation is supported by a strong capacity for timely repayment.
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
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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 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.
43
<PAGE>
MERRIMAC CASH SERIES
Statement of Assets and Liabilities
June 15, 1998
Assets:
Cash ................................................... $100,000
Deferred organization expense (Note 1) ................. 12,000
--------
Total assets ......................................... 112,000
--------
Liabilities:
Payable for organization costs ......................... 12,000
--------
Total liabilities .................................... 12,000
--------
Net Assets ............................................... $100,000
========
Shares outstanding ....................................... 100,000
========
Net asset value, maximum offer and redemption price,
Premium Class .......................................... $ 1.00
========
<PAGE>
Merrimac Series
Merrimac Cash Series
Notes to Financial Statements
(1) Significant Accounting Policies:
--------------------------------
The Merrimac Series (the "Trust") was organized as a Delaware business
trust and is registered under the Investment Company Act of 1940, as
amended, as an open-end, management investment company. The Merrimac Cash
Series (the "Fund") is a separate diversified investment portfolio or
series of the Trust. The Fund has authorized three classes of shares.
When the Fund commences operations, it will invest all of its
investable assets in the Merrimac Cash Portfolio (the "Portfolio"), a
series of the Merrimac Master Portfolio, which is organized as a New York
trust, and has the same investment objective as the Fund. The Portfolio
seeks to achieve a high level of current income, consistent with the
preservation of capital and liquidity. The performance of the Fund will be
directly affected by the performance of the Portfolio.
It is the policy of the Fund to maintain a net asset value of $1.00 per
share; the Fund has adopted certain investment, valuation, dividend and
distribution policies which conform to general industry practice, to enable
it to do so. However, there is no assurance that the Fund will be able to
maintain a stable net asset value.
A. Deferred organization expense-
Costs incurred by the Fund in connection with its organization and
initial registration will be amortized on a straight-line basis over a five
year period beginning at the commencement of operations.
<PAGE>
Report of Ernst & Young, Independent Auditors
To the Board of Trustees and
Owners of Beneficial Interest of
the Merrimac Series
We have audited the accompanying statement of assets and liabilities of the
Merrimac Cash Series, a portfolio of Merrimac Series, (the "Series") as of June
15, 1998. This statement of assets and liabilities is the responsibility of the
Series' management. Our responsibility is to express an opinion on this
statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of assets and liabilities is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the statement of assets and
liabilities. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the statement of assets and liabilities referred to above
presents fairly, in all material respects, the financial position of the
Merrimac Cash Series at June 15, 1998, in conformity with generally accepted
accounting principles.
Boston, Massachusetts
June 16, 1998
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS INCLUDED IN PART A
Not applicable
FINANCIAL STATEMENTS INCLUDED IN PART B
(For Merrimac Master Portfolio)
Incorporated by reference in Part B to the Annual Report dated December 31,
1997, as filed electronically with the Securities and Exchange Commission
on March 6, 1998 (File No. 811-07941) (Accession No. 0001029869-98-00354)
(For Merrimac Cash Series)
Statement of Assets and Liabilities,
June 15, 1998
(b) EXHIBITS:
(1) Master Trust Agreement, effective as of March 30, 1998(1)
(2) By-Laws(1)
(3) Inapplicable
(4) Inapplicable
(5) (a) Investment Adviser Agreement between Merrimac Master Portfolio
and Investors Bank & Trust Company ("Investors Bank")(1)
(b) Investment Adviser Agreement between Standish Short-Term Asset Reserve
Portfolio and Standish, Ayer and Wood, Inc. ("Standish")(1)
(c) Investment Sub-Adviser Agreement between Investors Bank and The Bank
of New York.(1)
(d) Investment Sub-Adviser Agreement between Investors Bank and Aeltus
Investment Management, Inc.(1)
(6) Distribution Agreement between Registrant and Funds Distributor Inc.
("Funds Distributor")
(7) Not Applicable
(8) Custodian Agreement between Registrant and Investors Bank
(9) (a) Administration Agreement between Registrant and Investors Bank
(b) Transfer Agency and Service Agreement between Registrant and
Investors Bank
(c) Form of Third Party Feeder Fund Agreement among Registrant, Standish,
Ayer & Wood Master Portfolio, Investors Bank and Standish.(1)
(d) Agreement between Funds Distributor and Investors Bank
(10) Opinion and Consent of Counsel
(11) Consent of Independent Auditors
(12) Not Applicable
<PAGE>
(13) Purchase Agreement
(14) Not Applicable
(15) (a) Shareholder Servicing Plan with respect to Institutional Class Shares
(b) Shareholder Servicing Plan with respect to Investment Class Shares
(c) Shareholder Servicing Agreement with respect to Institutional Class
Shares
(d) Form of Shareholder Servicing Agreement with respect to Investment
Class Shares(1)
(e) Distribution Plan with respect to Investment Class Shares
(16) Not Applicable
(17) Financial Data Schedule
(18) Multiple Class Expense Allocation Plan (Rule 18f-3)
(19) (a) Powers of Attorney (Merrimac Master Portfolio)(1)
(b) Power of Attorney (Standish Ayer & Wood Master Portfolio)(1)
(c) Powers of Attorney (Merrimac Series)
(1) Incorporated herein by reference to the Registrant's Registration Statement
on Form N-1A filed April 8, 1998 (Accession No. 0001029869-98-000483).
ITEM 25. PERSONS CONTROLLED BY OR UNDER
COMMON CONTROL WITH THE TRUST.
A list of all persons directly or indirectly under common control with the
Registrant which indicates principal business of each such company referenced is
incorporated herein by reference to Item 25 of the Registration Statement on
Form N-1A (File No. 811-07941), as filed electronically with the Securities and
Exchange Commission on March 28, 1997.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES.
None.
ITEM 27. INDEMNIFICATION.
Under Article VI, Section 6.4 of the Registrant's Master Trust Agreement to the
fullest extent permitted by law, the Trust shall indemnify (from the assets of
the Sub-Trust or Sub-Trusts in question) each of its Trustees and officers
(including persons who serve at the Trust's request as directors, officers or
trustees of another organization in which the Trust has any interest as a
shareholder, creditor or otherwise [hereinafter referred to as a "Covered
Person"]) against all liabilities, including but not limited to amounts paid in
satisfaction of judgments, in compromise or as fines and penalties, and
expenses, including reasonable accountants' and counsel fees, incurred by any
Covered Person in connection with the defense or disposition of any action, suit
or other proceeding, whether civil or criminal, before any court or
administrative body, in which such Covered Person may be or may have been
involved as a party or otherwise or with which such person may be or may have
been threatened, while in office or thereafter, by reason of being or having
been such a Trustee or officer, director or trustee, except with respect to any
matter as to which it has been determined that such Covered Person had acted
with willful misfeasance, bad faith, gross negligence or reckless disregard of
the duties involved in the conduct of such Covered Person's office (such conduct
referred to hereafter as "Disabling Conduct"). A determination that the Covered
Person is entitled to indemnification may be made by (i) a final decision on the
merits by a court or
<PAGE>
other body before whom the proceeding was brought that the person to be
indemnified was not liable by reason of Disabling Conduct, (ii) dismissal of a
court action or an administrative proceeding against a Covered Person for
insufficiency of evidence of Disabling Conduct, or (iii) a reasonable
determination, based upon a review of the facts, that the Covered Person was not
liable by reason of Disabling Conduct by (a) a vote of a majority of a quorum of
Trustees who are neither "interested persons" of the Trust as defined in Section
2(a)(19) of the 1940 Act nor parties to the proceeding, or (b) an independent
legal counsel in a written opinion. Expenses, including accountants' and counsel
fees so incurred by any such Covered Person (but excluding amounts paid in
satisfaction of judgments, in compromise or as fines or penalties), may be paid
from time to time from funds attributable to the Sub-Trust in question in
advance of the final disposition of any such action, suit or proceeding,
provided that the Covered Person shall have undertaken to repay the amounts so
paid to the Sub-Trust in question if it is ultimately determined that
indemnification of such expenses is not authorized under this Article VI and (i)
the Covered Person shall have provided security for such undertaking, (ii) the
Trust shall be insured against losses arising by reason of any lawful advances,
or (iii) a majority of a quorum of the disinterested Trustees who are not a
party to the proceeding, or an independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to a full trial-type inquiry), that there is reason to believe that the Covered
Person ultimately will be found entitled to indemnification.
Insofar as indemnification for liability arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Trust pursuant to the foregoing provisions, or
otherwise, the Trust has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Trust of expenses incurred or
paid by a Trustee, officer or controlling person of the Trust in the successful
defense of any action, suit or proceeding) is asserted by such Trustee, officer
or controlling person in connection with the securities being registered, the
Trust will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the 1933 Act and will be governed by the final adjudication of such
issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Investors Bank serves as investment adviser to the Merrimac Cash Portfolio and
the Merrimac Treasury Portfolio. 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, mutual fund administration
and investment advisory 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:
<TABLE>
<CAPTION>
Business and Other
Positions Within
Name Position with Adviser Last Two Years
- ---- --------------------- --------------
<S> <C> <C>
Kevin J. Sheehan President & Chief President since June 1992;
Executive Officer Chief Executive Officer
<PAGE>
since June 1995
Michael F. Rogers Executive Vice since September 1993
President
Karen C. Keenan Senior Vice President & Treasurer since
Chief Financial Officer September 1997;
and Treasurer Senior Vice President 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 and 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;
Managing Director of The
Wydown Group 1994-1996
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
Donald G. Friedl Director President of All Seasons
Services from 1986 to
January 1997
Robert B. Fraser Director Retired, Formerly, Chairman
of Goodwin, Procter
& Hoar, L.L.P.
</TABLE>
The business and other connections of the officers and Directors of Standish,
Ayer & Wood, Inc. ("Standish"), the investment adviser to the Short-Term Asset
Reserve Portfolio, a series of the Standish, Ayer & Wood Master Portfolio, are
listed on the Form ADV of Standish as currently on file with the Commission
(File No. 801-584).
ITEM 29. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. (the Distributor ) acts as principal
underwriter for the following investment companies.
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor is registered with the Securities and Exchange Commission
as a broker-dealer and is a member of the National Association of Securities
Dealers. Funds Distributor is located at 60 State Street, Suite 1300, Boston,
Massachustts 02109. Funds Distributor is an indirect wholly-owned subsidiary of
Boston Institutional Group, Inc., a holding company all of whose outstanding
shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.
Director, President and Chief Executive Officer - Marie E. Connolly
Executive Vice President - Richard W. Ingram
Executive Vice President - George A. Rio
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President - Michael S. Petrucelli
Director, Senior Vice President, Treasurer and Chief Financial Officer -
Joseph F. Tower, III
Senior Vice President - Paula R. David
Senior Vice President - Allen B. Closser
Senior Vice President - Bernard A. Whalen
Director - William J. Nutt
(c) Not applicable.
<PAGE>
ITEM 30. 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 Series, Merrimac Treasury Series, and Merrimac Short-Term Asset Reserve
Series are collectively referred to as the "Funds" and the Merrimac Cash
Portfolio, Merrimac Treasury Portfolio and Standish Short-Term Asset Reserve
Portfolio are collectively referred to as the "Portfolios").
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Investment Adviser to the Merrimac Cash Portfolio and the Merrimac Treasury
Portfolio; Administrator and Transfer Agent for the Funds; Custodian for the
Funds and the Portfolios).
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
(Investment Adviser to the Standish Short-Term Asset Reserve Portfolio)
The Bank of New York
48 Wall Street
New York, NY 10286
(Investment Sub-Adviser to the Merrimac Cash Portfolio)
Aeltus Investment Management, Inc.
242 Trumbull Street
Hartford, CT 06103
(Investment Sub-Adviser to the Merrimac Treasury Portfolio)
IBT Trust & Custodial Services (Ireland) LMTD
Deloitte & Touche House
29 Earlsfort Terrace
Dublin 2, Ireland
(Administrator to the Portfolios)
IBT Fund Services (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 31. MANAGEMENT SERVICES.
<PAGE>
Not applicable.
ITEM 32. UNDERTAKINGS.
(a) Not applicable.
(c) Registrant hereby undertakes to furnish to each person to whom a prospectus
is delivered, a copy of the Registrant's latest annual report to
shareholders, including the information called for in Item 5A of this Part
C, upon request and without charge.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, and
the Investment Company Act of 1940, as amended, Merrimac Series (the "Trust")
has duly caused this Pre-Effective Amendment No. 1 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 on the 16th
day of June, 1998.
MERRIMAC SERIES
By /s/ George A. Rio
---------------------
George A. Rio
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Merrimac Series has been signed below by the following persons in the capacities
indicated on the 16th day of June, 1998.
/s/ George A. Rio
---------------------------
George A. Rio
President of the Trust
/s/ Paul J. Jasinski
---------------------------
Paul J. Jasinski
Treasurer and Chief Financial Officer of the Trust
/s/ Kevin J. Sheehan*
---------------------------
Kevin J. Sheehan
Trustee of the Trust
/s/ Francis J. Gaul, Jr.*
---------------------------
Francis J. Gaul, Jr.
Trustee of the Trust
/s/ Edward F. Hines, Jr.*
---------------------------
Edward F. Hines, Jr.
Trustee of the Trust
/s/ Thomas E. Sinton*
---------------------------=
Thomas E. Sinton
Trustee of the Trust
*By /s/ Susan C. Mosher
-----------------------------
Susan C. Mosher
as attorney-in-fact pursuant to powers of attorney filed herewith
<PAGE>
SIGNATURES
Merrimac Master Portfolio (the "Portfolio Trust") has duly caused this
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Merrimac Series to be signed on behalf of the Portfolio Trust by the
undersigned, thereto duly authorized on the 15th day of June, 1998.
MERRIMAC MASTER PORTFOLIO
By /s/ SEAN P. BRENNAN
-------------------
Sean P. Brennan
President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Pre-Effective Amendment No. 1 to the Registration Statement on Form N-1A of
Merrimac Series has been signed below by the following persons in the capacities
indicated on the 15th day of June, 1998.
/s/ SEAN P. BRENNAN
-------------------
Sean P. Brennan
President of the Portfolio Trust
/s/ PAUL J. JASINSKI
--------------------
Paul J. Jasinski
Treasurer and Chief Financial Officer
of the Portfolio Trust
/s/ KEVIN J. SHEEHAN*
--------------------
Kevin J. Sheehan
Trustee of the Portfolio Trust
/s/ THOMAS E. SINTON*
--------------------
Thomas E. Sinton
Trustee of the Portfolio Trust
/s/ FRANCIS J. GAUL, JR.*
------------------------
Francis J. Gaul, Jr.
Trustee of the Portfolio Trust
/s/ EDWARD F. HINES, JR.*
------------------------
Edward F. Hines, Jr.
Trustee of the Portfolio Trust
*By /s/ SUSAN C. MOSHER
-------------------
Susan C. Mosher
as attorney-in-fact
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Standish, Ayer & Wood Master Portfolio (the
"Standish Portfolio Trust") has duly caused this Pre-Effective Registration
Statement of Merrimac Series to be signed on behalf of the Standish Portfolio
Trust by the undersigned, thereunto duly authorized, in the City of Boston
and Commonwealth of Massachusetts, on the 15th day of June, 1998.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Richard S. Wood
--------------------------
Richard S. Wood, President
Pursuant to the requirements of the Securities Act of 1933, this
Pre-Effective Registration Statement of Merrimac Series has been signed by the
following persons in their capacities with the Standish Portfolio Trust and on
the date indicated.
Signature Title Date
Richard S. Wood* Trustee and President June 15, 1998
- ------------------------ (principal executive
Richard S. Wood officer)
Paul G. Martins* Treasurer (principal June 15, 1998
- ------------------------ financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee June 15, 1998
- -----------------------
D. Barr Clayson
Samuel C. Fleming* Trustee June 15, 1998
- -----------------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee June 15, 1998
- -----------------------
Benjamin M. Friedman
<PAGE>
John H. Hewitt* Trustee June 15, 1998
- -----------------------
John H. Hewitt
Edward H. Ladd* Trustee June 15, 1998
- -----------------------
Edward H. Ladd
Caleb Loring III* Trustee June 15, 1998
- -----------------------
Caleb Loring III
*By: /s/ James E. Hollis, III
------------------------
James E. Hollis, III
Attorney-In-Fact
<PAGE>
MERRIMAC SERIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Exhibit Page
- ----------- ------- ----
<S> <C> <C>
EX-99.B6 Distribution Agreement ____
EX-99.B8 Custodian Agreement ____
EX-99.B9(a) Administration Agreement ____
EX-99.B9(b) Transfer Agency and Service Agreement ____
EX-99.B9(d) Agreement between Funds Distributor and Investors Bank ____
EX-99.B10 Opinion and Consent of Counsel ____
EX-99.B11 Consent of Independent Auditors ____
EX-99.B13 Purchase Agreement ____
EX-99.B15(a) Shareholder Servicing Plan (Institutional Class) ____
EX-99.B15(b) Shareholder Servicing Plan (Investment Class) ____
EX-99.B15(c) Shareholder Servicing Agreement (Institutional Class) ____
EX-99.B15(e) Distribution Plan (Investment Class) ____
EX-99.B18 Multiple Class Expense Allocation Plan ____
EX-99.B19(c) Powers of Attorney (Merrimac Series) ____
EX-27 Financial Data Schedule ____
</TABLE>
DISTRIBUTION AGREEMENT
MERRIMAC SERIES
200 Clarendon Street
Boston, Massachusetts 02116
June 1, 1998
Funds Distributor, Inc.
60 State Street
Suite 1300
Boston, Massachusetts 02109
Dear Sirs:
This is to confirm that, in consideration of the agreements hereinafter
contained, the above-named investment company (the "Fund") has agreed that you
shall be, for the period of this Agreement, the distributor of (a) shares of
each Series of the Fund set forth on Exhibit A hereto, as such Exhibit may be
revised from time to time (each, a "Series") or (b) if no Series are set forth
on such Exhibit, shares of the Fund. For purposes of this Agreement the term
"Shares" shall mean the authorized shares of the relevant Series, if any, and
otherwise shall mean the Fund's authorized shares.
1. Services as Distributor
1.1 You will act as agent for the distribution of Shares covered by, and in
accordance with, the registration statement and prospectus then in effect under
the Securities Act of 1933, as amended (the "1933 Act"), and will transmit
promptly any orders received by you for purchase or redemption of Shares to the
Transfer and Dividend Disbursing Agent for the Fund of which the Fund has
notified you in writing.
1.2 You agree to use your best efforts to solicit orders for the sale of
Shares. It is contemplated that you may enter into sales or servicing agreements
with securities dealers, financial institutions and other industry
professionals, such as investment advisers, accountants and estate planning
firms, and in so doing you will act only on your own behalf as principal.
1.3 You shall act as distributor of Shares in compliance with all
applicable laws, rules and regulations, including, without limitations, the
Investment Company Act of 1940, as amended (the "1940 Act"), the 1933 Act, the
Securities Exchange Act of 1934, as amended and the National Association of
Securities Dealers, Inc.'s (the "NASD") Conduct Rules, Constitution and By-Laws.
You represent and warrant that you are a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and that you are registered with
the relevant
1
<PAGE>
securities regulatory agencies in all fifty states, the District of Columbia
and Puerto Rico. You also represent and warrant that you are a member of the
NASD.
1.4 You shall file Fund advertisements, sales literature and other
marketing and sales related materials with the appropriate regulatory agencies
and shall obtain such approvals for their use as may be required by the SEC, the
NASD and/or state securities administrators.
1.5 Whenever in their judgment such action is warranted by unusual market,
economic or political conditions, or by abnormal circumstances of any kind
deemed by the parties hereto to render sales of a Fund's Shares not in the best
interest of the Fund, the parties hereto may decline to accept any orders for,
or make any sales of, any Shares until such time as those parties deem it
advisable to accept such orders and to make such sales and each party shall
advise promptly the other party of any such determination.
1.6 The Fund agrees to pay all costs and expenses in connection with the
registration of Shares under the 1933 Act and all expenses in connection with
maintaining facilities for the issue and transfer of Shares and for supplying
information, prices and other data to be furnished by the Fund hereunder, and
all expenses in connection with the preparation and printing of the Fund's
prospectuses and statements of additional information for regulatory purposes
and for distribution to shareholders; provided however, that the Fund shall not
pay any of the costs of advertising or promotion for the sale of Shares, except
as authorized by a plan adopted pursuant to Rule 12b-1 under the 1940 Act. You
shall also be entitled to compensation for your services as provided in any
Distribution Plan adopted as to any Series and class of the Fund's Shares
pursuant to Rule 12b-1.
1.7 The Fund agrees to execute any and all documents and to furnish any and
all information and otherwise to take all actions which may be reasonably
necessary in the discretion of the Fund's officers in connection with the
qualification of Shares for sale in such states as you may designate to the Fund
and the Fund may approve, and the Fund agrees to pay all expenses which may be
incurred in connection with such qualification. You shall pay all expenses
connected with your own qualification as a dealer under state or Federal laws
and, except as otherwise specifically provided in this Agreement, all other
expenses incurred by you in connection with the sale of Shares as contemplated
in this Agreement.
1.8 The Fund shall furnish you from time to time, for use in connection
with the sale of Shares, such information with respect to the Fund or any
relevant Series and the Shares as you may reasonably request, all of which shall
be signed by one or more of the Fund's duly authorized officers; and the Fund
warrants that the statements contained in any such information, when so signed
by the Fund's officers, shall be true and correct. The Fund also shall furnish
you upon request with: (a) semi-annual reports and annual audited reports of the
Fund's books and accounts made by independent public accountants regularly
retained by the Fund, (b) quarterly earnings statements prepared by the Fund,
(c) a monthly itemized list of the securities in the Fund's or, if applicable,
each Series' portfolio, (d) monthly balance sheets as soon as practicable after
the end of each month, and (e) from time to time such additional information
regarding the Fund's financial condition as you may reasonably request.
2
<PAGE>
1.9 The Fund represents to you that all registration statements and
prospectuses filed by the Fund with the SEC under the 1933 Act and under the
1940 Act with respect to the Shares have been carefully prepared in conformity
with the requirements of said Acts and rules and regulations of the SEC
thereunder. As used in this Agreement the terms "registration statement" and
"prospectus" shall mean any registration statement and prospectus, including the
statement of additional information incorporated by reference therein, filed
with the SEC and any amendments and supplements thereto which at any time shall
have been filed with the SEC. The Fund represents and warrants to you that any
registration statement and prospectus, when such registration statement becomes
effective, will contain all statements required to be stated therein in
conformity with said Acts and the rules and regulations of the SEC; that all
statements of fact contained in any such registration statement and prospectus
will be true and correct when such registration statement becomes effective; and
that neither any registration statement nor any prospectus when such
registration statement becomes effective will include an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Fund may, but shall
not be obligated to, propose from time to time such amendment or amendments to
any registration statement and such supplement or supplements to any prospectus
as, in the light of future developments, may, in the opinion of the Fund's
counsel, be necessary or advisable. If the Fund shall not propose such amendment
or amendments and/or supplement or supplements within fifteen days after receipt
by the Fund of a written request from you to do so, you may, at your option,
terminate this Agreement or decline to make offers of the Fund's securities
until such amendments are made. The Fund shall not file any amendment to any
registration statement or supplement to any prospectus without giving you
reasonable notice thereof in advance; provided, however, that nothing contained
in this Agreement shall in any way limit the Fund's right to file at any time
such amendments to any registration statement and/or supplements to any
prospectus, of whatever character, as the Fund may deem advisable, such right
being in all respects absolute and unconditional.
1.10 The Fund authorizes you and any dealers with whom you have entered
into dealer agreements to use any prospectus in the form furnished by the Fund
in connection with the sale of Shares. The Fund agrees to indemnify, defend and
hold you, your several officers and directors, and any person who controls you
within the meaning of Section 15 of the 1933 Act free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
reasonable cost of investigating or defending such claims, demands or
liabilities and any reasonable counsel fees incurred in connection therewith)
which you, your officers and directors, or any such controlling persons, may
incur under the 1933 Act, the 1940 Act, or common law or otherwise, arising out
of or on the basis of any untrue statement, or alleged untrue statement, of a
material fact required to be stated in either any registration statement or any
prospectus or any statement of additional information, or arising out of or
based upon any omission, or alleged omission, to state a material fact required
to be stated in any registration statement, any prospectus or any statement of
additional information or necessary to make the statements in any of them not
misleading, except that the Fund's agreement to indemnify you, your officers or
directors, and any such controlling person will not be deemed to cover any such
claim, demand, liability or expense to the extent that it arises out of or is
based upon any such untrue statement, alleged untrue statement, omission or
alleged omission made in any registration statement, any prospectus or any
statement of additional information in reliance upon information furnished by
you, your officers, directors or any such controlling person to the Fund
3
<PAGE>
or its representatives for use in the preparation thereof, and except that the
Fund's agreement to indemnify you and the Fund's representations and warranties
set out in paragraph 1.9 of this Agreement will not be deemed to cover any
liability to the Funds or their shareholders to which you would otherwise be
subject by reason of willful misfeasance, bad faith or gross negligence in the
performance of your duties, or by reason of your reckless disregard of your
obligations and duties under this Agreement ("Disqualifying Conduct"). The
Fund's agreement to indemnify you, your officers and directors, and any such
controlling person, as aforesaid, is expressly conditioned upon the Fund's being
notified of any action brought against you, your officers or directors, or any
such controlling person, such notification to be given by letter, by facsimile
or by telegram addressed to the Fund at its address set forth above within a
reasonable period of time after the summons or other first legal process shall
have been served. The failure so to notify the Fund of any such action shall not
relieve the Fund from any liability which the Fund may have to the person
against whom such action is brought by reason of any such untrue, or alleged
untrue, statement or omission, or alleged omission, otherwise than on account of
the Fund's indemnity agreement contained in this paragraph 1.10. The Fund will
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, such defense shall be conducted by
counsel of good standing chosen by the Fund and approved by you. In the event
the Fund elects to assume the defense of any such suit and retain counsel of
good standing approved by you, the defendant or defendants in such suit shall
bear the fees and expenses of any additional counsel retained by any of them;
but in case the Fund does not elect to assume the defense of any such suit, the
Fund will reimburse you, your officers and directors, or the controlling person
or persons named as defendant or defendants in such suit, for the reasonable
fees and expenses of any counsel retained by you or them. The Fund's
indemnification agreement contained in this paragraph 1.10 and the Fund's
representations and warranties in this Agreement shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
you, your officers and directors, or any controlling person, and shall survive
the delivery of any Shares. This agreement of indemnity will inure exclusively
to your benefit, to the benefit of your several officers and directors, and
their respective estates, and to the benefit of any controlling persons and
their successors. The Fund agrees promptly to notify you of the commencement of
any litigation or proceedings against the Fund or any of its officers or Board
members in connection with the issue and sale of Shares.
1.11 You agree to indemnify, defend and hold the Fund, its several officers
and Board members, and any person who controls the Fund within the meaning of
Section 15 of the 1933 Act free and harmless from and against any and all
claims, demands, liabilities and expenses (including the reasonable cost of
investigating or defending such claims, demands or liabilities and any
reasonable counsel fees incurred in connection therewith) which the Fund, its
officers or Board members, or any such controlling person, may incur under the
1933 Act, the 1940 Act, or under common law or otherwise, but only to the extent
that such liability or expense incurred by the Fund, its officers or Board
members, or such controlling person resulting from such claims or demands, (a)
shall arise out of or be based upon any unauthorized sales literature,
advertisements, information, statements or representations or any Disqualifying
Conduct in connection with the offering and sale of any Shares, or (b) shall
arise out of or be based upon any untrue, or alleged untrue, statement of a
material fact contained in information furnished in writing by you to the Fund
specifically for use in the Fund's registration statement and used in the
answers to any of the items of the registration statement or in the
corresponding statements made in the prospectus or statement of additional
information, or shall arise out of or be based upon any omission, or
4
<PAGE>
alleged omission, to state a material fact in connection with such information
furnished in writing by you to the Fund and required to be stated in such
answers or necessary to make such information not misleading. Your agreement to
indemnify the Fund, its officers and Board members, and any such controlling
person, as aforesaid, is expressly conditioned upon your being notified of any
action brought against the Fund, its officers or Board members, or any such
controlling person, such notification to be given by letter, by facsimile or by
telegram addressed to you at your address set forth above within a reasonable
period of time after the summons or other first legal process shall have been
served. You shall have the right to control the defense of such action, with
counsel of your own choosing, satisfactory to the Fund, if such action is based
solely upon such alleged misstatement or omission on your part, and in any other
event the Fund, its officers or Board members, or such controlling person shall
each have the right to participate in the defense or preparation of the defense
of any such action. The failure so to notify you of any such action shall not
relieve you from any liability which you may have to the Fund, its officers or
Board members, or to such controlling person by reason of any such untrue, or
alleged untrue, statement or omission, or alleged omission, otherwise than on
account of your indemnity agreement contained in this paragraph 1.11. This
agreement of indemnity will inure exclusively to the Fund's benefit, to the
benefit of the Fund's officers and Board members, and their respective estates,
and to the benefit of any controlling persons and their successors. You agree
promptly to notify the Fund of the commencement of any litigation or proceedings
against you or any of your officers or directors in connection with the issue
and sale of Shares.
1.12 No Shares shall be offered by either you or the Fund under any of the
provisions of this Agreement and no orders for the purchase or sale of such
Shares hereunder shall be accepted by the Fund if and so long as the
effectiveness of the registration statement then in effect or any necessary
amendments thereto shall be suspended under any of the provisions of the 1933
Act, or if and so long as a current prospectus as required by Section 10 of said
Act, as amended, is not on file with the SEC; provided, however, that nothing
contained in this paragraph 1.12 shall in any way restrict or have an
application to or bearing upon the Fund's obligation to repurchase any Shares
from any shareholder in accordance with the provisions of the Fund's prospectus
or charter documents.
1.13 The Fund agrees to advise you immediately in writing:
(a) of any request by the SEC for amendments to the registration
statement or prospectus then in effect or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or prospectus
then in effect or the initiation of any proceeding for that purpose;
(c) of the happening of any event which makes untrue any statement of a
material fact made in the registration statement or prospectus then in
effect or which requires the making of a change in such registration
statement or prospectus in order to make the statements therein not
misleading; and
(d) of all actions of the SEC with respect to any amendments to any
registration statement or prospectus which may from time to time be filed
with the SEC.
5
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2. Offering Price
Shares of any class of the Fund offered for sale by you shall be offered at
a price per share (the "offering price") approximately equal to (a) the net
asset value (determined in the manner set forth in the Fund's charter documents)
plus (b) a sales charge, if any and except to those persons set forth in the
then-current prospectus, which shall be the percentage of the offering price of
such Shares as set forth in the Fund's then-current prospectus. The offering
price, if not an exact multiple of one cent, shall be adjusted to the nearest
cent. In addition, Shares of any class of the Fund offered for sale by you may
be subject to a contingent deferred sales charge as set forth in the Fund's
then-current prospectus. You shall be entitled to receive any sales charge or
contingent deferred sales charge in respect of the Shares. Any payments to
dealers shall be governed by a separate agreement between you and such dealer
and the Fund's then-current prospectus.
3. Term
This Agreement shall become effective with respect to the Fund as of the
date hereof and will continue for an initial two-year term and will continue
thereafter so long as such continuance is specifically approved at least
annually (i) by the Fund's Board or (ii) by a vote of a majority of the Shares
of the Fund or the relevant Series, as the case may be, provided that in either
event its continuance also is approved by a majority of the Board members who
are not "interested persons" of any party to this Agreement, by vote cast in
person at a meeting called for the purpose of voting on such approval. This
Agreement is terminable with respect to a Fund, without penalty, on not less
than sixty days' notice, by the Fund's Board of Trustees, by vote of a majority
of the outstanding voting securities of such Fund, or by you. This Agreement
will automatically and immediately terminate in the event of its "assignment."
(As used in this Agreement, the terms "majority of the outstanding voting
securities," "interested person" and "assignment" shall have the same meanings
as such terms have in the 1940 Act). You agree to notify the Fund immediately
upon the event of your expulsion or suspension by the NASD. This Agreement will
automatically and immediately terminate in the event of your expulsion or
suspension by the NASD.
4. Miscellaneous
4.1 The Fund recognizes that, except to the extent otherwise agreed to by
the parties hereto, your directors, officers and employees may from time to time
serve as directors, trustees, officers and employees of corporations and
business trusts (including other investment companies), and that you or your
affiliates may enter into distribution or other agreements with such other
corporations and trusts.
4.2 No provision of this Agreement may be changed, waived, discharged or
terminated orally, but only by an instrument in writing signed by the party
against which an enforcement of the change, waiver, discharge or termination is
sought.
4.3 This Agreement shall be governed by the internal laws of the
Commonwealth of Massachusetts without giving effect to principles of conflicts
of laws.
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<PAGE>
4.4 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule, or otherwise, the remainder of this Agreement
shall not be affected thereby. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors.
Please confirm that the foregoing is in accordance with your understanding
and indicate your acceptance hereof by signing below, whereupon it shall become
a binding agreement between us.
Very truly yours,
MERRIMAC SERIES
By: /s/ Paul J. Jasinski
----------------------------
Name: Paul J. Jasinski
Title: Treasurer and Chief
Financial Officer
Accepted:
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
--------------------------------
Name: Marie E. Connolly
Title: President and Chief Executive Officer
7
<PAGE>
EXHIBIT A
Series of Funds
MERRIMAC SERIES
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Short-Term Asset Reserve Series
8
EXHIBIT-99.B8
CUSTODIAN AGREEMENT
BETWEEN
THE MERRIMAC SERIES
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
----
1. Bank Appointed Custodian................................................ 1
2. Definitions............................................................. 1
2.1 Authorized Person................................................ 1
2.2 Board............................................................ 1
2.3 Security......................................................... 1
2.4 Portfolio Security............................................... 1
2.5 Officers' Certificate............................................ 2
2.6 Book-Entry System................................................ 2
2.7 Depository....................................................... 2
2.8 Proper Instructions.............................................. 2
3. Separate Accounts....................................................... 2
4. Certification as to Authorized Persons.................................. 2
5. Custody of Cash......................................................... 3
5.1 Purchase of Securities........................................... 3
5.2 Redemptions...................................................... 3
5.3 Distributions and Expenses of Fund............................... 3
5.4 Payment in Respect of Securities................................. 3
5.5 Repayment of Loans............................................... 4
5.6 Repayment of Cash................................................ 4
5.7 Foreign Exchange Transactions.................................... 4
5.8 Other Authorized Payments........................................ 4
5.9 Termination...................................................... 4
6. Securities.............................................................. 4
6.1 Segregation and Registration..................................... 4
6.2 Voting and Proxies............................................... 5
6.3 Corporate Action................................................. 5
6.4 Book-Entry System................................................ 6
6.5 Use of a Depository.............................................. 6
6.6 Use of Book-Entry System for Commercial Paper.................... 7
6.7 Use of Immobilization Programs................................... 8
6.8 Eurodollar CDs................................................... 8
6.9 Options and Futures Transactions................................. 8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter................................ 8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges.................................. 9
6.10 Segregated Account............................................... 9
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Page
----
6.11 Interest Bearing Call or Time Deposits........................... 10
6.12 Transfer of Securities........................................... 11
7. Redemptions............................................................. 12
8. Merger, Dissolution, etc. of Fund....................................... 12
9. Actions of Bank Without Prior Authorization............................. 12
10. Collection and Defaults................................................. 13
11. Maintenance of Records and Accounting Services.......................... 13
12. Fund Evaluation and Yield Calculation................................... 14
12.1 Fund Evaluation................................................. 14
12.2 Yield Calculation............................................... 14
13. Additional Services..................................................... 15
14. Duties of the Bank...................................................... 15
14.1 Performance of Duties and
Standard of Care................................................. 15
14.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States............................ 16
14.3 Duties of the Bank with Respect to Property
Held Outside of the United States................................ 16
14.4 Insurance........................................................ 18
14.5 Fees and Expenses of Bank........................................ 18
14.6 Advances by Bank................................................. 19
15. Limitation of Liability................................................. 19
16. Termination............................................................. 20
17. Confidentiality......................................................... 21
18. Notices................................................................. 21
19. Amendments.............................................................. 21
20. Parties................................................................. 22
21. Governing Law........................................................... 22
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Page
----
22. Counterparts............................................................ 22
23. Entire Agreement........................................................ 22
24. Limitation of Liability................................................. 22
25. Several Obligations of the Portfolios................................... 22
APPENDICES
Appendix A.................................... Fee Schedule
Appendix B.................................... Portfolios
Appendix C.................................... Additional Services
Appendix D.................................... Select Foreign Sub-Custodians
Appendix E.................................... Reports
iii
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CUSTODIAN AGREEMENT
AGREEMENT made as of this June 1, 1998, between THE MERRIMAC SERIES, a company
organized under the laws of Delaware (the "Fund"), and INVESTORS BANK & TRUST
COMPANY, a Massachusetts trust company (the "Bank").
The Fund, an open-end management investment company on behalf of the portfolios
listed on Appendix B hereto (as such Appendix B may be amended from time to
time) (each a "Portfolio" and collectively, the "Portfolios"), desires to place
and maintain all of its portfolio securities and cash in the custody of the
Bank. The Bank has at least the minimum qualifications required by Section
17(f)(1) of the Investment Company Act of 1940 (the "1940 Act") to act as
custodian of the portfolio securities and cash of the Fund, and has indicated
its willingness to so act, subject to the terms and conditions of this
Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual agreements
contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as custodian of
its portfolio securities and cash delivered to the Bank as hereinafter described
and the Bank agrees to act as such upon the terms and conditions hereinafter set
forth. For the services rendered pursuant to this Agreement the Fund agrees to
pay to the Bank the fees set forth on Appendix A hereto.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons duly
authorized to give Proper Instructions or otherwise act on behalf of the Fund by
appropriate resolution of its Board, and set forth in a certificate as required
by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors or the Board of Trustees of
the Fund, as the case may be.
2.3 Security. The term security as used herein will have the same meaning
assigned to such term in the Securities Act of 1933, as amended, including,
without limitation, any note, stock, treasury stock, bond, debenture, evidence
of indebtedness, certificate of interest or participation in any profit sharing
agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.4 Portfolio Security. Portfolio Security will mean any security owned by the
Fund.
<PAGE>
2.5 Officers' Certificate. Officers' Certificate will mean, unless otherwise
indicated, any request, direction, instruction, or certification in writing
signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal Reserve-Treasury
Department Book Entry System for United States government, instrumentality and
agency securities operated by the Federal Reserve Bank, its successor or
successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company ("DTC"), a
clearing agency registered with the Securities and Exchange Commission under
Section 17A of the Securities Exchange Act of 1934 ("Exchange Act"), its
successor or successors and its nominee or nominees. The term "Depository" shall
further mean and include any other person authorized to act as a depository
under the 1940 Act, its successor or successors and its nominee or nominees,
specifically identified in a certified copy of a resolution of the Board.
2.8 Proper Instructions. Proper Instructions shall mean (i) instructions
regarding the purchase or sale of Portfolio Securities, and payments and
deliveries in connection therewith, given by an Authorized Person, such
instructions to be given in such form and manner as the Bank and the Fund shall
agree upon from time to time, and (ii) instructions (which may be continuing
instructions) regarding other matters signed or initialed by an Authorized
Person. Oral instructions will be considered Proper Instructions if the Bank
reasonably believes them to have been given by an Authorized Person. The Fund
shall cause all oral instructions to be promptly confirmed in writing. The Bank
shall act upon and comply with any subsequent Proper Instruction which modifies
a prior instruction and the sole obligation of the Bank with respect to any
follow-up or confirmatory instruction shall be to make reasonable efforts to
detect any discrepancy between the original instruction and such confirmation
and to report such discrepancy to the Fund. The Fund shall be responsible, at
the Fund's expense, for taking any action, including any reprocessing, necessary
to correct any such discrepancy or error, and to the extent such action requires
the Bank to act, the Fund shall give the Bank specific Proper Instructions as to
the action required. Upon receipt by the Bank of an Officers' Certificate as to
the authorization by the Board accompanied by a detailed description of
procedures approved by the Fund, Proper Instructions may include communication
effected directly between electro-mechanical or electronic devices provided that
the Board and the Bank agree in writing that such procedures afford adequate
safeguards for the Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio, the
Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4. Certification as to Authorized Persons. The Secretary or Assistant Secretary
of the Fund will at all times maintain on file with the Bank his or her
certification to the Bank, in such form as may be acceptable to the Bank, of (i)
the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information
2
<PAGE>
set forth in the most recent certification on file (including without limitation
any person named in the most recent certification who is no longer an Authorized
Person as designated therein), the Secretary or Assistant Secretary of the Fund
will sign a new or amended certification setting forth the change and the new,
additional or omitted names or signatures. The Bank will be entitled to rely and
act upon any Officers' Certificate given to it by the Fund which has been signed
by Authorized Persons named in the most recent certification received by the
Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and maintain a
separate account or accounts in the name of the Fund or in the name of the Bank,
as Custodian of the Fund, and will deposit to the account of the Fund all of the
cash of the Fund, except for cash held by a subcustodian appointed pursuant to
Sections 14.2 or 14.3 hereof, including borrowed funds, delivered to the Bank,
subject only to draft or order by the Bank acting pursuant to the terms of this
Agreement. Pursuant to the Bank's internal policies regarding the management of
cash accounts, the Bank may segregate certain portions of the cash of the Fund
into a separate savings deposit account upon which the Bank reserves the right
to require seven (7) days notice prior to withdrawal of cash from such an
account. Upon receipt by the Bank of Proper Instructions (which may be
continuing instructions) or in the case of payments for redemptions and
repurchases of outstanding shares of common stock of the Fund, notification from
the Fund's transfer agent as provided in Section 7, requesting such payment,
designating the payee or the account or accounts to which the Bank will release
funds for deposit, and stating that it is for a purpose permitted under the
terms of this Section 5, specifying the applicable subsection, the Bank will
make payments of cash held for the accounts of the Fund, insofar as funds are
available for that purpose, only as permitted in subsections 5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the Fund,
against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase or
redemption of common shares of the Fund offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account of the
Fund of dividends or other distributions to shareholders as may from time to
time be declared by the Board, interest, taxes, management or supervisory fees,
distribution fees, fees of the Bank for its services hereunder and reimbursement
of the expenses and liabilities of the Bank as provided hereunder, fees of any
transfer agent, fees for legal, accounting, and auditing services, or other
operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with the
conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
3
<PAGE>
5.5 Repayment of Loans. To repay loans of money made to the Fund, but, in the
case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the purpose
of collateralizing the obligation to return to the Fund certificates borrowed
from the Fund representing Portfolio Securities, but only upon redelivery to the
Bank of such borrowed certificates.
5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange
contracts or options to purchase and sell foreign
currencies for spot and future delivery (collectively,
"Foreign Exchange Agreements") which may be entered into
by the Bank on behalf of the Fund upon the receipt of
Proper Instructions, such Proper Instructions to specify
the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder,
acting as principal) with which the contract or option is
made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions
with which the Fund deals or for their failure to comply
with the terms of any contract or option.
(b) In order to secure any payments in connection with
Foreign Exchange Agreements which may be entered into by
the Bank pursuant to Proper Instructions, the Fund agrees
that the Bank shall have a continuing lien and security
interest, to the extent of any payment due under any
Foreign Exchange Agreement, in and to any property at any
time held by the Bank for the Fund's benefit or in which
the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of
any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any
time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing
to the credit of the Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the Fund, or
other obligations of the Fund incurred for proper Fund purposes; provided that
before making any such payment the Bank will also receive a certified copy of a
resolution of the Board signed by an Authorized Person (other than the Person
certifying such resolution) and certified by its Secretary or Assistant
Secretary, naming the person or persons to whom such payment is to be made, and
either describing the transaction for which payment is to be made and declaring
it to be an authorized transaction of the Fund, or specifying the amount of the
obligation for which payment is to be made, setting forth the purpose for which
such obligation was incurred and declaring such purpose to be a proper corporate
purpose.
5.9 Termination: Upon the termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein, and
except for securities to be delivered to any subcustodian appointed pursuant to
Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all
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Portfolio Securities (unless otherwise directed by Proper Instructions or an
Officers' Certificate), in the name of a registered nominee of the Bank as
defined in the Internal Revenue Code and any Regulations of the Treasury
Department issued thereunder, and will execute and deliver all such certificates
in connection therewith as may be required by such laws or regulations or under
the laws of any state.
The Fund will from time to time furnish to the Bank appropriate instruments to
enable it to hold or deliver in proper form for transfer, or to register in the
name of its registered nominee, any Portfolio Securities which may from time to
time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank will vote
any of the Portfolio Securities held hereunder, except in accordance with Proper
Instructions or an Officers' Certificate. The Bank will execute and deliver, or
cause to be executed and delivered, to the Fund all notices, proxies and proxy
soliciting materials delivered to the Bank with respect to such Securities, such
proxies to be executed by the registered holder of such Securities (if
registered otherwise than in the name of the Fund), but without indicating the
manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an issuer of any
Portfolio Security has taken or intends to take a corporate action (a "Corporate
Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action within twenty-four (24) hours of receipt of such materials by
the Bank.
(a) The Bank shall act upon a required Response only after
receipt by the Bank of Proper Instructions from the Fund
no later than 5:00 p.m. on the date specified as the
Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all
necessary Securities, consents and other materials no
later than 5:00 p.m. on the date specified as the Response
Deadline.
(b) The Bank shall have no duty to act upon a required
Response if Proper Instructions relating to such Response
and all necessary Securities, consents and other materials
are not received by and in the possession of the Bank no
later than 5:00 p.m. on the date specified as the Response
Deadline. Notwithstanding, the Bank may, in its sole
discretion, use its best efforts to act upon a Response
for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after
5:00 p.m. on the date specified as the Response Deadline,
it being acknowledged and agreed by the parties that any
undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the
Bank to complete such Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a
Corporate Action requiring a Response and the Bank has
received no other notice of such Corporate Action, the
Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such
Corporate Action.
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(d) Section 14.3(g) of this Agreement shall govern any
Corporate Action involving Foreign Portfolio Securities
held by a Selected Foreign Sub-Custodian.
6.4 Book-Entry System. Provided (i) the Bank has received a certified copy of a
resolution of the Board specifically approving deposits of Fund assets in the
Book-Entry System, and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the
Book-Entry System provided that such Portfolio Securities
are represented in an account ("Account") of the Bank (or
its agent) in such System which shall not include any
assets of the Bank (or such agent) other than assets held
as a fiduciary, custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with
respect to the Fund's participation in the Book-Entry
System through the Bank (or any such agent) will identify
by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall
at all times during the regular business hours of the Bank
(or such agent) be open for inspection by duly authorized
officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank
shall also, by book entry or otherwise, identify as
belonging to the Fund a quantity of securities in a
fungible bulk of securities (i) registered in the name of
the Bank or its nominee, or (ii) shown on the Bank's
account on the books of the Federal Reserve Bank;
(c) The Bank (or its agent) shall pay for securities
purchased for the account of the Fund or shall pay cash
collateral against the return of Portfolio Securities
loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been
transferred to the Account, and (ii) the making of an
entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or
loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System
that payment for securities sold or payment of the
initial cash collateral against the delivery of
securities loaned by the Fund has been transferred
to the Account; and
(ii) the making of an entry on the records of the
Bank (or its agent) to reflect such transfer and
payment for the account of the Fund. Copies of all
advices from the Book-Entry System of transfers of
securities for the account of the Fund shall
identify the Fund, be maintained for the Fund by
the Bank and shall be provided to the Fund at its
request. The Bank shall send the Fund a
confirmation, as defined by Rule 17f-4 of the 1940
Act, of any transfers to or from the account of
the Fund;
(d) The Bank will promptly provide the Fund with any
report obtained by the Bank or its agent on the Book-Entry
System's accounting system, internal accounting control
and procedures for safeguarding securities deposited in
the Book-Entry System;
6.5 Use of a Depository. Provided (i) the Bank has received a certified copy of
a resolution of the Board specifically approving deposits in DTC or other such
Depository and (ii) for any subsequent changes to such arrangements following
such approval, the Board has reviewed and approved the
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arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive,
exchange, release, lend, deliver and otherwise deal with
Portfolio Securities including stock dividends, rights and
other items of like nature, and to receive and remit to
the Bank on behalf of the Fund all income and other
payments thereon and to take all steps necessary and
proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in
the name of any nominee or nominees used by such
Depository;
(c) Payment for securities purchased and sold may be made
through the clearing medium employed by such Depository
for transactions of participants acting through it. Upon
any purchase of Portfolio Securities, payment will be made
only upon delivery of the securities to or for the account
of the Fund and the Fund shall pay cash collateral against
the return of Portfolio Securities loaned by the Fund only
upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities,
delivery of the Securities will be made only against
payment therefor or, in the event Portfolio Securities are
loaned, delivery of Securities will be made only against
receipt of the initial cash collateral to or for the
account of the Fund; and
(d) The Bank shall use its best efforts to provide that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such
Security is lost, destroyed, wrongfully taken or otherwise
not available to be returned to the Bank upon its request;
(ii) Proxy materials received by a Depository with
respect to Portfolio Securities deposited with
such Depository are forwarded immediately to the
Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the
Bank confirmation of any purchase or sale of
Portfolio Securities and of the appropriate book
entry made by such Depository to the Fund's
account;
(iv) Such Depository prepares and delivers to the
Bank such records with respect to the performance
of the Bank's obligations and duties hereunder as
may be necessary for the Fund to comply with the
recordkeeping requirements of Section 31(a) of the
1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank all
internal accounting control reports, whether or
not audited by an independent public accountant,
as well as such other reports as the Fund may
reasonably request in order to verify the
Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
participation in a system maintained by the Bank for the holding of commercial
paper in book-entry form ("Book-Entry Paper") and (ii) for each year following
such approval the Board has received and approved the arrangements, upon receipt
of Proper Instructions and upon receipt of confirmation from an Issuer (as
defined below) that the Fund has purchased such Issuer's Book-Entry Paper, the
Bank shall issue and hold in book-entry form, on behalf of
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the Fund, commercial paper issued by issuers with whom the Bank has entered into
a book-entry agreement (the "Issuers"). In maintaining procedures for Book-Entry
Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by
the Fund in an account of the Bank that includes only
assets held by it for customers;
(b) The records of the Bank with respect to the Fund's
purchase of Book-Entry Paper through the Bank will
identify, by book-entry, commercial paper belonging to the
Fund which is included in the Book-Entry System and shall
at all times during the regular business hours of the Bank
be open for inspection by duly authorized officers,
employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for
the account of the Fund upon contemporaneous (i) receipt
of advice from the Issuer that such sale of Book-Entry
Paper has been effected, and (ii) the making of an entry
on the records of the Bank to reflect such payment and
transfer for the account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation
upon the maturity thereof upon contemporaneous (i) receipt
of advice that payment for such Book-Entry Paper has been
transferred to the Fund, and (ii) the making of an entry
on the records of the Bank to reflect such payment for the
account of the Fund; and
(e) The Bank will send to the Fund such reports on its
system of internal accounting control with respect to the
Book-Entry Paper as the Fund may reasonably request from
time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving the
maintenance of Portfolio Securities in an immobilization program operated by a
bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and (ii)
for each year following such approval the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities which are Eurodollar CDs may be
physically held by the European branch of the U.S. banking institution that is
the issuer of such Eurodollar CD (a "European Branch"), provided that such
Portfolio Securities are identified on the books of the Bank as belonging to the
Fund and that the books of the Bank identify the European Branch holding such
Portfolio Securities. Notwithstanding any other provision of this Agreement to
the contrary, except as stated in the first sentence of this subsection 6.8, the
Bank shall be under no other duty with respect to such Eurodollar CDs belonging
to the Fund.
6.9 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ
or Over-the-Counter.
(i) The Bank shall take action as to put options
("puts") and call options ("calls") purchased or
sold (written) by the Fund regarding escrow or
other arrangements (i) in accordance with the
provisions of any agreement entered into upon
receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National
Association of Securities Dealers, Inc. (the
"NASD"), and, if necessary, the Fund, relating to
the compliance with the rules of the Options
Clearing
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Corporation and of any registered national
securities exchange, or of any similar organization
or organizations.
(ii) Unless another agreement requires it to do
so, the Bank shall be under no duty or obligation
to see that the Fund has deposited or is
maintaining adequate margin, if required, with any
broker in connection with any option, nor shall
the Bank be under duty or obligation to present
such option to the broker for exercise unless it
receives Proper Instructions from the Fund. The
Bank shall have no responsibility for the legality
of any put or call purchased or sold on behalf of
the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered
to a broker in connection with an option or
deposited to or withdrawn from a Segregated
Account (as defined in subsection 6.10 below). The
Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i)
periodically check or notify the Fund that the
amount of such collateral held by a broker or held
in a Segregated Account is sufficient to protect
such broker or the Fund against any loss; (ii)
effect the return of any collateral delivered to a
broker; or (iii) advise the Fund that any option
it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of
the Fund.
(b) Puts, Calls and Futures Traded on Commodities
Exchanges
(i) The Bank shall take action as to puts, calls
and futures contracts ("Futures") purchased or
sold by the Fund in accordance with the provisions
of any agreement entered into upon the receipt of
Proper Instructions among the Fund, the Bank and a
Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any Contract Market, or any
similar organization or organizations, regarding
account deposits in connection with transactions
by the Fund.
(ii) The responsibilities of the Bank as to
futures, puts and calls traded on commodities
exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set
forth in subparagraph (a)(2) of this Section 6.8
as if such subparagraph referred to Futures
Commission Merchants rather than brokers, and
Futures and puts and calls thereon instead of
options.
6.10 Segregated Account. The Bank shall upon receipt of Proper Instructions
establish and maintain a Segregated Account or Accounts for and on behalf of the
Fund.
(a) Cash and/or Portfolio Securities may be transferred
into a Segregated Account upon receipt of Proper
Instructions in the following circumstances:
(i) in accordance with the provisions of any
agreement among the Fund, the Bank and a
broker-dealer registered under the Exchange Act
and a member of the NASD or any Futures Commission
Merchant registered under the Commodity Exchange
Act, relating to compliance with the rules of the
Options Clearing Corporation and of any registered
national securities exchange or the Commodity
Futures Trading Commission or any registered
Contract Market, or of any similar organizations
regarding escrow or other arrangements in
connection with transactions by the Fund;
(ii) for the purpose of segregating cash or
securities in connection with options purchased or
written by the Fund or commodity futures purchased
or written by the Fund;
(iii) for the deposit of liquid assets, such as
cash, U.S. Government securities or other high
grade debt obligations, having a market value
(marked to market on a daily basis) at all times
equal to not less than the aggregate purchase
price due on the settlement dates of all the
Fund's
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then outstanding forward commitment or
"when-issued" agreements relating to the purchase
of Portfolio Securities and all the Fund's then
outstanding commitments under reverse repurchase
agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Fund
with the procedures required by Investment Company
Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange
Commission relating to the maintenance of
Segregated Accounts by registered investment
companies;
(v) for other proper corporate purposes, but only,
in the case of this clause (e), upon receipt of,
in addition to Proper Instructions, a certified
copy of a resolution of the Board, or of the
executive committee of the Board signed by an
officer of the Fund and certified by the Secretary
or an Assistant Secretary, setting forth the
purpose or purposes of such Segregated Account and
declaring such purposes to be proper corporate
purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from
a Segregated Account pursuant to Proper Instructions in
the following circumstances:
(i) with respect to assets deposited in accordance
with the provisions of any agreements referenced
in (a)(i) or (a)(ii) above, in accordance with the
provisions of such agreements;
(ii) with respect to assets deposited pursuant to
(a)(iii) or (a)(iv) above, for sale or delivery to
meet the Fund's obligations under outstanding
forward commitment or when-issued agreements for
the purchase of Portfolio Securities and under
reverse repurchase agreements;
(iii) for exchange for other liquid assets of
equal or greater value deposited in the Segregated
Account;
(iv) to the extent that the Fund's outstanding
forward commitment or when-issued agreements for
the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or
the Fund's obligations thereunder are met from
assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward
commitment or when-issued agreement for the sale
of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to
(e) above, in accordance with the purposes of such
account as set forth in Proper Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon receipt of
Proper Instructions relating to the purchase by the Fund of interest-bearing
fixed-term and call deposits, transfer cash, by wire or otherwise, in such
amounts and to such bank or banks as shall be indicated in such Proper
Instructions. The Bank shall include in its records with respect to the assets
of the Fund appropriate notation as to the amount of each such deposit, the
banking institution with which such deposit is made (the "Deposit Bank"), and
shall retain such forms of advice or receipt evidencing the deposit, if any, as
may be forwarded to the Bank by the Deposit Bank. Such deposits shall be deemed
Portfolio Securities of the Fund and the responsibility of the Bank therefore
shall be the same as and no greater than the Bank's responsibility in respect of
other Portfolio Securities of the Fund.
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6.12 Transfer of Securities. The Bank will transfer, exchange, deliver or
release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.11, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of
the Fund, against contemporaneous receipt by the Bank of
payment therefor in full, or against payment to the Bank
in accordance with generally accepted settlement practices
and customs in the jurisdiction or market in which the
transaction occurs, each such payment to be in the amount
of the sale price shown in a broker's confirmation of sale
received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank
before such payment is made;
(b) In exchange for or upon conversion into other
securities alone or other securities and cash pursuant to
any plan of merger, consolidation, reorganization, share
split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription,
purchase or sale or other similar rights represented by
such Portfolio Securities, or for the purpose of tendering
shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender
offer, or other exercise of rights requiring the physical
tender or delivery of Portfolio Securities, the Bank shall
have no liability for failure to so tender in a timely
manner unless such Proper Instructions are received by the
Bank at least two business days prior to the date required
for tender, and unless the Bank (or its agent or
subcustodian hereunder) has actual possession of such
Security at least two business days prior to the date of
tender;
(c) Upon conversion of Portfolio Securities pursuant to
their terms into other securities;
(d) For the purpose of redeeming in-kind shares of the
Fund upon authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or
retired or otherwise become payable;
(g) For the purpose of effectuating the pledge of
Portfolio Securities held by the Bank in order to
collateralize loans made to the Fund by any bank,
including the Bank; provided, however, that such Portfolio
Securities will be released only upon payment to the Bank
for the account of the Fund of the moneys borrowed,
provided further, however, that in cases where additional
collateral is required to secure a borrowing already made,
and such fact is made to appear in the Proper
Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that
any pledged Portfolio Securities are held by the Bank,
they will be so held for the account of the lender, and
after notice to the Fund from the lender in accordance
with the normal procedures of the lender and any loan
agreement between the fund and the lender that an event of
deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for
the account of the lender;
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(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by
the Bank of the fair market value of such security, as set
forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the
Fund to a bank or broker dealer, but only against receipt
in accordance with street delivery custom except as
otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank,
and upon receipt of payment in connection with any
repurchase agreement relating to such securities entered
into by the Fund;
(j) for other authorized transactions of the Fund or for
other proper corporate purposes; provided that before
making such transfer, the Bank will also receive a
certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer
certifying such resolution) and certified by its Secretary
or Assistant Secretary, specifying the Portfolio
Securities to be delivered, setting forth the transaction
in or purpose for which such delivery is to be made,
declaring such transaction to be an authorized transaction
of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery
of such securities shall be made; and
(k) upon termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 16 of this
Agreement.
As to any deliveries made by the Bank pursuant to this
Section 6.12, securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the Bank in
connection with redemptions and repurchases by the Fund of outstanding common
shares, the Bank will rely on notification by the Fund's transfer agent of
receipt of a request for redemption and certificates, if issued, in proper form
for redemption before such payment is made. Payment shall be made in accordance
with the Articles of Incorporation or Declaration of Trust and By-laws of the
Fund (the "Articles"), from assets available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following transactions,
not in the ordinary course of business, namely, the merger of the Fund into or
the consolidation of the Fund with another investment company, the sale by the
Fund of all, or substantially all, of its assets to another investment company,
or the liquidation or dissolution of the Fund and distribution of its assets,
the Bank will deliver the Portfolio Securities held by it under this Agreement
and disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate and the Bank shall be released from any and
all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything herein
to the contrary, unless and until the Bank receives an Officers' Certificate to
the contrary, the Bank will take the following actions without prior
authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of the Fund
all checks, drafts, or other negotiable or transferable instruments or other
orders for the payment of money received by it for the account of the Fund and
hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
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9.2 Present for payment all coupons and other income items held by it for the
account of the Fund which call for payment upon presentation and hold the cash
received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities received as a
distribution on Portfolio Securities as a result of a stock dividend, share
split-up, reorganization, recapitalization, merger, consolidation, readjustment,
distribution of rights and similar securities issued with respect to any
Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and other
certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
9.5 Present for payment all Portfolio Securities which are called, redeemed,
retired or otherwise become payable, and hold cash received by it upon payment
for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive securities.
10. Collections and Defaults. The Bank will use reasonable efforts to collect
any funds which may to its knowledge become collectible arising from Portfolio
Securities, including dividends, interest and other income, and to transmit to
the Fund notice actually received by it of any call for redemption, offer of
exchange, right of subscription, reorganization or other proceedings affecting
such Securities. If Portfolio Securities upon which such income is payable are
in default or payment is refused after due demand or presentation, the Bank will
notify the Fund in writing of any default or refusal to pay within two business
days from the day on which it receives knowledge of such default or refusal.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act. The Bank will furnish to the
Fund such reports at such times as are set forth on Appendix E hereto. The books
and records of the Bank pertaining to its actions under this Agreement and
reports by the Bank or its independent accountants concerning its accounting
system, procedures for safeguarding securities and internal accounting controls
will be open to inspection and audit at reasonable times by officers of or
auditors employed by the Fund and will be preserved by the Bank in the manner
and in accordance with the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of account and
render statements or copies from time to time as reasonably requested by the
Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to shareholders
and others, audits of accounts, and other ministerial matters of like nature.
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12. Fund Evaluation and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise directed by
the Board, determine as of the close of regular trading on the New York Stock
Exchange on each day on which said Exchange is open for unrestricted trading and
as of such other days, or hours, if any, as may be authorized by the Board, the
net asset value and the public offering price of a share of capital stock of the
Fund, such determination to be made in accordance with the provisions of the
Articles and By-laws of the Fund and the Prospectus and Statement of Additional
Information relating to the Fund, as they may from time to time be amended, and
any applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such computation and
determination. In computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
12.2. Yield Calculation. The Bank will compute the performance results of the
Fund (the "Yield Calculation") in accordance with the provisions of Release No.
33-6753 and Release No. IC-16245 (February 2, 1988) (the "Releases") promulgated
by the Securities and Exchange Commission, and any subsequent amendments to,
published interpretations of or general conventions accepted by the staff of the
Securities and Exchange Commission with respect to such releases or the subject
matter thereof ("Subsequent Staff Positions"), subject to the terms set forth
below:
(a) The Bank shall compute the Yield Calculation for the
Fund for the stated periods of time as shall be mutually
agreed upon, and communicate in a timely manner the result
of such computation to the Fund.
(b) In performing the Yield Calculation, the Bank will
derive the items of data necessary for the computation
from the records it generates and maintains for the Fund
pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any
duty or liability with respect to the accuracy or
correctness of any such data supplied to it by the Fund,
any of the Fund's designated agents or any of the Fund's
designated third party providers.
(c) At the request of the Bank, the Fund shall provide,
and the Bank shall be entitled to rely on, written
standards and guidelines to be followed by the Bank in
interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as
they specifically apply to the Fund. In the event that the
computation methods in the Releases or the Subsequent
Staff Positions or the application to the Fund of a
standard or guideline is not free from doubt or in the
event there is any question of interpretation as to the
characterization of a particular security or any aspect of
a security or a payment with respect thereto (e.g.,
original issue discount, participating debt security,
income or return of capital, etc.) or otherwise or as to
any other element of the computation which is pertinent to
the Fund, the Fund or its designated agent shall have the
full responsibility for making the determination of how
the security or payment is to be treated for purposes of
the computation and how the computation is to be made and
shall inform the Bank thereof on a timely basis. The Bank
shall have no responsibility to make independent
determinations with respect to any item which is covered
by this
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<PAGE>
Section, and shall not be responsible for its computations
made in accordance with such determinations so long as such
computations are mathematically correct.
(d) The Fund shall keep the Bank informed of all publicly
available information and of any non-public advice, or
information obtained by the Fund from its independent
auditors or by its personnel or the personnel of its
investment adviser, or Subsequent Staff Positions related
to the computations to be undertaken by the Bank pursuant
to this Agreement and the Bank shall not be deemed to have
knowledge of such information (except as contained in the
Releases) unless it has been furnished to the Bank in
writing.
13. Additional Services. The Bank shall perform the additional services for the
Fund as are set forth on Appendix C hereto. Appendix C may be amended from time
to time upon agreement of the parties to include further additional services to
be provided by the Bank to the Fund, at which time the fees set forth in
Appendix A shall be appropriately increased.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its duties
hereunder and any other duties listed on any Schedule hereto, if any, the Bank
will be entitled to receive and act upon the advice of independent counsel of
its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice.
The Bank will be under no duty or obligation to inquire into and will not be
liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the
purchases thereof or the propriety of the price incurred
therefor;
(b) the legality of any sale of any Portfolio Securities
by or for the Fund or the propriety of the amount for
which the same are sold;
(c) the legality of an issue or sale of any common shares
of the Fund or the sufficiency of the amount to be
received therefor;
(d) the legality of the repurchase of any common shares of
the Fund or the propriety of the amount to be paid
therefor;
(e) the legality of the declaration of any dividend by the
Fund or the legality of the distribution of any Portfolio
Securities as payment in kind of such dividend; and
(f) any property or moneys of the Fund unless and until
received by it, and any such property or moneys delivered
or paid by it pursuant to the terms hereof.
Moreover, the Bank will not be under any duty or
obligation to ascertain whether any Portfolio Securities
at any time delivered to or held by it for the account of
the Fund are such as may properly be held by the Fund
under the provisions of its Articles, By-laws, any federal
or state statutes or any rule or regulation of any
governmental agency.
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<PAGE>
14.2 Agents and Subcustodians with Respect to Property of the Fund Held in the
United States. The Bank may employ agents in the performance of its duties
hereunder and shall be responsible for the acts and omissions of such agents as
if performed by the Bank hereunder. Without limiting the foregoing, certain
duties of the Bank hereunder may be performed by one or more affiliates of the
Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians, provided
that any such subcustodian meets at least the minimum qualifications required by
Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with
respect to property of the Fund held in the United States. The Bank shall have
no liability to the Fund or any other person by reason of any act or omission of
any subcustodian and the Fund shall indemnify the Bank and hold it harmless from
and against any and all actions, suits and claims, arising directly or
indirectly out of the performance of any subcustodian. Upon request of the Bank,
the Fund shall assume the entire defense of any action, suit, or claim subject
to the foregoing indemnity. The Fund shall pay all fees and expenses of any
subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held Outside of the
United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as
sub-custodians for the Fund's Portfolio Securities and
other assets maintained outside the United States the
foreign banking institutions and foreign securities
depositories designated on the Schedule attached hereto
(each, a "Selected Foreign Sub-Custodian"). Upon receipt
of Proper Instructions, together with a certified
resolution of the Fund's Board of Trustees, the Bank and
the Fund may agree to designate additional foreign banking
institutions and foreign securities depositories to act as
Selected Foreign Sub-Custodians hereunder. Upon receipt of
Proper Instructions, the Fund may instruct the Bank to
cease the employment of any one or more such Selected
Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such
sub-custodian as soon as alternate custodial arrangements
have been implemented.
(b) Foreign Securities Depositories. Except as may
otherwise be agreed upon in writing by the Bank and the
Fund, assets of the Fund shall be maintained in foreign
securities depositories only through arrangements
implemented by the foreign banking institutions serving as
Selected Foreign Sub-Custodians pursuant to the terms
hereof. Where possible, such arrangements shall include
entry into agreements containing the provisions set forth
in subparagraph (d) hereof. Notwithstanding the foregoing,
except as may otherwise be agreed upon in writing by the
Bank and the Fund, the Fund authorizes the deposit in
Euro-clear, the securities clearance and depository
facilities operated by Morgan Guaranty Trust Company of
New York in Brussels, Belgium, of Foreign Portfolio
Securities eligible for deposit therein and the use of
Euro-clear in connection with settlements of purchases and
sales of securities and deliveries and returns of
securities, until notified to the contrary pursuant to
subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on
its books as belonging to the Fund the Foreign Portfolio
Securities held by each Selected Foreign Sub-Custodian.
Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such
institution establish a custody account for the Bank and
hold in that account Foreign Portfolio Securities and
other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a
foreign securities depository, that it shall identify on
its books as belonging to the Bank the securities so
deposited.
(d) Agreements with Foreign Banking Institutions. Each of
the agreements pursuant to which a foreign banking
institution holds assets of the Fund (each, a "Foreign
Sub-Custodian
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<PAGE>
Agreement") shall be substantially in the form attached as
Appendix D hereto and shall provide that: (a) the Fund's
assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the
foreign banking institution or its creditors or agent,
except a claim of payment for their safe custody or
administration (including, without limitation, any fees or
taxes payable upon transfers or reregistration of
securities); (b) beneficial ownership of the Fund's assets
will be freely transferable without the payment of money
or value other than for custody or administration
(including, without limitation, any fees or taxes payable
upon transfers or reregistration of securities); (c)
adequate records will be maintained identifying the assets
as belonging to the Bank; (d) officers of or auditors
employed by, or other representatives of the Bank,
including to the extent permitted under applicable law,
the independent public accountants for the Fund, will be
given access to the books and records of the foreign
banking institution relating to its actions under its
agreement with the Bank; and (e) assets of the Fund held
by the Selected Foreign Sub-Custodian will be subject only
to the instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Fund. Upon
request of the Fund, the Bank will use its best efforts to
arrange for the independent accountants of the Fund to be
afforded access to the books and records of any foreign
banking institution employed as a Selected Foreign
Sub-Custodian insofar as such books and records relate to
the performance of such foreign banking institution under
its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from
time to time, as mutually agreed upon, statements in
respect of the securities and other assets of the Fund
held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession
of the Foreign Portfolio Securities and other assets of
the Fund.
(g) Transactions in Foreign Custody Account. Transactions
with respect to the assets of the Fund held by a Selected
Foreign Sub-Custodian shall be effected pursuant to Proper
Instructions from the Fund to the Bank and shall be
effected in accordance with the applicable Foreign
Sub-Custodian Agreement. If at any time any Foreign
Portfolio Securities shall be registered in the name of
the nominee of the Selected Foreign Sub-Custodian, the
Fund agrees to hold any such nominee harmless from any
liability by reason of the registration of such securities
in the name of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio
Securities received for the account of the Fund and
delivery of Foreign Portfolio Securities maintained for
the account of the Fund may be effected in accordance with
the customary established securities trading or securities
processing practices and procedures in the jurisdiction or
market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof
or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of
receiving later payment for such securities from such
purchaser or dealer.
In connection with any action to be taken with respect to
the Foreign Portfolio Securities held hereunder,
including, without limitation, the exercise of any voting
rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other
action in connection with any other right, interest or
privilege with respect to such Securities (collectively,
the "Rights"), the Bank shall promptly transmit to the
Fund such information in connection therewith as is made
available to the Bank by the Foreign Sub-Custodian, and
shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications
with respect to such Rights, and any instructions relating
to the actions to be taken in connection therewith, as the
Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank
shall have no further duty or obligation with respect to
such Rights, including, without limitation, the
determination of
17
<PAGE>
whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the
determination of whether any action proposed to be taken
with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all
applicable terms and conditions of any such Rights or any
applicable laws or regulations, or market practices within
the market in which such action is to be taken or omitted.
(h) Liability of Selected Foreign Sub-Custodians. Each
Foreign Sub-Custodian Agreement with a foreign banking
institution shall require the institution to exercise
reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from
and against certain losses, damages, costs, expenses,
liabilities or claims arising out of or in connection with
the institution's performance of such obligations, all as
set forth in the applicable Foreign Sub-Custodian
Agreement. The Fund acknowledges that the Bank, as a
participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-Clear System, a copy of
which has been made available to the Fund. The Fund
acknowledges that pursuant to such Terms and Conditions,
Morgan Guaranty Brussels shall have the sole right to
exercise or assert any and all rights or claims in respect
of actions or omissions of, or the bankruptcy or
insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the
Fund's securities and other assets.
(i) Monitoring Responsibilities. The Bank shall furnish
annually to the Fund information concerning the Selected
Foreign Sub-Custodians employed hereunder for use by the
Fund in evaluating such Selected Foreign Sub-Custodians to
ensure compliance with the requirements of Rule 17f-5 of
the Act. In addition, the Bank will promptly inform the
Fund in the event that the Bank is notified by a Selected
Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will
decline below US$200 million (or the equivalent thereof)
or that its shareholders' equity has declined below US$200
million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any
other capital adequacy test applicable to it by exemptive
order, or if the Bank has actual knowledge of any material
loss of the assets of the Fund held by a Foreign
Sub-Custodian.
(j) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on
the Fund or the Bank as custodian of the Fund by the tax
laws of any jurisdiction, and it shall be the
responsibility of the Fund to notify the Bank of the
obligations imposed on the Fund or the Bank as the
custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and
other taxes, assessments or other governmental charges,
certifications and governmental reporting. The sole
responsibility of the Selected Foreign Sub-custodian with
regard to such tax law shall be to use reasonable efforts
to assist the Fund with respect to any claim for exemption
or refund under the tax law of jurisdictions for which the
Fund has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the safekeeping
of Portfolio Securities and cash of the Fund held by it as it uses in respect of
its own similar property but it need not maintain any special insurance for the
benefit of the Fund.
14.5. Fees and Expenses of the Bank. The Fund will pay or reimburse the Bank
from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
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<PAGE>
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion, advance funds
on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness, in and to any
property at any time held by it for the Fund's benefit or in which the Fund has
an interest and which is then in the Bank's possession or control (or in the
possession or control of any third party acting on the Bank's behalf). The Fund
authorizes the Bank, in the Bank's sole discretion, at any time to charge any
overdraft or indebtedness, together with interest due thereon, against any
balance of account standing to the credit of the Fund on the Bank's books.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim resulting solely from the negligence, willful
misfeasance or bad faith of the Bank or any Indemnified Party. Without limiting
the foregoing, neither the Bank nor the Indemnified Parties shall be liable for,
and the Bank and the Indemnified Parties shall be indemnified against, any Claim
arising as a result of:
(a) Any act or omission by the Bank or any Indemnified
Party in good faith reliance upon the terms of this
Agreement, any Officer's Certificate, Proper Instructions,
resolution of the Board, telegram, telecopier, notice,
request, certificate or other instrument reasonably
believed by the Bank to genuine;
(b) Any act or omission of any subcustodian selected by or
at the direction of the Fund;
(c) Any act or omission of a Selected Foreign
Sub-Custodian to the extent which such Selected Foreign
Sub-Custodian is not liable to the Bank;
(d) Any Corporate Action requiring a Response for which
the Bank has not received Proper Instructions or obtained
actual possession of all necessary Securities, consents or
other materials by 5:00 p.m. on the date specified as the
Response Deadline;
(e) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs
in connection with any Eurodollar CDs held by such
European Branch;
(f) Information relied on in good faith by the Bank and
supplied by any Authorized Person in connection with the
calculation of (i) the net asset value and public offering
price of the shares of capital stock of the Fund or (ii)
the Yield Calculation; or
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<PAGE>
(g) Any acts of God, earthquakes, fires, floods, storms or
other disturbances of nature, epidemics, strikes, riots,
nationalization, expropriation, currency restrictions,
acts of war, civil war or terrorism, insurrection, nuclear
fusion, fission or radiation, the interruption, loss or
malfunction of utilities, transportation or computers
(hardware or software) and computer facilities, the
unavailability of energy sources and other similar
happenings or events.
15.2 Notwithstanding anything to the contrary in this Agreement, in no event
shall the Bank or the Indemnified Parties be liable to the Fund or any third
party for lost profits or lost revenues or any special, consequential, punitive
or incidental damages of any kind whatsoever in connection with this Agreement
or any activities hereunder.
16. Termination.
16.1 The term of this Agreement shall be three years commencing upon ______ (the
"Initial Term"), unless earlier terminated as provided herein. After the
expiration of the Initial Term, the term of this Agreement shall automatically
renew for successive one-year terms (each a "Renewal Term") unless notice of
non-renewal is delivered by the non-renewing party to the other party no later
than sixty days prior to the expiration of the Initial Term or any Renewal Term,
as the case may be.
(a) Either party hereto may terminate this Agreement prior
to the expiration of the Initial Term in the event the
other party violates any material provision of this
Agreement, provided that the non-violating party gives
written notice of such violation to the violating party
and the violating party does not cure such violation
within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other
party. Any termination pursuant to this paragraph 16.1(b)
shall be effective upon expiration of such sixty days,
provided, however, that the effective date of such
termination may be postponed to a date not more than
ninety days after delivery of the written notice: (i) at
the request of the Bank, in order to prepare for the
transfer by the Bank of all of the assets of the Fund held
hereunder; or (ii) at the request of the Fund, in order to
give the Fund an opportunity to make suitable arrangements
for a successor custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (16.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$2,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
Fund with the same effect as though selected by the Board. Thereafter, the Bank
shall be released from any and all obligations under this Agreement.
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<PAGE>
16.3 Prior to the expiration of ninety (90) days after notice of termination has
been given, the Fund may furnish the Bank with an order of the Fund advising
that a successor custodian cannot be found willing and able to act upon
reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank. Thereafter,
the Bank shall be released from any and all obligations under this Agreement.
16.4 The Fund shall reimburse the Bank for any reasonable expenses incurred by
the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may, upon
written request, have reasonable access to the records of the Bank relating to
its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public information
obtained hereunder concerning the other party is confidential and may not be
disclosed without the consent of the other party, except as may be required by
applicable law or at the request of a governmental agency. The parties further
agree that a breach of this provision would irreparably damage the other party
and accordingly agree that each of them is entitled, in addition to all other
remedies at low or in equal to an injunction or injunctions without bond or
other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and delivered via (I) United States Postal Service
registered mail, (ii) telecopier with written confirmation, (iii) had delivery
with signature to such party at its office at the address set forth below,
namely:
(a) In the case of notices sent to the Fund to:
Merrimac Series 200 Clarendon Street Boston, MA 02111
Attention: Paul Jasinski
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, Massachusetts 02116-9130
Attention: John E. Henry, General Counsel
or at such other place as such party may from time to time designate in writing.
19. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
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20. Parties. This Agreement will be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns; provided,
however, that this Agreement will not be assignable by the Fund without the
written consent of the Bank or by the Bank without the written consent of the
Fund, authorized and approved by its Board; and provided further that
termination proceedings pursuant to Section 16 hereof will not be deemed to be
an assignment within the meaning of this provision.
21. Governing Law. This Agreement and all performance hereunder will be governed
by the laws of the Commonwealth of Massachusetts, without regard to conflict of
laws provisions.
22. Counterparts. This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall,
together, constitute only one instrument.
23. Entire Agreement. This Agreement, together with its Appendices, constitutes
the sole and entire agreement between the parties relating to the subject matter
herein and does not operate as an acceptance of any conflicting terms or
provisions of any other instrument and terminates and supersedes any and all
prior agreements and undertakings between the parties relating to the subject
matter herein.
24. Limitation of Liability. The Bank is hereby expressly put on notice of the
limitation of liability set forth in the Master Trust Agreement of the Fund and
agrees that the obligations assumed by the Fund hereunder shall be limited in
all cases to the assets of the Fund and that the Bank shall not seek
satisfaction of any such obligation from the officers, agents, employees,
trustees, or shareholders of the Fund.
25. Several Obligations of the Portfolios. This Agreement is an agreement
entered into between the Bank and the Fund with respect to each Portfolio. With
respect to any obligation of the Fund on behalf of any Portfolio arising out of
this Agreement, the Bank shall look for payment or satisfaction of such
obligation solely to the assets of the Portfolio to which such obligation
relates as though the Bank had separately contracted with the Fund by separate
written instrument with respect to each Portfolio.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized as of the day and year
first written above.
THE MERRIMAC SERIES
By: /s/ Paul J. Jasinski
----------------------------------
Name: Paul J. Jasinski
Title: Treasurer and Chief
Financial Officer
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
----------------------------------
Name: Robert D. Mancuso
Title: Senior Vice President
<PAGE>
Appendix B
----------
Portfolios
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Short-Term Asset Reserve Series
EXHIBIT-99.B9(a)
ADMINISTRATION AGREEMENT
Between
THE MERRIMAC SERIES
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT is made as of June 1, 1998 by and between The
Merrimac Series, a corporation organized under the laws of Delaware (the
"Fund"), and Investors Bank & Trust Company, a Massachusetts trust company
("IBT").
WHEREAS, the Fund is registered as a management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"), and is entering
into this Agreement on behalf of the portfolios listed on Appendix 3 hereto, as
such Appendix 3 may be amended from time to time (each a "Portfolio" and
collectively, the "Portfolios"); and
WHEREAS, the Fund desires to retain IBT to render certain administrative
services to the Fund and IBT is willing to render such services.
NOW, THEREFORE, in consideration of the mutual covenants herein set forth, it is
agreed between the parties hereto as follows:
1. Appointment. The Fund hereby appoints IBT to act as Administrator of the Fund
on the terms set forth in this Agreement. IBT accepts such appointment and
agrees to render the services herein set forth for the compensation herein
provided.
2. Delivery of Documents. The Fund has furnished IBT with copies properly
certified or authenticated of each of the following:
(a) Resolutions of the Fund's Board of Directors
authorizing the appointment of IBT to provide certain
administrative services to the Fund and approving this
Agreement;
(b) The Fund's incorporating documents filed with the
state of Delaware on March 31, 1998 and all amendments
thereto (the "Articles");
(c) The Fund's by-laws and all amendments thereto (the
"By-Laws");
(d) The Fund's agreements with all service providers which
include any investment advisory agreements, sub-investment
advisory agreements, custody agreements, distribution
agreements and transfer agency agreements (collectively,
the "Agreements");
(e) The Fund's most recent Registration Statement under
the 1940 Act and all amendments thereto; and
(f) The Fund's most recent Prospectus and Statement of
Additional Information (the "Offering Documents"); and
(g) Such other certificates, documents or opinions as may
mutually be deemed necessary or appropriate for IBT in the
proper performance of its duties hereunder.
The Fund will immediately furnish IBT with copies of all
amendments of or supplements to the foregoing.
Furthermore, the Fund will notify IBT as soon as possible
of any matter which may materially affect the performance
by IBT of its services under this Agreement.
<PAGE>
2
3. Duties of Administrator. Subject to the supervision and direction of the
Board of Directors of the Fund, IBT, as Administrator, will assist in conducting
various aspects of the Fund's administrative operations and undertakes to
perform the services described in Appendix 1 hereto. IBT may, from time to time,
perform additional duties and functions which shall be set forth in an amendment
to such Appendix 1 executed by both parties. At such time, the fee schedule
included in Appendix 2 hereto shall be appropriately amended.
In performing all services under this Agreement, IBT shall act in conformity
with the Fund's Articles and By-Laws and the 1940 Act, as the same may be
amended from time to time, and the investment objectives, investment policies
and other practices and policies set forth in the Fund's Registration Statement,
as the same may be amended from time to time. Notwithstanding any item discussed
herein, IBT has no discretion over the Fund's assets or choice of investments
and cannot be held liable for any problem relating to such investments.
4. Duties of the Fund.
(a) The Fund is solely responsible (through its transfer
agent or otherwise) for (i) providing timely and accurate
reports ("Daily Sales Reports") which will enable IBT as
Administrator to monitor the total number of shares sold
in each state on a daily basis and (ii) identifying any
exempt transactions ("Exempt Transactions") which are to
be excluded from the Daily Sales Reports.
(b) The Fund agrees to make its legal counsel available to
IBT for instruction with respect to any matter of law
arising in connection with IBT's duties hereunder, and the
Fund further agrees that IBT shall be entitled to rely on
such instruction without further investigation on the part
of IBT.
5. Fees and Expenses.
(a) For the services to be rendered and the facilities to
be furnished by IBT, as provided for in this Agreement,
the Fund will compensate IBT in accordance with the fee
schedule attached as Appendix 2 hereto. Such fees do not
include out-of-pocket disbursements (as delineated on the
fee schedule or other expenses with the prior approval of
the Fund's management) of IBT for which IBT shall be
entitled to bill the Fund separately and for which the
Fund shall reimburse IBT.
(b) IBT shall not be required to pay any expenses incurred
by the Fund.
6. Limitation of Liability.
(a) IBT, its directors, officers, employees and agents
shall not be liable for any error of judgment or mistake
of law or for any loss suffered by the Fund in connection
with the performance of its obligations and duties under
this Agreement, except a loss resulting from willful
misfeasance, bad faith or negligence in the performance of
such obligations and duties, or by reason of its reckless
disregard thereof. The Fund will indemnify IBT, its
directors, officers, employees and agents against and hold
it and them harmless from any and all losses, claims,
damages, liabilities or expenses (including legal fees and
expenses) resulting from any claim, demand, action or suit
(i) arising out of the actions or omissions of the Fund,
including, but not limited to, inaccurate Daily Sales
Reports and misidentification of Exempt Transactions; (ii)
arising out of the offer or sale of any securities of the
Fund in violation of (x) any requirement under the federal
securities laws or regulations, (y) any requirement under
the securities laws or regulations of any state, or (z)
any stop order or other determination or ruling by any
federal or state agency with respect to the offer or sale
of such securities; or (iii) not resulting from the
willful misfeasance, bad faith or negligence of IBT in the
performance of such obligations and duties or by reason of
its reckless disregard thereof.
<PAGE>
3
(b) IBT may apply to the Fund at any time for instructions
and may consult counsel for the Fund, or its own counsel,
and with accountants and other experts with respect to any
matter arising in connection with its duties hereunder,
and IBT shall not be liable or accountable for any action
taken or omitted by it in good faith in accordance with
such instruction, or with the opinion of such counsel,
accountants, or other experts. IBT shall not be liable for
any act or omission taken or not taken in reliance upon
any document, certificate or instrument which it
reasonably believes to be genuine and to be signed or
presented by the proper person or persons. IBT shall not
be held to have notice of any change of authority of any
officers, employees, or agents of the Fund until receipt
of written notice thereof has been received by IBT from
the Fund.
(c) In the event IBT is unable to perform, or is delayed
in performing, its obligations under the terms of this
Agreement because of acts of God, strikes, legal
constraint, government actions, war, emergency conditions,
interruption of electrical power or other utilities,
equipment or transmission failure or damage reasonably
beyond its control or other causes reasonably beyond its
control, IBT shall not be liable to the Fund for any
damages resulting from such failure to perform, delay in
performance, or otherwise from such causes.
(d) In no event shall IBT be liable for special,
incidental or consequential damages, even if advised of
the possibility of such damages.
7. Termination of Agreement.
(a) The term of this Agreement shall be three years
commencing upon the date hereof (the "Initial Term"),
unless earlier terminated as provided herein. After the
expiration of the Initial Term, the term of this Agreement
shall automatically renew for successive one-year terms
(each a "Renewal Term") unless notice of non-renewal is
delivered by the non-renewing party to the other party no
later than sixty days prior to the expiration of the
Initial Term or any Renewal Term, as the case may be.
(i) Either party hereto may terminate this
Agreement prior to the expiration of the Initial
Term in the event the other party violates any
material provision of this Agreement, provided
that the violating party does not cure such
violation within 90 days of receipt of written
notice from the non-violating party of such
violation.
(ii) Either party may terminate this Agreement
during any Renewal Term upon sixty days written
notice to the other party. Any termination
pursuant to this paragraph 7(a)(ii) shall be
effective upon expiration of such sixty days,
provided, however, that the effective date of such
termination may be postponed, at the request of
the Fund, to a date not more than ninety days
after delivery of the written notice in order to
give the Fund an opportunity to make suitable
arrangements for a successor administrator.
(b) At any time after the termination of this Agreement,
the Fund may, upon written request, have reasonable access
to the records of IBT relating to its performance of its
duties as Administrator.
8. Miscellaneous.
(a) Any notice or other instrument authorized or required
by this Agreement to be given in writing to the Fund or
IBT shall be sufficiently given if addressed to that party
and received by it at its office set forth below or at
such other place as it may from time to time designate in
writing.
<PAGE>
4
To the Fund: Merrimac Series
200 Clarendon Street
Boston, MA 02116
Attn: Paul Jasinski
To IBT: Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02116-9130
Attention: John E. Henry, General Counsel
(b) This Agreement shall extend to and shall be binding
upon the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall
not be assignable without the written consent of the other
party.
(c) This Agreement shall be construed in accordance with
the laws of the Commonwealth of Massachusetts, without
regard to its conflict of laws provisions.
(d) This Agreement may be executed in any number of
counterparts each of which shall be deemed to be an
original and which collectively shall be deemed to
constitute only one instrument.
(e) The captions of this Agreement are included for
convenience of reference only and in no way define or
delimit any of the provisions hereof or otherwise affect
their construction or effect.
9. Confidentiality. All books, records, information and data pertaining to the
business of the other party which are exchanged or received pursuant to the
negotiation or the carrying out of this Agreement shall remain confidential, and
shall not be voluntarily disclosed to any other person, except as may be
required in the performance of duties hereunder or as otherwise required by law.
10. Use of Name. The Fund shall not use the name of IBT or any of its affiliates
in any Offering Documents, sales literature or other material relating to the
Fund in a manner not approved by IBT prior thereto in writing; provided however,
that the approval of IBT shall not be required for any use of its name which
merely refers in accurate and factual terms to its appointment hereunder or
which is required by the Securities and Exchange Commission or any state
securities authority or any other appropriate regulatory, governmental or
judicial authority; provided further, that in no event shall such approval be
unreasonably withheld or delayed.
11. Limitation of Liability. IBT is hereby expressly put on notice of the
limitation of liability set forth in the Master Trust Agreement of the Fund and
agrees that the obligations assumed by the Fund hereunder shall be limited in
all cases to the assets of the Fund and that IBT shall not seek satisfaction of
any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
12. Several Obligations of the Portfolios. This Agreement is an agreement
entered into between IBT and the Fund with respect to each Portfolio. With
respect to any obligation of the Fund on behalf of any Portfolio arising out of
this Agreement, IBT shall look for payment or satisfaction of such obligation
solely to the assets of the Portfolio to which such obligation relates as though
IBT had separately contracted with the Fund by separate written instrument with
respect to each Portfolio.
<PAGE>
5
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly
executed and delivered by their duly authorized officers as of the date first
written above.
THE MERRIMAC SERIES
By: /s/ Paul J. Jasinski
-----------------------------------
Name: Paul J. Jasinski
-----------------------------------
Title: Treasurer and Chief Financial
Officer
-----------------------------------
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
-----------------------------------
Name: Robert D. Mancuso
-----------------------------------
Title: Senior Vice President
-----------------------------------
<PAGE>
Appendix 1
----------
Services to be Performed by IBT
<PAGE>
Appendix 2
----------
Fee Schedule
<PAGE>
Appendix 3
----------
Portfolios
----------
The Merrimac Cash Series
The Merrimac Treasury Series
The Merrimac Short-Term Asset Reserve Series
EXHIBIT-99.B9(b)
TRANSFER AGENCY AND SERVICE AGREEMENT
Between
THE MERRIMAC SERIES
and
INVESTORS BANK & TRUST COMPANY
<PAGE>
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of June 1, 1998 by and between the Merrimac Series, a
corporation organized under the laws of Delaware (the "Company"), and Investors
Bank & Trust Company, a Massachusetts trust company ("IBT").
WHEREAS, the Company desires to appoint IBT as its transfer agent, dividend
disbursing agent and agent in connection with certain other activities, and IBT
desires to accept such appointment;
WHEREAS, IBT is duly registered as a transfer agent as provided in Section
17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934 Act");
WHEREAS, the Company is authorized to issue shares in separate series, with each
such series representing interests in a separate portfolio of securities and
other assets;
WHEREAS, the Company intends to initially offer shares in three Series, the
Merrimac Cash Series Fund, the Merrimac Treasury Series Fund and the Merrimac
Short-Term Asset Reserve Series, and three classes, the Institutional Class, the
Premium Class and the Investment Class (such classes, together with all other
series and classes subsequently established by the Company and made subject to
this Agreement in accordance with Article 17, being herein referred to as the
"Fund(s)");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth, the
Company and IBT agree as follows:
ARTICLE 1. Terms of Appointment; Duties of IBT
- -----------------------------------------------
1.01 Subject to the terms and conditions set forth in this Agreement, the
Company on behalf of the Funds hereby employs and appoints IBT to act, and IBT
agrees to act, as transfer agent for each of the Fund(s)' authorized and issued
shares of beneficial interest ("Shares"), dividend disbursing agent and agent in
connection with any accumulation, open-account or similar plans provided to the
shareholders of the Company ("Shareholders") and set out in the most recent
Prospectus and Statement of Additional Information, as such may be amended from
time to time, (the "Offering Documents") of the Company, including without
limitation any periodic investment plan or periodic withdrawal program.
1.02 IBT agrees that it will perform the following services:
(a) In connection with procedures established from time to
time by agreement between the Company and IBT, IBT shall:
(i) Receive for acceptance orders for the purchase
of Shares and promptly deliver payment and
appropriate documentation therefor to the
custodian of the Company appointed by the Board of
Directors of the Company (the "Custodian");
(ii) Pursuant to purchase orders, issue the
appropriate number of Shares and hold such Shares
in the appropriate Shareholder account;
(iii) Receive for acceptance redemption requests
and redemption directions and deliver the
appropriate documentation therefor to the
Custodian;
<PAGE>
2
(iv) At the appropriate time as and when it
receives monies paid to it by the Custodian with
respect to any redemption, pay over or cause to be
paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered
owners thereof upon receipt of appropriate
instructions;
(vi) Prepare and transmit payments for dividends
and distributions declared by the Company on
behalf of a Fund;
(vii) Create and maintain all necessary records
including those specified in Article 10 hereof, in
accordance with all applicable laws, rules and
regulations, including but not limited to records
required by Section 31(a) of the Investment
Company Act of 1940, as amended (the "1940 Act"),
and those records pertaining to the various
functions performed by it hereunder. All records
shall be available for inspection and use by the
Company. Where applicable, such records shall be
maintained by IBT for the periods and in the
places required by Rule 31a-2 under the 1940 Act;
(viii) Make available during regular business
hours all records and other data created and
maintained pursuant to this Agreement for
reasonable audit and inspection by the Company, or
any person retained by the Company. Upon
reasonable notice by the Company, IBT shall make
available during regular business hours its
facilities and premises employed in connection
with its performance of this Agreement for
reasonable visitation by the Company, or any
person retained by the Company;
(ix) At the expense of and at the request of the
Company, maintain an adequate supply of blank
share certificates for each Fund providing for the
issuance of certificates to meet IBT's
requirements therefor. Such share certificates
shall be properly signed by facsimile. The Company
agrees that, notwithstanding the death,
resignation, or removal of any officer of the
Company whose signature appears on such
certificates, IBT may continue to countersign
certificates which bear such signatures until
otherwise directed by the Company. Share
certificates may be issued and accounted for
entirely by IBT and do not require any third party
registrar or other endorsing party;
(x) Issue replacement share certificates in lieu
of certificates which have been lost, stolen,
mutilated or destroyed, without any further action
by the Board of Directors or any officer of the
Company, upon receipt by IBT of properly executed
affidavits and lost certificate bonds, in form
satisfactory to IBT with the Company and IBT as
obligees under the bond. At the discretion of IBT,
and at its sole risk, IBT may issue replacement
certificates without requiring the affidavits and
lost certificate bonds described above and the
Company agrees to indemnify IBT against any and
all losses or claims which may arise by reason of
the issuance of such new certificates in the place
of the ones allegedly lost, stolen or destroyed;
and
(xi) Record the issuance of Shares of the Company
and maintain, pursuant to Rule 17Ad-10(e) under
the 1934 Act, a record of the total number of
Shares of the Company which are authorized, based
upon data provided to it by the Company, and
issued and outstanding. IBT shall also provide the
Company on a regular basis with the total number
of Shares which are authorized and issued and
outstanding and shall have no obligation, when
recording the issuance of Shares, to monitor the
issuance of such Shares or to take cognizance of
any laws relating to the issue or sale of such
Shares, which functions shall be the sole
responsibility of the Company.
<PAGE>
3
(b) In addition to and not in lieu of the services set
forth in the above paragraph (a) or in any Schedule
hereto, IBT shall: (i) perform all of the customary
services of a transfer agent, dividend disbursing agent
and, as relevant, agent in connection with accumulation,
open-account or similar plans (including without
limitation any periodic investment plan or periodic
withdrawal program); including but not limited to
maintaining all Shareholder accounts, preparing
Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and
Propsectuses to current Shareholders, withholding taxes on
all accounts, including nonresident alien accounts,
preparing and filing U.S. Treasury Department Forms 1099
and other appropriate forms required with respect to
dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and
statements of account to Shareholders for all purchases
and redemptions of Shares and other confirmable
transactions in Shareholder accounts, responding to
Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements
for Shareholders, and providing Shareholder account
information; and (ii) provide a system which will enable
the Company to monitor the total number of shares sold in
each State. The Company shall (i) identify to IBT in
writing those transactions and assets to be treated as
exempt from blue sky reporting for each State and (ii)
verify the establishment of transactions for each State on
the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of IBT
for a Fund's blue sky state registration status is solely
limited to the initial establishment of transactions
subject to blue sky compliance by such Fund(s) and the
reporting of such transactions to the Fund(s) as provided
above.
(c) Additionally, IBT shall utilize a system to identify
all share transactions which involve purchase and
redemption orders that are processed at a time other than
the time of the computation of net asset value per share
next computed after receipt of such orders, and shall
compute the net effect upon the Fund(s) of such
transactions so identified on a daily and cumulative
basis.
ARTICLE 2. Sale of Company Shares
- ----------------------------------
2.01 Whenever the Company shall sell or cause to be sold any Shares of a Fund,
the Company shall deliver or cause to be delivered to IBT a document duly
specifying: (i) the name of the Fund whose Shares were sold; (ii) the number of
Shares sold, trade date, and price; (iii) the amount of money to be delivered to
the Custodian for the sale of such Shares and specifically allocated to such
Fund; and (iv) in the case of a new account, a new account application or
sufficient information to establish an account.
2.02 IBT will, upon receipt by it of a check or other payment identified by it
as an investment in Shares of one of the Funds and drawn or endorsed to IBT as
agent for, or identified as being for the account of, one of the Funds, promptly
deposit such check or other payment to the appropriate account postings
necessary to reflect the investment. IBT will notify the Company, or its
designee, and the Custodian of all purchases and related account adjustments.
2.03 Under procedures as established by mutual agreement between the Company and
IBT, IBT shall issue to the purchaser or its authorized agent such Shares,
computed to the nearest three decimal points, as he is entitled to receive,
based on the appropriate net asset value of the Funds' Shares, determined in
accordance with the Offering Documents and any applicable federal law or
regulation. In issuing Shares to a purchaser or its authorized agent, IBT shall
be entitled to rely upon the latest directions, if any, previously received by
IBT from the purchaser or its authorized agent concerning the delivery of such
Shares.
<PAGE>
4
2.04 IBT shall not be required to issue any Shares of the Company where it has
received a written instruction from the Company or written notification from any
appropriate federal or state authority that the sale of the Shares of the
Fund(s) in question has been suspended or discontinued, and IBT shall be
entitled to rely upon such written instructions or written notification.
2.05 Upon the issuance of any Shares of any Fund(s) in accordance with foregoing
provisions of this Section, IBT shall not be responsible for the payment of any
original issue or other taxes, if any, required to be paid by the Company in
connection with such issuance.
2.06 IBT may establish such additional rules and regulations governing the
transfer or registration of Shares as it may deem advisable and consistent with
such rules and regulations generally adopted by transfer agents, or with the
written consent of the Company, any other rules and regulations.
ARTICLE 3. Returned Checks
- --------------------------
3.01 In the event that any check or other order for the transfer of money is
returned unpaid for any reason, IBT will take such steps as IBT may, in its
discretion, deem appropriate to protect the Company from financial loss or as
the Company or its designee may instruct. Provided that the standard procedures,
as agreed upon from time to time, between the Company and IBT, regarding
purchases and redemptions of Shares, are adhered to by IBT, IBT shall not be
liable for any loss suffered by a Fund as a result of returned or unpaid
purchase or redemption transactions. Legal or other expenses incurred to collect
amounts owed to a Fund as a consequence of returned or unpaid purchase or
redemption transactions shall be an expense of that Fund.
ARTICLE 4. Redemptions
- ----------------------
4.01 Shares of any Fund may be redeemed in accordance with the procedures set
forth in the Prospectus of the Company and IBT will duly process all redemption
requests.
ARTICLE 5. Transfers and Exchanges
- ----------------------------------
5.01 IBT is authorized to review and process transfers of Shares of each Fund,
exchanges between Funds on the records of the Funds maintained by IBT, and
exchanges between the Company and any other entity as may be permitted by the
Prospectus of the Company. If Shares to be transferred are represented by
outstanding certificates, IBT will, upon surrender to it of the certificates in
proper form for transfer, and upon cancellation thereof, countersign and issue
new certificates for a like number of Shares and deliver the same. If the Shares
to be transferred are not represented by outstanding certificates, IBT will,
upon an order therefor by or on behalf of the registered holder thereof in
proper form, credit the same to the transferee on its books. If Shares are to be
exchanged for Shares of another Fund, IBT will process such exchange in the same
manner as a redemption and sale of Shares, except that it may in its discretion
waive requirements for information and documentation.
ARTICLE 6. Right to Seek Assurances
- -----------------------------------
6.01 IBT reserves the right to refuse to transfer or redeem Shares until it is
satisfied that the requested transfer or redemption is legally authorized, and
it shall incur no liability for the refusal, in good faith, to make transfers or
redemptions which IBT, in its judgment, deems improper or unauthorized, or until
it is satisfied that there is no basis for any claims adverse to such transfer
or redemption. IBT may, in effecting transfers, rely upon the provisions of the
Uniform Act for the
<PAGE>
5
Simplification of Fiduciary Security Transfers or the Uniform Commercial Code,
as the same may be amended from time to time, which in the opinion of legal
counsel for the Company or IBT's own legal counsel, do not require certain
documents in connection with the transfer or redemption of Shares of any Fund,
and the Company shall indemnify IBT for any act done or omitted by it in
reliance upon such laws or opinions of counsel of the Company or of IBT.
ARTICLE 7. Distributions
- ------------------------
7.01 The Company will promptly notify IBT of the declaration of any dividend or
distribution. The Company shall furnish to IBT a resolution of the Board of
Directors of the Company certified by the Secretary (a "Certificate"): (i)
authorizing the declaration of dividends on a specified periodic basis and
authorizing IBT to rely on oral instructions or a Certificate specifying the
date of the declaration of such dividend or distribution, the date of payment
thereof, the record date as of which Shareholders entitled to payment shall be
determined and the amount payable per share to Shareholders of record as of such
record date and the total amount payable to IBT on the payment date; or (ii)
setting forth the date of the declaration of any dividend or distribution by a
Fund, the date of payment thereof, the record date as of which Shareholders
entitled to payment shall be determined, and the amount payable per share to the
Shareholders of record as of that date and the total amount payable to IBT on
the payment date.
7.02 IBT, on behalf of the Company, shall instruct the Custodian to place in a
dividend disbursing account funds equal to the cash amount of any dividend or
distribution to be paid out. IBT will calculate, prepare and mail checks to (at
the address as it appears on the records of IBT), or (where appropriate) credit
such dividend or distribution to the account of, Fund Shareholders, and maintain
and safeguard all underlying records.
7.03 IBT will replace lost checks at its discretion and in conformity with
regular business practices.
7.04 IBT will maintain all records necessary to reflect the crediting of
dividends which are reinvested in Shares of the Company, including without
limitation daily dividends.
7.05 IBT shall not be liable for any improper payments made in accordance with a
resolution of the Board of Directors of the Company.
7.06 If IBT shall not receive from the Custodian sufficient cash to make payment
to all Shareholders of the Company as of the record date, IBT shall, upon
notifying the Company, withhold payment to all Shareholders of record as of the
record date until such sufficient cash is provided to IBT and shall not be
liable for any claim arising out of such withholding.
ARTICLE 8. Other Duties
- -----------------------
8.01 In addition to the duties expressly provided for herein, IBT shall perform
such other duties and functions and shall be paid such amounts therefor as may
from time to time be agreed to in writing.
ARTICLE 9. Taxes
- ----------------
9.01 It is understood that IBT shall file such appropriate information returns
concerning the payment of dividends and capital gain distributions and tax
withholding with the proper Federal, State
<PAGE>
6
and local authorities as are required by law to be filed by the Company and
shall withhold such sums as are required to be withheld by applicable law.
ARTICLE 10. Books and Records
- -----------------------------
10.01 IBT shall maintain confidential records showing for each Shareholder's
account the following: (i) names, addresses and tax identification numbers; (ii)
numbers of Shares held; (iii) historical information (as available from prior
transfer agents) regarding the account of each Shareholder, including dividends
paid and date and price of all transactions on a Shareholder's account; (iv) any
stop or restraining order placed against a Shareholder's account; (v)
information with respect to withholdings; (vi) any capital gain or dividend
reinvestment order, plan application, dividend address and correspondence
relating to the current maintenance of a Shareholder's account; (vii)
certificate numbers and denominations for any Shareholders holding certificates;
(viii) any information required in order for IBT to perform the calculations
contemplated or required by this Agreement; and (ix) such other information and
data as may be required by applicable law.
10.02 Any records required to be maintained by Rule 31a-1 under the 1940 Act
will be preserved for the periods prescribed in Rule 31a-2 under the 1940 Act.
Such records may be inspected by the Company during regular business hours upon
reasonable notice. IBT may, at its option at any time, and shall forthwith upon
the Company's demand, turn over to the Company and cease to retain in IBT's
files, records and documents created and maintained by IBT in performance of its
service or for its protection. At the end of the six-year retention period, such
documents will either be turned over to the Company, or destroyed in accordance
with the Company's authorization.
10.03 Procedures applicable to the services to be performed hereunder may be
established from time to time by agreement between the Fund(s) and IBT. IBT
shall have the right to utilize any shareholder accounting and recordkeeping
systems which, in its opinion, qualifies to perform any services to be performed
hereunder. IBT shall keep records relating to the services performed hereunder,
in the form and manner as it may deem advisable.
ARTICLE 11. Fees and Expenses.
- ------------------------------
11.01 For performance by IBT pursuant to this Agreement, the Fund(s) agree to
pay IBT an annual maintenance fee for each Shareholder account as set out in the
initial fee schedule attached as Appendix A hereto. Such fees and out-of-pocket
expenses and advances identified under Section 11.02 below may be changed from
time to time subject to mutual written agreement between the Fund(s) and IBT.
11.02 In addition to the fee paid under Section 11.01 above, the Fund(s) agree
to reimburse IBT for out-of-pocket expenses or advances incurred by IBT for the
items set out in the fee schedule attached hereto. In addition, any other
expenses incurred by IBT at the request or with the consent of the Fund(s)
including, without limitation, any equipment or supplies which the Company
specifically orders or requires IBT to purchase, will be reimbursed by the
Fund(s).
11.03 The Fund(s) agree to pay all fees and reimbursable expenses within thirty
days following the mailing of the respective billing notice. Postage for mailing
of dividends, proxies, Fund reports and other mailings to all shareholder
accounts shall be advanced to IBT by the Fund(s) at least seven (7) days prior
to the mailing date of such materials. Any waiver or extension by IBT of the
thirty and seven day
<PAGE>
7
time periods enumerated in this section 11.03 shall not constitute a dismissal
of any monies due under this Agreement nor shall such waiver or extension apply
to any future monies due to IBT hereunder.
ARTICLE 12. Representations and Warranties of IBT
- -------------------------------------------------
IBT represents and warrants to the Company that:
12.01 It is a trust company duly organized and existing and in good standing
under the laws of Delaware.
12.02 It is empowered under applicable laws and by its charter and by-laws to
enter into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize it to
enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 13. Representations and Warranties of the Company
- ---------------------------------------------------------
The Company represents and warrants to IBT that:
13.01 It is a corporation duly organized and existing and in good standing under
the laws of the State of its incorporation as set forth in the preamble hereto.
13.02 It is empowered under applicable laws and by its charter documents and
by-laws to enter into and perform this Agreement.
13.03 All proceedings required by said charter documents and by-laws have been
taken to authorize it to enter into and perform this Agreement.
13.04 It is a open-end investment company registered under the 1940 Act.
13.05 Appropriate state securities law filings have been made and will continue
to be made, with respect to all Shares of the Company being offered for sale.
13.06 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Fund(s).
ARTICLE 14. Indemnification
- ---------------------------
14.01 Except as set forth in Section 14.02 hereof, IBT shall not be responsible
for, and the Company shall indemnify and hold IBT harmless from and against, any
and all losses, damages, costs, charges, legal fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions taken or omitted to be taken by IBT or its
agents or subcontractors in good faith in reliance on or
use by IBT or its agents or subcontractors of information,
records and
<PAGE>
8
documents which (i) are received by IBT or its agents or
subcontractors and furnished to such party by or on behalf
of the Fund(s), (ii) have been prepared and/or maintained
by the Fund(s) or any other person or firm on behalf of
the Fund(s), or (iii) were received by IBT or its agents
or subcontractors from a prior transfer agent.
(b) Any action taken or omitted to be taken by IBT in good
faith reliance upon any law, act, regulation (a
"Regulation") or interpretation of a Regulation even
though such Regulation may thereafter have been altered,
changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the
terms of this Agreement, or which arise out of the Funds'
lack of good faith, negligence or willful misconduct or
which arise out of the breach of any representation or
warranty of the Fund(s) hereunder.
(d) The reliance on, or the carrying out by IBT or its
agents or subcontractors of any instructions or requests,
whether written or oral, of the Fund(s).
(e) The offer or sale of Shares by the Company in
violation of (i) any requirement under the federal
securities laws or regulations; (ii) any requirement under
the securities laws or regulations of any state; or (iii)
any stop order or other determination or ruling by any
federal or state agency with respect to the offer or sale
of such Shares.
14.02 IBT shall indemnify and hold the Fund(s) harmless from and against any and
all losses, damages, costs, charges, legal fees, payments, expenses and
liability arising out of or attributed to any action or failure or omission to
act by IBT as a result of IBT's lack of good faith, negligence, willful
misconduct, knowing violation of law or fraud.
14.03 At any time IBT may apply to any officer of the Company for instructions,
and may consult with legal counsel of IBT or the Company with respect to any
matter arising in connection with the services to be performed by IBT under this
Agreement, and IBT and its agents or subcontractors shall not be liable and
shall be indemnified by the Company for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel except for a
knowing violation of law. IBT, its agents and subcontractors shall be protected
and indemnified in acting upon any paper or document furnished by or on behalf
of the Fund(s), reasonably believed to be genuine and to have been signed by the
proper person or persons, or upon any instruction, information, data, records or
documents provided to IBT or its agents or subcontractors by machine readable
input, telex, CRT data entry or other similar means authorized by the Fund(s),
and IBT, its agents and subcontractors shall not be held to have notice of any
change of authority of any person, until receipt of written notice thereof from
the Fund(s). IBT, its agents and subcontractors shall also be protected and
indemnified in recognizing stock certificates which are reasonably believed to
bear the proper manual or facsimile signatures of an officer of the Company, and
one proper countersignature of any former transfer agent or registrar, or of a
co-transfer agent or co-registrar.
14.04 In the event either party is unable to perform its obligations under the
terms of this Agreement because of acts of God, strikes, interruption of
electrical power or other utilities, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
<PAGE>
9
14.05 Neither party to this Agreement shall be liable to the other party for
special, incidental or consequential damages, even if the other party has been
advised of the possibility of such damages, under any provision of this
Agreement or for any act or failure to act hereunder as contemplated by this
Agreement.
14.06 In order that the indemnification provisions contained in this Article 14
shall apply, upon the assertion of a claim for which either party may be
required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
seeking indemnification shall give the indemnifying party full and complete
authority, information and assistance to defend such claim or proceeding, and
the indemnifying party shall have, at its option, sole control of the defense of
such claim or proceeding and all negotiations for its compromise or settlement.
The party seeking indemnification shall in no case confess any claim or make any
compromise in any case in which the other party may be required to indemnify it
except with the other party's prior written consent, which consent shall not be
unreasonably withheld.
ARTICLE 15. Covenants of the Company and IBT
- --------------------------------------------
15.01 The Company shall promptly furnish to IBT the following:
(a) A certified copy of the resolution of the Directors of
the Company authorizing the appointment of IBT and the
execution and delivery of this Agreement.
(b) A copy of the charter documents and by-laws of the
Company and all amendments thereto.
(c) Copies of each vote of the Directors designating
authorized persons to give instructions to IBT, and a
Certificate providing specimen signatures for such
authorized persons.
(d) Certificates as to any change in any officer or
Director of the Company.
(e) If applicable a specimen of the certificate of Shares
in each Fund of the Company in the form approved by the
Directors, with a Certificate as to such approval.
(f) Specimens of all new certificates for Shares,
accompanied by the Directors' resolutions approving such
forms.
(g) All account application forms and other documents
relating to shareholder accounts or relating to any plan,
program or service offered by the Company.
(h) A list of all Shareholders of the Fund(s) with the
name, address and tax identification number of each
Shareholder, and the number of Shares of the Fund(s) held
by each, certificate numbers and denominations (if any
certificates have been issued), lists of any account
against which stops have been placed, together with the
reasons for said stops, and the number of Shares redeemed
by the Fund(s).
(i) An opinion of counsel for the Company with respect to
the validity of the Shares and the status of such Shares
under the Securities Act of 1933.
<PAGE>
10
(j) Copies of the Fund(s) registration statement on Form
N-1A (if applicable) as amended and declared effective by
the Securities and Exchange Commission and all
post-effective amendments thereto.
(k) Such other certificates, documents or opinions as IBT
may deem necessary or appropriate for IBT in the proper
performance of its duties hereunder.
15.02 IBT hereby agrees to establish and maintain facilities and procedures
reasonably acceptable to the Company for safekeeping of stock certificates,
check forms and facsimile signature imprinting devices, if any; and for the
preparation or use, and for keeping account of, such certificates, forms and
devices.
15.03 IBT shall keep records relating to the services to be performed hereunder,
in the form and manner as it may deem advisable. To the extent required by
Section 31 of the 1940 Act and the Rules thereunder, IBT agrees that all such
records prepared or maintained by IBT relating to the services to be performed
by IBT hereunder are the confidential property of the Company and will be
preserved, maintained and made available in accordance with such Section and
Rules, and will be surrendered to the Company on and in accordance with its
request.
15.04 IBT and the Company agree that all books, records, information and data
pertaining to the business of the other party which are exchanged or received
pursuant to the negotiation or the carrying out of this Agreement shall remain
confidential, and shall not be voluntarily disclosed to any other person, except
as may be required by law.
15.05 In case of any requests or demands for the inspection of the Shareholder
records of the Company, IBT will endeavor to notify the Company and to secure
instructions from an authorized officer of the Company as to such request or
demand. IBT reserves the right, however, to exhibit the Shareholder records to
any person whenever it is advised by its counsel that it may be subject to
enforcement or other action by any court or regulatory body for the failure to
exhibit the Shareholder records to such person.
ARTICLE 16. Term of Agreement
- -----------------------------
16.01 Termination of Agreement. The term of this Agreement shall be three years
commencing upon the date first above written (the "Initial Term"), unless
earlier terminated as provided herein. After the expiration of the Initial Term,
the term of this Agreement shall automatically renew for successive one-year
terms (each a "Renewal Term") unless notice of non-renewal is delivered by the
non-renewing party to the other party no later than sixty days prior to the
expiration of the Initial Term or any Renewal Term, as the case may be.
(a) Either party hereto may terminate this Agreement prior
to the expiration of the Initial Term in the event the
other party violates any material provision of this
Agreement, provided that the non-violating party gives
written notice of such violation to the violating party
and the violating party does not cure such violation
within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other
party. Any termination pursuant to this paragraph 16.01(b)
shall be effective upon expiration of such sixty days,
provided, however, that the effective date of such
termination may be postponed to a date not more than
ninety days after delivery of the written notice:
<PAGE>
11
(i) at the request of IBT, in order to prepare for the transfer by IBT of its
duties hereunder; or (ii) at the request of the Fund, in order to give the Fund
an opportunity to make suitable arrangements for a successor transfer agent.
16.02 Should the Company exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Company. Additionally, IBT reserves the right to recover from the Company
any other reasonable expenses associated with such termination.
ARTICLE 17. Additional Funds
- ----------------------------
17.01 In the event that the Company establishes one or more series of Shares in
addition to the initial series, or one or more classes in addition to the
initial classes, with respect to which it desires to have IBT render services as
transfer agent under the terms hereof, it shall so notify IBT in writing, and if
IBT agrees in writing to provide such services, such series or classes of Shares
shall become a Fund hereunder.
ARTICLE 18. Assignment
- ----------------------
18.01 Except as provided in Section 18.03 below, neither this Agreement nor any
rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
18.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18.03 IBT, may without further consent on the part of the Company, subcontract
for the performance of any of the services to be provided hereunder to third
parties, including any affiliate of IBT.
ARTICLE 19. Amendment
- ----------------------
19.01 This Agreement may be amended or modified only by a written agreement
executed by both parties.
ARTICLE 20. Governing Law
- -------------------------
20.01 This Agreement shall be construed and the provisions thereof interpreted
under and in accordance with the laws of the Commonwealth of Massachusetts,
without regard to its conflict of laws provisions.
ARTICLE 21. Merger of Agreement and Severability
- ------------------------------------------------
21.01 This Agreement constitutes the entire agreement between the parties hereto
and supersedes any prior agreement with respect to the subject hereof whether
oral or written.
21.02 In the event any provision of this Agreement shall be held unenforceable
or invalid for any reason, the remainder of the Agreement shall remain in full
force and effect.
21.03 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
<PAGE>
12
ARTICLE 22. Notices
- -------------------
22. 01 Any notice or other instrument in writing authorized or required by this
Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Fund(s): Merrimac Series 200 Clarendon Street
Boston, MA 02116 Attention: Paul Jasinski
For IBT: Investors Bank & Trust Company
200 Clarendon Street, P.O. Box 9130
Boston, MA 02116-9130
Attention: John E. Henry, General Counsel
ARTICLE 23. Regarding the Fund
- ------------------------------
23. 01 Limitation of Liability. IBT is hereby expressly put on notice of the
limitation of liability set forth in the Master Trust Agreement of the Fund and
agrees that the obligations assumed by the Fund hereunder shall be limited in
all cases to the assets of the Fund and that IBT shall not seek satisfaction of
any such obligation from the officers, agents, employees, trustees, or
shareholders of the Fund.
23.03 Several Obligations of the Portfolios. This Agreement is an agreement
entered into between IBT and the Funds with respect to each Fund. With respect
to any obligation of the Funds on behalf of any Fund arising out of this
Agreement, IBT shall look for payment or satisfaction of such obligation solely
to the assets of the Fund to which such obligation relates as though IBT had
separately contracted with the Funds by separate written instrument with respect
to each Fund.
<PAGE>
13
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
in their names and on their behalf under their seals by and through their duly
authorized officers, as of the day and the year first above written.
THE MERRIMAC SERIES
By: /s/ Paul J. Jasinski
-----------------------------------
Name: Paul J. Jasinski
-----------------------------------
Title: Treasurer and Chief Financial
Officer
-----------------------------------
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
-----------------------------------
Name: Robert D. Mancuso
-----------------------------------
Title: Senior Vice President
-----------------------------------
AGREEMENT
AGREEMENT made this 1st day of June, 1998 between Investors Bank & Trust Company
("Investors Bank"), a Massachusetts-chartered trust company, and Funds
Distributor, Inc. ("FDI"), a Massachusetts corporation.
WHEREAS, Investors Bank serves as administrator to and provides certain
administrative services for Merrimac Series (the "Trust") pursuant to an
administration agreement dated June 1, 1998. The Trust is an open-end management
investment company organized under the laws of the state of Delaware, which is
registered under the Investment Company Act of 1940, as amended (the "1940
Act"), and is comprised of the investment series listed on Schedule A, as such
Schedule shall be automatically amended from time to time (each a "Fund,"
collectively, the "Funds");
WHEREAS, the Trust has entered into a distribution agreement with FDI (the
"Distribution Agreement") for the distribution by FDI of shares of beneficial
interest (the "Shares") in the Trust or in the Funds;
WHEREAS, certain employees of FDI who may be registered with the National
Association of Securities Dealers, Inc. ("NASD") as representatives of FDI (such
persons shall hereinafter be referred to as "Registered Representatives") will
be wholesaling the Funds' Shares and will also be actively selling investment
advisory services of Investors Bank to clients; and
WHEREAS, Investors Bank has agreed to enter into this Agreement as consideration
for FDI to enter into the Distribution Agreement;
NOW THEREFORE, in consideration of the mutual promises herein contained, the
parties agree as follows:
1. Services provided by FDI. FDI will assist Investors Bank in providing
services with respect to each Fund as may be reasonably requested by Investors
Bank from time to time. To the extent consistent with FDI's compensation
hereunder and at the direction of Investors Bank, specific assignments may
include any of the following:
(a) Medallion Distribution.
(1) Legal review and principal sign-off of all Fund marketing
materials and other sales related materials to ensure compliance with the
advertising rules of the relevant regulatory authorities. FDI will file such
materials, and obtain such approvals for their use as may be required by the
Securities and Exchange Commission ("SEC"), the NASD or state securities
administrators. FDI will forward all NASD comments on marketing materials to
Investors Bank;
(2) The forwarding of sales related complaints concerning the
Funds to Investors Bank;
(3) Coordination of registration of the Funds with the National
Securities Clearing Corporation ("NSCC") and filing of required Fund/SERV
reports with the NSCC;
(4) The provision of advice and counsel to the Funds with
respect to regulatory matters regarding legal review and principal sign off of
Fund marketing material and other sales related materials, broker/dealer and
distribution related issues, including monitoring regulatory and legislative
developments that may affect the Funds and assisting the Funds in routine
regulatory examinations or investigations;
(5) Assistance in the Funds' operations and provision of general
consulting services with respect to legal review and sign off on marketing
materials and other sales related materials, broker/dealer and distribution
related issues, on an as needed basis;
(6) Assistance in the preparation of quarterly board materials
with regard to sales and other distribution related data reasonably requested by
the board;
(7) Preparation of materials for the board supporting the annual
renewal of the Distribution Agreement;
<PAGE>
(8) Administering payments to third parties of 12b-1 fees or
other commissions, if any;
(9) Upon request, attending meetings of the Board of
Trustees of the Funds;
(10) In connection with the foregoing activities, maintenance of
an office facility (which may be in the offices of FDI or a corporate
affiliate);
(11) In connection with the foregoing activities, the furnishing
of clerical services and internal executive and administrative services,
stationery and office supplies;
(12) Based on advice of Goodwin, Proctor & Hoar, counsel to
Investors Bank, employees of Investors Bank who will engage in sales activities
for the Funds will not be required to be licensed with the NASD. In those states
where Goodwin, Proctor & Hoar has advised the parties that no such exemption
from licensing is applicable, FDI will provide a licensed sales representative
who will attend any sales presentations to be held in those states. In addition,
in the event Investors Bank requires its own employees to be registered as
representatives of FDI, FDI will sponsor up to two (2) such employees; and
(13) FDI will keep and maintain all books and records relating
to its services in accordance with Rule 31a-1 under the 1940 Act.
(b) Fund Officers. FDI will provide officers to the Funds to assume
certain specified responsibilities. This provision will be limited to two
officers to be specified by the Fund.
(c) Referrals. FDI may, from time to time, as opportunities are
presented, refer potential investors in the Funds or potential clients to
Investors Bank. Such potential investors or clients will be identified to
Investors Bank by FDI either in writing or verbally, and FDI will be compensated
at the rate set forth in Section 4 of this Agreement for any such referrals
which result in an investment in the Funds or any other agreement for services
with Investors Bank.
2. Services Provided by Investors Bank. In furtherance of the responsibilities
under this Agreement, Investors Bank will:
(a) cause the registration of the Shares under the Securities Act of
1933 (the "1933 Act") and the qualification of the Shares for sale in those
states that the Funds may designate;
(b) monitor or cause the Funds' transfer agent to monitor sales of the
Shares with respect to compliance with applicable state securities and Blue Sky
laws;
(c) provide consulting services with regard to such advertising,
marketing and promotional activities as Investors Bank believes reasonable,
including but not limited to (i) development of information, analyses and
reports, (ii) preparing, printing and distributing sales literature brochures,
letters, training materials and dealer guides and all similar materials and
advertisements as defined below, (iii) develop and implement audio and video
advertising programs, and (iv) arrange for the printing and distribution of
prospectuses and reports of the Funds to prospective shareholders; provided that
it is understood that FDI shall have no responsibility for strategic planning or
development with respect to such matters. For purposes of this Agreement "sales
literature" and "advertisements" mean brochures, letters, electronic media,
training materials and dealers' guides, materials for oral presentations and all
other similar materials, whether transmitted directly to potential shareholders
or published in print or audio-visual media, but does not include generic
materials that do not mention the Funds or the Shares;
(d) submit all consulting related sales literature and advertisements
prepared pursuant to Section 2(d) above to FDI for legal/compliance review in
advance of use, and incorporate such changes as FDI may reasonably request
therein. FDI will file such materials and obtain such approvals for their use as
may be required by the SEC, NASD or state securities administrators;
(e) identify persons employed by Investors Bank that will become
Registered Representatives and assist FDI in ascertaining that such persons meet
all requirements established for being a Registered Representative by the SEC,
NASD and relevant state securities commissions;
(f) report sales-related complaints to FDI and consult with FDI
concerning the manner in which such complaints will be addressed;
<PAGE>
(g) to the extent applicable, cause the Funds' transfer agent to give
necessary information for the preparation of quarterly reports in a form
reasonably satisfactory to FDI regarding any Rule 12b-1 fees, front-end sales
loads, back-end sales loads and other data regarding sales and sales loads as
required by the 1940 Act or as requested by the board of trustees of the Trust;
(h) to the extent applicable, cause the Funds' transfer agent to provide
FDI with all necessary information so that FDI can calculate the maximum sales
charges payable by the Funds pursuant to the Conduct Rules of the NASD and the
actual sales charges paid by the Funds; and cause the Funds' transfer agent to
provide such information in a form satisfactory to FDI no less often than
monthly for every Fund and on a daily basis for any Fund for which FDI
determines that the remaining limit is approaching zero;
(i) support or cause the Funds' transfer agent to support the servicing
of the shareholders; in connection therewith the Funds' transfer agent or
Investors Bank will provide one or more persons during normal business hours to
respond to telephone questions concerning the Funds;
(j) provide FDI with copies of, or access to, any documents that
FDI may reasonably request and notify FDI as soon as possible of any matter
materially affecting FDI's performance of services under this Agreement;
(k) (i) identify persons to enter into agreements with FDI for
the solicitation of Fund Shares, such as securities dealers, financial
institutions and other industry professionals such as investment advisers and
estate planning firms (collectively referred to herein as "Selling Broker
Dealers"); (ii) assist FDI in ascertaining that such persons meet any
requirements established for Selling Broker-Dealers by law, the Funds or FDI;
(iii) request that FDI enter into selling agreements with each such Selling
Broker-Dealer ("Selling Agreements") using a request form (the "Selling Agent
Request Form") substantially similar to the attached Exhibit B signed by a duly
authorized officer or employee of Investors Bank (who shall be a person listed
on Exhibit B until such time as Investors Bank amends or supplements such list)
and Investors Bank will assist in the performance of the necessary due diligence
to determine the qualification of the prospective Selling Broker-Dealer pursuant
to clause (ii) above; (iv) submit such Selling Agent Request Form and all
related due diligence materials that Investors Bank may have to FDI; (v) assist
FDI in coordinating the execution of Selling Agreements between FDI and the
Selling Broker-Dealers; and (vi) use its best efforts to insure that no sales
are executed or processed prior to obtaining an executed Selling Agreement from
the Selling Broker-Dealer making the sale;
(l) provide administrative support (e.g., telemarketing and
fulfillment services) with regard to, and use its best efforts to monitor the
performance of, the Selling Broker-Dealers in their solicitation and execution
of sales of the Shares and all activities related thereto, including compliance
with applicable law, the Selling Agreements, and the multi-class procedures;
(m) use reasonable efforts to monitor the Selling Broker-Dealers
and the Registered Representatives in their resolution of "as of trades" with
respect to Shares of the Funds in order to mitigate the risk of loss to FDI and
the Funds from such "as of trades";
(n) report to FDI, to the extent that Investors Bank is aware,
any and all actions or inactions by any Selling Broker-Dealer or Registered
Representative that (i) fail to comply with the terms of any Selling Agreements,
(ii) violate any applicable laws or regulations of any governmental authorities,
including the NASD's Rules of the Association, or (iii) violate any other
agreements or procedures with which such Selling Broker-Dealer is required to
comply;
(o) (i) submit the form of confirmation statement to be used for
sale of the Shares to FDI for its approval and provide or cause to be provided
to customers of the Selling Broker-Dealers ("Customers") and to the Selling
Broker-Dealers such confirmations of all transactions in the Shares as may be
required by the Securities Exchange Act of 1934 (the "1934 Act") and the Selling
Agreements, and (ii) use reasonable efforts to monitor the Fund's transfer agent
in its preparation and mailing of such confirmations regarding the sales of the
Shares and report to FDI any deficiencies of which Investors Bank is aware in
the transfer agent's performance of such activities;
(p) (i) use reasonable efforts to monitor the Funds' transfer
agent in its performance of any and all duties, functions, procedures and
responsibilities in connection with any and all transactions electronically
submitted through Fund/SERV networking procedures established by NSCC; and (ii)
use reasonable efforts to monitor the Fund's transfer agent to ensure that all
confirmed trades and any other information provided through Fund/SERV shall be
accurate, complete, and in the format prescribed by NSCC;
(q) inform FDI quarterly of those states where Investors Bank
can claim the institutional exemption;
<PAGE>
(r) provide FDI in writing to Michael Petrucelli at Premier
Mutual Fund Services, Inc., 200 Park Avenue, 45th Floor, New York, New York
10166 and at the same time with copy to FDI's Compliance Department at 60 State
Street, 13th Floor, Boston, Massachusetts 02109 with due notice (15 days) prior
to arranging a sales presentation in any state where a FDI registered
representative is required to attend; and
(s) provide directors' and officers'/errors and omissions insurance
coverage for FDI employees who are Fund officers in an amount that is reasonable
in light of all material considerations.
3. Delivery of Documents. In order to assist FDI in the performance of its
duties, Investors Bank has caused each Fund to furnish FDI with, or provide FDI
with access to, each of the following:
(a) each Fund's most recent Post-Effective Amendment to its Registration
Statement on Form N-1A (the "Registration Statement") under the 1933 Act and
under the 1940 Act as filed with the SEC relating to each Fund's shares;
(b) each Fund's most recent Prospectus(es);
(c) each Fund's most recent Statement(s) of Additional Information;
(d) each Fund's most recent annual and semi-annual financial statements;
(e) each Fund's most recent filings pursuant to Rules
24f-2/24e-2 under the 1940 Act;
(f) each Fund's most recent SEC examination letter to the extent that
such information contained in the SEC letter: (i) materially affects FDI's
performance under this Agreement; or (ii) the issues identified in the letter
may result in FDI incurring any loss, claim, damage or liability or action in
respect thereof; and
(g) the Fund's charter documents and by-laws.
Investors Bank will furnish FDI from time to time with copies of, or access to,
all amendments of or supplements to the foregoing. Furthermore, Investors Bank
will provide FDI with copies of, or access to, any other documents that FDI may
reasonably request and will notify FDI as soon as possible of any matter
materially affecting FDI's performance of its services under this Agreement.
4. Compensation; Reimbursement of Expenses. All compensation noted herein for
services provided under this Agreement is confidential and should be discussed
only between the parties to the Agreement.
(a) Medallion Distribution Services. For the medallion distribution
services provided under this Agreement, Investors Bank shall pay FDI an annual
minimum fee in the first year of this Agreement of $45,000 for the Funds up to a
total of five (5) money funds, and an additional $15,000 for each additional
Fund/spoke, payable in equal monthly installments on the first business day of
each month (the "Base Fee"). Such annual Base Fee shall be increased to a
minimum fee of $60,000 in the second year, and $75,000 in the third year of the
Agreement, and an additional $15,000 for any Fund or spoke over the initial five
(5) funds in the Fund family.
The Base Fee as stated above is subject to the following conditions: (I) FDI
shall only sponsor two Registered Representatives, if needed, plus out-of-pocket
costs as noted below, (Additional sponsorships need to be approved by FDI and
shall be subject to $3,000 annual fee per Registered Representative, plus all
out-of-pocket expenses); and (ii) the advertising legal review shall be for the
lesser of 30 marketing pieces or 150 pages per calendar year. If the advertising
legal review exceeds this amount during the relevant annual contract period (the
"Annual Period"), Investors Bank shall pay FDI $150 for the first ten (10) pages
of advertising legal review for an individual marketing piece and $10 per page
thereafter for such advertising legal review that is in excess of 30 pieces or
150 pages as previously described.
Fees paid by Investors Bank to FDI for broker/dealer related services (and the
commencement of the Annual Period) shall begin on the date first written above.
In addition, Investors Bank shall pay FDI a fee of $2,500 (plus travel costs)
for each state sales visit required by a FDI registered representative. Should
FDI be required to attend more than eight (8) sales presentations within a one
year period (beginning April 1, 1998), a fee for such visits will be negotiated
between the parties.
All fees paid to FDI for the services described in this Agreement are exclusive
of out-of-pocket costs. Investors Bank agrees to reimburse FDI for FDI's
reasonable out-of-pocket expenses incurred in providing the services hereunder
including but not limited to NASD/state securities registration related
expenses, including expenses related to sponsorship and maintenance of
Registered Representative licenses for FDI and Investors Bank personnel, the
licenses of any and all exclusively dedicated teleservicing representatives and
NASD filing fees for sales literature, teleservicing functions including
installation changes, linecharges and usage tolls.
<PAGE>
The amount of each monthly payment described in this Paragraph 4 shall be
reduced by the amount, if any, paid to FDI by any Fund pursuant to that Fund's
Rule 12b-1 plan (a "Plan"), if any, as in effect from time to time, to the
extent that FDI has not used such amount paid pursuant to the Plan to pay for
sales, marketing or other activities or expenses in accordance with the Plan
("Distribution Activities"), whether such payments were made to unaffiliated
third parties or retained by FDI in connection with the Distribution Activities
in which FDI has engaged on the Fund's behalf at the request of Investors Bank.
FDI shall have no obligation to make any payments pursuant to a Plan until FDI
has received monies therefor from the Funds or Investors Bank.
(b) Fund Officers. Investors Bank shall pay FDI an annual fee of $20,000
for Fund officers as described in Section 1(b) of this Agreement. The fee for
Fund officers will be increased to $25,000 and $30,000 for the second and
third-year term, respectively, of the Agreement.
(c) Referral Business. Investors Bank shall pay FDI a one time, one year
referral fee of four (4) basis points on the average money market assets
referred to Investors Bank by FDI. Such fee is to be calculated quarterly on
average assets and shall be paid within 15 days of the quarter end.
(d) Miscellaneous. The minimum medallion distribution services fee and
officer fee will increase to $100,000 per year when the Trust offers fixed
income or equity products. The Merrimac Short-Term Asset Reserve Series will be
considered a money market fund for this purpose.
Compensation under this Agreement shall be calculated and accrued daily and the
amounts of the daily accruals shall be paid monthly in arrears. If this
Agreement becomes effective subsequent to the first day of a month or shall
terminate before the last day of a month, compensation for that part of the
month this Agreement is in effect shall be prorated in a manner consistent with
the calculation of the fees as set forth above.
5. Effective Date. This Agreement shall become effective with respect to a Fund
as of the date first written above (or, if a particular Fund is not in existence
on that date, on the date FDI becomes the distributor of the shares of such
Fund; Schedule A to this Agreement shall be deemed amended to include such Fund
from and after such date).
6. Term.
(a) This Agreement shall continue for an initial three-year period and
shall continue thereafter for successive one-year terms unless terminated
pursuant to the provision of sub-section (b) of this Section 6.
(b) This Agreement shall automatically terminate as it relates to any
Fund upon termination of the Distribution Agreement between such Fund and FDI or
this Agreement may be terminated with respect to any Fund at any time without
payment of any penalty, upon 60 days' written notice, by vote of a majority of
the Board of Trustees of a Fund. In any event, the provisions of Section 8 shall
survive termination of this Agreement and continue in full force and effect.
Compensation due FDI and unpaid by Investors Bank upon such termination shall be
immediately due and payable upon and notwithstanding such termination.
7. Standard of Care and Indemnification.
(a) Investors Bank will indemnify and hold harmless FDI against any
losses, claims, damages or liabilities, or actions in respect thereof, to which
FDI may become subject, including amounts paid in settlement with the prior
written consent of Investors Bank, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or result from:
(i) the failure of Investors Bank to comply with the
terms of this Agreement;
(iii) the failure of Investors Bank to conduct a sales
presentation without a licensed representative of FDI where the Investors Bank
institutional exemption does not apply;
(iv) any use of sales materials or advertisements or any oral or
written misrepresentations or any unlawful sales practices concerning the Shares
by a Registered Representative if such misrepresentations or unlawful sales
practices were the direct result of Investors Bank's bad faith, willful
misfeasance, gross negligence or reckless disregard of its duties and
obligations under this Agreement;
(v) the failure of any Selling Broker-Dealer (as referenced in
Exhibit C) to have entered into a Selling Agreement with FDI prior to the
execution of any sale of Shares of any Fund; and
(vi) the failure of any Selling Broker-Dealer to comply with the
terms of any Selling Agreement to which it is a party if such failure to comply
was the direct result of Investors Bank's bad faith, willful misfeasance, gross
negligence or reckless disregard of its duties and obligations under this
Agreement.
<PAGE>
Investors Bank will reimburse FDI for reasonable legal or other expenses
reasonably incurred by FDI in connection with investigating or defending against
any such loss, claims, damage, liability or action. Investors Bank shall not be
liable to FDI for any action taken or omitted by FDI in bad faith, with willful
misfeasance or gross negligence or from reckless disregard by FDI of its
obligations and duties. The indemnities in this Section shall, upon the same
terms and conditions, extend to and inure to the benefit of each of the
directors and officers of FDI and any person controlling FDI within the meaning
of Section 15 for the 1933 Act or Section 20 of the 1934 Act.
(b) FDI will indemnify and hold harmless Investors Bank against any
losses, claims, damages or liabilities, or actions in respect thereof, to which
Investors Bank may become subject, including amounts paid in settlement with the
prior written consent of FDI, insofar as such losses, claims, damages or
liabilities, or actions in respect thereof, arise out of or result from:
(i) the failure of FDI to comply with the terms of
this Agreement;
(ii) the failure of FDI to comply with the NASD's Rules of the
Association;
(iii) any use of sales materials or advertisements or any oral
or written misrepresentations or any unlawful sales practices concerning the
Shares by a Registered Representative if such misrepresentations or unlawful
sales practices were the direct result of FDI's bad faith, willful misfeasance,
gross negligence or reckless disregard of its duties and obligations under this
Agreement; and
(iv) the failure of any Selling Broker-Dealer to comply with the
terms of any Selling Agreement to which it is a party if such failure to comply
was the direct result of FDI's bad faith, willful misfeasance, gross negligence
or reckless disregard of its duties and obligations under this Agreement.
FDI will reimburse Investors Bank for reasonable legal or other expenses
reasonably incurred by Investors Bank in connection with investigating or
defending against any such loss, claims, damage, liability or action. FDI shall
not be liable to Investors Bank for any action taken or omitted by Investors
Bank in bad faith, with willful misfeasance or gross negligence or from reckless
disregard by Investors Bank of its obligations and duties. The indemnities in
this Section shall, upon the same terms and conditions, extend to and inure to
the benefit of each of the directors and officers of Investors Bank and any
person controlling Investors Bank within the meaning of Section 15 for the 1933
Act or Section 20 of the 1934 Act.
8. Record Retention and Confidentiality. FDI shall keep and maintain on behalf
of the Funds all books and records which the Funds and FDI are, or may be,
required to keep and maintain in connection with the services to be provided
hereunder pursuant to any applicable statutes, rules and regulations, including
without limitation Rules 31a-1 and 31a-2 under the 1940 Act. FDI further agrees
that all such books and records shall be the property of the Funds and to make
such books and records available for inspection by or upon the request of the
Funds, by Investors Bank, or by the SEC reasonable times and otherwise to keep
confidential all books and records and other information relative to the Funds
and its shareholders; except when requested to divulge such information by
duly-constituted authorities or court process.
9. Rights of Ownership. All computer programs and procedures developed to
perform the services to be provided by FDI under this Agreement are the property
of FDI. All records and other data except such computer programs and procedures
are the exclusive property of the Funds and all such other records and data will
be furnished to Investors Bank and/or the Funds in appropriate form as soon as
practicable after termination of this Agreement for any reason.
10. Return of Records. FDI may at its option at any time, and shall promptly
upon the demand of Investors Bank and/or the Funds, turn over to Investors Bank
and/or the Funds and cease to retain FDI's files, records and documents created
and maintained by FDI pursuant to this Agreement which are no longer needed by
FDI in the performance of its services or for its legal protection. If not so
turned over to Investors Bank and/or the Funds, such documents and records will
be retained by FDI for six years from the year of creation. At the end of such
six-year period, such records and documents will be turned over to Investors
Bank and/or the applicable Fund unless the applicable Fund authorizes in writing
the destruction of such records and documents.
11. Representations of Investors Bank. Investors Bank represents and warrants
that this Agreement has been duly authorized by Investors Bank and, when
executed and delivered by Investors Bank, will constitute a legal, valid and
binding obligation of Investors Bank, enforceable against Investors Bank in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
<PAGE>
12. Representations of FDI.
(a) FDI represents and warrants that this Agreement has been duly
authorized by FDI and, when executed and delivered by FDI, will constitute a
legal, valid and binding obligation of FDI, enforceable against FDI in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights and
remedies of creditors and secured parties.
(b) FDI further represents and warrants that it is a member of the NASD
and agrees to abide by all of the rules and regulations of the NASD, including,
without limitation, its Rules of the Association. FDI agrees to comply with all
applicable federal and state laws, rules and regulations. FDI agrees to notify
Investors Bank immediately in the event of its expulsion or suspension by the
NASD. Expulsion of FDI by the NASD will automatically terminate this Agreement
immediately without notice. Suspension of FDI by the NASD will terminate this
Agreement effective immediately upon written notice of termination to FDI from
Investors Bank.
13. Notices. Any notice provided hereunder shall be sufficiently given when sent
by registered or certified mail to Investors Bank at the following address:
Investors Bank & Trust Company, 200 Clarendon Street, Boston, MA 02116,
Attention: Chief Operating Officer with a copy to General Counsel; and to FDI at
the following address: 60 State Street, Suite 1300, Boston, MA 02109, Attention:
President with a copy to General Counsel, or at such other address as either
party may from time to time specify in writing to the other party pursuant to
this Section.
14. Headings. Paragraph headings in this Agreement are included for
convenience only and are not to be used to construe or interpret this
Agreement.
15. Assignment. This Agreement and the rights and duties hereunder
shall not be assignable by either of the parties hereto except by the
specific written consent of the other party.
16. Governing Law. This Agreement shall be governed by and
provisions shall be construed in accordance with the laws of The
Commonwealth of Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed all as of the day and year first above written.
INVESTORS BANK &
TRUST COMPANY
By: /s/ Robert D. Mancuso
Name: Robert D. Mancuso
Title: Senior Vice President
FUNDS DISTRIBUTOR, INC.
By: /s/ Marie E. Connolly
Name: Marie E. Connolly
Title: President and Chief
Executive Officer
Dated: June 1, 1998
<PAGE>
SCHEDULE A
TO THE AGREEMENT
BETWEEN
INVESTORS BANK & TRUST COMPANY
AND
FUNDS DISTRIBUTOR, INC.
MERRIMAC SERIES
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Short-Term Asset Reserve Series
INVESTORS BANK & TRUST COMPANY
By: /s/ Robert D. Mancuso
Name: Robert D. Mancuso
Title: Senior Vice President
FUNDS DISTRIBUTORS, INC.
By: /s/ Marie E. Connolly
Name: Marie E. Connolly
Title: President and Chief Executive Officer
<PAGE>
Exhibit B
SELLING AGREEMENT REQUEST FORM
To:_______________________________________
From:_____________________________________
Tel #_______________ Fax #_______________
Date:_______________________
Proposed selling agent name and address:
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
- ---------------------------------------------
Type of agreement (check one):
____ Bank Agreement
____ Bank Affiliated Broker-Dealer Agreement
____ Broker-Dealer Agreement
____ Registered Investment Adviser Agreement
- -----------------------------------------
Authorized Investors Bank Representative
(Attached hereto as Attachment 1 is a list of Authorized Investors Bank
Representatives).Attachment 1
AUTHORIZED INVESTORS BANK REPRESENTATIVES
The following individuals are authorized to request the issuance of
sales agreements to clients and/or potential clients of Investors Bank & Trust
Company:
Sean Brennan
Tim Coyne
Christopher Quinn
Paul Jasinski
Susan Mosher
<PAGE>
Exhibit C
Selling Agents That Have Entered Into Selling
Agreements With Funds Distributor, Inc.
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
June 15, 1998
Merrimac Series
200 Clarendon Street
Boston, Massachusetts 02116
Ladies and Gentlemen:
As counsel to Merrimac Series (the "Trust"), a Delaware business trust, we
have been asked to render our opinion in connection with the proposed issuance
of an indefinite number of Premium Class, Institutional Class and Investment
Class shares of beneficial interest, all with $0.001 par value, of the Trust
(the "Shares") representing interests in the Merrimac Cash Series, Merrimac
Treasury Series and Merrimac Short-Term Asset Reserve Series, as more fully
described in the Prospectus and Statement of Additional Information contained in
Pre-Effective Amendment No. 1 (the "Amendment") to the Trust's Registration
Statement on Form N-1A (Registration No. 333-49693) to be filed by the Trust
with the Securities and Exchange Commission.
We have examined the Master Trust Agreement dated as of March 30, 1998, the
By-Laws of the Trust, the minutes of certain meetings of the Trustees, the
Prospectus and Statement of Additional Information contained in the Amendment,
and such other documents, records and certificates as we have deemed necessary
for the purposes of this opinion.
Based upon the foregoing, we are of the opinion that the Shares, when sold
in accordance with the terms of the Prospectus and Statement of Additional
Information in effect at the time of sale, will be legally issued, fully paid
and non-assessable by the Trust.
We hereby consent to the filing of this opinion as an exhibit to the
Amendment and to the reference to this firm as legal counsel for the Trust in
the Prospectus and Statement of Additional Information contained in the
Amendment.
Very truly yours,
GOODWIN, PROCTER & HOAR LLP
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Summary" and
"Management of the Funds and the Portfolios" in the Prospectus and "Legal
Counsel, Independent Auditors/Accountants and Financial Statements" in the
Statement of Additional Information and to the incorporation by reference of our
report dated February 13, 1998 on the Merrimac Cash Portfolio and the Merrimac
Treasury Portfolio of the Merrimac Master Portfolio and to the inclusion of our
Report dated June 16, 1998 on the Merrimac Cash Series of the Merrimac Series
included in Pre-Effective Amendment Number 1 to the Registration Statement (Form
N-1A No. 811-07941) of the Merrimac Series
ERNST & YOUNG LLP
Boston, Massachusetts
June 16, 1998
PURCHASE AGREEMENT
Merrimac Series, a trust organized under Delaware law (the "Trust"), and
Funds Distributor, Inc., a Massachusetts corporation (the "Distributor), hereby
agree as follows:
1. The Trust hereby offers the Distributor and the Distributor hereby
agrees to purchase 100,000 shares, par value $.001 per share of the Premium
Class of the Merrimac Cash Series (hereinafter the "Shares"). The
Distributor hereby acknowledges receipt of a purchase confirmation
reflecting the purchase of the Shares, and the Trust hereby acknowledges
receipt from the Distributor of cash in the amount of $100,000 in full
payment for the Shares.
2. The Distributor represents and warrants to the Trust that the
Shares are being acquired for investment purposes and not with a view to
the distribution thereof.
3. The Distributor agrees that if it redeems the Shares prior to the
fifth anniversary of the date the Trust begins its investment activities,
the Distributor will pay to the Trust an amount equal to the number
resulting from multiplying the Trust's total unamortized organizational
expenses by a fraction, the numerator of which is equal to the number of
shares of that Series redeemed by the Distributor and the denominator of
which is equal to the number of shares of that Series outstanding as of the
date of such redemption, as long as the administrative position of the
staff of the Securities and Exchange Commission requires such
reimbursement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 15th day of June, 1998.
MERRIMAC SERIES FUNDS DISTRIBUTOR, INC.
By: /s/ Paul J. Jasinski By: /s/ Marie E. Connolly
Its: Treasurer and Chief Financial Its: President and Chief Executive Officer
Officer
EXHIBIT-99.B15(a)
MERRIMAC SERIES
(Institutional Class Shares)
Shareholder Servicing Plan
WHEREAS, Merrimac Series, an unincorporated association of the type
commonly known as a business trust organized under the laws of the State of
Delaware (the "Trust"), engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized (i) to issue shares of beneficial
interest in separate series, with the shares of each such series representing
the interests in a separate portfolio of securities and other assets, and (ii)
to divide the shares within each such series into two or more classes;
WHEREAS, the Trust has established three portfolio series, the Merrimac
Cash Series, Merrimac Treasury Series and Merrimac Short Term Asset Reserve
Series (such series being referred to herein as the "Initial Series" -- such
series, together with all other series subsequently established by the Trust and
made subject to this Plan, being referred to herein individually as a "Series"
and collectively as the "Series");
WHEREAS, the Trust has established three classes of shares, such
classes being referred to as the "Institutional Class," the "Premium Class" and
the "Investment Class"; and
WHEREAS, the Trust desires to adopt a Shareholder Servicing Plan and
has adopted a related form of Shareholder Servicing Agreement with respect to
the Institutional Class shares (the "Shares") of the Initial Series for certain
service organizations that wish to act as agent of their customers (the "Agent")
(respectively, the "Plan" and the "Agreement"); and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or any Agreement
and any agreements relating thereto (the "Qualified Trustees"), having
determined, in the exercise of their reasonable business judgment and in light
of their fiduciary duties under state law and in keeping with the requirements
of Section 36(a) and (b) of the Act, that there is a reasonable likelihood that
this Plan and the Agreement will benefit the Institutional Class shares of the
Initial Series and its shareholders, have accordingly approved this Plan and the
Agreement on behalf of the Initial Series by votes cast in person at a meeting
called for the purpose of voting on this Plan and the Agreement and any
agreements related thereto.
NOW, THEREFORE, the Trust hereby adopts this Plan on the following
terms and conditions:
1. Shareholder Servicing Activities. Subject to the supervision of the
Board of Trustees, the Trust may engage, directly or indirectly, in financing
any activities relating to
<PAGE>
shareholder account administrative and servicing functions, including without
limitation making payments to Agents for one or more of the following
activities: (a) answering inquiries regarding account status and history, the
manner in which purchases and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting in designating and
changing dividend options, account designations and addresses; (c) providing
necessary personnel and facilities to establish and maintain certain shareholder
accounts and records, as requested from time to time by the Trust; (d) assisting
in processing purchase and redemption transactions; (e) arranging for the wiring
of funds; (f) transmitting and receiving funds in connection with orders to
purchase or redeem Shares; (g) verifying and guaranteeing signatures in
connection with redemption orders, transfers among and changes in designated
accounts; (h) providing periodic statements showing account balances and, to the
extent practicable, integration of such information with other client
transactions otherwise effected with or through the Agent; (i) furnishing
(either separately or on an integrated basis with other reports sent by the
Agent) monthly and annual statements and confirmations of all purchases and
redemptions of Shares in an account; (j) transmitting proxy statements, annual
reports, prospectuses and other communications from the Trust; (k) receiving,
tabulating and transmitting to the Trust proxies executed with respect to
special meetings of shareholders of the Trust; and (l) providing such other
related services as the Trust or customers of the Agent may reasonably request.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
Agreements pursuant to the Plan.
2. Maximum Expenditures. The expenditures to be made by the Initial
Series pursuant to this Plan and the basis upon which payment of such
expenditures will be made shall be determined from time to time by the Trustees,
but in no event may such expenditures exceed the following: (i) with respect to
Shares of the Initial Series, an annual rate of .25% of the average daily value
of net assets represented by such Shares, and (ii) with respect to Shares of any
Series subsequently established by the Trust and made subject to this Plan, the
annual rate as agreed upon and specified in an addendum hereto. The expenditures
to be made pursuant to this Plan shall commence with respect to Shares of a
Series as of the date on which this Plan becomes effective with respect to each
such Series.
3. Payments. Pursuant to this Plan, the Trust shall make periodic
payments to the Agent at the annual rate provided for in the Agreement with
respect to the Shares of each Series. The servicing expenses of a particular
class will be borne solely by that class and no Series will use fees charged to
one class within a Series to support the marketing or servicing relating to any
other class within that Series or any other Series.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with
respect to the Shares of the Initial Series as of the later of (i) the date on
which an amendment to the Registration Statement on Form N-1A with respect to
the Shares becomes effective under the Securities Act of 1933, as amended, or
(ii) the date on which the Initial Series commences offering the Shares
2
<PAGE>
to the public and shall continue in effect with respect to the Shares (subject
to Section 4(d) hereof) until one year from the date of such effectiveness,
unless the continuation of this Plan shall have been approved with respect to
the Shares in accordance with the provisions of Section 4(c) hereof.
(b) Additional Series. This Plan shall become effective with
respect to the Shares of each additional Series established by the Trust after
the date hereof and made subject to this Plan upon commencement of the initial
public offering thereof (provided that the Plan has previously been approved
with respect to the Series by votes of a majority of both (i) the Board of
Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a
meeting held before the initial public offering of such additional Series
thereof and called for the purpose of voting on such approval), and shall
continue in effect with respect to each such additional Series (subject to
Section 4(d) hereof) for one year thereafter, unless the continuation of this
Plan shall have been approved with respect to such additional Series in
accordance with the provisions of Section 4(c) hereof.
(c) Continuation. This Plan and the Agreements shall continue
in effect with respect to each Series subsequent to the initial term specified
in Section 4(a) and (b) for so long as such continuance is specifically approved
at least annually by votes of a majority of both (i) the Board of Trustees of
the Trust and (ii) the Qualified Trustees, cast in person at a meeting called
for the purpose of voting on this Plan, subject to any shareholder approval
requirements existing under applicable law.
(d) Termination.
(i) This Plan may be terminated at any time with
respect to the Trust or any Series thereof, as the case may be, by vote
of a majority of the Qualified Trustees, or by vote of a majority of
the outstanding voting Shares of that Series. For purposes of this
Plan, the term "vote of a majority of the outstanding voting Shares" of
any Series shall mean the vote of the lesser of (A) 67 percent or more
of the outstanding voting Shares present at such meeting, if the
holders of more than 50 percent of the outstanding voting Shares of
such class are present and represented by proxy; or (B) 50 percent or
more of the Shares. The Plan may remain in effect with respect to a
Series even if it has been terminated in accordance with this Section
4(d) with respect to one or more other Series of the Trust to which
this plan applies.
(ii) The Agreements may be terminated at any time,
without penalty, with respect the Shares of any Series by vote of a
majority of the Qualified Trustees or by vote of a majority of the
outstanding voting Shares of that Series on sixty days' written notice
to the Agent.
5. Amendments. This Plan may not be amended to increase materially the
amount of expenditures provided for in Section 2 hereof unless such amendment is
approved by a vote of a majority of the outstanding Shares to which this Plan
applies of each Series with respect to which a material increase in the amount
of distribution expenditures is proposed, and no material
3
<PAGE>
amendment to the Plan shall be made unless approved in the manner provided for
annual renewal in Section 4(c) hereof. Otherwise, this Plan may be amended with
respect to a class of the Shares to which this Plan applies of a Series by vote
of a majority of the Qualified Trustees or the outstanding voting of such a
class of Shares of that Series.
6. Independent Trustees. While this Plan is in effect with respect to
any Series, the selection and nomination of Trustees who are not interested
persons (as defined in the Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
7. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan and the purposes
for which such expenditures were made.
8. Recordkeeping. The Trust shall preserve copies of this Plan, the
Agreement and any related agreements and all reports made pursuant to Section 7
hereof, for a period of not less than six years from the date of this Plan and
the Agreement, the agreements or such reports, as the case may be, the first two
years in an easily accessible place.
Dated: June 1, 1998
4
EXHIBIT-99.B15(b)
MERRIMAC SERIES
(Investment Class Shares)
Shareholder Servicing Plan
WHEREAS, Merrimac Series, an unincorporated association of the type
commonly known as a business trust organized under the laws of the State of
Delaware (the "Trust"), engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized (i) to issue shares of beneficial
interest in separate series, with the shares of each such series representing
the interests in a separate portfolio of securities and other assets, and (ii)
to divide the shares within each such series into two or more classes;
WHEREAS, the Trust has established three portfolio series, the Merrimac
Cash Series, Merrimac Treasury Series and Merrimac Short Term Asset Reserve
Series (such series being referred to herein as the "Initial Series" C such
series, together with all other series subsequently established by the Trust and
made subject to this Plan, being referred to herein individually as a "Series"
and collectively as the "Series");
WHEREAS, the Trust has established three classes of shares, such
classes being referred to as the "Institutional Class," the "Premium Class" and
the "Investment Class"; and
WHEREAS, the Trust desires to adopt a Shareholder Servicing Plan and
has adopted a related form of Shareholder Servicing Agreement with respect to
the Investment Class shares (the "Shares") of the Initial Series for certain
service organizations that wish to act as agent of their customers (the "Agent")
(respectively, the "Plan" and the "Agreement"); and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or any Agreement
and any agreements relating thereto (the "Qualified Trustees"), having
determined, in the exercise of their reasonable business judgment and in light
of their fiduciary duties under state law and in keeping with the requirements
of Section 36(a) and (b) of the Act, that there is a reasonable likelihood that
this Plan and the Agreement will benefit the Investment Class shares of the
Initial Series and its shareholders, have accordingly approved this Plan and the
Agreement on behalf of the Initial Series by votes cast in person at a meeting
called for the purpose of voting on this Plan and the Agreement and any
agreements related thereto.
NOW, THEREFORE, the Trust hereby adopts this Plan on the following
terms and conditions:
1. Shareholder Servicing Activities. Subject to the supervision of the
Board of Trustees, the Trust may engage, directly or indirectly, in financing
any activities relating to
<PAGE>
shareholder account administrative and servicing functions, including without
limitation making payments to Agents for one or more of the following
activities: (a) answering inquiries regarding account status and history, the
manner in which purchases and redemptions of the Shares may be effected, and
certain other matters pertaining to the Trust; (b) assisting in designating and
changing dividend options, account designations and addresses; (c) providing
necessary personnel and facilities to establish and maintain certain shareholder
accounts and records, as requested from time to time by the Trust; (d) assisting
in processing purchase and redemption transactions; (e) arranging for the wiring
of funds; (f) transmitting and receiving funds in connection with orders to
purchase or redeem Shares; (g) verifying and guaranteeing signatures in
connection with redemption orders, transfers among and changes in designated
accounts; (h) providing periodic statements showing account balances and, to the
extent practicable, integration of such information with other client
transactions otherwise effected with or through the Agent; (i) furnishing
(either separately or on an integrated basis with other reports sent by the
Agent) monthly and annual statements and confirmations of all purchases and
redemptions of Shares in an account; (j) transmitting proxy statements, annual
reports, prospectuses and other communications from the Trust; (k) receiving,
tabulating and transmitting to the Trust proxies executed with respect to
special meetings of shareholders of the Trust; and (l) providing such other
related services as the Trust or customers of the Agent may reasonably request.
The Trust is authorized to engage in the activities listed above either
directly or through other persons with which the Trust has entered into
Agreements pursuant to the Plan.
2. Maximum Expenditures. The expenditures to be made by the Initial
Series pursuant to this Plan and the basis upon which payment of such
expenditures will be made shall be determined from time to time by the Trustees,
but in no event may such expenditures exceed the following: (i) with respect to
Shares of the Initial Series, an annual rate of .25% of the average daily value
of net assets represented by such Shares, and (ii) with respect to Shares of any
Series subsequently established by the Trust and made subject to this Plan, the
annual rate as agreed upon and specified in an addendum hereto. The expenditures
to be made pursuant to this Plan shall commence with respect to Shares of a
Series as of the date on which this Plan becomes effective with respect to each
such Series.
3. Payments. Pursuant to this Plan, the Trust shall make periodic
payments to the Agent at the annual rate provided for in the Agreement with
respect to the Shares of each Series. The servicing expenses of a particular
class will be borne solely by that class and no Series will use fees charged to
one class within a Series to support the marketing or servicing relating to any
other class within that Series or any other Series.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with
respect to the Shares of the Initial Series as of the later of (i) the date on
which an amendment to the Registration Statement on Form N-1A with respect to
the Shares becomes effective under the Securities Act of 1933, as amended, or
(ii) the date on which the Initial Series commences offering the Shares
2
<PAGE>
to the public and shall continue in effect with respect to the Shares (subject
to Section 4(d) hereof) until one year from the date of such effectiveness,
unless the continuation of this Plan shall have been approved with respect to
the Shares in accordance with the provisions of Section 4(c) hereof.
(b) Additional Series. This Plan shall become effective with
respect to the Shares of each additional Series established by the Trust after
the date hereof and made subject to this Plan upon commencement of the initial
public offering thereof (provided that the Plan has previously been approved
with respect to the Series by votes of a majority of both (i) the Board of
Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a
meeting held before the initial public offering of such additional Series
thereof and called for the purpose of voting on such approval), and shall
continue in effect with respect to each such additional Series (subject to
Section 4(d) hereof) for one year thereafter, unless the continuation of this
Plan shall have been approved with respect to such additional Series in
accordance with the provisions of Section 4(c) hereof.
(c) Continuation. This Plan and the Agreements shall continue
in effect with respect to each Series subsequent to the initial term specified
in Section 4(a) and (b) for so long as such continuance is specifically approved
at least annually by votes of a majority of both (i) the Board of Trustees of
the Trust and (ii) the Qualified Trustees, cast in person at a meeting called
for the purpose of voting on this Plan, subject to any shareholder approval
requirements existing under applicable law.
(d) Termination.
(i) This Plan may be terminated at any time with
respect to the Trust or any Series thereof, as the case may be, by vote
of a majority of the Qualified Trustees, or by vote of a majority of
the outstanding voting Shares of that Series. For purposes of this
Plan, the term "vote of a majority of the outstanding voting Shares" of
any Series shall mean the vote of the lesser of (A) 67 percent or more
of the outstanding voting Shares present at such meeting, if the
holders of more than 50 percent of the outstanding voting Shares of
such class are present and represented by proxy; or (B) 50 percent or
more of the Shares. The Plan may remain in effect with respect to a
Series even if it has been terminated in accordance with this Section
4(d) with respect to one or more other Series of the Trust to which
this plan applies.
(ii) The Agreements may be terminated at any time,
without penalty, with respect the Shares of any Series by vote of a
majority of the Qualified Trustees or by vote of a majority of the
outstanding voting Shares of that Series on sixty days= written notice
to the Agent.
5. Amendments. This Plan may not be amended to increase materially the
amount of expenditures provided for in Section 2 hereof unless such amendment is
approved by a vote of a majority of the outstanding Shares to which this Plan
applies of each Series with respect to which a material increase in the amount
of distribution expenditures is proposed, and no material
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<PAGE>
amendment to the Plan shall be made unless approved in the manner provided for
annual renewal in Section 4(c) hereof. Otherwise, this Plan may be amended with
respect to a class of the Shares to which this Plan applies of a Series by vote
of a majority of the Qualified Trustees or the outstanding voting of such a
class of Shares of that Series.
6. Independent Trustees. While this Plan is in effect with respect to
any Series, the selection and nomination of Trustees who are not interested
persons (as defined in the Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
7. Quarterly Reports. The Treasurer of the Trust shall provide to the
Trustees of the Trust and the Trustees shall review, at least quarterly, a
written report of the amounts expended pursuant to this Plan and the purposes
for which such expenditures were made.
8. Recordkeeping. The Trust shall preserve copies of this Plan, the
Agreement and any related agreements and all reports made pursuant to Section 7
hereof, for a period of not less than six years from the date of this Plan and
the Agreement, the agreements or such reports, as the case may be, the first two
years in an easily accessible place.
Dated: June 1, 1998
4
EXHIBIT-99.B15(c)
[Letterhead of Merrimac Series]
Shareholder Servicing Agreement
(Institutional Class)
Boston, Massachusetts
Gentlemen:
We are hereby inviting you, subject to the terms and conditions set
forth below, to serve as the agent of your customers ("Customers") for purposes
of performing certain administrative functions in connection with purchases and
redemptions of Institutional Class shares of beneficial interest ("Shares") of
Merrimac Series (the "Trust") from time to time upon the order and for the
account of Customers, and to provide related services to your Customers in
connection with their investments in the Trust.
1. Appointment. You hereby agree to perform certain services for
Customers as hereinafter set forth. Your appointment hereunder is non-exclusive,
and the parties recognize and agree that, from time to time, the Trust may enter
into other shareholder servicing agreements, with other financial institutions.
2. Services to be Performed. You shall be responsible for performing
shareholder account administrative and servicing functions, which shall include,
without limitation, one or more of the following activities: (a) answering
Customer inquiries regarding account status and history, the manner in which
purchases and redemptions of the Shares may be effected, and certain other
matters pertaining to the Trust; (b) assisting Customers in designating and
changing dividend options, account designations and addresses; (c) providing
necessary personnel and facilities to establish and maintain certain shareholder
accounts and records, as requested from time to time by the Trust; (d) assisting
in processing purchase and redemption transactions; (e) arranging for the wiring
of funds; (f) transmitting and receiving funds in connection with Customer
orders to purchase or redeem Shares; (g) verifying and guaranteeing Customer
signatures in connection with redemption orders, transfers among and changes in
Customer-designated accounts; (h) providing periodic statements showing a
Customer's account balances and, to the extent practicable, integration of such
information with other client transactions otherwise effected with or through
you; (i) furnishing (either separately or on an integrated basis with other
reports sent to a Customer by you) monthly and annual statements and
confirmations of all purchases and redemptions of Shares in a Customer's
account; (j) transmitting proxy statements, annual reports, prospectuses and
other communications from the Trust to Customers; (k) receiving, tabulating and
transmitting to the Trust proxies executed by Customers with respect to special
meetings of shareholders of the Trust; and (l) providing such other related
services as the Trust or a Customer may reasonably request. You shall provide
all personnel and facilities necessary in order for you to perform one or more
of the functions described in this paragraph with respect to your Customers. You
shall exercise reasonable care in performing all such services and shall be
liable for any failure to
<PAGE>
exercise such reasonable care.
3. Fees.
3.1. Fees from the Trust. In consideration for the services
described in section 2 hereof and the incurring of expenses in connection
therewith, you shall receive fees at an annual rate of 0.25% of the average
daily value of all Shares owned by or for all Customers with whom you maintain a
servicing relationship, such fee to be paid in arrears at the end of each
calendar quarter.
3.2. Fees from Customers. It is agreed that you may impose
certain conditions on Customers, in addition to or different from those imposed
by the Trust, such as requiring a minimum initial investment or charging
Customers direct fees for the same or similar services as are provided hereunder
by you (which fees may either relate specifically to your services with respect
to the Trust or generally cover services not limited to those with respect to
the Trust). You shall bill Customers directly for such fees. In the event you
charge Customers such fees, you shall make appropriate prior written disclosure
(such disclosure to be in accordance with all applicable laws) to Customers both
of any direct fees charged to the Customer and of the fees received or to be
received by you from the Trust pursuant to section 3.1 of this Agreement. It is
understood, however, that in no event shall you have recourse or access to the
account of any shareholder of the Trust except to the extent expressly
authorized by law or by the Trust or by such shareholder for payment of any
direct fees referred to in this section 3.2.
4. Capacity and Authority to Act. You and your officers, employees and
agents are not authorized to make any representations concerning the Trust or
the Shares to Customers or prospective Customers, excepting only accurate
communication of factual information contained in the then-current prospectus
and statement of additional information or such other communications as may be
expressly authorized by the Trust. In performing your services under this
Agreement, you shall act as agent for the Customer and shall have no authority
to act as agent for the Trust. Upon request by the Trust, you shall provide the
Trust with copies of any materials which are generally circulated by you to your
Customers or prospective Customers.
5. Use of the Agent's Name. The Trust shall not use your name in any
prospectus, sales literature or other material relating to the Trust in a manner
not approved by you prior thereto in writing; provided, however, that your
approval shall not be required for any use of its name which merely refers
accurately to your appointment hereunder or which is required by the Securities
and Exchange Commission or any state securities authority or any other
appropriate regulatory, governmental or judicial authority; provided, further,
that in no event shall such approval be unreasonably withheld or delayed.
6. Use of the Trust's Name. You shall not use the name of the Trust
(other than for internal use in connection with performing its duties under this
agreement) in a manner not approved by the Trust prior thereto in writing;
provided, however, that the approval of the Trust shall not be required for the
use of the Trust's name in connection with communications permitted by section 4
hereof or for any use of the Trust's name which merely refers accurately to your
role hereunder or which is required by the Securities and Exchange Commission or
any state securities authority or any other appropriate regulatory, governmental
or judicial authority; provided, further, that in no event shall such approval
be unreasonably withheld or delayed.
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<PAGE>
7. Security. You represent and warrant that, to the best of your
knowledge, the various procedures and systems which you have implemented
(including provision for twenty-four hours a day restricted access) with regard
to safeguarding from loss or damage attributable to fire, theft or any other
cause the Trust's records and other data and your records, data, equipment,
facilities and other property used in the performance of your obligations
hereunder are adequate and that you will make such changes therein from time to
time as in its judgment are required for the secure performance of your
obligations hereunder. The parties shall review such systems and procedures on a
periodic basis, and the Trust may from time to time specify the types of records
and other data of the Trust to be safeguarded in accordance with this section 7.
8. Compliance with Laws; Etc. You shall comply with all applicable
federal and state laws and regulations, including securities laws. You hereby
agree to maintain all records required by law relating to transactions on the
Shares, and upon our request, or of the Trust, promptly make such of these
records available to us or the Trust's administrator as are requested. In
addition, you hereby agree to establish appropriate procedures and reporting
forms and/or mechanisms and schedules in conjunction with us and the Trust's
administrator, to enable the Trust to identify the location, type of, and sales
to all accounts opened and maintained by your customers or by you on behalf of
your customers. You represent and warrant to the Trust that the performance of
all its obligations hereunder will comply with all applicable laws and
regulations, the provisions of your charter documents and by-laws and all
material contractual obligations binding upon you. You furthermore undertake
that you will promptly inform the Trust of any change in applicable laws or
regulations (or interpretations thereof) or in your charter or by-laws or
material contracts which would prevent or impair full performance of any of your
obligations hereunder.
9. Reports. To the extent requested by the Trust from time to time, you
agree that you will provide the Trust with a written report of the amounts
expended by you pursuant to this Agreement and the purposes for which such
expenditures were made. Such written reports shall be in a form satisfactory to
the Trust and shall supply all information necessary for the Trust to discharge
its responsibilities under applicable laws and regulations.
10. Record Keeping.
10.1. Section 31(a), Etc. You shall maintain records in a form
acceptable to the Trust and in compliance with applicable laws and the rules and
regulations of the Securities and Exchange Commission, including but not limited
to the record-keeping requirements of section 31(a) of the Investment Company
Act 1940, as amended (the "1940 Act"), and the rules thereunder. Such records
shall be deemed to be the property of the Trust and will be made available, at
the Trust's reasonable request, for inspection and use by the Trust,
representatives of the Trust and governmental authorities. You agree that, for
so long as you retain any records of the Trust, you will meet all reporting
requirements pursuant to the 1940 Act with respect to such records.
10.2. Transfer of Customer Data. In the event this Agreement
is terminated or a successor to you is appointed, you shall, at the expense of
the Trust, transfer to such designee as the Trust may direct a certified list of
the shareholders of the Trust serviced by you (with name, address and tax
identification or Social Security number), a complete record of the account of
each such shareholder and the status thereof, and all other relevant books,
records, correspondence and other data established or maintained by you under
this Agreement. In the event this Agreement is terminated, you
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<PAGE>
will use your best efforts to cooperate in the orderly transfer of such duties
and responsibilities, including assistance in the establishment of books,
records and other data by the successor.
10.3. Survival of Record-Keeping Obligations. The
record-keeping obligations imposed in this section 10 shall survive the
termination of this Agreement.
11. Force Majeure. You shall not be liable or responsible for delays or
errors by reason of circumstances beyond your control, including, but not
limited to, acts of civil or military authority, national emergencies, labor
difficulties, fire, mechanical breakdown, flood or catastrophe, Acts of God,
insurrection, war, riots or failure of communication or power supply.
12. Indemnification.
12.1. Indemnification of the Agent. The Trust shall indemnify
and hold you harmless from and against any and all losses, claims, damages,
liabilities and expenses incurred by you and resulting from any claim, demand,
action or suit (collectively, "Claims") brought against you and arising out of
or in connection with the performance of your obligations hereunder, other than
any Claim resulting from (i) the bad faith or negligence of you, your officers,
employees or agents, or (ii) any breach of your obligation under this Agreement
or applicable law by you, your officers, employees or agents, or (iii) any false
or misleading statement contained in any communication by you to any Customer or
prospective Customer not prepared by or expressly authorized by the Trust for
your use.
In any case in which the Trust may be asked to indemnify or hold you
harmless, the Trust shall be advised of all pertinent facts concerning the
situation in question and you shall use reasonable care to identify and notify
the Trust promptly concerning any situation which presents or appears likely to
present a claim for indemnification against the Trust. The Trust shall have the
option to defend you against any Claim which may be the subject of
indemnification hereunder. In the event that the Trust elects to defend against
such claim the defense shall be conducted by counsel chosen by the Trust and
satisfactory to you. You may retain additional counsel at its expense. Except
with the prior written consent of the Trust, you shall not confess any Claim or
make any compromise in any case in which the Trust will be asked to indemnify
you.
12.2. Indemnification of the Trust. You shall indemnify and
hold the Trust harmless from and against any and all losses, claims, damages,
liabilities and expenses incurred by the Trust and resulting from any Claim
brought against the Trust and resulting from (i) the bad faith or negligence of
you, your officers, employees or agents, or (ii) any breach of your obligations
under this Agreement or applicable law by you, your officers, employees or
agents, or (iii) any false or misleading statement contained in any
communication by you to any Customer or prospective Customer not prepared by or
expressly authorized by the Trust for your use.
In any case in which you may be asked to indemnify or hold the Trust
harmless, you shall be advised of all pertinent facts concerning the situation
in question and the Trust shall use reasonable care to identify and notify you
promptly concerning any situation which presents or appears likely to present a
claim for indemnification against you. You shall have the option to defend the
Trust against any Claim which may be the subject of indemnification hereunder.
In the event that you elect to defend against such Claim, the defense shall be
conducted by counsel chosen by you and satisfactory to the
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<PAGE>
Trust. The Trust may retain additional counsel at its expense. Except with the
prior written consent of the agent, the Trust shall not confess any Claim or
make any compromise in any case in which you will be asked to indemnify the
Trust.
12.3. Survival of Indemnities. The indemnities granted by the
parties in this section 12 shall survive the termination of this Agreement.
13. Insurance. You shall maintain reasonable insurance coverage against
any and all liabilities which may arise in connection with the performance of
your duties hereunder. You shall provide information with respect to the extent
of such coverage upon our request.
14. Notices. All notices or other communications hereunder to either
party shall be in writing and shall be deemed sufficient if mailed to such party
at the address of such party set forth in this Agreement or at such other
address as such party may have designated by written notice to the other.
15. Further Assurances. Each party agrees to perform such further acts
and execute such further documents as are necessary to effectuate the purposes
hereof.
16. Termination. This Agreement may be terminated by the Trust, without
the payment of any penalty, at any time upon not more than 60 days' nor less
than 30 days' notice to you, by a vote of a majority of the Board of Trustees of
the Trust who are not "interested persons" of the Trust (as defined in the 1940
Act) and have no direct or indirect financial interest in the operation of the
Trust's Shareholder Servicing Plan (the "Plan"), this Agreement or any other
agreement related to such Plan, or by "a vote of a majority of the outstanding
voting securities" (as defined in the 1940 Act) of the Trust. You may terminate
this Agreement upon not more than 60 days' nor less than 30 days' notice to the
Trust. Notwithstanding anything herein to the contrary, this Agreement may not
be assigned and shall terminate automatically without notice to either party
upon any assignment. Upon termination hereof, the Trust shall pay such
compensation as may be due you as of the date of such termination.
17. Changes; Amendments. This Agreement may be changed or amended only
by written instrument signed by both parties.
18. Limitation of Liability. The Master Trust Agreement dated March 30,
1998, as amended from time to time, establishing the Trust, which is hereby
referred to and a copy of which is on file at the offices of the Trust, provides
that the name of the Trust means the Trustees from time to time serving (as
Trustees but not personally) under said Master Trust Agreement. It is expressly
acknowledged and agreed that the obligations of the Trust hereunder shall not be
binding upon any of the shareholders, Trustees, officers, employees or agents of
the Trust, personally, but shall bind only the trust property of the Trust, as
provided in its Master Trust Agreement. The execution and delivery of this
Agreement have been authorized by the Trustees of the Trust and signed by an
officer of the Trust, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Trust as provided in
its Master Trust Agreement.
19. Miscellaneous. This Agreement shall be construed and enforced in
accordance with
5
<PAGE>
and governed by the laws of The Commonwealth of Massachusetts without giving
effect to the conflicts of laws provisions thereof. The captions in this
Agreement are included for convenience of reference only and in no way define or
limit any of the provisions hereof or otherwise affect their construction or
effect. This Agreement has been executed on behalf of the Trust by the
undersigned not individually, but in the capacity indicated. This Agreement
shall be effective when accepted by you below.
6
<PAGE>
Please confirm your agreement hereto by signing and returning the
enclosed counterpart of this Agreement at once to: Merrimac Series, 200
Clarendon Street, Boston, Massachusetts 02111, Attention: President. Upon
receipt thereof, this Agreement and such signed duplicate copy will evidence the
agreement between us.
Merrimac Series
By: /s/ Paul J. Jasinski
---------------------------------
Name: Paul J. Jasinski
Title: Treasurer and Chief
Financial Officer
ACCEPTED:
Investors Bank & Trust Company
By: /s/ Robert D. Mancuso
-----------------------------------
Name: Robert D. Mancuso
Title: Senior Vice President
Dated: June 1, 1998
DOCSC\616351.1
3/31/98
7
EXHIBIT-99.B15(e)
MERRIMAC SERIES
(Investment Class)
Plan of Distribution Adopted Pursuant to Rule 12b-1
WHEREAS, Merrimac Series, an unincorporated association of the type
commonly known as a business trust organized under the laws of the state of
Delaware (the "Trust"), engages in business as an open-end management investment
company and is registered as such under the Investment Company Act of 1940, as
amended (the "Act");
WHEREAS, the Trust is authorized (i) to issue shares of beneficial
interest in separate series, with the shares of each such series representing
the interests in a separate portfolio of securities and other assets, and (ii)
to divide the shares within each such series into two or more classes;
WHEREAS, the Trust has established three portfolio series, the Merrimac
Cash Series, Merrimac Treasury Series and the Merrimac Short-Term Asset Reserve
Series (such funds being referred to herein as the "Initial Series" -- such
series, together with all other series subsequently established by the Trust and
made subject to this Plan, being referred to herein individually as a "Series"
and collectively as the "Series");
WHEREAS, the Trust has established three classes of shares, such
classes being referred to as the "Institutional Class," the "Premium Class" and
the "Investment Class"; and
WHEREAS, the Trust may be deemed a distributor of the Shares within the
meaning of Rule 12b-1 under the Act, and desires to adopt a Plan of Distribution
with respect to the Investment Class of shares (the "Shares") of the Initial
Series pursuant to such Rule (the "Plan"); and
WHEREAS, the Trust may enter into one or more agreements (each, an
"Agreement") for the sale of the Shares with one or more underwriters,
distributors, dealers or brokers (each, a "Distributor"); and
WHEREAS, the Board of Trustees as a whole, and the Trustees who are not
interested persons of the Trust (as defined in the Act) and who have no direct
or indirect financial interest in the operation of this Plan or any Agreement
with any Distributor and any agreements relating thereto (the "Qualified
Trustees"), having determined, in the exercise of their reasonable business
judgment and in light of their fiduciary duties under state law and under
Section 36(a) and (b) of the Act, that there is a reasonable likelihood that
this Plan and such Agreements will benefit the Investment Class of the Initial
Series and its shareholders, have accordingly approved this Plan and the
Agreements by votes cast in person at a meeting called for the purpose of voting
on this Plan and the Agreements and any agreements related thereto.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 12b-1 under the Act, on the following terms and conditions:
<PAGE>
1. Distribution Activities. Subject to the supervision of the Board of
Trustees, the Trust may engage, directly or indirectly, in financing any
activities primarily intended to result in the sale of Shares, including, but
not limited to, the following: (1) making payments to underwriters, securities
dealers and others engaged in the sale of Shares, including payments to the
Distributor to be used to compensate or reimburse such persons for engaging in
such activities and (2) providing reimbursement of direct out-of-pocket
expenditures incurred by the Distributor in connection with the offer or sale of
Shares, including expenses relating to the formulation and implementation of
marketing strategies and promotional activities such as direct mail promotions
and television, radio, newspaper, magazine and other mass media advertising, the
preparation, printing and distribution of sales literature and reports for
recipients other than existing shareholders of the Trust, and obtaining such
information, analyses and reports with respect to marketing and promotional
activities and investor accounts as the Trust may, from time to time, deem
advisable. The Trust and the Series are authorized to engage in the activities
listed above, and in other activities primarily intended to result in the sale
of Shares, either directly or through other persons with which the Trust has
entered into Agreements pursuant to the Plan.
2. Maximum Expenditures. The expenditures to be made by the Initial
Series pursuant to this Plan and the basis upon which payment of such
expenditures will be made shall be determined from time to time by the Trustees,
but in no event may such expenditures exceed the following: (i) with respect to
Shares of the Initial Series, an annual rate of .25% of the average daily value
of net assets represented by such Shares, and (ii) with respect to Shares of any
Series subsequently established by the Trust and made subject to this Plan, the
annual rate as agreed upon and specified in an addendum hereto; plus such
amounts as the Distributor may expend from general revenues, profits and other
sources from time to time in accordance with the last sentence of Section 1. The
expenditures to be made pursuant to this Plan shall commence with respect to
Shares of a Series as of the date on which this Plan becomes effective with
respect to each such Series.
3. Payments. Pursuant to this Plan, the Trust shall make periodic
payments to the Distributor at the annual rate provided for in the Agreements
with such Distributor with respect to the Shares of each Series. The Distributor
may in turn remit to and allocate among selected dealers and others (including
affiliates of the Distributor) in consideration of and as reimbursement for
expenses incurred in the provision of distribution and marketing services, such
amounts as the Distributor shall determine. Any amounts received by the
Distributor and not so allocated may be retained by the Distributor as
compensation to the Distributor for providing services under the Agreement
and/or as reimbursement for expenses incurred in connection with the
distribution and promotion of the sale of the Shares and the servicing of
investor accounts as contemplated by Section 1 hereof.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with
respect to the Shares of the Initial Series as of the later of (i) the date on
which an amendment to the Registration
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Statement on Form N-1A with respect to the Shares becomes effective under the
Securities Act of 1933, as amended or (ii) the date on which the Initial Series
commences offering the Shares to the public and shall continue in effect with
respect to the Shares (subject to Section 4(d) hereof) until one year from the
date of such effectiveness, unless the continuation of this Plan shall have been
approved with respect to the Shares in accordance with the provisions of Section
4(c) hereof.
(b) Additional Series. This Plan shall become effective with
respect to the Shares of each additional Series established by the Trust after
the date hereof and made subject to this Plan upon commencement of the initial
public offering thereof (provided that the Plan has previously been approved
with respect to the Series by votes of a majority of both (i) the Board of
Trustees of the Trust and (ii) the Qualified Trustees, cast in person at a
meeting held before the initial public offering of such additional Series
thereof and called for the purpose of voting on such approval), and shall
continue in effect with respect to each such additional Series or class (subject
to Section 4(d) hereof) for one year thereafter, unless the continuation of this
Plan shall have been approved with respect to such additional Series in
accordance with the provisions of Section 4(c) hereof. The Distributor and the
Trust on behalf of each such additional Series shall each sign an addendum
hereto agreeing to be bound hereby and setting forth such specific and different
terms as the parties may agree upon, including, without implied limitation, the
amount and purpose of payments to be made hereunder, subject to any shareholder
approval requirements existing under applicable law.
(c) Continuation. This Plan and the Agreements shall continue
in effect with respect to each Series subsequent to the initial term specified
in Section 4(a) and (b) for so long as such continuance is specifically approved
at least annually by votes of a majority of both (i) the Board of Trustees of
the Trust and (ii) the Qualified Trustees, cast in person at a meeting called
for the purpose of voting on this Plan, subject to any shareholder approval
requirements existing under applicable law.
(d) Termination.
(i) This Plan may be terminated at any time with
respect to the Shares of any Series thereof by vote of a majority of
the Qualified Trustees, or by vote of a majority of the outstanding
voting Shares of that Series. For purposes of this Plan, the term "vote
of a majority of the outstanding voting Shares" of any Series shall
mean the vote of the lesser of (A) 67 percent or more of the
outstanding voting Shares present at such meeting, if the holders of
more than 50 percent of the outstanding voting Shares are present and
represented by proxy; or (B) 50 percent or more of the Shares. The Plan
may remain in effect with respect to a Series even if it has been
terminated in accordance with this Section 4(d) with respect to one or
more other Series of the Trust.
(ii) The Agreements may be terminated at any time,
without penalty, with respect to the Shares of any Series by vote of a
majority of the Qualified Trustees or by vote of a majority of the
outstanding voting Shares of that Series on sixty days' written
3
<PAGE>
notice to the Distributor. In addition, the Agreements shall provide
for automatic termination in the event of their assignment.
5. Amendments. This Plan may not be amended to increase materially the
amount of expenditures provided for in Section 2 hereof unless such amendment is
approved by a vote of a majority of the outstanding Shares of each Series with
respect to which a material increase in the amount of distribution expenditures
is proposed, and no material amendment to the Plan shall be made unless approved
in the manner provided for annual renewal in Section 4(c) hereof. Otherwise,
this Plan may be amended with respect to the Shares of a Series by vote of a
majority of the Qualified Trustees or the outstanding voting Shares of that
Series.
6. Independent Trustees. While this Plan is in effect with respect to
any Series, the selection and nomination of Trustees who are not interested
persons (as defined in the Act) of the Trust shall be committed to the
discretion of the Trustees who are not interested persons.
7. Quarterly Reports. The Treasurer of the Trust and the Treasurer of
the Distributor shall provide to the Trustees of the Trust and the Trustees
shall review, at least quarterly, a written report of the amounts expended for
the distribution of the Shares pursuant to this Plan and the purposes for which
such expenditures were made.
8. Recordkeeping. The Trust shall preserve copies of this Plan, the
Agreements and any related agreements and all reports made pursuant to Section 7
hereof, for a period of not less than six years from the date of this Plan and
the Agreements (including any related agreements) or such reports, as the case
may be, the first two years in an easily accessible place.
Dated: June 1, 1998
4
EXHIBIT-99.B18
MERRIMAC SERIES
Multiple Class Expense Allocation Plan
Adopted Pursuant to Rule 18f-3
WHEREAS, Merrimac Series, an unincorporated association of the type
commonly known as a business trust organized under the laws of the State of
Delaware (the "Trust"), engages in business as an open-end management investment
company and is or will be registered as such under the Investment Company Act of
1940, as amended (the "Act");
WHEREAS, the Trust is authorized to (i) issue shares of beneficial
interest ("Shares") in separate series, with the Shares of each such series
representing the interests in a separate portfolio of securities and other
assets, and (ii) divide the Shares within each such series into two or more
classes;
WHEREAS, the Trust has established three portfolio series as of the
date hereof, the Merrimac Cash Series, Merrimac Treasury Series and Merrimac
Short-Term Asset Reserve Series (such portfolios being referred to collectively
herein as the "Initial Series" C such series, together with all other series
subsequently established by the Trust and made subject to this Plan, being
referred to herein individually as a "Series" and collectively as the "Series"),
and three classes thereof designated as the "Institutional Class," "Premium
Class" and "Investment Class" shares; and
WHEREAS, the Trustees have determined to operate pursuant to Rule 18f-3
under the Act and pursuant to such Rule the Board of Trustees as a whole, and
the Trustees who are not interested persons of the Trust (as defined in the Act)
(the "Qualified Trustees"), has determined in the exercise of their reasonable
business judgment that this Amended and Restated Plan is in the best interest of
each class of the Initial Series individually and the Initial Series as a whole.
NOW, THEREFORE, the Trust hereby adopts this Plan in accordance with
Rule 18f-3 under the Act, on the following terms and conditions:
1. Class Differences. Each class of Shares of each Initial Series shall
represent interests in the same portfolio of investments of the Initial Series
and shall be identical in all respects, and except as otherwise set forth in
this Plan, shall differ solely with respect to: (i) arrangements for shareholder
and distribution services, or both, as provided for in Sections 2 and 3 of this
Plan; (ii) the exclusive right of a class to vote on certain matters relating to
any Shareholder Servicing Plan or Plan of Distribution adopted by the Trust with
respect to such class; (iii) such differences relating to purchase minimums,
sales charges and eligible investors as may be set forth in the prospectuses and
Statement of Additional Information of the Initial Series, as the same may be
amended or supplemented from time to time (the "Prospectuses" and "SAI"); (iv)
the differences in any exchange privileges or conversion features of the classes
of Shares in effect from time to time; and (v) the designation of each class of
shares.
<PAGE>
2. Differences in Shareholder and Distribution Services. Each class of
Shares of the Initial Series shall have a different arrangement for shareholder
and distribution services, or both, as follows:
Premium Class Shares shall be sold without a sales charge and
such Shares shall not be subject to a 12b-1 fee or a shareholder servicing fee.
Institutional Class Shares shall be sold without a sales charge, shall not be
subject to a 12b-1 fee, but shall be subject to a shareholder servicing fee of
up to 0.25% of the net assets of the Initial Series allocable to such class of
Shares. Investment Class Shares shall be sold without a sales charge but shall
be subject to a shareholder servicing fee of up to 0.25% of the net assets of
the Initial Series allocable to such class of Shares and a 12b-1 fee of up to
0.25% of the net assets of the Initial Series allocable to such class of Shares.
3. Allocation of Expenses. Expenses of the Series shall be allocated as
follows:
(a) Class Expenses. Expenses relating to different
arrangements for shareholder and distribution services shall be allocated to and
paid by that class.
(b) Other Allocations. All expenses of the Series not
allocated to a particular class pursuant to Sections 2 and 3(a) of this Plan
shall be allocated to each class on the basis of the net asset value of that
class in relation to the net asset value of the Series. Notwithstanding the
foregoing, the underwriter, adviser, or other provider of services to a Series
may waive or reimburse the expenses of a specific class or classes to the extent
permitted under Rule 18f-3 under the Act; provided, however, that the Board
shall monitor the use of such waivers or reimbursements intended to differ by
class.
4. Term and Termination.
(a) Initial Series. This Plan shall become effective with
respect to the Initial Series as of June 1, 1998, and shall continue in
effect with respect to each class of Shares of the Initial Series (subject to
Section 4(c) hereof) until terminated in accordance with the provisions of
Section 4(c) hereof.
(b) Additional Series or Classes. This Plan shall become
effective with respect to any class of the Initial Series other than the
Institutional Class, Premium Class and Investment Class shares and with respect
to each additional Series or class thereof established by the Trust after the
date hereof and made subject to this Plan, upon commencement of operations
thereof or as otherwise determined, and shall continue in effect with respect to
each such additional Series or class (subject to Section 4(c) hereof) until
terminated in accordance with the provisions of Section 4(c) hereof. An addendum
hereto setting forth such specific and different terms of such additional series
of classes shall be attached to this Plan.
(c) Termination. This Plan may be terminated at any time with
respect to the Trust or any Series or class thereof, as the case may be, by vote
of a majority of both the Trustees
2
<PAGE>
of the Trust and the Qualified Trustees. The Plan may remain in effect with
respect to a Series or class thereof even if it has been terminated in
accordance with this Section 4(c) with respect to one or more other Series of
the Trust.
5. Amendments. Any material amendment to this Plan shall require the
affirmative vote of a majority of both the Trustees of the Trust and the
Qualified Trustees.
Dated: June 1, 1998
DOCSC\616241.1
3/31/98
3
EXHIBIT-99.B19(c)
POWER OF ATTORNEY
The undersigned, as a Trustee of Merrimac Series (the "Feeder Trust"),
hereby constitutes and appoints Susan C. Mosher, George A. Rio and Philip H.
Newman, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statement on Form N-1A, and any and all
amendments thereto, filed by the Feeder Trust, with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended, and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Feeder Trust to comply with such Acts, the rules, regulations and
requirements of the Commission, and the securities or Blue Sky laws of any state
or other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day
of May, 1998, in Nashua, New Hampshire.
/s/ Kevin J. Sheehan
--------------------
Kevin J. Sheehan
<PAGE>
POWER OF ATTORNEY
The undersigned, as a Trustee of Merrimac Series (the "Feeder Trust"),
hereby constitutes and appoints Susan C. Mosher, George A. Rio and Philip H.
Newman, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statement on Form N-1A, and any and all
amendments thereto, filed by the Feeder Trust, with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended, and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Feeder Trust to comply with such Acts, the rules, regulations and
requirements of the Commission, and the securities or Blue Sky laws of any state
or other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day
of May, 1998, in Nashua, New Hampshire.
/s/ Thomas E. Sinton
------------------------
Thomas E. Sinton
<PAGE>
POWER OF ATTORNEY
The undersigned, as a Trustee of Merrimac Series (the "Feeder Trust"),
hereby constitutes and appoints Susan C. Mosher, George A. Rio and Philip H.
Newman, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statement on Form N-1A, and any and all
amendments thereto, filed by the Feeder Trust, with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended, and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Feeder Trust to comply with such Acts, the rules, regulations and
requirements of the Commission, and the securities or Blue Sky laws of any state
or other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day
of May, 1998, in Nashua, New Hampshire.
/s/ Francis J. Gaul, Jr.
------------------------
Francis J. Gaul, Jr.
<PAGE>
POWER OF ATTORNEY
The undersigned, as a Trustee of Merrimac Series (the "Feeder Trust"),
hereby constitutes and appoints Susan C. Mosher, George A. Rio and Philip H.
Newman, and each of them, with full powers of substitution as his true and
lawful attorneys and agents to execute in his name and on his behalf in any and
all capacities the Registration Statement on Form N-1A, and any and all
amendments thereto, filed by the Feeder Trust, with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act of 1940, as
amended, and the Securities Act of 1933, as amended, and any and all instruments
which such attorneys and agents, or any of them, deem necessary or advisable to
enable the Feeder Trust to comply with such Acts, the rules, regulations and
requirements of the Commission, and the securities or Blue Sky laws of any state
or other jurisdiction, and the undersigned hereby ratifies and confirms as his
own act and deed any and all acts that such attorneys and agents, or any of
them, shall do or cause to be done by virtue hereof. Any one of such attorneys
and agents have, and may exercise, all of the powers hereby conferred.
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this 7th day
of May, 1998, in Nashua, New Hampshire.
/s/ Edward F. Hines, Jr.
------------------------
Edward F. Hines, Jr.
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information extracted from Merrimac
Series financial statements at June 15, 1998 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Merrimac Cash Series
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-15-1998
<INVESTMENTS-AT-COST> 0
<INVESTMENTS-AT-VALUE> 0
<RECEIVABLES> 12,000
<ASSETS-OTHER> 100,000
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 112,000
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 12,000
<TOTAL-LIABILITIES> 12,000
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 100,000
<SHARES-COMMON-STOCK> 100,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,000
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 0
<OTHER-INCOME> 0
<EXPENSES-NET> 0
<NET-INVESTMENT-INCOME> 0
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 0
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 100,000
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 100,000
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 0
<AVERAGE-NET-ASSETS> 100,000
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.00
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> 0.00
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0.00
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.00
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
