AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 19, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 3
TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ X ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
AMENDMENT NO. 2
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
Merrimac Master Portfolio also executed this Registration Statement.
Approximate date of commencement of proposed sale to the public: As soon as
practical after the effective date of the Registration Statement.
It is proposed that this filing will become effective (check appropriate box)
[ ] immediately upon filing pursuant to paragraph (b)
[ ] on (date) pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[X] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
To: The Securities and Exchange Commission
The Registrant submits this Post-Effective Amendment No. 3 to its Registration
Statement under the Securities Act of 1933 (Registration No. 333-49693) and
this Amendment No. 2 to its Registration Statement under the Investment Company
Act of 1940 (Registration No. 811-08741). This Post-Effective Amendment
relates solely to the Merrimac U.S. Government Series. No information relating
to any other series of the Registrant is amended or superseded hereby.
<PAGE>
MERRIMAC SERIES
PROSPECTUS
JUNE __, 1999
MERRIMAC U.S. GOVERNMENT SERIES
The Fund offers three classes of shares:
Premium Class, Institutional Class and Investment Class
The Securities and Exchange Commission has not approved or disapproved these
securities or determined if this prospectus is truthful or complete. Anyone who
tells you otherwise is committing a crime.
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CONTENTS
THE FUND
WHAT EVERY INVESTOR RISK/RETURN SUMMARY 3
SHOULD KNOW ABOUT THE FUND'S INVESTMENTS 6
THE FUND THE FUND'S MANAGEMENT 7
INFORMATION FOR YOUR INVESTMENT
MANAGING YOUR
FUND ACCOUNT
SHAREHOLDER INFORMATION
Purchases 7
Redemptions 8
Valuation of Shares 9
Dividends and Distributions 10
Federal Taxes 10
APPENDIX A DESCRIPTION OF SECURITIES IN WHICH
THE PORTFOLIO CAN INVEST
WHERE TO FIND MORE INFORMATION
ABOUT MERRIMAC SERIES FOR MORE INFORMATION
BACK COVER
</TABLE>
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RISK/RETURN SUMMARY
The following information is only a summary of important information that you
should know about Merrimac U.S. Government Series (the Fund), a series of
Merrimac Series (the Trust). More detailed information is included elsewhere in
this Prospectus and in the Statement of Additional Information (SAI) and should
be read in addition to this summary. As with any mutual fund, there is no
guarantee that the Fund will achieve its goal.
Traditional mutual funds directly acquire and manage their own portfolio
securities. The Fund is organized in a "master-feeder" structure, under which
it invests all of its assets in the Merrimac U.S. Government Portfolio (the
Portfolio), a corresponding series of Merrimac Master Portfolio (the Master
Portfolio). The Fund and its corresponding Portfolio have substantially the
same investment objective and investment policies.
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Fund's investment objective is to achieve a high level of current income
consistent with preserving principal and liquidity. Allmerica Asset Management,
Inc. (AAM), the subadviser of the Portfolio, attempts to achieve the Fund's
objective by investing the Portfolio's assets in securities issued or
guaranteed as to principal and interest by the U.S. Government or its agencies
or instrumentalities. The Portfolio also may invest in repurchase agreements
that are collateralized by these instruments.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See THE FUND'S
INVESTMENTS for more information.
MAIN RISK OF INVESTING IN THE FUND
The primary risk in investing in the Fund is interest rate risk.
O INTEREST RATE risk involves the possibility that the value of the Fund's
investments will decline due to an increase in interest rates.
Money market funds can be confused with savings accounts. The Fund is not a
savings account but, rather, a money market mutual fund that issues and redeems
at the Fund's per share net asset value (NAV). The Fund always seeks to
maintain a constant NAV of $1.00 per share.
Unlike a savings account, however, an investment in the Fund is not a deposit
of Investors Bank & Trust Company, or any other bank, and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it is possible to lose money by investing in the Fund.
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IS THE FUND FOR YOU?
The Fund may be appropriate as part of your investment portfolio if......
O You need to preserve principal.
O You want a short-term, low-risk investment.
The Fund may not be appropriate as part of your investment portfolio if......
O You need a high total return to achieve your goals.
O You seek long-term growth as your primary goal.
COULD THE VALUE OF YOUR INVESTMENT IN THE FUND FLUCTUATE?
Yes, it could. The Fund is managed in accordance with strict Securities and
Exchange Commission guidelines designed to preserve the Fund's value at $1.00
per share, although, of course, there cannot be a guarantee that the value will
remain at $1.00 per share. The value of your investment typically will grow
through reinvested dividends.
TOTAL RETURN
The Fund is newly operational and therefore does not have total return
information for the period ended December 31, 1998. For the Fund's most current
yield information you may call 1-888-MERRMAC.
Performance information should be considered in light of the Fund's investment
objective and policies and market conditions. Historical performance does not
necessarily indicate what will happen in the future.
FEES AND EXPENSES
This summary shows what it will cost you directly or indirectly to invest in
the Fund.
SHAREHOLDER TRANSACTION EXPENSES - FEES YOU PAY DIRECTLY FROM YOUR INVESTMENT
There are no fees or sales loads charged to your account when you buy or sell
Fund shares. However, if you sell shares and request your money by wire
transfer your bank may charge you a fee.
ANNUAL FUND OPERATING EXPENSES - EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS
Fund expenses are reflected in the Fund's share price and dividends. "Other
Expenses" include expenses such as legal, accounting and printing services. The
figures below show estimated expenses for the current fiscal year, and are
calculated as a percentage of estimated average net assets.
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Premium Institutional Investment
Class Class Class
- -------------------------------------------------------------------------------
Management Fees 0.17% 0.17% 0.17%
- -------------------------------------------------------------------------------
Distribution (12b-1) Fees None None 0.25%
- -------------------------------------------------------------------------------
Shareholder Servicing Fees None 0.25% 0.25%
- -------------------------------------------------------------------------------
Other Expenses 0.13% 0.13% 0.13%
---- ---- ----
- -------------------------------------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.30% 0.55% 0.80%
---- ---- ----
---- ---- ----
- -------------------------------------------------------------------------------
(1) This table and the Example below reflect the Fund's own estimated
expenses and the Fund's share of the Portfolio's expenses.
</TABLE>
EXAMPLE
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the Fund for the time periods
indicated and then redeem all of your shares at the end of those periods. The
Example also assumes that your investment has a 5% return each year and that
the Fund's operating expenses remain the same. Although your actual costs may
be higher or lower, based on these assumptions your costs would be:
<TABLE>
<CAPTION>
<S> <C> <C>
ONE YEAR THREE YEARS
-------- -----------
PREMIUM CLASS $31 $97
INSTITUTIONAL CLASS 56 176
INVESTMENT CLASS 82 255
</TABLE>
5
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THE FUND'S INVESTMENTS
Principal Investment Strategies and Risks
Q What is the Fund's principal investment strategy?
A The Fund's principal investment strategy is to invest the Fund's share of
the Portfolio's assets in securities issued or guaranteed as to principal
and interest by the U.S. Government or its agencies or instrumentalities.
Q Into what types of money market instruments will the Fund's assets be
invested?
A The Portfolio may invest in direct obligations of the U.S. Treasury such as
U.S. Treasury bills, notes and bonds and in securities issued or guaranteed
by the U.S. Government or its agencies. The Portfolio also may invest in
repurchase agreements that are collateralized by these instruments. Further
description of these securities is found in Appendix A.
Q Are there any limits on how much that can be invested in one issuer?
A No. The Portfolio is not limited with respect to purchases of securities
issued by the U.S. Government or its agencies.
Q Will the Fund always maintain a net asset value of $1 per share?
A While AAM will endeavor to maintain a constant Fund NAV of $1 per share,
there is no assurance that they will be able to do so. The shares are
neither insured nor guaranteed by the U.S. Government. As such, the Fund
carries some risk. There is a risk that rising interest rates will cause the
value of the Portfolio's securities to decline. In accordance with Rule 2a-7
under the Investment Company Act of 1940, as amended (1940 Act), AAM is
required to minimize interest rate risk by limiting the maturity of each
security to 397 calendar days or less and maintaining a dollar-weighted
average portfolio maturity for the Portfolio of 90 days or less.
Q How are the decisions to buy or sell securities made?
A Factors are balanced such as the Portfolio's objective of maximizing current
income while maintaining safety and liquidity. AAM utilizes a two-pronged
investment approach to the Portfolio. The first is a fundamental view of the
economic environment, coupled with a technical analysis of the U.S.
Government and repurchase agreement markets.
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THE FUND'S MANAGEMENT
INVESTMENT ADVISER
The Fund has not retained the services of an investment adviser because the
Fund invests all of its investable assets in its corresponding Portfolio. The
Portfolio has retained the services of Investors Bank & Trust Company
(Investors Bank) as investment adviser. Investors Bank continuously reviews and
supervises the Portfolio's investment program. Investors Bank discharges its
responsibilities subject to the supervision of, and policies established by the
Board of Trustees. Investors Bank's business address is 200 Clarendon Street,
Boston, Massachusetts 02116. Investors Bank began acting as an investment
adviser on November 21, 1996. The Portfolio pays Investors Bank a unitary fee
for servicing the Portfolio as Investment Adviser, Administrator, Custodian,
Fund Accountant and Transfer Agent. The fee is computed at an annual rate of
0.17% of average net assets of the Portfolio.
INVESTMENT SUB-ADVISER
Allmerica Asset Management, Inc. (AAM) serves as investment sub-adviser to the
Portfolio. AAM manages the Portfolio, selects investments and places all orders
for the purchase and sale of the Portfolio's securities, subject to the general
supervision of, and policies established by the Portfolio's Board of Trustees
and Investors Bank. The business address of AAM is 440 Lincoln Street,
Worcester, Massachusetts 01653. AAM has been providing investment advisory
services since it was established in 1993 as an indirect, wholly-owned
subsidiary of Allmerica Financial Corporation. AAM receives a fee from
Investors Bank (and not from the Portfolio) for its services as investment
sub-adviser.
SHAREHOLDER INFORMATION
PURCHASES
GENERAL INFORMATION. Shares may be purchased only through the Distributor,
Funds Distributor, Inc., which offers the Fund's shares to the public on a
continuous basis. Shares of the Fund may be purchased only in those states
where they may be lawfully sold. Shares are sold at the net asset value (NAV)
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
Fund's Custodian. See the Account Application or call 1-888-MERRMAC for
instructions on how to make payment for shares to the Custodian. Shareholders
may also make general inquiries by calling 1-888-MERRMAC.
INVESTMENT MINIMUM. The minimum initial investment for Premium Class shares of
the Fund 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. The 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, the 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.
Share purchase orders are deemed to be in good order on the date the 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.
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<PAGE>
Purchases may be made only by wire. Wiring instructions for purchases of shares
of the Fund are as follows:
Investors Bank & Trust Company
ABA #: 011001438
Attn: Merrimac U.S. Government Series
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 4:00 p.m. (ET) on a Business Day
will be executed at the NAV per share next determined after receipt of the
order, provided that Investors Bank receives the wire by the close of business
on the day the purchase order is received. A Business Day is any day on which
both the NYSE and the New York Federal Reserve Bank are open. Purchase orders
received after 4:00 p.m. (ET) will be effected on the next Business Day if
cleared funds are received before the close of business on the next Business
Day. Purchase orders for shares for which payment has not been received by the
close of business will not be accepted, and notice thereof will be given to the
purchaser. The Fund may limit the amount of a purchase order received between
3:00 p.m. (ET) and 4:00 p.m. (ET).
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all purchase orders must be received by 12:00
noon (ET).
The Fund reserves the right in its sole discretion: (i) to suspend the offering
of the Fund's shares; (ii) to reject purchase orders; 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
the Portfolio.
REDEMPTIONS
Shareholders may redeem all or a portion of their shares on any Business Day.
Shares will be redeemed at the NAV next determined after Investors Bank has
received a proper notice of redemption as described below. If notice of
redemption is received prior to 4:00 p.m. (ET) on a Business Day, the
redemption will be effective on the date of receipt. Proceeds of the redemption
will ordinarily be made by wire on the date of receipt, but in any event within
three Business Days from the date of receipt.
Shareholder redemption requests received after 4:00 p.m. (ET) on a Business
Day, will ordinarily receive payment by wire on the next Business Day, but, in
any event, within four Business Days from the date of receipt of a proper
notice of redemption. All redemption requests placed between 3:00 p.m. and 4:00
p.m. (ET) may only be placed by telephone.
The Fund reserves the right in its sole discretion to suspend redemptions or
postpone payments when the NYSE is closed or when trading is restricted for any
reason or under emergency circumstances as determined by the SEC. The Fund
reserves the right to postpone payments for redemption requests received
between 3:00 p.m. and 4:00 p.m. (ET) until the next Business Day.
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On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all redemption orders must be received by 12:00
noon (ET).
A shareholder may elect to receive payment in the form of a wire or check.
There is no charge imposed by the 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 the Fund on the Account Application. The 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 the Fund. Neither the Fund 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.
The Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. The 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.
No bank instruction changes will be accepted over the telephone. See REDEMPTION
BY WIRE for information on how to change bank instructions.
VALUATION OF SHARES
The Fund offers its shares at the NAV per share of the Fund, as determined once
each Business Day. This determination is made as of 4:00 p.m. (ET). Securities
purchased by the Portfolio are stated at
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amortized cost, which approximates market value. For more information on how
securities are valued, see the SAI.
DIVIDENDS AND DISTRIBUTIONS
The Fund intends to declare as a dividend substantially all of its net
investment income at the close of each Business Day and will pay such dividends
monthly. Substantially all of the Fund's distributions will be from net
investment income. Shareholders shall be entitled to receive dividends on the
Business Day their purchase is effected but shall not receive dividends on the
Business Day that their redemption is effected. Distributions of net capital
gains, if any, are made annually at the discretion of the officers of the Fund.
Dividends and/or capital gain distributions will be reinvested automatically in
additional shares of the Fund at NAV and such shares will be automatically
credited to a shareholder's account, unless a shareholder elects to receive
either dividends or capital gains distributions (or both) in cash. Shareholders
may change their distribution option at any time by writing to Investors Bank
with a Signature Guarantee prior to the record date of any such dividend or
distribution.
FEDERAL TAXES
<TABLE>
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TRANSACTIONS | TAX STATUS
|
- -------------------------------------------------------------------------------
Sales or exchanges of shares. | Usually capital gain or loss. Tax rate
| depends on how long shares are held.
|
- -------------------------------------------------------------------------------
Distributions of long-term capital| Taxable as long-term capital gain.
gain. |
|
- -------------------------------------------------------------------------------
Distributions of short-term | Taxable as ordinary income.
capital gain. |
|
- -------------------------------------------------------------------------------
Dividends from net investment | Taxable as ordinary income.
income. |
|
- -------------------------------------------------------------------------------
</TABLE>
Every January, the Fund provides information to its shareholders about the
Fund's dividends and distributions, which are taxable even if reinvested, and
about the shareholders; redemptions during the previous calendar year. Any
shareholder who does not provide the Fund with a correct taxpayer
identification number and required certification may be subject to federal
backup withholding tax. Shareholders should generally avoid investing in the
Fund shortly before an expected taxable dividend or capital gain distribution.
Otherwise, a shareholder may pay taxes on dividends or distributions that are
economically equivalent to a partial return of the shareholder's investment.
Shareholders should consult their tax advisers about their own particular tax
situations.
CLASS EXPENSES AND DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
Assets of the Premium Class shares of the Fund are not subject to a 12b-1
(Distribution) or shareholder servicing fee. Assets of the Institutional Class
shares of the Fund are subject to a shareholder servicing fee of up to 0.25% of
average net assets (ANA). Assets of the Investment Class shares of the Fund are
subject to a shareholder servicing fee and a Distribution fee each up to 0.25%
of ANA.
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The Institutional and Investment Class of the Fund offers shares through
certain financial intermediaries, including Investors Bank (Service
Organizations), which have entered into shareholder servicing agreements with
the Fund. Service Organizations agree to perform certain shareholder servicing,
administrative and accounting services for their clients and customers who are
beneficial owners of Fund shares. The Board of Trustees has approved a
Distribution Plan with respect to the Investment Class shares of the Fund.
Under the Distribution Plan, the Distribution Agent is entitled to receive a
fee (as set forth above) from the Fund with respect to the assets contributed
to such Fund by shareholders who are clients or customers of the Distribution
Agent. Because these fees are paid out of Fund assets on an ongoing basis, over
time the cost of investing in the Trust may cost more than paying other types
of sales charges.
MASTER/FEEDER STRUCTURE
The Fund is a "feeder" fund that invests exclusively in a corresponding
"master" portfolio with an identical investment objective. The master portfolio
may accept investments from multiple feeder funds, which bear the master
portfolio's expenses in proportion to their assets.
Each feeder fund and its master portfolio expect to maintain consistent
investment objectives, but if they do not, the Fund will withdraw from the
master portfolio, receiving either cash or securities in exchange for its
interest in the master portfolio. The Trustees would then consider whether the
Fund should hire its own investment adviser, invest in a different portfolio,
or take other action.
YEAR 2000 READINESS
Like other mutual funds, governmental and business organizations and
individuals around the world, the Fund could be adversely affected if the
computer systems used by the Investors Bank, AAM and other service providers do
not properly process and calculate date-related information from and after
January 1, 2000. Each of the above entities is taking steps that it believes
are reasonably designed to address Year 2000 Readiness with respect to computer
systems that it uses and to obtain reasonable assurances that comparable steps
are being taken by the Fund's 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 Fund.
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APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH THE
PORTFOLIO MAY INVEST:
REPURCHASE AGREEMENTS. The 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. Such 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%.
SECURITIES LENDING. The Portfolio may lend up to 33 1/3% of its portfolio of
securities pursuant to agreements requiring that the loan be continuously
secured by cash or equivalent collateral or by a letter of credit or bank
guarantee in favor of the Portfolio at least equal at all times to 100% of the
market value plus accrued interest on the securities lent. The Portfolio will
continue to receive interest on the securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Collateral is
marked to market daily. Loans are subject to termination by the Portfolio or
the borrower at any time and are, therefore, not considered to be illiquid
investments.
VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by
the Portfolio 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 such
Portfolios will approximate their par value. Further, some of the demand
instruments purchased by such 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 AAM.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. The Portfolio 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 Custodian will set aside cash or
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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 Portfolio
generally will not pay for such securities or earn interest on them until
received. The Portfolio will only purchase when-issued and delayed delivery
securities for the purpose of acquiring portfolio securities and not for
speculative purposes. However, the Portfolio may sell these securities or
dispose of the commitment before the settlement date if it is deemed advisable
as a matter of investment strategy.
ZERO COUPON SECURITIES. The Portfolio may invest in zero coupon 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
Portfolio is required to accrue income with respect to these securities prior
to the receipt of cash payments. Because the Fund will distribute its share of
this accrued income to shareholders, to the extent that the shareholders and
shareholders of other mutual funds that invest in the Portfolio elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Portfolio will have fewer assets with which to purchase income
producing securities. The Portfolio may also invest in zero coupon treasury
securities.
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For investors who want more information about the Trust, the following
documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Trust and is legally a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Fund's and the Portfolio's annual and
semi-annual reports provide additional information about the Portfolio's
investments.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Fund by contacting the Fund at 1-888-MERRMAC.
You can view the Fund's SAI and the reports at the Public Reference Room of the
Securities and Exchange Commission (SEC).
For a fee, you can get text-only copies by writing to the Public Reference Room
of the SEC, Washington, D.C. 20549-6009. You can also call 1-800-SEC-0330.
You can also view the SAI and receive the reports free from the SEC's Internet
website at http://www.sec.gov.
Merrimac U.S. Government Series
Investment Company Act file no. 811-08741
14
<PAGE>
MERRIMAC SERIES
Merrimac U.S. Government Series
STATEMENT OF ADDITIONAL INFORMATION
June __, 1999
This Statement of Additional Information (the "SAI") is not a Prospectus, but
it relates to the Prospectus of Merrimac U.S. Government Series dated June __,
1999. You can get a free copy of the Prospectus for the Merrimac U.S.
Government Series or the most recent annual and semi-annual reports, request
other information and discuss your questions about the Merrimac U.S. Government
Series by contacting Merrimac Series at 1-888-MERRMAC.
You can view the Fund's Prospectus as well as other reports at the Public
Reference Room of the Securities and Exchange Commission ("SEC").
You can get text-only copies for a fee by calling the SEC at 1-800-SEC-0330 or
for free from the SEC's Internet website at http://www.sec.gov.
TABLE OF CONTENTS
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<S> <C> <C> <C>
Page Page
Fund History 2 Capital Stock 10
Description of the Fund, Its Purchase, Redemption and
Investments and Risks 2 Valuation of Shares 12
Classification 2 Purchase and Redemption of
Investment Strategies and Risks 3 Shares 12
Fund Policies 4 Valuation of Shares 12
Management of the Trust 5 Taxation of the Trust 13
Investment Advisory and Other Independent Auditors 15
Services 7 Counsel 15
Investment Adviser and Subadviser 7 Appendix 16
Distributor 8
Distribution and Shareholder
Servicing Plans 9
Administrator, Transfer Agent,
Custodian and Fund Accountant 9
Brokerage Allocation and Other
Practices 10
</TABLE>
<PAGE>
FUND HISTORY
Merrimac U. S. Government Series (the "Fund") is a series or sub-trust of
Merrimac Series (the "Trust"). The Trust is a business trust organized under
the laws of the State of Delaware pursuant to a Master Trust Agreement dated
March 30, 1998, as amended, and registered as an open-end management investment
company under the Investment Company Act of 1940 Act (the "1940 Act"). The
Trust is composed of four other series which are not part of this SAI.
The Merrimac U.S. Government Portfolio (the "Portfolio") is a series or
sub-trust of the Merrimac Master Portfolio (the "Portfolio Trust"), a common
law trust organized under New York law on October 30, 1996, registered as an
open-end management investment company under the 1940 Act.
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by the Fund's current Prospectus dated June __, 1999,
(the "Prospectus"). This SAI supplements and should be read in conjunction with
the Prospectus, a copy of which may be obtained without charge by calling
1-888-MERRMAC. This SAI is not an offer of the Fund for which an investor has
not received a Prospectus.
DESCRIPTION OF THE FUND, ITS INVESTMENTS AND RISKS
CLASSIFICATION
The Fund is a diversified open-end, management investment company and a
separate series of the Trust.
MASTER/FEEDER STRUCTURE. The Fund invests all of its investable assets in the
U.S. Government Portfolio. The Fund is sometimes referred to in this SAI as a
feeder fund.
The Portfolio has the same investment objective and restrictions as the Fund.
Because the feeder fund invests all of its investable assets in the Portfolio,
the description of the Fund's investment policies, techniques, specific
investments and related risks that follows also applies to the Portfolio.
In addition to the feeder fund, other feeder funds may invest in the Portfolio,
and information about the other feeder funds is available by calling
1-888-637-7622. The other feeder funds invest in the Portfolio on the same
terms as the Fund and bear a proportionate share of the Portfolio's expenses.
The other feeder funds may sell shares on different terms and under a different
pricing structure than the Fund, which may produce different investment
results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in the Portfolio may
reduce the diversification of the Portfolio's investments, reduce economies of
scale and increase the Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of the
Portfolio that is not approved by the Trust's Board of Trustees, the Fund would
be required to withdraw its investment in the Portfolio and engage the services
of an investment adviser or find a substitute master fund. Withdrawal of a
fund's interest in its Portfolio, which may be required by the Trust's Board of
Trustees without shareholder approval, might cause the fund to incur expenses
it would not otherwise be required to pay.
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INVESTMENT STRATEGIES AND RISKS
MONEY MARKET INSTRUMENTS AND REPURCHASE AGREEMENTS. The money market
instruments in which the Portfolio invests include short-term U.S. Government
securities (defined below) and repurchase agreements.
U.S. Government securities include securities which are direct obligations of
the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. Government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal
Farm Credit Bank, the Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks and the Federal National Mortgage
Association.
A repurchase agreement is an agreement under which the Portfolio acquires money
market instruments (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 the
Portfolio and is unrelated to the interest rate on the instruments. The
instruments acquired by the Portfolio (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
custodian bank for the Portfolio until they are repurchased. The Board of
Trustees of the Portfolio Trust will monitor the standards that the investment
adviser or sub-adviser will use in reviewing the creditworthiness of any party
to a repurchase agreement with the Portfolio. See "Investment Advisory
Services" for information regarding the investment adviser and sub-adviser.
The use of repurchase agreements involves certain risks. For example, if the
seller defaults on its obligation to repurchase the instruments acquired by the
Portfolio at a time when their market value has declined, the 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 the Portfolio are collateral for a loan by the
Portfolio and therefore are subject to sale by the trustee in bankruptcy.
Finally, it is possible that the Portfolio may not be able to substantiate its
interest in the instruments it acquires. It is expected that these risks can be
controlled through careful documentation and monitoring.
"WHEN-ISSUED" AND "DELAYED DELIVERY" SECURITIES. The Portfolio may invest in
securities purchased on a "when-issued" or "delayed delivery" basis. Delivery
and payment for securities purchased on a when-issued or delayed delivery basis
will normally take place 15 to 45 days after the date of the transaction. The
payment obligation and interest rate on the securities are fixed at the time
that the Portfolio enters into the commitment, but interest will not accrue to
the Portfolio until delivery of and payment for the securities. Although the
Portfolio will only make commitments to purchase "when-issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
the Portfolio may sell the securities before the settlement date if deemed
advisable by their investment adviser or sub-adviser.
Unless the Portfolio has entered into an offsetting agreement to sell the
securities purchased on a "when-issued" or "forward commitment" basis, cash or
liquid obligations with a market value equal to the
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<PAGE>
amount of the Portfolio's commitment will be segregated with the 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 the 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 the Portfolio.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued", "delayed delivery" and "forward
commitment" securities will fluctuate inversely to changes in interest rates,
i.e., they will appreciate in value when interest rates fall and will decline
in value when interest rates rise.
FUND POLICIES
The Fund and the Portfolio have adopted the following fundamental policies. The
Fund and Portfolio fundamental policies cannot be changed unless the change is
approved by a "vote of the outstanding voting securities" of the Fund or the
Portfolio, as the case may be, which phrase as used herein means the lesser of
(i) 67% or more of the voting securities of the Fund or Portfolio present at a
meeting, if the holders of more than 50% of the outstanding voting securities
of the Fund or Portfolio are present or represented by proxy, or (ii) more than
50% of the outstanding voting securities of the Fund or Portfolio.
As a matter of fundamental policy, the Fund (Portfolio) may not:
(1) 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;
(2) 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);
(3) 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 the 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 the Portfolio's total assets;
(4) engage in the business of underwriting the securities issued by
others, except that the 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;
(5) issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the
1940 Act; and
4
<PAGE>
(6) purchase or sell real estate, commodities, or commodity contracts
unless acquired as a result of ownership of securities, and provided
further that the Portfolio may invest in securities backed by real
estate and in financial futures contracts and options thereon.
If any percentage restriction described above is adhered to at the time of
investment, a subsequent increase or decrease in the percentage resulting from
a change in the net assets of the Portfolio (Fund) will not constitute a
violation of the restriction. The above restrictions also apply to the Fund,
with the exception that the Fund may invest all of its investable assets
without limitation in the Portfolio.
MANAGEMENT OF THE TRUST
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the Fund
rests with the Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish
services to the Trust or the Funds, including agreements with its distributor,
custodian, transfer agent, investment adviser, sub-adviser and administrator.
The day-to-day operations of the Fund are delegated to their Sub-Adviser. The
SAI contains background information regarding each of the Trustees and
executive officers of the Trust.
TRUSTEES AND OFFICERS. The names, addresses, dates of birth and principal
occupation(s) during the last five years of the Trustees and officers of the
Trust and the Portfolio Trust are listed below. The business address of the
Trustees and officers of the Trust and the Portfolio Trust is 200 Clarendon
Street, Boston, Massachusetts 02116.
TRUSTEES AND OFFICERS OF THE TRUST
KEVIN J. SHEEHAN, TRUSTEE*, 6/22/51, Director 1990 - present, President June
1992 - present, Chairman and Chief Executive Officer June 1995 - present,
Investors Bank & Trust Company, Chairman and Chief Executive Officer June 1995
- - present, Investors Financial Services Corp.
FRANCIS J. GAUL, JR., TRUSTEE, 9/25/43, Private Investor July 1998 - present,
Director and Principal, Triad Investment Management Company June 1997 - June
1998, Vice President, Triad Investment Management Company (Registered
Investment Adviser) July 1996 - May 1997, Vice President & Resident Manager,
Goldman Sachs & Co. (Investment Banking & Institutional Sales) June 1993 -
January 1996.
EDWARD F. HINES, JR., TRUSTEE, 9/5/45, Partner 1977 - present, Choate, Hall &
Stewart.
THOMAS E. SINTON, TRUSTEE, 8/26/32, Retired, Managing Director, Corporate
Accounting Policy, April 1993 - October 1996 and Consultant, January 1993 -
March 1996, Bankers Trust Company.
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.
5
<PAGE>
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 - 1995.
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 - 1997, Associate,
Goodwin, Procter & Hoar 1993 - 1995.
TRUSTEES AND OFFICERS OF THE PORTFOLIO TRUST
KEVIN J. SHEEHAN, TRUSTEE**, 6/22/51, Director since 1990, President June 1992
- - present, Chairman and Chief Executive Officer June 1995 - present, Investors
Bank & Trust Company, Chairman and Chief Executive Officer June 1995 - present,
Investors Financial Services Corp.
FRANCIS J. GAUL, JR., TRUSTEE, 9/25/43, Private Investor July 1998 - present,
Director and Principal, Triad Investment Management Company June 1997 - June
1998, Vice President, Triad Investment Management Company (Registered
Investment Adviser) July 1996 - May 1997, Vice President & Resident Manager,
Goldman Sachs & Co. (Investment Banking & Institutional Sales) June 1993 -
January 1996.
EDWARD F. HINES, JR., TRUSTEE, 9/5/45, Partner 1977 - present, Choate, Hall &
Stewart.
THOMAS E. SINTON, TRUSTEE, 8/26/32, Retired, Managing Director, Corporate
Accounting Policy, April 1993 - October 1996 and Consultant, January 1993 -
March 1996, Bankers Trust Company.
PAUL J. JASINSKI, PRESIDENT, TREASURER AND CHIEF FINANCIAL OFFICER, 2/17/47,
Managing Director, Investors Bank & Trust Company, 1990 - present.
TIMOTHY J. COYNE, VICE PRESIDENT, 5/9/67, Director, Corporate Marketing,
Investors Bank & Trust Company, 1997 - present, Vice President, Corporate
Sales, Dreyfus Corporation, 1995 - 1997, Assistant Vice President, Concord
Financial Corp., 1992 - 1995.
CHRISTOPHER J. QUINN, ASSISTANT VICE PRESIDENT, 5/6/66, Manager, Advisory
Client Services, Investors Bank & Trust Company, 1996 - present, Service
Specialist Mutual Funds, Fleet Bank, 1994 - 1996, Executive Sales Assistant,
Concord Financial Corp., 1993 - 1994.
SUSAN C. MOSHER, SECRETARY, 1/29/55, Director, Mutual Fund Administration -
Legal Administration, Investors Bank & Trust Company, 1995 - present, Associate
Counsel, 440 Financial Group of Worcester, Inc., 1993 - 1995.
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 - 1997, Associate,
Goodwin, Procter & Hoar 1993 - 1995.
6
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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.
*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 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.
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. The Fund bears its pro rata allocation of Trustees'
fees paid by the Portfolio to the Trustees of the Portfolio Trust. The Trustees
of the Trust are paid an annual retainer of $3,000, payable in equal quarterly
installments, which retainer shall increase by $1,000 per series of the Trust
beyond the initial three series. The following table reflects the compensation
paid by the Trust, by the Portfolio Trust and by another related open end
investment company, to each Trustee for the fiscal period ended December 31,
1998.
<TABLE>
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<S> <C> <C> <C>
Aggregate Pension or Retirement Total Compensation
Compensation Benefits Accrued as From Trust and Fund
Name of Trustee From the Trust Part of Fund's Expenses Complex *
- --------------- -------------- ----------------------- ---------
Kevin J. Sheehan $0 $0 $0
Francis J. Gaul,
Jr. $1,167 $0 $25,000
Edward F. Hines,
Jr. $1,167 $0 $25,000
Thomas E. Sinton $1,167 $0 $25,000
*Fund Complex consists of the Trust, the Portfolio Trust, the Merrimac Global
Cash Fund and the Merrimac Funds, comprising eight series as of December 31,
1998.
</TABLE>
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISER AND SUBADVISER
The Portfolio retains Investors Bank & Trust Company ("Investors Bank" or the
"Adviser") as its investment adviser. The Investment Adviser Agreement (the
"Adviser Agreement") between Investors Bank and the Portfolio provides that
Investors Bank will manage the operations of the 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 Portfolio's operations and pays the compensation of such
Portfolio's officers, employees and directors affiliated with Investors Bank.
The Portfolio pays Investors Bank a unitary fee for servicing the Portfolio as
Investment Adviser, Administrator, Custodian, Fund Accountant and Transfer
Agent. For a description of the rate of
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compensation that the Portfolio pays Investors Bank under the Adviser
Agreements, see "Administrator, Transfer Agent and Fund Accountant" below.
The Portfolio pays Investors Bank a fee for its services. As of December 31,
1998, the Portfolio had not yet commenced operations.
Pursuant to an Investment Sub-Adviser Agreement (the "AAM Sub-Adviser
Agreement"), Investors Bank has retained Allmerica Asset Management, Inc.
("AAM") as sub-adviser to the Portfolio. AAM is compensated by Investors Bank
at no additional cost to the Portfolio. Subject to the supervision of Investors
Bank and of the Portfolio Trust's Board of Trustees, AAM furnishes to the
Portfolio investment research, advice and supervision and determines what
securities will be purchased, held or sold by the Portfolio. AAM is rendered an
annual fee, computed and paid monthly, based on the average daily net assets
("ANA") of the Portfolio according to the following schedule: 0.09% on the
first $500 million in assets; 0.07% on the next $500 million in assets, and
0.06% on assets exceeding $1 billion. As of December 31, 1998, the Portfolio
had not yet commenced operations.
The Portfolio bears the expense of its operations other than those incurred by
AAM. Among the other expenses, the Portfolio pays share pricing and shareholder
servicing fees and expenses; custodian fees and expenses; legal and auditing
fees and expenses; expenses of shareholder reports; registration and reporting
fees and expenses; and the Portfolio Trust's Trustee fees and expenses.
DISTRIBUTOR
Shares of the Fund are continuously distributed by Funds Distributor, Inc. (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 Fund's shares. Pursuant to the Distribution Agreement, the Distributor has
agreed to use its best efforts to obtain orders for the continuous offering of
the Fund's shares. The Distributor receives no commissions or other
compensation from the Fund for its services, but receives compensation from
Investors Bank for services it performs in acting as the Fund's Distributor.
Funds Distributor is registered with the SEC 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, Massachusetts 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.
DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
The Board of Trustees of the Trust has adopted a Plan of Distribution (the
"Distribution Plan") under Rule 12b-1 of the 1940 Act with respect to the
Investment Class of shares of the 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 the Fund at an annual rate not to
exceed 0.25% of the ANA of the 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
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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
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 the 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 the Fund after having concluded that there is a
reasonable likelihood that the Servicing Plan will benefit the Fund and its
shareholders. The Servicing Plan provides that the Shareholder Servicing Agent
shall receive a fee from the Fund at an annual rate not to exceed 0.25% of the
ANA of the Fund.
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 the Fund. The Plan may not be amended to increase materially the amount of
the Fund's permitted expenses thereunder without the approval of a majority of
the outstanding voting securities of the affected Class of the 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.
ADMINISTRATOR, TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
Investors Bank serves as Administrator to the Fund and IBT Trust & Custodial
Services (Ireland) LMTD ("IBT Ireland"), a subsidiary of Investors Bank, serves
as Administrator to the Portfolio. The services provided by Investors Bank and
IBT Ireland include certain accounting, clerical and bookkeeping services, Blue
Sky (for the Fund 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 and dividend paying agent for the Fund
and IBT Fund Services (Canada) Inc., ("IBT Canada") a subsidiary of Investors
Bank, serves as transfer and dividend paying agent for the Portfolio. As
transfer agent, Investors Bank is responsible for the issuance, transfer and
redemption of interests, the establishment and maintenance of accounts and the
payment of distributions for the Fund and IBT Canada is responsible for
maintaining records of holders in interest and for the payment of distributions
for the Portfolio.
Investors Bank also acts as custodian for the Fund and for the Portfolio. As
custodian, Investors Bank holds cash, securities and other assets of the Fund
and the Portfolio as required by the 1940 Act. IBT Canada also serves as fund
accounting agent for the Fund and the Portfolio. As fund accounting agent, IBT
Canada performs certain accounting, clerical and bookkeeping services, and the
daily calculation of net asset value for the Fund and Portfolio.
For its services as Investment Adviser, Administrator, Transfer Agent,
Custodian and Fund Accounting Agent, the Portfolio pays Investors Bank an
aggregate fee, which is calculated daily and paid monthly, at an annual rate of
0.17% of the ANA of the Portfolio. For its services as Administrator, Transfer
9
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Agent, Custodian and Fund Accounting Agent, the Fund pays Investors Bank an
aggregate fee, which is calculated daily and paid monthly, at an annual rate of
0.01% of ANA of the Fund.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Purchases and sales of securities for the Portfolio 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 Portfolio does not
anticipate paying brokerage commissions. Any transaction for which the
Portfolio pays a brokerage commission will be effected at the best price and
execution available. Purchases from underwriters of securities include a
commission or concession paid by the issuer to the underwriter and purchases
from dealers serving as market makers include the spread between the bid and
asked price.
Allocations of transactions, including their frequency, to various dealers is
determined by AAM in its best judgment and in a manner deemed to be in the best
interest of the Fund and the other investors in the 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 Portfolio will be made independently from those
for any other account or investment company that is or may in the future become
managed by AAM. If, however, the Portfolio and other accounts managed by AAM
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 Portfolio or the size of the position obtainable for the
Portfolio. In addition, when purchases or sales of the same security for the
Portfolio and for other accounts managed by AAM occur contemporaneously, the
purchase or sale orders may be aggregated in order to obtain any price
advantages available to large denomination purchases or sales.
CAPITAL STOCK
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 the 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
10
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desirable. The shareholders also would vote upon changes in fundamental
investment objectives, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing Trustees and until the election and qualification of
his successor or until such Trustee sooner dies, resigns or is removed by a
vote of two-thirds of the shares entitled to vote, or a majority of the
Trustees. In accordance with the 1940 Act (i) the Trust will hold a shareholder
meeting for the election of Trustees at such time as less than a majority of
the Trustees have been elected by shareholders, and (ii) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the Trustees have
been elected by the shareholders, that vacancy will be filled only by a vote of
the shareholders. A shareholders' meeting shall 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 the 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 the Fund has equal voting rights with every other share of the
Fund, and all shares of the Fund vote as a single group except where a separate
vote of any class is required by the 1940 Act, the laws of the State of
Delaware, the Master Trust Agreement or the By-Laws, or as the Board may
determine in its sole discretion. Where a separate vote is required with
respect to one or more classes, then the shares of all other classes vote as a
single class, provided that, as to any matter which does not affect the
interest of a particular class, only the holders of shares of the one or more
affected classes is entitled to vote.
Interests in the Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolio Trust normally will not hold meetings of holders of such interests
except as required under the 1940 Act. The Portfolio Trust would be required to
hold a meeting of holders in the event that at any time less than a majority of
its Trustees holding office had
11
<PAGE>
been elected by holders. The Trustees of the Portfolio Trust continue to hold
office until their successors are elected and have qualified. Holders holding a
specified percentage of interests in a Portfolio may call a meeting of holders
in such Portfolio for the purpose of removing any Trustee. A Trustee of the
Portfolio Trust may be removed upon a majority vote of the interests held by
holders in the Portfolio Trust qualified to vote in the election. The 1940 Act
requires the Portfolio Trust to assist its holders in calling such a meeting.
Upon liquidation of a Portfolio, holders in such Portfolio would be entitled to
share pro rata in the net assets of the Portfolio available for distribution to
holders. Each holder in the Portfolio is entitled to a vote in proportion to
its percentage interest in such Portfolio.
PURCHASE, REDEMPTION AND VALUATION OF SHARES
PURCHASE AND REDEMPTION OF SHARES
Information on how to purchase and redeem shares and the time at which net
asset value of each share is determined is included in the Prospectus.
The Trust may suspend the right to redeem Fund shares or postpone the date of
payment upon redemption for more than seven days (i) for any period during
which the New York Stock Exchange ("NYSE") and the Federal Reserve Bank ("Fed")
are closed (other than customary weekend or holiday closings) or trading on the
exchange is restricted; (ii) for any period during which an emergency exists as
a result of which disposal by the Fund of securities owned by it or
determination by the Fund of the value of its net assets is not reasonably
practicable; or (iii) for such other periods as the SEC may permit for the
protection of shareholders of the Fund.
The Trust intends to pay redemption proceeds in cash for Fund shares redeemed.
Portfolio securities paid upon redemption of Fund shares will be valued at
their then current market value. An investor may incur brokerage costs in
converting portfolio securities received upon redemption to cash. The Portfolio
has advised the Trust that the Portfolio will not redeem in-kind except in
circumstances in which the Fund is permitted to redeem in-kind or except in the
event the Fund completely withdraws its interest from the Portfolio.
VALUATION OF SHARES
The following is a description of the procedures used by the Fund in valuing
its assets.
The investment securities in the 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 would receive if the security were sold. This method
of valuation is used in order to stabilize the NAV of shares of the Fund at
$1.00; however, there can be no assurance that the Fund's NAV will always
remain at $1.00 per share.
TAXATION OF THE TRUST
The Fund is treated as a separate entity for accounting and tax purposes. The
Fund will elect (when it files its initial federal tax return) to be treated
and to qualify as a "regulated investment company"
12
<PAGE>
("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended
(the "Code"), and intends to continue to so qualify in the future. As such and
by complying with the applicable provisions of the Code regarding the sources
of its income, the timing of its distributions, and the diversification of its
assets, the 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.
The Portfolio is treated as a partnership for federal income tax purposes. As
such, the Portfolio is not subject to federal income taxation. Instead, the
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 the Portfolio. Because the Fund invests its assets in the
Portfolio, the Portfolio normally must satisfy the applicable source of income
and diversification requirements in order for the Fund to satisfy them. The
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.
The Portfolio will make allocations to the Fund in a manner intended to comply
with the Code and applicable regulations and will make moneys available for
withdrawal at appropriate times and in sufficient amounts to enable the Fund to
satisfy the tax distribution requirements that apply to the Fund and that must
be satisfied in order to avoid Federal income and/or excise tax on the Fund.
For purposes of applying the requirements of the Code regarding qualification
as a RIC, the Fund will be deemed (i) to own its proportionate share of each of
the assets of the Portfolio and (ii) to be entitled to the gross income of the
Portfolio attributable to such share.
The 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. The
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 the
Fund during October, November or December but paid during the following
January. Such distributions will be taxable to taxable shareholders as if
received on December 31 of the year the distributions are declared, rather than
the year in which the distributions are received.
At the discretion of the officers of the Fund, the Fund will distribute net
realized capital gains. For federal income tax purposes, the 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 the Fund and, as noted above, would
not be distributed as such to shareholders.
If the Portfolio invests in zero coupon securities, certain increasing rate or
deferred interest securities or, in general, other securities with an original
issue discount (or with market discount if an election is in effect to include
market discount in income currently), the Portfolio must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
the Fund must distribute, at least annually, all or substantially all of its
net income, including its distributive share of such income accrued by the
Portfolio, to shareholders to qualify as a regulated investment company under
the Code and avoid federal income and excise taxes. Therefore, the Portfolio
may have to dispose of its portfolio securities under disadvantageous
circumstances to generate cash, or may have to leverage itself by borrowing the
cash, to enable the Fund to satisfy the distribution requirements.
13
<PAGE>
Distributions from the 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 Fund 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 the Portfolio's investments, no
portion of the Fund's distributions will generally qualify for the dividends
received deduction. The 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 the Portfolio from stock investments in U.S. domestic
corporations.
Dividends and certain other distributions may be subject to "backup
withholding" of federal income tax at a 31% rate for shareholders who fail to
provide required taxpayer identification numbers or related certifications,
provide incorrect information, or are otherwise subject to such withholding.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as
qualified retirement plans. Shareholders should consult their tax adviser for
more information.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to any foreign
investors (who may be subject to withholding or other taxes) or certain other
classes of investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions, and ownership of
or gains realized on the redemption (including an exchange) of Fund shares may
also be subject to state and local taxes. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent, if any, the Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) investments in certain U.S. Government Securities, provided in some states
that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fund's indirect ownership (through the Portfolio) of any
such obligations, the Federal, and any other state or local, tax consequences
of ownership of shares of, and receipt of distributions from, the Fund in their
particular circumstances.
14
<PAGE>
CALCULATION OF PERFORMANCE DATA
From time to time, the Fund may quote its "yield" and "effective yield" in
advertisements, reports and other communications to shareholders and compare
its 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 Fund is computed by (a) determining the net change in
the value of a hypothetical pre-existing account in the Fund having a balance
of one share at the beginning of a seven calendar day period for which yield is
to be quoted; (b) dividing the net change by the value of the account at the
beginning of the period to obtain the base period return; and (c) annualizing
the results (i.e., multiplying the base period return by 365/7).
EFFECTIVE YIELD
In addition, the Fund may calculate a compound effective annualized yield by
determining the net change in the value of a hypothetical pre-existing account
in the Fund having a balance of one share at the beginning of a seven calendar
day period for which yield is to be quoted according to the following formula:
Effective Yield = [( Base Period return +1 ) (365/7 exponentional power)] -
1 (I.E., adding 1 to the base period return (calculated as described
above), raising the sum to a power equal to 365/7 and subtracting 1.)
The net change in the value of the account reflects the value of additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors to the Trust and the
Portfolio Trust.
COUNSEL
Goodwin, Procter & Hoar LLP serves as counsel to the Trust and the Portfolio
Trust.
15
<PAGE>
APPENDIX
DESCRIPTION OF LONG-TERM DEBT RATINGS
The following is a description of Moody's Investors Service ("Moody's") debt
instrument ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates 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 Ratings Service ("Standard
& Poor's"), debt instrument ratings:
Standard & Poor's ratings are based, in varying degrees, on the following
considerations: (i) the likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligations; (ii) the nature of and provisions
of the obligation; and (iii) the protection afforded by, and relative position
of, the obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Plus (+) or minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
THOMSON BANK WATCH SHORT-TERM DEBT RATINGS
Thomson Bank Watch ratings represent an assessment of the likelihood of an
untimely payment of principal and interest. Important factors that may
influence this assessment are the overall financial health of the particular
company, and the probability that the government will come to the aid of a
16
<PAGE>
troubled institution in order to avoid a default or failure. The probability of
government intervention stems from four primary factors:
O Government Guarantees
O Government Or Quasi-Government Ownership Or Control
O The Degree Of Concentration In The Banking System
O Government Precedent
As with the Issuer Ratings, the Short-Term Debt Ratings incorporate both
qualitative and quantitative factors. The ratings are not meant to be
"pass/fail" but rather to provide a relative indication of creditworthiness.
Therefore, obligations rated TBW-3 are still considered investment-grade.
These Short-Term Debt Ratings can also be restricted to local currency
instruments. In such cases, the ratings will be preceded by the designation LC
for Local Currency. Short-Term Debt Ratings are based on the following scale
and the definitions are:
TBW-1 LC-1
The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
TBW-2 LC-2
The second-highest category; while the degree of safety regarding timely
repayment of principal and interest is strong, the relative degree of
safety is not as high as for issues rated TBW-1.
TBW-3 LC-3
The lowest investment-grade category; indicates that while the
obligation is more susceptible to adverse developments (both internal
and external) than those with higher ratings, the capacity to service
principal and interest in a timely fashion is considered adequate.
TBW-4 LC-4
The lowest rating category; this rating is regarded as non-investment
grade and therefore speculative.
THOMSON BANK WATCH LONG-TERM DEBT RATINGS
Long-Term Debt Ratings assigned by Thomson Bank Watch also weigh heavily
government ownership and support. The quality of both the company's management
and franchise are of even greater importance in the Long-Term Debt Rating
decisions. Long-Term Debt Ratings look out over a cycle and are not adjusted
frequently for what is believed to be short-term performance aberrations.
Long-Term Debt Ratings can be restricted to local currency debt - ratings will
be identified by the designation LC. In addition, Long-Term Debt Ratings may
include a plus (+) or minus (-) to indicate where within the category the issue
is placed. Thomson Bank Watch Long-Term Debt Ratings are based on the following
scale:
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<PAGE>
INVESTMENT GRADE
AAA LC-AAA
Indicates that the ability to repay principal and interest on a timely
basis is extremely high.
AA LC-AA
Indicates a very strong ability to repay principal and interest on a
timely basis, within limited incremental risk compared to issues rated
in the highest category.
A LC-A
Indicates the ability to repay principal and interest is strong. Issues
rated A could be more vulnerable to adverse developments (both internal
and external) than obligations with higher ratings.
BBB LC-BBB
The lowest investment-grade category; indicates an acceptable capacity
to repay principal and interest. BBB issues are more vulnerable to
adverse developments (both internal and external) than obligations with
higher ratings.
Non-Investment grade - may be speculative in the likelihood of timely repayment
of principal and interest.
BB LC-BB
While not investment grade, the BB rating suggests that the likelihood
of default is considerably less than for lower-rated issues. However,
there are significant uncertainties that could affect the ability to
adequately service debt obligations.
B LC-B
Issues rated B show a higher degree of uncertainty and therefore greater
likelihood of default than higher-rated issues. Adverse developments
could negatively affect the payment of interest and principal on a
timely basis.
CCC LC-CCC
Issues rated CCC clearly have a high likelihood of default, with little
capacity to address further adverse changes in financial circumstances.
CC LC-CC
CC is applied to issues that are subordinate to other obligations rated
CCC and are afforded less protection in the event of bankruptcy or
reorganization.
D LC-D
Default
18
<PAGE>
PART C
ITEM 23. EXHIBITS:
(a) (1) Master Trust Agreement, effective as of March 30, 1998(1)
(2) Amendment No. 1 to the Master Trust Agreement(3)
(3) Amendment No. 2 to the Master Trust Agreement
(b) By-Laws(1)
(c) Not Applicable
(d) (1) Investment Adviser Agreement between Merrimac Master Portfolio and
Investors Bank & Trust Company ("Investors Bank")(Cash Portfolio)(1)
(2) Investment Adviser Agreement between Standish, Ayer & Wood Master
Portfolio and Standish, Ayer and Wood, Inc. ("Standish")(STAR
Portfolio)(1)
(3) Investment Adviser Agreement between Merrimac Master Portfolio and
Investors Bank (Treasury Portfolio)(3)
(4) Investment Adviser Agreement between Merrimac Master Portfolio and
Investors Bank (Treasury Plus Portfolio)(4)
(5) Form of Investment Adviser Agreement between Merrimac Master
Portfolio and Investors Bank (U.S. Government Portfolio)
(6) Investment Sub-Adviser Agreement between Investors Bank and Allmerica
Asset Management, Inc. (Cash Portfolio)(3)
(7) Investment Sub-Adviser Agreement between Investors Bank and M&I
Investment Management Corp. (Treasury Portfolio)(4)
(8) Investment Sub-Adviser Agreement between Investors Bank and M&I
Investment Management Corp. (Treasury Plus Portfolio)(4)
(9) Form of Investment Sub-Adviser Agreement between Investors Bank and
Allmerica Asset Management, Inc. (U.S. Government Portfolio)
(e) Distribution Agreement between Registrant and Funds Distributor Inc.
("Funds Distributor")(3)
(f) Not Applicable
(g) Custodian Agreement between Registrant and Investors Bank(3)
(h) (1) Administration Agreement between Registrant and Investors Bank(3)
(2) Transfer Agency and Service Agreement between Registrant and
Investors Bank(2)
(3) Third Party Feeder Fund Agreement among Registrant, Standish, Ayer &
Wood Master Portfolio, Investors Bank and Standish(4)
(4) Agreement between Funds Distributor and Investors Bank(2)
(i) (1) Opinion of Counsel(2)
(2) Opinion of Counsel(3)
(3) Opinion of Counsel
(j) Not Applicable
<PAGE>
(k) Not Applicable
(l) Purchase Agreement(2)
(m) (1) Shareholder Servicing Plan with respect to Institutional Class
Shares(2)
(2) Shareholder Servicing Plan with respect to Investment Class Shares(2)
(3) Shareholder Servicing Agreement with respect to Institutional Class
Shares(2)
(4) Form of Shareholder Servicing Agreement with respect to Investment
Class Shares(1)
(5) Distribution Plan with respect to Investment Class Shares(2)
(n) None
(o) Multiple Class Expense Allocation Plan (Rule 18f-3)(2)
(1) Incorporated herein by reference to the Registrant's Registration
Statement on Form N-1A filed April 8, 1998 (Accession No. 0001029869-98-
000483).
(2) Incorporated herein by reference to the Registrant's Pre-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed June 18,
1998 (Accession No. 0001029869-98-000820).
(3) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 1 to the Registration Statement on Form N-1A filed October
30, 1998 (Accession No. 0001029869-98-001219).
(4) Incorporated herein by reference to the Registrant's Post-Effective
Amendment No. 2 to the Registration Statement on Form N-1A filed February
25, 1999 (Accession No. 0000897436-99-000033).
ITEM 24. 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 25. 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,
<PAGE>
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 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.
<PAGE>
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER.
Investors Bank serves as investment adviser to the Merrimac Cash Portfolio, the
Merrimac Treasury Portfolio and the Merrimac Treasury Plus 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:
Business and Other
Positions Within
Name Position with Adviser Last Two Years
- ---- --------------------- --------------
Kevin J. Sheehan President & Chief President since June
Executive Officer 1992;Chief Executive
Officer 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
<PAGE>
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.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Funds 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.
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
<PAGE>
Dresdner RCM Equity 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
Kobrick-Cendant Investment Trust
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Orbitex Group of Funds
SG Cowen Funds, Inc.
SG Cowen Income & Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
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:
Director, President and Chief Executive Officer - Marie E. Connolly
Executive Vice President - George A. Rio
Executive Vice President - Donald R. Roberson
Executive Vice President - William S. Nichols
Senior Vice President, General Counsel, Chief Compliance Officer,
Secretary and Clerk - Margaret W. Chambers
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 - Gary S. MacDonald
Senior Vice President - Judith K. Benson
Chairman and Director - William J. Nutt
(c) Not applicable.
<PAGE>
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in part, at
the office of the Registrant and the locations set forth below. (The Merrimac
Cash Series, the Merrimac Treasury Series, the Merrimac Treasury Plus Series
and the Merrimac U.S. Government Series are collectively referred to as the
"Funds" and the Merrimac Cash Portfolio, the Merrimac Treasury Portfolio, the
Merrimac Treasury Plus Portfolio and the Merrimac U.S. Government 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, the Merrimac Treasury
Portfolio, the Merrimac Treasury Plus Portfolio and the Merrimac U.S.
Government Portfolio; Administrator and Transfer Agent for the Funds; Custodian
for the Funds and the Portfolios).
Allmerica Asset Management, Inc.
40 Lincoln Street
Worcester, Massachusetts 01653
(Investment Sub-Adviser to the Merrimac Cash Portfolio and the Merrimac U.S.
Government Portfolio)
M&I Investment Management Corp.
1000 North Water Street
Milwaukee, Wisconsin 53202-6629
(Investment Sub-Adviser to the Merrimac Treasury Portfolio and the Merrimac
Treasury Plus Portfolio)
IBT Trust & Custodial Services (Ireland) LMTD
Deloitte & Touche House
29 Earlsfort Terrace
Dublin 2, Ireland
(Administrator to the Portfolios)
IBT Fund 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 29. MANAGEMENT SERVICES.
Not applicable.
<PAGE>
ITEM 30. UNDERTAKINGS.
Not Applicable.
<PAGE>
SIGNATURES
Merrimac Master Portfolio (the "Portfolio Trust") has duly caused this
Post-Effective Amendment No. 3 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 19th day of March, 1999.
MERRIMAC MASTER PORTFOLIO
By /s/ PAUL J. JASINSKI
---------------------
Paul J. Jasinski
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 3 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 19th day of March, 1999.
/s/ PAUL J. JASINSKI
--------------------
Paul J. Jasinski
President, 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, as amended, and the
Investment Company Act of 1940, as amended, Merrimac Series (the "Trust") has
duly caused this Post-Effective Amendment No. 3 to the Registration Statement
on Form N-1A to be signed on its behalf by the undersigned, thereto duly
authorized in the City of Boston and Commonwealth of Massachusetts on the 19th
day of March, 1999.
MERRIMAC SERIES
By /s/ George A. Rio
------------------
George A. Rio
President
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Post-Effective Amendment No. 3 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 19th day of March, 1999.
/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
<PAGE>
MERRIMAC SERIES
EXHIBIT INDEX
Exhibit No. Exhibit Page
- ----------- ------- ----
EX-99.a(3) Amendment No. 2 to the Master Trust
Agreement
EX-99.d(5) Form of Investment Adviser Agreement
EX-99.d(9) Form of Investment Sub-Adviser Agreement
EX-99.i(3) Opinion of Counsel
MERRIMAC SERIES
AMENDMENT NO. 2 TO
MASTER TRUST AGREEMENT
AMENDMENT NO. 2 to the Master Trust Agreement dated March 30, 1998 of the
Merrimac Series (the "Trust") made at Boston, Massachusetts as of this 15th day
of March, 1999.
WHEREAS, Section 7.3 of the Agreement of the Trust provides that the
Agreement may be amended at any time by an instrument in writing signed by a
majority of Trustees of the Trust without the vote of the Shareholders of the
Trust, so long as such amendment does not adversely affect the rights of any
shareholder;
WHEREAS, Section 4.1 of the Agreement of the Trust provides that the
Trustees of the Trust may establish and designate additional Series of Shares
by an instrument in writing signed by a majority of Trustees of the Trust; and
WHEREAS, the Trustees of the Trust desire to establish an additional
Series of Shares to be identified as the "Merrimac U.S. Government Series."
NOW, THEREFORE, the Trustees hereby state that:
1. Section 4.2 of the Agreement and all other appropriate references in
the Agreement are amended to designate and establish a new Series of shares (in
addition to the Merrimac Cash Series, the Merrimac Treasury Series, the
Merrimac Treasury Plus Series, and the Merrimac Short-Term Asset Reserve Series
heretofore established and designated) to be known as the Merrimac U.S
Government Series, effective as of this date, such new Series to have the
relative rights and preferences set forth in Section 4.2 of the Agreement.
2. The initial paragraph of Section 4.2 of the agreement, as heretofore in
effect, is amended to read as follows:
<PAGE>
"Section 4.2 Establishment and Designation of Sub-Trusts and
---------------------------------------------------
Classes. Without limiting the authority of the Trustees set forth
-------
in Section 4.1 to establish and designate any further Sub-Trusts,
the Trustees hereby establish and designate five Sub-Trusts
identified as "Merrimac Cash Series," "Merrimac Treasury Series,"
"Merrimac Treasury Plus Series," "Merrimac U.S. Government
Series" and "Merrimac Short-Term Asset Reserve Series," which
Sub-Trusts shall consist of three classes of shares identified as
the "Premium Class" the "Institutional Class" and "Investment
Class" Shares. The Shares of such Sub-Trusts and any Shares of
any further Sub-Trusts that may from time to time be established
and designated by the Trustees shall (unless the Trustees
otherwise determine with respect to some further Sub-Trust at the
time of establishing and designating the same) have the following
relative rights and preferences:"
IN WITNESS WHEREOF, the undersigned have hereunto set their hands and seal
for themselves and their assigns, as of this 15th day of March, 1999.
/s/ Edward F. Hines, Jr.
------------------------------------------
Edward F. Hines, Jr.
/s/ Francis J. Gaul, Jr.
------------------------------------------
Francis J. Gaul, Jr.
------------------------------------------
Thomas E. Sinton
/s/ Kevin J. Sheehan
------------------------------------------
Kevin J. Sheehan
INVESTMENT ADVISER AGREEMENT
Agreement made as of this ___ day of June, 1999, by and between
Merrimac Master Portfolio, a New York Trust (the "Trust") and Investors Bank
and Trust Company (the "Adviser"), a Massachusetts banking corporation.
WHEREAS, the MERRIMAC U.S. GOVERNMENT PORTFOLIO (the "Portfolio") is a
series of the Trust, which is an open-end diversified management investment
company registered as such with the Securities and Exchange Commission (the
"SEC") pursuant to the Investment Company Act of 1940, as amended (the "1940
Act");
WHEREAS, the Merrimac U.S. Government Series (the "Fund"), which is an
open-end diversified management investment company registered as such with the
SEC pursuant to the 1940 Act and the Securities Act of 1933, will invest all of
its investable assets in the Portfolio;
WHEREAS, the Trust, on behalf of the Portfolio, desires to appoint the
Adviser to render, or contract to obtain as hereinafter provided, investment
advisory services to the Portfolio and to administer the Portfolio's day to day
business affairs and the Adviser is willing to act in such capacity upon the
terms herein set forth;
NOW THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, the Trust, on behalf of the Portfolio, and the
Adviser, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Appointment
(a) The Trust, on behalf of the Portfolio, hereby appoints the Adviser
as the investment adviser of the Portfolio to administer its business affairs
and to perform for the Portfolio such other duties and functions as are
hereinafter set forth. The Adviser hereby accepts such appointment and agrees
to give the Portfolio and the Trust's Board of Trustees (the "Trustees"), the
benefit of the Adviser's best judgment, effort, advice and recommendations in
respect of its duties as defined in Section 2.
(b) The Trust hereby represents and warrants to the Adviser, which
representations and warranties shall be deemed to be continuing, that (i) it
has full power and authority to enter into this Agreement, and (ii) it has
taken all necessary and proper action to authorize the execution and delivery
of this Agreement.
(c) The Adviser hereby represents and warrants to the Trust, which
representations and warranties shall be deemed to be continuing, that (i) it
has full power and authority to enter into this Agreement, and (ii) it has
taken all necessary and proper action to authorize the execution and delivery
of this Agreement.
2. Adviser Duties
(a) The Adviser shall, subject to the direction and control of the
Trustees and in accordance with the objective and policies of the Portfolio and
the implementation thereof as set forth in the Fund's Prospectus and Statement
of Additional Information ("SAI"), the Portfolio's Registration Statement on
Form N-1A and any federal and state laws: (i) regularly provide investment
advice and recommendations to the Portfolio, with respect to the Portfolio's
investments, investment policies and the purchase and sale of securities; (ii)
supervise and monitor continuously the investment program of the Portfolio and
the composition of its portfolio and determine what securities shall be
purchased and sold by the Portfolio; (iii) arrange, subject to the provision of
Section 4 hereof, for the purchase of securities and other investments for the
Portfolio and the sale of securities and other investments of the Portfolio;
(iv) provide reports on the
1
<PAGE>
foregoing to the Trust in such detail as the Trust may reasonably deem to be
appropriate in order to permit the Trust to determine the adherence by the
Adviser to the investment policies and legal requirements of the Portfolio; and
(v) make its officers and employees available to the Trust's officers at
reasonable times to review the investment policies of the Portfolio and to
consult with the Trust's officers regarding the investment affairs of the
Portfolio.
(b) The Adviser is further authorized to enter into a sub-adviser
arrangement for the investment advisory services outlined in Section 2 (a) of
this Agreement in connection with the management of the Portfolio, provided
that no such arrangement shall be made until a sub-adviser agreement has been
approved by the Trustees. Should the Adviser enter into such a sub-adviser
agreement, the Adviser shall, nevertheless, retain supervisory responsibility
for all investment advisory services furnished pursuant to any such
sub-advisory arrangements and the Adviser's duties shall then include: (i)
supervise and monitor continuously the investment advisory services furnished
pursuant to any such sub-adviser arrangements; (ii) review the performance of
the sub-adviser, and make recommendations to the Trustees with respect to the
retention and renewal of such sub-adviser arrangements; (iii) provide reports
on the foregoing to the Trustees for each Board meeting; (iv) make its officers
and employees available to review the investment policies of the Portfolio and
to consult with the sub-adviser regarding the investment affairs of the
Portfolio; (v) supervise relationships with and monitor the performance of the
custodian, depositories, transfer agent, accountants, attorneys, insurers and
other persons in any capacity deemed to be necessary or desirable; and (vi)
make recommendations to the Trustees with respect to Portfolio policies and
carry out such policies as are adopted by the Trustees.
3. Compensation of the Adviser
The Portfolio will pay to the Adviser as compensation for the Adviser's
services rendered and for the expenses borne by the Adviser, including
personnel expenses, a fee, determined as described in Schedule A which is
attached hereto and made a part hereof.
4. Portfolio Transactions and Brokerage
The Adviser shall place all orders for the purchase and sale of
portfolio securities for the Portfolio's account with issuers, brokers or
dealers selected by the Adviser, which may include where permissible under the
1940 Act, brokers or dealers affiliated with the Adviser. In the selection of
such brokers or dealers and the placing of such orders, the Adviser always
shall seek best execution, which is to place transactions where the Portfolio
can obtain the most favorable combination of price and execution services in
particular transactions or provided on a continuing basis by a broker or
dealer, and to deal directly with a principal market in connection with
over-the-counter transactions, except when it is believed that best execution
is obtainable elsewhere.
5. Interested Trustees or Parties
It is understood that Trustees, officers, and shareholders of the Trust
may be or become interested in the Adviser as directors, officers or employees
and that directors, officers and stockholders of the Adviser may be or become
similarly interested in the Trust, and that the Adviser may be or become
interested in the Trust as a shareholder or otherwise.
6. Services Not Exclusive
The services of the Adviser to the Portfolio are not to be deemed
exclusive, the Adviser being free to render services to others and engage in
other activities, provided, however, that such other services and activities do
not, during the term of this Agreement, interfere, in a material manner, with
the Adviser's ability to meet all of its obligations hereunder.
2
<PAGE>
7. Compliance; Books and Records
(a) The Adviser agrees to maintain adequate compliance procedures to
ensure its compliance with the applicable provisions of the 1940 Act and any
rules or regulations thereunder, the investment objective, policies and
restrictions of the Portfolio as set forth in the current Fund Prospectus and
SAI and any other applicable provisions of state or federal law.
(b) The Adviser shall furnish to the Portfolio, at the Portfolio's
expense, copies of all records prepared in connection with the performance of
this Agreement and the maintenance of compliance procedures pursuant to this
Section 7 as the Portfolio may reasonably request.
(c) The Adviser agrees to provide upon reasonable request of the
Portfolio, information regarding the Adviser, including but not limited to,
background information about the Adviser and its personnel, for use in
connection with efforts to promote the Fund and the sale of its shares.
(d) In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Adviser hereby agrees that all records which it maintains for the
Trust are the property of the Trust and further agrees to surrender promptly to
the Trust any of such records upon the Trust's request. The Adviser further
agrees to preserve for the periods prescribed by Rule 31a-2 under the 1940 Act
the records required to be maintained by Rule 31a-1 under the 1940 Act. The
Adviser will treat confidentially and as proprietary information of the Trust
all records and other information relative to the Fund and prior, present or
potential shareholders, except as otherwise required by law.
8. Limitation of Liability of Adviser
In consideration of the Adviser's undertaking to render the services
described in this Agreement, the Trust, on behalf of the Portfolio, agrees that
the Adviser shall not be liable under this Agreement for any loss suffered by
the Trust in connection with the performance of this Agreement, provided that
nothing in this Agreement shall be deemed to protect or purport to protect the
Adviser against any liability to the Trust or its shareholders to which the
Adviser would otherwise be subject by reason of willful misfeasance, bad faith
or negligence in the performance of its duties under this Agreement.
9. Duration, Amendment and Termination
(a) Subject to prior termination as provided in sub-section (d) of this
Section 9, this Agreement shall continue in effect until two years from the
date hereof and for successive annual periods thereafter, but only so long as
the continuance after such initial two year period shall be specifically
approved at least annually by vote of the Trustees or by vote of a majority of
the outstanding voting securities of the Portfolio and the Fund.
(b) This Agreement may be modified by the written Agreement of the
Adviser and the Portfolio, such consent on the part of the Portfolio to be
authorized by vote of a majority of the outstanding voting securities of the
Portfolio and the Fund if required by law. The execution of any such
modification or amendment by a party shall constitute a representation and
warranty to the other party that all necessary consents or approvals with
respect to such modification or amendment have been obtained.
(c) In addition to the requirements of sub-sections (a) and (b) of this
Section 9, the terms of any continuance or modification of the Agreement must
have been approved by the vote of a majority of those Trustees who are not
parties to such Agreement or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval.
(d) Either the Adviser or the Portfolio may, at any time on sixty (60)
days' prior written notice to the other party, terminate this Agreement,
without payment of any penalty, and in the case of the Portfolio, by action of
its Trustees, or by vote of a majority of its outstanding voting securities.
3
<PAGE>
(e) This Agreement shall terminate automatically in the event of its
assignment.
(f) Termination of this Agreement shall not relieve the Adviser nor the
Trust from any liability or obligation in respect of any matters, undertakings
or conditions which shall not have been done, observed or performed prior to
such termination. All records of the Portfolio in the possession of the Adviser
shall be returned to the Portfolio as soon as reasonably practicable after the
termination of this Agreement.
10. Disclaimer of Liability; Several Obligations
The Adviser understands that the obligations of the Trust under this
Agreement are not binding upon any Trustee or shareholder of the Trust
personally, but bind only the Trust and the Trust's property.
This Agreement is an agreement entered into between the Adviser and the
Trust on behalf of the Portfolio. With respect to any obligation of the Trust
on behalf of any other Portfolio arising out of this Agreement, the Adviser
shall look for payment or satisfaction of such obligation solely to the assets
of the Portfolio to which such obligation relates as though the Adviser had
separately contracted with the Trust by separate written instrument with
respect to each Portfolio.
11. Miscellaneous
(a) The terms "vote of a majority of the outstanding voting
securities," "assignment," and "interested persons," when used herein, shall
have the respective meanings specified in the 1940 Act as now in effect or as
hereafter amended.
(b) The captions in 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.
(c) 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.
(d) This Agreement shall be binding upon and shall insure to the
benefit of the parties hereto and their respective successors.
(e) The Adviser's duties and responsibilities are solely those set
forth herein and no other covenant or obligation shall be implied against the
Adviser in connection with this Agreement.
(f) This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.
(g) Any notice under this Agreement shall be in writing, addressed and
delivered or mailed, postage prepaid, to the other party at such address as
such other party may designate for the receipt of such notice. No notice shall
be effective until received.
IN WITNESS WHEREOF, the parties have caused this instrument to be
executed by their respective officers designated below as of the day and year
first above written.
4
<PAGE>
Merrimac Master Portfolio ("TRUST") on behalf of
the Merrimac U.S. Government Portfolio ("PORTFOLIO")
By:
-------------------------------
Paul J. Jasinski
Title: President
---------
INVESTORS BANK & TRUST COMPANY
("ADVISER")
By:
-------------------------------
Kevin J. Sheehan
Title: President and Chief Executive Officer
-------------------------------------
5
INVESTMENT SUB-ADVISER AGREEMENT
Agreement made as of this ___ day of June, 1999, between Investors Bank and
Trust Company (the "Adviser"), a Massachusetts banking corporation, and
Allmerica Asset Management, Inc. (the "Sub-Adviser"), a Massachusetts
corporation.
WHEREAS, Merrimac U.S. Government Portfolio (the "Portfolio") is a series of
the Merrimac Master Portfolio (the "Trust"), which is an open-end diversified
management investment company registered as such with the Securities and
Exchange Commission (the "SEC") pursuant to the Investment Company Act of 1940,
as amended (the "1940 Act"), and the Trust has appointed the Adviser as the
investment adviser for the Portfolio, pursuant to the terms of an Investment
Adviser Agreement (the "Adviser Agreement"); and
WHEREAS, the Merrimac U.S. Government Series (the "Series"), an open-end
diversified management investment company registered as such with the SEC
pursuant to the 1940 Act and the Securities Act of 1933, as amended (the "1933
Act") will invest all of its investable assets in the Portfolio; and
WHEREAS, the Adviser Agreement provides that the Adviser may, at its option,
subject to approval by the Trustees of the Trust and, to the extent necessary,
shareholders of the Portfolio, appoint a sub-adviser to assume certain
responsibilities and obligations of the Adviser under the Adviser Agreement;
and
WHEREAS, the Adviser desires to appoint the Sub-Adviser as its sub-adviser for
the Portfolio and the Sub-Adviser is willing to act in such capacity upon the
terms herein set forth; and
NOW THEREFORE, in consideration of the premises and of the mutual covenants
herein contained, the Adviser and the Sub-Adviser, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Appointment
- ---------------
(a) The Adviser hereby appoints the Sub-Adviser as the investment
sub-adviser of the Portfolio to provide investment advice and to
perform for the Portfolio such other duties and functions as are
hereinafter set forth. The Sub-Adviser hereby accepts such
appointment and agrees to give the Portfolio and the Trust's Board of
Trustees (the "Trustees"), directly or through the Adviser, the
benefit of the Sub-Adviser's best judgment, effort, advice and
recommendations in respect of its duties as defined in Section 2.
(b) The Adviser hereby represents and warrants to the Sub-Adviser,
which representations and warranties shall be deemed to be
continuing, that (i) it has full power and authority to enter into
this Agreement and to delegate investment management discretion on
behalf of the Portfolio to the Sub-Adviser, and (ii) it has taken all
necessary and proper action to authorize the execution and delivery
of this Agreement.
(c) The Sub-Adviser hereby represents and warrants to the Adviser,
which representations and warranties shall be deemed to be
continuing, that (i) it has full power and authority to enter into
this Agreement, and (ii) it has taken all necessary and proper action
to authorize the execution and delivery of this Agreement.
1
<PAGE>
2. Delivery of Documents
- -------------------------
Prior to the execution of this Agreement, the Adviser will furnish the
Sub-Adviser with copies, properly certified or authenticated, of each of the
following documents:
(a) The Trust's Agreement and Declaration; and all amendments thereto
or restatements thereof;
(b) The Trust's By-Laws; and all amendments thereto;
(c) Resolutions of the Trust's Board of Trustees authorizing the
appointment of the Sub-Adviser and approving this Agreement;
(d) The Trust's original Notification of Registration on Form N-8A
under the 1940 Act;
(e) The Trust's initial Registration Statement on Form N-1A under the
1940 Act and all amendments thereto;
(f) The current Confidential Offering Circular, Prospectus or similar
document of any entity which the Trust has authorized as an investor
(the "Authorized Investor") in the Portfolio (the "Investor Offering
Documents");
(g) The policies and procedures applicable to the Portfolio as
adopted by the Trustees; and all amendments and supplements thereto.
(h) Any further documents, materials or information that the
Sub-Adviser may reasonably request from time to time to enable it to
perform its duties pursuant to this Agreement.
3. Sub-Adviser Duties
- ----------------------
The Sub-Adviser shall, subject to the direction and control of the Trustees or
the Adviser, and in accordance with the objective and policies of the Portfolio
and the implementation thereof as set forth in the Investor Offering Documents,
the Portfolio's Registration Statement on Form N-1A and any applicable federal
and state laws: (i) regularly provide investment advice and recommendations to
the Portfolio, with respect to the Portfolio's investments, investment policies
and the purchase and sale of securities; (ii) supervise and monitor
continuously the investment program of the Portfolio and the composition of its
portfolio and determine what securities shall be purchased and sold by the
Portfolio; (iii) arrange, subject to the provisions of Section 5 hereof, for
the purchase of securities and other investments for the Portfolio and the sale
of securities and other investments of the Portfolio; (iv) provide reports on
the foregoing to the Adviser in such detail as the Adviser may reasonably deem
to be appropriate in order to permit the Adviser to determine the adherence by
the Sub-Adviser to the investment policies and legal requirements of the
Portfolio; and (v) make its officers and employees available to the Adviser at
reasonable times to review the investment policies of the Portfolio and to
consult with the Adviser regarding the investment affairs of the Portfolio.
4. Compensation of the Sub-Adviser
- -----------------------------------
The Adviser will pay to the Sub-Adviser as compensation for the Sub-Adviser's
services rendered and for the expenses borne by the Sub-Adviser, a fee,
determined as described in Schedule A which is attached
2
<PAGE>
hereto and made a part hereof. Such fee shall be paid by the Adviser and the
Trust shall have no liability therefor. Nothing in this Agreement shall require
the Sub-Adviser to bear expenses of the Adviser, the Portfolio or the Trust.
5. Portfolio Transactions and Brokerage
- ----------------------------------------
The Sub-Adviser shall place all orders for the purchase and sale of portfolio
securities for the Portfolio's account with issuers, brokers or dealers
selected by the Sub-Adviser, which may include where permissible under the 1940
Act, brokers or dealers affiliated with the Sub-Adviser. In the selection of
such brokers or dealers and the placing of such orders, the Adviser always
shall seek best execution, which is to place transactions where the Portfolio
can obtain the most favorable combination of price and execution services in
particular transactions or provided on a continuing basis by a broker or
dealer, and to deal directly with a principal market in connection with
over-the-counter transactions, except when it is believed that best execution
is obtainable elsewhere. Nothing in this Agreement shall preclude the combining
of orders for the sale or purchase of securities or other investments with
other accounts managed by the Sub-Adviser or its affiliates, provided that the
Sub-Adviser does not favor any account over any other account and provided that
any purchase or sale orders executed contemporaneously shall be allocated in an
equitable manner among the accounts involved.
6. Interested Trustees or Parties
- ----------------------------------
It is understood that Trustees, officers, and shareholders of the Trust may be
or become interested in the Adviser or the Sub-Adviser as directors, officers
or employees and that directors, officers and stockholders of the Adviser or
the Sub-Adviser may be or become similarly interested in the Trust, and that
the Adviser or the Sub-Adviser may be or become interested in the Trust as a
shareholder or otherwise.
7. Services Not Exclusive
- --------------------------
The services of the Sub-Adviser to the Adviser are not to be deemed exclusive,
the Sub-Adviser being free to render services to others and engage in other
activities, provided, however, that such other services and activities do not,
during the term of this Agreement, interfere, in a material manner, with the
Sub-Adviser's ability to meet all of its obligations with respect to rendering
investment advice hereunder. The Sub-Adviser, its affiliates and its other
clients may at any time acquire or dispose of securities which are at the same
time being acquired or disposed of for the account of the Portfolio. The
Sub-Adviser shall not be obligated to acquire for the Portfolio any security or
other investment which the Sub-Adviser or its affiliates may acquire for its or
their own accounts or for the account of another client.
8. Compliance; Books and Records
- ----------------------------------
(a) The Sub-Adviser agrees to maintain compliance procedures which
are reasonably designed to ensure the Portfolio's compliance with the
applicable provisions of the 1940 Act and any rules or regulations
thereunder and the investment objective, policies and restrictions of
the Portfolio as set forth in the current Investor Offering
Documents.
(b) The Sub-Adviser shall furnish to the Adviser, at the Adviser's
expense, copies of all records prepared and maintained in connection
with the performance of this Agreement and the maintenance of
compliance procedures pursuant to this Section 8 as the Adviser may
reasonably request.
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(c) The Sub-Adviser agrees to provide upon reasonable request of the
Adviser, information regarding the Sub-Adviser, including but not
limited to, background information about the Sub-Adviser and its
personnel and performance data, for use in connection with efforts to
promote the Fund and the sale of its shares.
(d) In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Sub-Adviser hereby agrees that all records which it
maintains for the Trust are the property of the Trust and further
agrees to surrender promptly to the Trust any of such records upon
the Trust's request. The Sub-Adviser further agrees to preserve for
the periods prescribed by Rule 31a-2 under the 1940 Act any records
which it is required to maintain by Rule 31a-1 under the 1940 Act.
The Sub-Adviser will treat confidentially and as proprietary
information of the Trust all records and other information obtained
from the Trust relative to the Authorized Investors and prior or
potential shareholders, except as otherwise required by law.
9. Limitation of Liability of Sub-Adviser; Indemnification
- -----------------------------------------------------------
In consideration of the Sub-Adviser's undertaking to render the services
described in this Agreement, the Adviser agrees that the Sub-Adviser shall not
be liable for any loss suffered by the Adviser, the Trust, the Authorized
Investors or their shareholders, or the Portfolio in connection with the
performance of this Agreement, provided that nothing in this Agreement shall be
deemed to protect or purport to protect the Sub-Adviser against any liability
to the Adviser, the Trust, the Authorized Investors or their shareholders, or
the Portfolio to which the Sub-Adviser would otherwise be subject by reason of
willful misfeasance, bad faith or negligence in the performance of its duties
under this Agreement.
10. Duration, Amendment and Termination
- ----------------------------------------
(a) Subject to prior termination as provided in sub-section (d) of
this Section 10, this Agreement shall continue in effect until two
years from the date hereof and for successive annual periods
thereafter, but only so long as the continuance after such initial
two year period shall be specifically approved at least annually by
vote of the Board of Trustees or by vote of a majority of the
outstanding voting securities of the Portfolio and the Authorized
Investors.
(b) This Agreement may be modified by the written agreement of the
Adviser, the Sub-Adviser and the Portfolio, such consent on the part
of the Portfolio to be authorized by vote of a majority of the
outstanding voting securities of the Portfolio and the Authorized
Investors if required by law. The execution of any such modification
or amendment by a party shall constitute a representation and
warranty to the other parties that all necessary consents or
approvals with respect to such modification or amendment have been
obtained.
(c) In addition to the requirements of sub-sections (a) and (b) of
this Section 10, the terms of any continuance, modification or
amendment of the Agreement must have been approved by the vote of a
majority of those Trustees who are not parties to such Agreement or
interested persons of any such party, cast in person at a meeting
called for the purpose of voting on such approval.
(d) Either the Adviser, the Sub-Adviser or the Portfolio may, at any
time on sixty (60) days' prior written notice to the other parties,
terminate this Agreement, without payment of any penalty, and in the
case of the Portfolio, by action of its Board of Trustees, or by vote
of a majority of its outstanding voting securities.
4
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(e) This Agreement shall terminate automatically in the event of its
assignment.
(f) Termination of this Agreement shall not relieve the Adviser nor
the Sub-Adviser from any liability or obligation in respect of any
matters, undertakings or conditions which shall not have been done,
observed or performed prior to such termination. All records of the
Portfolio in the possession of the Sub-Adviser shall be returned to
the Portfolio as soon as reasonably practicable after the termination
of this Agreement.
11. Disclaimer of Shareholder Liability
- ----------------------------------------
The Adviser and the Sub-Adviser understand that the obligations of the Trust
under this Agreement are not binding upon any Trustee or shareholder of the
Trust personally, but bind only the Trust and the Trust's property.
12. Miscellaneous
- ------------------
(a) The terms "vote of a majority of the outstanding voting
securities," "assignment," and "interested persons," when used
herein, shall have the respective meanings specified in the 1940 Act
as now in effect or as hereafter amended.
(b) The captions in 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.
(c) 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.
(d) This Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors.
(e) This Agreement may be executed in two or more counterparts, which
taken together shall constitute one and the same instrument.
(f) Any notice under this Agreement shall be in writing, addressed
and delivered or mailed, postage prepaid, to the other party at such
address as such other party may designate for the receipt of such
notice. No notice shall be effective until received.
IN WITNESS WHEREOF, the parties have caused this instrument to be executed
by their respective officers designated below as of the day and year first
above written.
INVESTORS BANK & TRUST COMPANY ("ADVISER")
By:
-------------------------------------
Name: Kevin J. Sheehan
Title: President
5
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ALLMERICA ASSET MANAGEMENT, INC. ("SUB-ADVISER")
By:
-------------------------------------
Name: John P. Kavanaugh
Title: President
The Merrimac Master Portfolio on behalf of the
Merrimac U.S. Government Portfolio hereby acknowledges
the execution of this Agreement
Merrimac Master Portfolio
("THE TRUST")
By:
-------------------------------------
Name: Paul J. Jasinski
Title: President
6
<PAGE>
SCHEDULE A
The Adviser will pay to the Sub-Adviser as full compensation for the
Sub-Adviser's services rendered an annual fee, computed and paid monthly, based
on the average daily net assets of the Portfolio according to the schedule set
forth below. The fee for each month shall be payable within 30 business days
after the end of the month.
If the Sub-Adviser shall serve for any period less than a full month, the
foregoing compensation shall be prorated according to the proportion which such
period bears to a full month.
0.09% on the first $500,000,000 in assets;
0.07% on the next $500,000,000 in assets; and
0.06% on assets exceeding $1,000,000,000
7
GOODWIN, PROCTER & HOAR LLP
COUNSELLORS AT LAW
EXCHANGE PLACE
BOSTON, MASSACHUSETTS 02109-2881
TELEPHONE (617) 570-1000
TELECOPIER (617) 523-1231
March 18, 1999
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 U.S. Government Series,
as more fully described in the Prospectus and Statement of Additional
Information contained in Post-Effective Amendment No. 3 (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, as
amended, 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,
/s/ GOODWIN, PROCTER & HOAR LLP
GOODWIN, PROCTER & HOAR LLP
