AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 25, 1999
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 2
TO
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 [ X ]
AND
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940 [ X ]
MERRIMAC SERIES
(Exact Name of Registrant as Specified in Charter)
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(Address of Principal Executive Offices)
(Zip Code)
Registrant's Telephone Number, including Area Code: (617) 330-6413
Susan C. Mosher, Secretary
INVESTORS BANK & TRUST COMPANY
200 CLARENDON STREET
BOSTON, MASSACHUSETTS 02116
(Name and Address of Agent for Service)
Copy to:
Philip Newman, Esq.
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, MA 02109
Merrimac Master Portfolio and Standish, Ayer & Wood 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)
[X] 60 days after filing pursuant to paragraph (a)(1)
[ ] on (date) pursuant to paragraph (a)(1)
[ ] 75 days after filing pursuant to paragraph (a)(2)
[ ] on (date) pursuant to paragraph (a)(2) of rule 485.
<PAGE>
MERRIMAC SERIES
PROSPECTUS
MAY 3, 1999
MERRIMAC CASH SERIES
MERRIMAC TREASURY SERIES
MERRIMAC TREASURY PLUS SERIES
MERRIMAC SHORT-TERM ASSET RESERVE (STAR) SERIES
Each 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.
1
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
CONTENTS
THE FUNDS
WHAT EVERY INVESTOR
SHOULD KNOW ABOUT RISK/RETURN SUMMARIES
THE FUNDS Cash Series 3
Treasury Series 7
Treasury Plus Series 12
STAR Series 15
THE FUNDS' INVESTMENTS
Cash Series 21
Treasury Series 24
Treasury Plus Series 25
STAR Series 26
FUNDS' MANAGEMENT 28
INFORMATION FOR YOUR INVESTMENT
MANAGING YOUR
FUND ACCOUNT SHAREHOLDER INFORMATION
Purchases 29
Redemptions 30
Valuation of Shares 31
Dividends and Distributions 32
Federal Taxes 32
HISTORICAL FINANCIAL FINANCIAL HIGHLIGHTS 34
INFORMATION
APPENDIX A DESCRIPTION OF SECURITIES IN WHICH THE
PORTFOLIOS CAN INVEST
WHERE TO FIND MORE INFORMATION FOR MORE INFORMATION
ABOUT MERRIMAC SERIES
BACK COVER
</TABLE>
2
<PAGE>
RISK/RETURN SUMMARIES
The following information is only a summary of important information that you
should know about each series of Merrimac Series (the Funds). 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 Funds will achieve their
goals.
Traditional mutual funds directly acquire and manage their own portfolio
securities. The Funds are organized in a "master-feeder" structure, under which
each Fund invests all of its assets in a corresponding series of Merrimac
Master Portfolio or Standish, Ayer & Wood Master Portfolio (each, a Portfolio).
Each Fund and its corresponding Portfolio have substantially the same
investment objectives and investment policies.
MERRIMAC CASH SERIES
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Merrimac Cash Series' 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 Merrimac Cash Portfolio,
attempts to achieve the Fund's objective by investing the Portfolio's assets in
high-quality, U.S. dollar-denominated, money market instruments with maturities
of 397 calendar days or less. Most of the Portfolio's investments will be in
U.S. Treasury bills, notes and bonds, other instruments issued or guaranteed by
the U.S. Government or its agencies, securities of U.S. and foreign banks or
thrift organizations, corporate debt obligations, asset-backed securities,
variable rate obligations and 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 FUNDS' INVESTMENTS
for more information.
MAIN RISKS OF INVESTING IN THE FUND
The primary risks in investing in the Fund are interest rate risk and credit
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.
O CREDIT RISK involves the possibility that an issuer of a security owned by
the Fund has its credit rating downgraded or defaults on its obligation to
pay principal and/or interest.
3
<PAGE>
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.
IS THE FUND FOR YOU?
The Fund may be appropriate as part of your investment portfolio if......
O You need your money back within a short period.
O You need to preserve principal.
O You want a 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
All mutual funds must use the same formula to calculate total return. The bar
chart and total return table indicate the risks of investing in the Fund. The
bar chart shows changes in the performance of the Fund for the full calendar
periods indicated. The total return table shows how the Fund's average annual
returns for different calendar periods compared to those of a widely recognized
index of short-term Treasury securities and money market fund shares.
MERRIMAC CASH SERIES PERFORMANCE
<TABLE>
<CAPTION>
<S> <C>
YEARS TOTAL RETURN
1997 5.64%
1998 5.59%
</TABLE>
4
<PAGE>
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
1 YEAR LIFE OF FUND INCEPTION DATE
- ----------------------------------------------------------------------------
CASH FUND
PREMIUM CLASS 5.59% xx November 21, 1996
- ----------------------------------------------------------------------------
IBC MONEY MARKET
AVERAGES ALL TAXABLE
INDEX xx xx --
- ----------------------------------------------------------------------------
</TABLE>
The Fund began operations on June 25, 1998. The total return shown is for the
Premium Class of the Merrimac Cash Fund which is a separate feeder fund that
invests all of its assets in the Portfolio. The total return of the Fund would
differ from the total return of Merrimac Cash Fund to the extent of any
differences in their respective operating expenses. During the periods shown in
the bar chart, the highest total return for a quarter was 1.42% (quarter ending
December 31, 1997) and the lowest total return for a quarter was 1.32% (quarter
ending March 31, 1997).
The performance information should be considered in light of the Fund's
investment objective and policies and market conditions during the reported
time periods. Historical performance does not necessarily indicate what will
happen in the future. For the Fund's most current yield information you may
call 1-888-MERRMAC.
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 actual expenses before waivers during the fiscal year ended
December 31, 1998 for the PREMIUM and INSTITUTIONAL Classes and estimated
expenses for the current fiscal year for the INVESTMENT Class, and are
calculated as a percentage of average net assets.
5
<PAGE>
PREMIUM CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- ---------------------------------------------------
Other Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.25%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
PREMIUM Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the PREMIUM Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$26 $80 $141 $318
- -----------------------------------------------------------
</TABLE>
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution (12b-1) Fees None
- ---------------------------------------------------
Shareholder Servicing Fees 0.25%
- ---------------------------------------------------
Other Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.50%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INSTITUTIONAL Class of the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the INSTITUTIONAL Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$51 $160 $280 $628
- -----------------------------------------------------------
</TABLE>
6
<PAGE>
INVESTMENT CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution (12b-1) Fees 0.25%
- ---------------------------------------------------
Shareholder Servicing Fees 0.25%
- ---------------------------------------------------
Other Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.75%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INVESTMENT Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the INVESTMENT Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$77 $240 $417 $930
- -----------------------------------------------------------
</TABLE>
MERRIMAC TREASURY SERIES
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Merrimac Treasury Series' investment objective is to achieve a high level
of current income consistent with preserving principal and liquidity. M&I
Investment Management Corp. (M&I), the subadviser of Merrimac Treasury
Portfolio, attempts to achieve the Fund's objective by investing the
Portfolio's assets in U.S. Treasury securities with maturities of 397 calendar
days or less. The Portfolio will only invest in direct obligations of the U.S.
Treasury, such as U.S. Treasury bills, notes and bonds or in other mutual funds
that invest in such instruments, subject to regulatory limitations.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUNDS' INVESTMENTS
for more information.
7
<PAGE>
MAIN RISKS OF INVESTING IN THE FUND
The primary risks in investing in the Fund are interest rate risk and credit
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.
O CREDIT RISK involves the possibility that an issuer of a secured owned by
the Fund has its credit rating downgraded or defaults on its obligation to
pay principal and/or interest.
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 net asset value (NAV) per share. 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.
IS THE FUND FOR YOU?
The Fund may be appropriate as part of your investment portfolio if......
O You need your money back within a short period.
O You need to preserve principal.
O You want a 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
All mutual funds must use the same formula to calculate total return. The bar
chart and total return table indicate the risks of investing in the Fund. The
bar chart shows changes in the performance of the Fund for the full calendar
period indicated. The total return table shows how the Fund's average annual
returns for different calendar periods compared to those of a widely recognized
index of short term Treasury securities and money market fund shares.
8
<PAGE>
MERRIMAC TREASURY SERIES PERFORMANCE
<TABLE>
<CAPTION>
<S> <C>
YEARS TOTAL RETURN
1998 4.80%
</TABLE>
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------
1 YEAR LIFE OF FUND INCEPTION DATE
- ----------------------------------------------------------------------------
TREASURY FUND
PREMIUM CLASS 5.59% xx April 2, 1997
- ----------------------------------------------------------------------------
IBC MONEY MARKET
AVERAGES ______ INDEX xx xx --
- ----------------------------------------------------------------------------
</TABLE>
The Fund began operations on June 25, 1998. The total return shown is a blend
of the performance for the PREMIUM Class of the Fund from June 25, 1998 to
December 31, 1998 and for the PREMIUM Class of the Merrimac Treasury Fund from
January 1, 1998 to June 24, 1998. The Merrimac Treasury Fund is a separate
feeder fund that invests all of its assets in the Portfolio. The total return
of the Fund would differ from the total return of Merrimac Treasury Fund to the
extent of any differences in their respective operating expenses. During the
periods shown in the bar chart, the highest total return for a quarter was
____% (quarter ending ________, 19__) and the lowest total return for a quarter
was ____% (quarter ending ______, 19__).
The performance information should be considered in light of the Fund's
investment objective and policies and market conditions during the reported
time periods. Historical performance does not necessarily indicate what will
happen in the future. For the Fund's most current yield information you may
call 1-888-MERRMAC.
9
<PAGE>
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 actual expenses before waivers during the fiscal year ended
December 31, 1998 for the INSTITUTIONAL Class and estimated expenses for the
current fiscal year for the PREMIUM AND INVESTMENT CLASSES, and are calculated
as a percentage of average net assets.
PREMIUM CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- ---------------------------------------------------
Other Expenses 0.12%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.29%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
PREMIUM Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the PREMIUM Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$30 $93 $163 $368
- -----------------------------------------------------------
</TABLE>
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution (12b-1) Fees None
- ---------------------------------------------------
Shareholder Servicing Fees 0.25%
- ---------------------------------------------------
Other Expenses 0.12%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.54%
-----
-----
- ---------------------------------------------------
</TABLE>
10
<PAGE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INSTITUTIONAL Class of the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the INSTITUTIONAL Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$55 $173 $302 $677
- -----------------------------------------------------------
</TABLE>
INVESTMENT CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution (12b-1) Fees 0.25%
- ---------------------------------------------------
Shareholder Servicing Fees 0.25%
- ---------------------------------------------------
Other Expenses (after expense reimbursement) 0.12%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.79%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own expenses and the
Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INVESTMENT Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the INVESTMENT Class of 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> <C> <C>
- -----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- -----------------------------------------------------------
$81 $252 $439 $978
- -----------------------------------------------------------
</TABLE>
11
<PAGE>
MERRIMAC TREASURY PLUS SERIES
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Merrimac Treasury Plus Series' investment objective is to achieve a high
level of current income consistent with preserving principal and liquidity. M&I
Investment Management Corp. (M&I), the subadviser of Merrimac Treasury Plus
Portfolio, attempts to achieve the Fund's objective by investing the
Portfolio's assets in high-quality, U.S. dollar-denominated, money market
instruments with maturities of 397 calendar days or less. The Portfolio will
invest primarily (at least 65% of total assets) in direct obligations of the
U.S. Treasury, such as U.S. Treasury bills, notes and bonds. The Portfolio may
invest the remaining 35% of its total assets 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.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUNDS' INVESTMENTS
for more information.
MAIN RISKS OF INVESTING IN THE FUND
The primary risks in investing in the Fund are interest rate risk and credit
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.
O CREDIT RISK involves the possibility that an issuer of a security owned by
the Fund has its credit rating downgraded or defaults on its obligation to
pay principal and/or interest.
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 net asset value (NAV) per share. 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 FDIC 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.
12
<PAGE>
IS THE FUND FOR YOU?
The Fund may be appropriate as part of your investment portfolio if......
O You need your money back within a short period.
O You need to preserve principal.
O You want a 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.
13
<PAGE>
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 average net assets.
PREMIUM CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- ---------------------------------------------------
0ther Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.25%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
PREMIUM Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the PREMIUM Class of 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>
- ------------------------------------
1 Year 3 Years
------ -------
- ------------------------------------
$26 $80
- ------------------------------------
</TABLE>
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution (12b-1) Fees None
- ---------------------------------------------------
Shareholder Servicing Fees 0.25%
- ---------------------------------------------------
0ther Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.50%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INSTITUTIONAL Class of the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the INSTITUTIONAL Class of 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:
14
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------
1 Year 3 Years
------ -------
- ------------------------------------
$51 $160
- ------------------------------------
</TABLE>
INVESTMENT CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.17%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25%
- ---------------------------------------------------
0ther Expenses 0.08%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.50%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INVESTMENT Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the INVESTMENT Class of 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>
- ------------------------------------
1 Year 3 Years
------ -------
- ------------------------------------
$51 $160
- ------------------------------------
</TABLE>
MERRIMAC SHORT-TERM ASSET RESERVE (STAR) SERIES
WHAT IS THE FUND'S INVESTMENT OBJECTIVE AND MAIN STRATEGY?
The Merrimac STAR Series' investment objective is to achieve a high level of
current income consistent with preserving principal and liquidity. Standish,
Ayer & Wood, Inc. (Standish), the adviser of Standish Short-Term Asset Reserve
Portfolio, attempts to achieve the Fund's objective by investing the
Portfolio's assets primarily in U.S. dollar-denominated money market
instruments, short-term fixed income securities and asset-backed securities of
U.S. and foreign
15
<PAGE>
governments, banks and companies. The Portfolio invests exclusively in
investment grade securities and no more than 15% of total assets in securities
rated BBB or Baa (A-2, P-2 or Duff-2 for money market instruments) by a rating
agency of their unrated equivalents. Standish targets an average credit quality
of the Portfolio's investment securities of AA/Aa. The Portfolio generally will
maintain an average dollar-weighted effective portfolio maturity of 6 to 15
months with a maximum average maturity of 18 months. No security can have an
effective maturity of more than 5 years.
Standish focuses on identifying undervalued sectors and securities and
minimizes the use of an interest rate forecasting strategy. Standish looks for
securities with the most potential for added value, such as those involving the
potential for credit upgrades, unique structural characteristics or innovative
features. Standish selects securities for the Portfolio by:
O Allocating assets among sectors appearing to have near-term return
potential.
O Actively trading among various sectors. such as corporate bonds,
mortgagae pass through securities, government agencies and asset-backed
securities.
O Buying when a yield spread advantage presents an opportunity to buy
securities cheaply.
O Using research to locate opportunities in less-efficient areas of the
short-term fixed-income market.
O Using yield curve analysis to identify securities that present the most
attractive tradeoff between the higher returns and higher risks
associated with extending maturities.
O Investing in innovative securities that may not be widely followed or
understood by other investors.
In view of the risks inherent in all investments in securities, there is no
assurance that the Fund's objective will be achieved. See FUNDS' INVESTMENTS
for more information.
MAIN RISKS OF INVESTING IN THE FUND
Investors could lose money on their investment in the Fund. The primary risks
of investing in the Fund are as follows:
O INTEREST RATE RISK involves the possibility that the value of the Fund's
investments will decline due to an increase in interest rates.
O CREDIT RISK involves the possibility that an issuer of a security owned by
the Fund has its credit rating downgraded or defaults on its obligation to
pay principal and/or interest.
O PREPAYMENT RISK involves the possibility that when interest rates are
declining, the issuer of a security exercises its right to prepay principal
earlier than scheduled, forcing the Fund to reinvest in lower yielding
securities.
O EXTENSION RISK involves the possibility that when interest rates are rising,
the average life of some securities may extend because of slower than
expected principal payments. This will lock in a below-market interest
rate, increase the security's duration and reduce the value of the security.
16
<PAGE>
O FOREIGN SECURITIES RISK involves the possibility that prices of foreign
securities may decline due to unfavorable foreign government actions,
political, economic or market instability or the absence of accurate
information about foreign companies. Foreign securities are sometimes less
liquid and harder to value than securities of U.S. issuers.
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.
IS THE FUND FOR YOU?
The Fund may be appropriate as part of your investment portfolio if......
O You seek an alternative to a money market fund without the price stability
of a money market fund.
O You seek limited price fluctuation and current income.
O You are looking to diversify a fixed-income portfolio with short-term
investments.
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. Unlike a money market fund, the Fund is not managed to preserve
---
the Fund's net asset value at $1.00 per share and therefore the Fund's share
price will fluctuate.
TOTAL RETURN
All mutual funds must use the same formula to calculate total return. The bar
chart and total return table indicate the risks of investing in the Fund. The
bar chart shows changes in the performance of the Fund for the full calendar
periods indicated. The total return table shows how the Fund's average annual
returns for different calendar periods compared to those of a widely recognized
index of short term Treasury securities and money market fund shares.
MERRIMAC STAR SERIES PERFORMANCE
<TABLE>
<CAPTION>
<S> <C>
YEARS TOTAL RETURN
1989 9.50%
1990 8.98%
1991 9.41%
1992 4.35%
1993 5.09%
1994 2.26%
1995 7.85%
1996 5.62%
1997 5.94%
1998 ____%
</TABLE>
The Fund began operations on August 7, 1998. The total return shown is for the
Standish STAR Fund which is a separate feeder fund that invests all of its
assets in the Portfolio. The total return of the Fund would differ from the
total return of Standish STAR Fund to the extent of any differences in their
respective operating expenses. During the periods shown in the bar chart, the
highest total return for a quarter was ____% (quarter ending ________, 19__)
and the lowest total return for a quarter was ____% (quarter ending ______,
19__).
The table below shows how the Standish STAR Fund's average annual returns for
the periods shown compare to those of the IBC Money Market All Averages Taxable
Index. The IBC Money Market Averages All Taxable Index is a widely recognized
index of short-term Treasury securities and money market fund shares.
17
<PAGE>
PERIODS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- -------------------------------------------------------------------------------
INCEPTION
1 YEAR 5 YEARS 10 YEARS LIFE OF FUND DATE
- -------------------------------------------------------------------------------
STAR FUND xx xx xx xx xx
- -------------------------------------------------------------------------------
IBC MONEY
MARKET AVERAGES
ALL TAXABLE
INDEX xx xx xx xx xx
- -------------------------------------------------------------------------------
</TABLE>
The performance information should be considered in light of the Fund's
investment objective and policies and market conditions during the reported
time periods. 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 before waivers for the current fiscal
year, and are calculated as a percentage of average net assets (ANA).
PREMIUM CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.25%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- ---------------------------------------------------
0ther Expenses 0.20%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.45%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses. Investors Bank & Trust
Company has voluntarily agreed to limit the Fund's annual expenses to 0.36% of
its ANA and will reimburse the Fund for all expenses in excess of that amount.
This limitation may be discontinued at any time after 30 days notice to
shareholders.
EXAMPLE
This example is intended to help you compare the cost of investing in the
PREMIUM Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the PREMIUM Class of 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 have not been capped and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
18
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- ----------------------------------------------------------
$46 $144 $252 $567
- ----------------------------------------------------------
</TABLE>
INSTITUTIONAL CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.25%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees None
- ---------------------------------------------------
0ther Expenses 0.45%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.70%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses. Investors Bank & Trust
Company has voluntarily agreed to limit the Fund's annual expenses to 0.61% of
its ANA and will reimburse the Fund for all expenses in excess of that amount.
This limitation may be discontinued at any time after 30 days notice to
shareholders.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INSTITUTIONAL Class of the Fund with the cost of investing in other mutual
funds.
The Example assumes that you invest $10,000 in the INSTITUTIONAL Class of 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 have not been capped
and 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> <C> <C>
- ----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- ----------------------------------------------------------
$72 $224 $390 $871
- ----------------------------------------------------------
</TABLE>
INVESTMENT CLASS
<TABLE>
<CAPTION>
<S> <C>
- ---------------------------------------------------
Management Fees 0.25%
- ---------------------------------------------------
Distribution and/or Service (12b-1) Fees 0.25%
- ---------------------------------------------------
0ther Expenses 0.45%
-----
- ---------------------------------------------------
Total Annual Fund Operating Expenses(1) 0.95%
-----
-----
- ---------------------------------------------------
</TABLE>
(1) This table and the Example below reflect the Fund's own estimated expenses
and the Fund's share of the Portfolio's expenses. Investors Bank & Trust
Company has voluntarily agreed to limit the Fund's annual expenses to 0.86% of
its ANA and will reimburse the Fund for all expenses in excess of that amount.
This limitation may be discontinued at any time after 30 days notice to
shareholders.
EXAMPLE
This example is intended to help you compare the cost of investing in the
INVESTMENT Class of the Fund with the cost of investing in other mutual funds.
The Example assumes that you invest $10,000 in the INVESTMENT Class of 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 have not been capped and
remain the same. Although your actual costs may be higher or lower, based on
these assumptions your costs would be:
19
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
- ----------------------------------------------------------
1 Year 3 Years 5 Years 10 Years
------ ------- ------- --------
- ----------------------------------------------------------
$97 $303 $525 $1,166
- ----------------------------------------------------------
</TABLE>
20
<PAGE>
THE FUNDS' INVESTMENTS
MERRIMAC CASH SERIES
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 U.S. dollar-denominated money market instruments
with remaining maturities of 397 calendar days or less that in the opinion
of AAM present minimal credit risk.
Q Into what types of money market instruments will the Fund's assets be
invested?
A The Portfolio may invest in the following:
O obligations of the U.S. Government or its agencies or instrumentalities;
O corporate debt obligations such as notes, bonds, commercial paper and
other money market instruments;
O variable rate obligations;
O securities of U.S. and foreign banks or thrift organizations (such as
bankers' acceptances, time deposits and certificates of deposits);
O asset-backed securities;
O other short-term debt securities; and
O repurchase agreements that are collateralized by the securities listed
above.
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 Yes. The Securities and Exchange Commission (SEC) has set certain
diversification requirements for money market funds. Generally, these
requirements limit a money market fund's investments in securities of any
issuer to no more than 5% of a fund's assets. Also, strict SEC guidelines
do not permit AAM to invest, with respect to 75% of the Portfolio's assets,
greater than 10% of the Portfolio's assets in securities issued by or
subject to guarantees by the same institution. Purchases of securities
issued or guaranteed by the U.S. Government or its agencies or
instrumentalities are not counted toward these limitations.
21
<PAGE>
Q What is the credit quality of the Fund's investments?
A The Portfolio's investments consist of high-quality securities that qualify
as "first-tier" securities under the SEC rules that apply to money market
funds. In general, a first-tier security is defined as a security that is:
O issued or guaranteed by the U.S. Government or any agency or
instrumentality thereof;
O rated or subject to a guarantee that is rated in the highest category for
short-term securities by at least two Nationally Recognized Statistical
Rating Organizations (NRSROs), or by one NRSRO if the security is rated by
only one NRSRO;
O unrated but issued by an issuer or guaranteed by a guarantor that has
other comparable short-term obligations so rated; or
O unrated but determined by AAM to be of comparable quality.
In addition, AAM must consider whether a particular investment presents
minimal credit risk.
Q Who are the Nationally Recognized Statistical Rating Organizations?
A Current NRSROs include:
O Moody's Investors Service, Inc.;
O Standard & Poor's Ratings Group;
O Fitch's IBCA Investors Service;
O Duff & Phelps'; and
O Thomson Bank Watch.
Q What happens if the rating of a security is downgraded?
A If the rating of a security is downgraded after purchase, AAM will determine
whether it is in the best interest of the Portfolio's shareholders (i.e.,
the Fund) to continue to hold the security.
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. For example, there is always a risk that the issuer of
a security held by the Portfolio will fail to pay interest or principal when
due. The Portfolio attempts to minimize credit risk by investing only in
securities rated in the highest category for short-term securities, or, if
not rated, of comparable quality, at the time of purchase. Additionally,
the Portfolio will not purchase a security unless AAM has determined that
the security presents minimal credit risk. There is also a risk that rising
interest rates will cause the value of the Portfolio's securities to
decline. The Portfolio attempts to minimize interest rate risk by limiting
the maturity of each security to 397 calendar days or less and maintaining a
dollar-weighted average portfolio maturity for the Portfolio of 90 days or
less.
22
<PAGE>
Q How are the decisions to buy or sell securities made?
A Factors are balanced such as credit quality and maturity to purchase the
best relative value available in the market at any given time. While rare,
sell decisions are usually based on a change in credit analysis or to take
advantage of an opportunity to reinvest at a higher yield.
23
<PAGE>
MERRIMAC TREASURY SERIES
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 U.S. Treasury securities with maturities of 397
calendar days or less.
Q Into what types of money market instruments will the Fund's assets be
invested?
A The Portfolio may only invest in direct obligations of the U.S. Treasury,
such as U.S. Treasury bills, notes and bonds or in other mutual funds that
invest in such instruments. To maximize tax-effective yield, the Portfolio
will usually (but not always) invest in obligations that qualify for the
exemption from state taxation. 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 By the Fund's strategy, the U.S. Treasury is the only issuer in which the
Portfolio invests. If, for liquidity purposes, the Portfolio invests in
other mutual funds having the same principal investment strategy, its total
investment in other mutual funds may not exceed 10% of assets and investment
in a single fund may not exceed 5% of assets or 3% of that fund's total
assets.
Q Will the Fund always maintain a net asset value of $1 per share?
A While M&I will endeavor to maintain a constant Fund NAV of $1 per share,
there is no assurance that they will be able to do so. The shares are
neither insured nor guaranteed by the U.S. Government. As such, the Fund
carries some risk. There is a risk that rising interest rates will cause
the value of the Portfolio's securities to decline. M&I attempts to
minimize this 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. M&I evaluates the treasury
securities market daily to determine how to provide the most value to the
Portfolio.
24
<PAGE>
TREASURY PLUS SERIES
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 high-quality, U.S. dollar-denominated Treasury
securities with maturities of 397 calendar days or less.
Q Into what types of money market instruments will the Fund's assets be
invested?
A The Portfolio will invest at least 65% of its total assets in direct
obligations of the U.S. Treasury; such as U.S. Treasury bills, notes and
bonds and may invest the remaining 35% of its total assets in securities
issued or guaranteed by the U.S. Government or its agencies. The Portfolio
may also 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. Beyond the percentages noted above, 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 M&I will endeavor to maintain a constant Fund NAV of $1 per share,
there is no assurance that they will be able to do so. The shares are
neither insured nor guaranteed by the U.S. Government. As such, the Fund
carries some risk. There is a risk that rising interest rates will cause
the value of the Portfolio's securities to decline. M&I attempts to
minimize interest rate risk by limiting the maturity of each security to 397
calendar days or less and maintaining a dollar-weighted average portfolio
maturity for the 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. M&I evaluates the government
securities market compared to the repurchase agreement market to determine
which provides the most value to the Portfolio.
25
<PAGE>
STAR SERIES
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 U.S. dollar-denominated money market instruments,
short-term fixed income securities and asset-backed securities of U.S. and
foreign governments, banks and companies.
Q Into what types of securities will the Fund's assets be invested?
A The Portfolio may invest in fixed income investments of all types including
the following:
O money market instruments;
O bonds;
O notes (including structured notes);
O asset-backed securities
O mortgage-related securities;
O convertible securities;
O eurodollar and Yankee dollar instruments;
O preferred stocks (with a limits of 10% of assets); and
O bond index futures contracts.
Further description of these securities is found in APPENDIX A.
Q Who may issue the securities in which the Fund's assets will be invested?
A The fixed income securities in which the Fund will invest are issued by:
O U.S. and foreign corporations or entities;
O U.S. and foreign banks;
O the U.S. government, its agencies, authorities, instrumentalities or
sponsored enterprises;
O state and municipal governments; or
O foreign governments and their political subdivisions.
Q What is the credit quality of the Fund's investments?
A The Portfolio invests exclusively in investment grade securities and no more
than 15% of assets in securities rated BBB or Baa (A-2, P-2 or Duff-2 for
money market instruments) by a rating agency or their unrated equivalents.
Securities are investment grade if they are:
O rated in one of the four highest long-term rating categories of a
Nationally Recognized Statistical Rating Organization (NRSRO);
O have received a comparable short-term or other rating; or
O unrated but determined by Standish to be of comparable quality.
If a security receives "split" (different) ratings from multiple NRSROs, the
Portfolio will treat the security as being rated in the higher rating
category. The Portfolio's credit standards also apply to counterparties to
OTC derivative contracts.
25
<PAGE>
Q Who are the Nationally Recognized Statistical Rating Organizations?
A Current NRSROs include:
O Moody's Investors Service, Inc.;
O Standard & Poor's Ratings Group;
O Fitch's IBCA Investors Service; and
O Duff & Phelps.
Q What happens if the rating of a security is downgraded?
A If the rating of a security is downgraded after purchase, Standish may
choose not to sell securities that are downgraded below the Portfolio's
minimum acceptable credit rating after its purchase.
Q May the Portfolio invest defensively?
A Yes. The Portfolio may depart from its principal investment strategy in
response to adverse market, economic or political conditions by taking a
temporary defensive position in all types of money market and short-term
debt securities. If the Portfolio takes a temporary defensive position, it
may be unable for a time to achieve its investment objective.
Q May the Portfolio use derivative contracts?
A Yes. The Portfolio may, but is not required to, use derivative contracts
for any of the following purposes:
O To hedge against adverse changes - caused by changing interest rates - in
the market value of securities held by or to be bought for the Portfolio.
O As a substitute for purchasing or selling securities.
O To shorten or lengthen the effective maturity or duration of the
Portfolio's portfolio.
O To enhance the Portfolio's potential gain in non-hedging situations.
A derivative contract will obligate or entitle the Portfolio to deliver or
receive an asset or a cash payment that is based on the change in value of a
designated security or index. Even a small investment in derivative contracts
can have a big impact on a portfolio's interest rate exposure. Therefore, using
derivatives can disproportionately increase portfolio losses and reduce
opportunities for gains when interest rates are changing. The Portfolio may not
fully benefit from or may lose money on derivatives if changes in their value
do not correspond accurately to changes in the value of the Portfolio's
holdings.
Counterparties to OTC derivative contracts present the same types of credit
risk as issuers of fixed income securities. Derivatives can also make the
Portfolio's portfolio less liquid and harder to value, especially in declining
markets.
Q What is the Portfolio's policy regarding portfolio turnover?
A The Portfolio may engage in active and frequent trading to achieve its
principal investment strategies. This may lead to the realization and
distribution to shareholders of higher capital gains, which would increase
their tax liability. Frequent trading also increases transaction costs,
which could detract from the Portfolio's performance.
The Fund's investment objective may be changed by the Fund's Trustees without
shareholder approval. For additional information about other securities in
which the Portfolios invest their assets, see APPENDIX A.
27
<PAGE>
FUNDS' MANAGEMENT
INVESTMENT ADVISER
The Funds have not retained the services of an investment adviser because each
Fund invests all of its investable assets in its corresponding Portfolio. The
Cash Portfolio, Treasury Portfolio and Treasury Plus Portfolio have retained
the services of Investors Bank & Trust Company (Investors Bank) as investment
adviser. Investors Bank continuously reviews and supervises the Cash, Treasury
and Treasury Plus Portfolios' investment program. Investors Bank discharges its
responsibilities subject to the supervision of, and policies established by the
Board of Trustees. Investors Bank's business address is 200 Clarendon Street,
Boston, Massachusetts 02116. Investors Bank began acting as an investment
adviser at the commencement of operations of the Cash Portfolio (November 21,
1996). The Cash Portfolio, Treasury Portfolio and Treasury Plus Portfolio each
pay Investors Bank a unitary fee for servicing these Portfolios 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 each of these
Portfolios.
The STAR Portfolio has retained the services of Standish, Ayer & Wood, Inc.
(Standish) as investment adviser. Standish manages the Portfolio, selects
investments and places all orders for the purchase and sale of the Portfolio's
securities, subject to the supervision of, and policies established by the
Portfolio's Board of Trustees. Standish has been providing investment advisory
services since it was established in 1933. Standish's business address is One
Financial Center, Boston, Massachusetts 02111. For its services as investment
adviser to the Portfolio, Standish is paid fee by the STAR Portfolio, computed
at an annual rate of 0.25% of the average net assets of the STAR Portfolio,
including those attributable to the STAR Series.
The STAR Portfolio has two portfolio managers, Jennifer Pline and Barbara J.
McKenna. Ms. Pline has been a portfolio manager of the STAR Portfolio's
portfolio since January 1, 1991. Ms. Pline is a Vice President of Standish. Ms.
McKenna has been a portfolio manager of the STAR Portfolio's portfolio since
January 1998. Ms. McKenna has served as a Vice President of Standish since
1996. Prior to joining Standish, Ms. McKenna managed institutional fixed income
accounts at BayBank.
INVESTMENT SUB-ADVISERS
Allmerica Asset Management, Inc. (AAM) serves as investment sub-adviser to the
Cash Portfolio. AAM manages the Cash Portfolio, selects investments and places
all orders for the purchase and sale of the 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 ______ 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. Prior to September 1, 1998, The Bank of New York acted as
investment sub-adviser for the Portfolio.
M&I Investment Management Corp. ("M&I") serves as investment sub-adviser to the
Treasury Portfolio and the Treasury Plus Portfolio. M&I manages the Treasury
Portfolio and the Treasury Plus Portfolio, selects investments and places all
orders for the purchase and sale of the Treasury Portfolio and the Treasury
Plus Portfolio's securities, subject to the general supervision of, and
policies established by the Portfolios' Board of Trustees and Investors Bank.
The business address of M&I is 1000 North Water Street, Milwaukee, Wisconsin
53202. M&I has been providing investment advisory services since it was
established in ______ as a first tier wholly-owned subsidiary of Marshall &
Isley Corporation, a publicly held bank holding company. M&I receives fees from
Investors Bank (and not from the Portfolios) for its services as investment
sub-adviser. Prior to January 4, 1999, Aeltus Investment Management, Inc. aced
as investment sub-adviser for the Treasury Portfolio and received the same fee
from Investors Bank as M&I currently receives.
28
<PAGE>
SHAREHOLDER INFORMATION
PURCHASES
GENERAL INFORMATION. Shares may be purchased only through the Distributor,
Funds Distributor, Inc., which offers each Fund's shares to the public on a
continuous basis. Shares of each Fund may be purchased only in those states
where they may be lawfully sold. Shares are sold at 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
Funds' 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 Funds is $10 million. Institutions may satisfy the minimum investment by
aggregating their fiduciary accounts. The minimum initial investment for
Institutional Class and Investment Class shares is $10,000. Subsequent
purchases may be in any amount. Each Fund reserves the right to waive the
minimum initial investment. When a Premium Class shareholder's account balance
falls below $1 million due to redemption, a Fund may close the account. Such
shareholders will be notified if the minimum balance is not being maintained
and will be allowed 60 days to make additional investments before the account
is closed.
Share purchase orders are deemed to be in good order on the date a Fund
receives a completed Account Application (and other documents required by the
Trust) and federal funds become available to the Fund in the Fund's account
with Investors Bank.
Purchases may be made only by wire. Wiring instructions for purchases of shares
of a Fund are as follows:
Investors Bank & Trust Company
ABA #: 011001438
Attn: [Name of Fund]
DDA #: 717171333
Name of Account
Account #
Amount of Wire:
A bank may impose a charge to execute a wire transfer. A purchaser must call
1-888-MERRMAC to inform Investors Bank of an incoming wire transfer. A purchase
order for shares received in proper form by 4:00 p.m. (ET) for the Cash Series
and the Treasury Plus Series, by 2:00 p.m. (ET) for the Treasury Series, and by
the close of trading on the New York Stock Exchange (NYSE) (normally 4:00 p.m.
(ET)), for the STAR Series, on a Business Day will be executed at the NAV per
share next determined after
29
<PAGE>
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,
except that the STAR Series is open on any day on which the NYSE is open.
Purchase orders received after 4:00 p.m. (ET) for the Cash Series and the
Treasury Plus Series, after 2:00 p.m. (ET) for the Treasury Series, and after
the close of trading on the NYSE for the STAR Series 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 Cash Series and the Treasury Plus Series
also may limit the amount of a purchase order received between 3:00 p.m. (ET)
and 4:00 p.m. (ET).
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all purchase orders must be received by the
close of trading on the NYSE for the STAR Series and by 12:00 noon (ET) for the
other Funds.
Each Fund reserves the right in its sole discretion (i) to suspend the offering
of a Fund's shares, (ii) to reject purchase orders when in the best interest of
a Fund and (iii) to modify or eliminate the minimum initial investment in Fund
shares. Purchase orders may be refused if, for example, they are of a size that
could disrupt management of a Portfolio.
REDEMPTIONS
Shareholders may redeem all or a portion of their shares on any Business Day.
Shares will be redeemed at the NAV next determined after Investors Bank has
received a proper notice of redemption as described below. If notice of
redemption is received prior to 4:00 p.m. (ET) for the Cash Series and the
Treasury Plus Series, prior to 2:00 p.m. (ET) for the Treasury Series, and
prior to the close of trading on the NYSE for the STAR Series, 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 except for the STAR
Series wherein proceeds of the redemption will ordinarily be made by wire on
the day following the date of receipt, but in any event within three Business
Days from the date of receipt.
Shareholder redemption requests received after 4:00 p.m. (ET) for the Cash
Series and the Treasury Plus Series, after 2:00 p.m. (ET) for the Treasury
Series, and after the close of trading on the NYSE, for the STAR Series, 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, except for the STAR Series wherein payment will
ordinarily be received by wire on the second Business Day after the date of
receipt, but in any event within four Business Days from the date of receipt.
All redemption requests regarding shares of the Cash Series and the Treasury
Plus Series placed between 3:00 p.m. and 4:00 p.m. (ET) may only be placed by
telephone.
Each Fund reserves the right in its sole discretion to suspend redemptions or
postpone payments when the NYSE is closed or when trading is restricted for any
reason or under emergency circumstances as determined by the SEC. The Cash
Series and the Treasury Plus Series each reserve the right to postpone payments
for redemption requests received between 3:00 p.m. and 4:00 p.m. (ET) until the
next Business Day.
On days when the financial markets close early, such as the day after
Thanksgiving and Christmas Eve, all redemption orders must be received by the
close of trading on the NYSE for the STAR Series and by 12:00 noon (ET) for the
other Funds.
30
<PAGE>
A shareholder may elect to receive payment in the form of a wire or check.
There is no charge imposed by a Fund to redeem shares; however, in the case of
redemption by wire, a shareholder's bank may impose its own wire transfer fee
for receipt of the wire.
REDEMPTION BY WIRE. To redeem shares by wire, a shareholder or any authorized
agent (so designated on the Account Application) must provide Investors Bank
with the dollar amount to be redeemed, the account to which the redemption
proceeds should be wired (such account must have been previously designated by
the shareholder on its Account Application, the name of the shareholder and the
shareholder's account number.
A shareholder may change its authorized agent, the address of record or the
account designated to receive redemption proceeds at any time by writing to
Investors Bank with a signature guaranteed by a national bank which is a member
firm of any national or regional securities exchange (a Signature Guarantee).
If the guarantor institution belongs to one of the Medallion Signature
Programs, it must use the specific Medallion "Guaranteed" stamp. Notarized
signatures are not sufficient. Further documentation may be required when
Investors Bank deems it appropriate.
REDEMPTION BY MAIL. A shareholder who desires to redeem shares by mail may do
so by mailing proper notice of redemption directly to Investors Bank, ATTN:
Transfer Agency, OPS 22, P.O. Box 9130, Boston, MA 02117-9130. Proper notice of
redemption includes written notice requesting redemption along with the
signature of all persons in whose names the shares are registered, signed
exactly as the shares are registered. In certain instances, Investors Bank may
require additional documents such as trust instruments or certificates of
corporate authority. Payment will be mailed to the address of record within
seven days of receipt of a proper notice of redemption.
TELEPHONE REDEMPTION. A shareholder may request redemption by calling Investors
Bank at 1-888-MERRMAC. The telephone redemption option is made available to
shareholders of a Fund on the Account Application. Each Fund reserves the right
to refuse a telephone request for redemption if it believes that it is
advisable to do so. Procedures for redeeming shares by telephone may be
modified or terminated at any time by a Fund. Neither the Funds nor Investors
Bank will be liable for following redemption instructions received by telephone
that are reasonably believed to be genuine, and the shareholder will bear the
risk of loss in the event of unauthorized or fraudulent telephone instructions.
Each Fund will employ reasonable procedures to confirm that instructions
communicated by telephone are genuine. A Fund may be liable for any losses due
to unauthorized or fraudulent instructions in the absence of following these
procedures. Such procedures may include requesting personal identification
information or recording telephone conversations. Redemption checks will be
made payable to the registered shareholder(s) and sent to the address of record
on file with Investors Bank. Payments by wire will only be made to the
registered shareholder through pre-existing bank account instructions.
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
Each 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) for the
Cash Series and the Treasury Plus Series, as of 2:00 p.m. (ET) for the Treasury
Series, and as of the close of trading on the NYSE (normally 4:00 p.m. (ET))
for the STAR Series. Securities purchased by the
31
<PAGE>
Cash Portfolio, Treasury Portfolio and Treasury Plus Portfolio are stated at
amortized cost, which approximates market value. Securities purchased by the
STAR Portfolio are stated at either amortized cost or market value depending on
the nature of the security. If market quotations are not readily available, the
STAR Portfolio may value its assets by a method that its Trustees believe
accurately reflects fair value. If the STAR Portfolio uses fair value to price
securities, it may value those securities higher or lower than another mutual
fund that uses market quotations. For more information on how securities are
valued, see the SAI.
DIVIDENDS AND DISTRIBUTIONS
Each Fund intends to declare as a dividend substantially all of its net
investment income at the close of each Business Day and will pay such dividends
monthly. Substantially all of a Fund's distributions will be from net
investment income. Shareholders of the Cash Series, the Treasury Series and the
Treasury Plus Series 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. Shareholders of the STAR Series shall be
entitled to receive dividends on the next Business Day after their purchase is
effected through 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 a 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>
<CAPTION>
<S> <C>
- -------------------------------------------------------------------------------
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 capital Taxable as ordinary income.
gain.
- -------------------------------------------------------------------------------
Dividends from net investment income. Taxable as ordinary income.
- -------------------------------------------------------------------------------
</TABLE>
Every January, the Funds provide information to their shareholders about the
Funds' 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 Funds with a correct taxpayer
identification number and required certification may be subject to federal
backup withholding tax.
Shareholders should generally avoid investing in a Fund shortly before an
expected taxable dividend or capital gain distribution. Otherwise, a
shareholder may pay taxes on dividends or distributions that are economically
equivalent to a partial return of the shareholder's investment.
Shareholders should consult their tax advisers about their own particular tax
situations.
32
<PAGE>
CLASS EXPENSES AND DISTRIBUTION AND SHAREHOLDER SERVICING PLANS
Assets of the Premium Class shares of each Fund are not subject to a 12b-1
(Distribution) or shareholder servicing fee. Assets of the Institutional Class
shares of each 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 each Fund
are subject to a shareholder servicing fee and a Distribution fee each up to
0.25% of ANA.
The Institutional and Investment Class of each Fund offers shares through
certain financial intermediaries, including Investors Bank (Service
Organizations), which have entered into shareholder servicing agreements with
each 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
each Fund. Under the Distribution Plan, the Distribution Agent is entitled to
receive a fee (as set forth above) from each 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 Funds may cost more than
paying other types of sales charges.
33
<PAGE>
MASTER/FEEDER STRUCTURE
The Funds are "feeder" funds that invest exclusively in corresponding "master"
portfolios with identical investment objectives. The master portfolio may
accept investments from multiple feeder funds, which bear the master
portfolio's expenses in proportion to their assets.
Each feeder fund and its master portfolio expect to maintain consistent
investment objectives, but if they do not, a Fund will withdraw from the master
portfolio, receiving either cash or securities in exchange for its interest in
the master portfolio. The Trustees would then consider whether a 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 Funds could be adversely affected if the
computer systems used by the Investors Bank, AAM, M&I, Standish 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 Funds' other
major service providers. At this time, however, there can be no assurance that
these steps will be sufficient to avoid any adverse impact to the Funds.
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the Funds'
financial performance since the Funds commenced operations. Certain information
reflects financial results for a single Fund share. The total returns in the
table represent the rate that an investor would have earned on an investment in
the Fund (assuming reinvestment of all dividends and distributions). This
information has been audited by Ernst & Young LLP for the Funds and the
Portfolios (and by PricewaterhouseCoopers LLP for the Standish Portfolio),
whose reports, along with the Funds' financial statements, are included in the
annual report, which is available upon request.
34
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Short-Term
Treasury Asset Reserve
Cash Series Series Series
--------------- --------------- ---------------
For the Period For the Period For the Period
June 25, 1998 June 25, 1998 August 7, 1998
Commencement of (Commencement of (Commencement of
Operations) Operations) Operations)
to December 31, 1998 to December 31, 1998 to December 31, 1998
--------------------- -------------------- --------------------
--------------------- -------------------- --------------------
PREMIUM INSTITUTIONAL INSTITUTIONAL PREMIUM
CLASS CLASS CLASS CLASS
------- ------------- -------------------- --------------------
NET ASSET
VALUE,
BEGINNING OF
PERIOD $1.00 $ 1.00 $ 1.00 $ 10.00
------- ------------- -------------------- --------------------
Net investment
income 0.0275 0.0262 0.0220 0.235
Dividends from
net investment
income (0.0275) (0.0262) (0.0220) (0.235)
Net realized
and unrealized
loss on
investments -- -- -- (0.030)
------- ------------- -------------------- --------------------
NET ASSET
VALUE,
END OF PERIOD $1.00 $ 1.00 $ 1.00 $ 9.97
------- ------------- -------------------- --------------------
------- ------------- -------------------- --------------------
TOTAL RETURN
(1) 5.41% 5.15% 4.31% 5.22%
ANNUALIZED
RATIOS TO
AVERAGE NET
ASSETS/
SUPPLEMENTAL
DATA
Net expenses 0.33% 0.58% 0.67% 0.36%
Net
investment
income 5.28% 5.03% 4.23% 5.80%
Net expenses,
before waivers
and
reimbursements
0.34% 0.59% -- 1.36%
Net assets,
end of period
(000s
omitted) $100 $115,127 $114,321 $1,008
(1) Total return is calculated assuming a purchase at the net asset value on
the first day and a sale at the net asset value on the last day of each
period reported. Dividends and distributions are assumed reinvested at the
net asset value on the payable date. Total return is computed on an
annualized basis.
</TABLE>
35
<PAGE>
APPENDIX A
THE FOLLOWING ARE DESCRIPTIONS OF CERTAIN TYPES OF SECURITIES IN WHICH THE
PORTFOLIOS' MAY INVEST:
ASSET-BACKED SECURITIES. The Cash Portfolio and the STAR Portfolio may invest
in asset-backed securities. The principal and interest payments on asset-backed
securities are collateralized by pools of assets such as credit card
receivables and categories of receivables, leases, installment sales or loan
contracts and personal property. Such asset pools are securitized through the
use of special purpose trusts or corporations. Payments or distributions of
principal and interest on asset-backed securities may be guaranteed up to
certain amounts and for a certain time period by a letter of credit or a pool
insurance policy issued by a financial institution; however, privately issued
obligations collateralized by a portfolio of privately issued asset-backed
securities do not involve any government-related guaranty or insurance.
Asset-backed securities are especially sensitive to prepayment and extension
risk.
COMMERCIAL PAPER. The Cash Portfolio and the STAR Portfolio may invest in
commercial paper, which is the term used to designate unsecured short-term
promissory notes issued by corporations and other entities. The Cash Portfolio
and the STAR Portfolio may invest in commercial paper with maturities which
vary from a few days to nine months. The Cash Portfolio and the STAR Portfolio
may also purchase U.S. dollar-denominated commercial paper of a foreign issuer
rated in the highest or second highest rating categories by at least two
NRSROs. The STAR Portfolio may purchase U.S. dollar denominated commercial
paper of U.S. and foreign issuers rated A-2 by Moody's or P-2 or Duff-2 by
Standard & Poor's, Duff or Fitch.
CORPORATE DEBT OBLIGATIONS. Subject to their respective credit quality and
maturity limitations, the Cash Portfolio and the STAR Portfolio may invest in
corporate bonds, including obligations of industrial, utility, banking and
other financial issuers.
EURODOLLAR AND YANKEE DOLLAR INVESTMENTS. The Cash Portfolio and the STAR
Portfolio may invest in Eurodollar and Yankee Dollar instruments. Eurodollar
instruments are bonds of foreign corporate and government issuers that pay
interest and principal in U.S. dollars held in banks outside the United States,
primarily in Europe. Yankee Dollar instruments are U.S. dollar denominated
bonds typically issued in the U.S. by foreign governments and their agencies
and foreign banks and corporations.
MORTGAGE-BACKED SECURITIES. The STAR Portfolio may invest in privately issued
mortgage-backed securities and mortgage-backed securities issued or guaranteed
by the U.S. Government or any of its agencies, instrumentalities or sponsored
enterprises, including, but not limited to, the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and
the Federal Home Loan Mortgage Corporation ("FHLMC"). Mortgage-backed
securities represent direct or indirect participations in, or are
collateralized by and payable from, mortgage loans secured by real property.
GNMA securities are backed by the full faith and credit of the U.S. Government,
which means that the U.S. Government guarantees that the interest and principal
will be paid when due. FNMA securities and FHLMC securities are not backed by
the full faith and credit of the U.S. Government; however, these enterprises
have the ability to obtain financing from the U.S. Treasury. See the SAI for
additional descriptions of GNMA, FNMA and FHLMC certificates.
Mortgage-related securities are especially sensitive to prepayment and
extension risk. For mortgage derivatives and structured securities that have
imbedded leverage features, small changes in interest or prepayment rates may
cause large and sudden price movements. Mortgage derivatives can also become
illiquid and hard to value in declining markets. The STAR Portfolio may use
mortgage dollar rolls to finance the purchase of additional investments. Dollar
rolls expose the STAR Portfolio to the risk that it will lose money if the
additional investments do not produce enough income to cover the STAR
Portfolio's dollar roll obligations.
REPURCHASE AGREEMENTS. Each Portfolio, other than the Treasury 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
36
<PAGE>
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%.
The repurchase transactions entered into by the Treasury Plus Portfolio must be
collateralized by securities issued by the U.S. Government.
RESTRICTED AND ILLIQUID SECURITIES. Each Portfolio may invest in illiquid
securities. Illiquid securities are those that are not readily marketable,
repurchase agreements maturing in more than seven days, time deposits with a
notice or demand period of more than seven days and certain restricted
securities. Based upon continuing review of the trading markets for a specific
restricted security, the security may be determined to be eligible for resale
to qualified institutional buyers pursuant to Rule 144A under the Securities
Act of 1933 and, therefore, to be liquid. Also, certain illiquid securities may
be determined to be liquid if they are found to satisfy certain relevant
liquidity requirements.
SECURITIES LENDING. Each Portfolio may lend up to 33 1/3% of its portfolio of
securities pursuant to agreements requiring that the loan be continuously
secured by cash or equivalent collateral or by a letter of credit or bank
guarantee in favor of the Portfolio at least equal at all times to 100% of the
market value plus accrued interest on the securities lent. The Portfolio will
continue to receive interest on the securities lent while simultaneously
seeking to earn interest on the investment of cash collateral. Collateral is
marked to market daily. Loans are subject to termination by the Portfolio or
the borrower at any time and are, therefore, not considered to be illiquid
investments.
VARIABLE AND FLOATING RATE INSTRUMENTS. Certain of the obligations purchased by
each 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 or M&I, as applicable.
WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS. Each 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 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. Such Portfolios generally will not pay for such securities or earn
interest on them until received. The Portfolios will only purchase when-issued
and delayed delivery securities for the purpose of acquiring portfolio
securities and not for speculative purposes.
37
<PAGE>
However, such Portfolios may sell these securities or dispose of the commitment
before the settlement date if it is deemed advisable as a matter of investment
strategy.
ZERO COUPON AND DEFERRED PAYMENT SECURITIES. The Cash Portfolio and the STAR
Portfolio may invest in zero coupon and deferred payment securities. Zero
coupon securities are securities sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. A Portfolio is
required to accrue income with respect to these securities prior to the receipt
of cash payments. Because the Cash Series and STAR Series will each 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 Cash
Portfolio or STAR Portfolio elect to receive dividends in cash rather than
reinvesting such dividends in additional shares, the Cash Portfolio and STAR
Portfolio will have fewer assets with which to purchase income producing
securities. Deferred payment securities are securities that remain zero coupon
securities until a predetermined date, at which time the stated coupon rate
becomes effective and interest becomes payable at regular intervals. The
Treasury Portfolio and the Treasury Plus Portfolio may invest in zero coupon
treasury securities.
38
<PAGE>
For investors who want more information about the Funds, the following
documents are available free upon request:
STATEMENT OF ADDITIONAL INFORMATION (SAI): The SAI provides more detailed
information about the Funds and is legally a part of this prospectus.
ANNUAL/SEMI-ANNUAL REPORTS: The Funds' and the Portfolios' annual and
semi-annual reports provide additional information about the Portfolios'
investments.
You can get free copies of the SAI, the reports, other information and answers
to your questions about the Funds by contacting the Funds' at 1-888-MERRMAC.
You can view the Funds' 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 SERIES
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Treasury Plus Series
Merrimac Short-Term Asset Reserve Series
Investment Company Act file no. 811-08741
39
<PAGE>
MERRIMAC SERIES
Merrimac Cash Series
Merrimac Treasury Series
Merrimac Treasury Plus Series
Merrimac Short-Term Asset Reserve Series
STATEMENT OF ADDITIONAL INFORMATION
May 3, 1999
This Statement of Additional Information (the "SAI") is not a Prospectus, but
it relates to the Prospectus of Merrimac Series dated May 3, 1999. Financial
Statements are incorporated by reference into this SAI from the Funds' most
recent Annual Report. You can get a free copy of the Prospectus for the
Merrimac Series or the Funds' most recent annual and semi-annual reports,
request other information and discuss your questions about the Funds by
contacting the Funds at 1-888-MERRMAC.
You can view the Funds' 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
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Page Page
Fund History 2 Capital Stock 28
Description of the Funds, Their Purchase, Redemption and
Investments and Risks 2 Valuation of Shares 29
Classification 2 Purchase and Redemption of
Investment Strategies and Risks 3 Shares 29
Fund Policies 15 Valuation of Shares 30
Management of the Trusts 18 Taxation of the Trust 31
Control Persons 22 Calculation of Performance Data 34
Investment Advisory and Other Independent Auditors 37
Services 22
Investment Advisers and Counsel 37
Subadvisers 24
Distributor 24
Distribution and Shareholder
Servicing Plans 25
Administrator, Transfer Agent,
Custodian and Fund Accountant 25
Brokerage Allocation and Other Financial Statements 37
Practices 26
Portfolio Turnover 27 Appendix 38
</TABLE>
<PAGE>
FUND HISTORY
Merrimac Series (the "Trust") is composed of four funds: Merrimac Cash Series
("Cash Series"), Merrimac Treasury Series ("Treasury Series"), Merrimac
Treasury Plus Series ("Treasury Plus Series") and Merrimac Short-Term Asset
Reserve Series ("STAR Series") each, a "Fund" and collectively, the "Funds").
The Trust is a business trust organized under the laws of the State of Delaware
pursuant to a Master Trust Agreement dated March 30, 1998, as amended and
registered as an open-end management investment company under the 1940 Act.
The Merrimac Cash Portfolio ("Cash Portfolio"), the Merrimac Treasury Portfolio
("Treasury Portfolio") and the Merrimac Treasury Plus Portfolio ("Treasury Plus
Portfolio") are each a series or sub-trust of the Merrimac Master Portfolio
(the "Portfolio Trust"), a common law trust organized under New York law on
October 30, 1996, registered as an open-end management investment company under
the 1940 Act. The Standish Short-Term Asset Reserve Portfolio ("STAR
Portfolio") is a series of the Standish, Ayer & Wood Master Portfolio (the
"Standish Portfolio Trust") which, like the Trust and the Portfolio Trust, is
an open-end management investment company registered under the 1940 Act. The
Standish Portfolio Trust was organized as a master trust fund under the laws of
the State of New York on January 18, 1996. The Cash Portfolio, Treasury
Portfolio, Treasury Plus Portfolio and STAR Portfolio are collectively referred
to as (the "Portfolios").
This SAI is not a prospectus and is only authorized for distribution when
preceded or accompanied by the Trust's current Prospectus dated May 3, 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 any Fund for which an investor has
not received a Prospectus.
DESCRIPTION OF THE FUNDS, THEIR INVESTMENTS AND RISKS
CLASSIFICATION
Each Fund is a diversified open-end, management investment company and a
separate series of the Trust.
MASTER/FEEDER STRUCTURE. Cash Series invests all of its investable assets in
the Cash Portfolio. Treasury Series invests all of its investable assets in the
Treasury Portfolio. Treasury Plus Series invests all of its investable assets
in the Treasury Plus Portfolio. STAR Series invests all of its investable
assets in the STAR Portfolio. All four Funds are sometimes referred to in this
SAI as feeder funds.
Each Portfolio has the same investment objective and restrictions as its
corresponding Fund. Because the feeder funds invest all of their investable
assets in their corresponding Portfolios, the description of each Fund's
investment policies, techniques, specific investments and related risks that
follows also applies to the corresponding Portfolio.
In addition to these feeder funds, other feeder funds may invest in these
Portfolios, and information about the other feeder funds is available by
calling 1-888-637-7622 for the Cash Portfolio, Treasury Portfolio and Treasury
Plus Portfolio and 1-800-221-4795 for the STAR Portfolio. The other feeder
funds invest in the Portfolios on the same terms as the Funds and bear a
proportionate share of the Portfolio's expenses. The
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other feeder funds may sell shares on different terms and under a different
pricing structure than the Funds, which may produce different investment
results.
There are certain risks associated with an investment in a master-feeder
structure. Large scale redemptions by other feeder funds in a Portfolio may
reduce the diversification of a Portfolio's investments, reduce economies of
scale and increase a Portfolio's operating expenses. If the Portfolio Trust's
Board of Trustees approves a change to the investment objective of a Portfolio
that is not approved by the Trust's Board of Trustees, a Fund would be required
to withdraw its investment in the Portfolio and engage the services of an
investment adviser or find a substitute master fund. Withdrawal of a fund's
interest in its Portfolio, which may be required by the Trust's Board of
Trustees without shareholder approval, might cause the fund to incur expenses
it would not otherwise be required to pay.
INVESTMENT STRATEGIES AND RISKS
MATURITY AND DURATION. The effective maturity of an individual portfolio
security in which the STAR Portfolio invests is defined as the period remaining
until the earliest date when the Portfolio can recover the principal amount of
such security through mandatory redemption or prepayment by the issuer, the
exercise by the Portfolio of a put option, demand feature or tender option
granted by the issuer or a third party or the payment of the principal on the
stated maturity date. The effective maturity of variable rate securities is
calculated by reference to their coupon reset dates. Thus, the effective
maturity of a security may be substantially shorter than its final stated
maturity. Unscheduled prepayments of principal have the effect of shortening
the effective maturities of securities in general and mortgage-backed
securities in particular. Prepayment rates are influenced by changes in current
interest rates and a variety of economic, geographic, social and other factors
and cannot be predicted with certainty. In general, securities, such as
mortgage-backed securities, may be subject to greater prepayment rates in a
declining interest rate environment. Conversely, in an increasing interest rate
environment, the rate of prepayment may be expected to decrease. A higher than
anticipated rate of unscheduled principal prepayments on securities purchased
at a premium or a lower than anticipated rate of unscheduled payments on
securities purchased at a discount may result in a lower yield (and total
return) to the Portfolio than was anticipated at the time the securities were
purchased. The Portfolio's reinvestment of unscheduled prepayments may be made
at rates higher or lower than the rate payable on such security, thus affecting
the return realized by the Portfolio.
Duration of an individual portfolio security is a measure of the security's
price sensitivity taking into account expected cash flow and prepayments under
a wide range of interest rate scenarios. In computing the duration of its
portfolio, the Portfolio will have to estimate the duration of obligations that
are subject to prepayment or redemption by the issuer taking into account the
influences of interest rates on prepayments and coupon flows. The STAR
Portfolio may use various techniques to shorten or lengthen the option-adjusted
duration of its portfolio, including the acquisition of debt obligations at a
premium or discount, the use of mortgage swaps and interest rate swaps, caps,
floors and collars.
MONEY MARKET INSTRUMENTS AND REPURCHASE AGREEMENTS. The money market
instruments in which the Cash Portfolio and the STAR Portfolio invest include
short-term U.S. Government securities (defined below), commercial paper
(promissory notes issued by corporations to finance their short-term credit
needs), negotiable certificates of deposit, non-negotiable fixed time deposits,
bankers' acceptances and repurchase agreements. The Treasury Portfolio invests
only in direct obligations of the U.S. Treasury
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and the Treasury Plus Portfolio invests substantially all of its assets in
direct obligations of the U.S. Treasury in U.S. Government Securities and in
repurchase agreements.
U.S. Government Securities include securities which are direct obligations of
the U.S. Government backed by the full faith and credit of the United States,
and securities issued by agencies and instrumentalities of the U.S. Government,
which may be guaranteed by the U.S. Treasury or supported by the issuer's right
to borrow from the U.S. Treasury or may be backed by the credit of the federal
agency or instrumentality itself. Agencies and instrumentalities of the U.S.
Government include, but are not limited to, Federal Land Banks, the Federal
Farm Credit Bank, the Central Bank for Cooperatives, Federal Intermediate
Credit Banks, Federal Home Loan Banks and the Federal National Mortgage
Association ("FNMA").
A repurchase agreement is an agreement under which a Portfolio acquires money
market instruments (generally U.S. Government Securities) from a commercial
bank, broker or dealer, subject to resale to the seller at an agreed-upon price
and date (normally the next business day). The resale price reflects an
agreed-upon interest rate effective for the period the instruments are held by
a Portfolio and is unrelated to the interest rate on the instruments. The
instruments acquired by a Portfolio (including accrued interest) must have an
aggregate market value in excess of the resale price and will be held by the
custodian bank for the Portfolio until they are repurchased. The Board of
Trustees of the Portfolio Trust and the Standish Portfolio Trust will monitor
the standards that the investment adviser or sub-adviser will use in reviewing
the creditworthiness of any party to a repurchase agreement with a Portfolio.
See "Investment Advisory Services" for information regarding the investment
adviser and sub-adviser.
The use of repurchase agreements involves certain risks. For example, if the
seller defaults on its obligation to repurchase the instruments acquired by a
Portfolio at a time when their market value has declined, a Portfolio may incur
a loss. If the seller becomes insolvent or subject to liquidation or
reorganization under bankruptcy or other laws, a court may determine that the
instruments acquired by a Portfolio are collateral for a loan by a Portfolio
and therefore are subject to sale by the trustee in bankruptcy. Finally, it is
possible that a Portfolio may not be able to substantiate its interest in the
instruments it acquires. It is expected that these risks can be controlled
through careful documentation and monitoring.
STRUCTURED OR HYBRID NOTES. The STAR Portfolio may invest in structured or
hybrid notes. It is expected that not more than 5% of the Portfolio's net
assets will be at risk as a result of such investments. In addition to the
risks associated with a direct investment in the benchmark asset, investments
in structured and hybrid notes involve the risk that the issuer or counterparty
to the obligation will fail to perform its contractual obligations. Certain
structured or hybrid notes may also be leveraged to the extent that the
magnitude of any change in the interest rate or principal payable on the
benchmark asset is a multiple of the change in the reference price. Leverage
enhances the price volatility of the security and, therefore, the Portfolio's
net asset value ("NAV"). Further, certain structured or hybrid notes may be
illiquid for purposes of the STAR Portfolio's limitation on investments in
illiquid securities.
MORTGAGE-RELATED OBLIGATIONS. The STAR Portfolio may invest in mortgage-related
obligations. Some of the characteristics of mortgage-related obligations and
the issuers or guarantors of such securities are described below.
LIFE OF MORTGAGE-RELATED OBLIGATIONS. The average life of mortgage-related
obligations is likely to be substantially less than the stated maturities of
the mortgages in the mortgage pools underlying such securities. Prepayments or
refinancing of principal by mortgagors and mortgage foreclosures will usually
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result in the return of the greater part of the principal invested long before
the maturity of the mortgages in the pool.
As prepayment rates of individual mortgage pools will vary widely, it is not
possible to predict accurately the average life of a particular issue of
mortgage-related obligations. However, with respect to Government National
Mortgage Association ("GNMA") Certificates, statistics published by the Federal
Housing Administration ("FHA") are normally used as an indicator of the
expected average life of an issue. The actual life of a particular issue of
GNMA Certificates, however, will depend on the coupon rate of the financing.
GNMA CERTIFICATES. The GNMA was established in 1968 when the FNMA was separated
into two organizations, GNMA and FNMA. GNMA is a wholly-owned government
corporation within the Department of Housing and Urban Development. GNMA
developed the first mortgage-backed pass-through instruments in 1970 for
Farmers Home Administration-FHMA-insured, FHA-insured and for Veterans
Administration- or VA-guaranteed mortgages ("government mortgages").
GNMA purchases government mortgages and occasionally conventional mortgages to
support the housing market. GNMA is known primarily, however, for its role as
guarantor of pass-through securities collateralized by government mortgages.
Under the GNMA securities guarantee program, government mortgages that are
pooled must be less than one year old by the date GNMA issues its commitment.
Loans in a single pool must be of the same type in terms of interest rate and
maturity. The minimum size of a pool is $1 million for single-family mortgages
and $500,000 for manufactured housing and project loans.
Under the GNMA II program, loans with different interest rates can be included
in a single pool and mortgages originated by more than one lender can be
assembled in a pool. In addition, loans made by a single lender can be packaged
in a custom pool (a pool containing loans with specific characteristics or
requirements).
GNMA GUARANTEE. The National Housing Act authorizes GNMA to guarantee the
timely payment of principal of and interest on securities backed by a pool of
mortgages insured by FHA or FHMA, or guaranteed by VA. The GNMA guarantee is
backed by the full faith and credit of the United States. GNMA is also
empowered to borrow without limitation from the U.S. Treasury if necessary to
make any payments required under its guarantee.
YIELD CHARACTERISTICS OF GNMA CERTIFICATES. The coupon rate of interest on GNMA
Certificates is lower than the interest rate paid on the VA-guaranteed,
FHMA-insured or FHA-insured mortgages underlying the Certificates, but only by
the amount of the fees paid to GNMA and the issuer. For the most common type of
mortgage pool, containing single-family dwelling mortgages, GNMA receives an
annual fee of 0.06% of the outstanding principal for providing its guarantee,
and the issuer is paid an annual fee of 0.44% for assembling the mortgage pool
and for passing through monthly payments of interest and principal to GNMA
Certificate holders.
The coupon rate by itself, however, does not indicate the yield which will be
earned on the GNMA Certificates for several reasons. First, GNMA Certificates
may be issued at a premium or discount, rather than at par, and, after
issuance, GNMA Certificates may trade in the secondary market at a premium or
discount. Second, interest is paid monthly, rather than semi-annually as with
traditional bonds. Monthly compounding has the effect of raising the effective
yield earned on GNMA Certificates. Finally, the actual yield of each GNMA
Certificate is influenced by the prepayment experience of the mortgage pool
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underlying the GNMA Certificate. If mortgagors prepay their mortgages, the
principal returned to GNMA Certificateholders may be reinvested at higher or
lower rates.
MARKET FOR GNMA CERTIFICATES. Since the inception of the GNMA mortgage-backed
securities program in 1970, the amount of GNMA Certificates outstanding has
grown rapidly. The size of the market and the active participation in the
secondary market by securities dealers and many types of investors make the
GNMA Certificates a highly liquid instrument. Prices of GNMA Certificates are
readily available from securities dealers and depend on, among other things,
the level of market rates, the GNMA Certificate's coupon rate and the
prepayment experience of the pools of mortgages backing each GNMA Certificate.
FHLMC PARTICIPATION CERTIFICATES. The Federal Home Loan Mortgage Corporation
("FHLMC") was created by the Emergency Home Finance Act of 1970. It is a
private corporation, initially capitalized by the Federal Home Loan Bank
System, charged with supporting the mortgage lending activities of savings and
loan associations by providing an active secondary market for conventional
mortgages. To finance its mortgage purchases, FHLMC issues FHLMC Participation
Certificates and Collateralized Mortgage Obligations ("CMOs").
Participation Certificates represent an undivided interest in a pool of
mortgage loans. FHLMC purchases whole loans or participations in 30-year and
15-year fixed rate mortgages, adjustable-rate mortgages ("ARMs") and home
improvement loans. Under certain programs, it will also purchase FHA and VA
mortgages.
Loans pooled for FHLMC must have a minimum coupon rate equal to the
Participation Certificate rate specified at delivery, plus a required spread
for the corporation and a minimum servicing fee, generally 0.375% (37.5 basis
points). The maximum coupon rate on loans is 2% (200 basis points) in excess of
the minimum eligible coupon rate for Participation Certificates. FHLMC requires
a minimum commitment of $1 million in mortgages but imposes no maximum amount.
Negotiated deals require a minimum commitment of $10 million. FHLMC guarantees
timely payment of the interest and the ultimate payment of principal of its
Participation Certificates. This guarantee is backed by reserves set aside to
protect against losses due to default. The FHLMC CMO is divided into varying
maturities with prepayment set specifically for holders of the shorter term
securities. The CMO is designed to respond to investor concerns about early
repayment of mortgages.
FHLMC's CMOs are general obligations, and FHLMC will be required to use its
general funds to make principal and interest payments on CMOs if payments
generated by the underlying pool of mortgages are insufficient to pay principal
and interest on the CMO.
A CMO is a cash-flow bond in which mortgage payments from underlying mortgage
pools pay principal and interest to CMO bondholders. The CMO is structured to
address two major short-comings associated with traditional pass-through
securities: payment frequency and prepayment risk. Traditional pass-through
securities pay interest and amortized principal on a monthly basis whereas CMOs
normally pay principal and interest semi-annually. In addition, mortgage-backed
securities carry the risk that individual mortgagors in the mortgage pool may
exercise their prepayment privileges, leading to irregular cash flow and
uncertain average lives, durations and yields.
A typical CMO structure contains four tranches, which are generally referred to
as Classes A, B, C and Z. Each tranche is identified by its coupon and
maturity. The first three classes are usually current interest-bearing bonds
paying interest on a quarterly or semi-annual basis, while the fourth, Class Z,
is an accrual bond. Amortized principal payments and prepayments from the
underlying mortgage collateral
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redeem principal of the CMO sequentially; payments from the mortgages first
redeem principal on the Class A bonds. When principal of the Class A bonds has
been redeemed, the payments then redeem principal on the Class B bonds. This
pattern of using principal payments to redeem each bond sequentially continues
until the Class C bonds have been retired. At this point, Class Z bonds begin
paying interest and amortized principal on their accrued value.
The final tranche of a CMO is usually a deferred interest bond, commonly
referred to as the Z bond. This bond accrues interest at its coupon rate but
does not pay this interest until all previous tranches have been fully retired.
While earlier classes remain outstanding, interest accrued on the Z bond is
compounded and added to the outstanding principal. The deferred interest period
ends when all previous tranches are retired, at which point the Z bond pays
periodic interest and principal until it matures. The Adviser would purchase a
Z bond for the STAR Portfolio if it expected interest rates to decline.
FNMA SECURITIES. FNMA was created by the National Housing Act of 1938. In 1968,
the agency was separated into two organizations, GNMA to support a secondary
market for government mortgages and FNMA to act as a private corporation
supporting the housing market.
FNMA pools may contain fixed-rate conventional loans on one-to-four-family
properties. Seasoned FHA and VA loans, as well as conventional growing equity
mortgages, are eligible for separate pools. FNMA will consider other types of
loans for securities pooling on a negotiated basis. A single pool may include
mortgages with different loan-to-value ratios and interest rates, though rates
may not vary beyond two percentage points.
PRIVATELY-ISSUED MORTGAGE LOAN POOLS. Savings associations, commercial banks
and investment bankers issue pass-through securities secured by a pool of
mortgages.
Generally, only conventional mortgages on single-family properties are included
in private issues, though seasoned loans and variable rate mortgages are
sometimes included. Private placements allow purchasers to negotiate terms of
transactions. Maximum amounts for individual loans may exceed the loan limit
set for government agency purchase. Pool size may vary, but the minimum is
usually $20 million for public offerings and $10 million for private
placements.
Privately-issued mortgage-related obligations do not carry government or
quasi-government guarantees. Rather, mortgage pool insurance generally is used
to insure against credit losses that may occur in the mortgage pool. Pool
insurance protects against credit losses to the extent of the coverage in
force. Each mortgage, regardless of original loan-to-value ratio, is insured to
100% of principal, interest and other expenses, to a total aggregate loss limit
stated on the policy. The aggregate loss limit of the policy generally is 5% to
7% of the original aggregate principal of the mortgages included in the pool.
In addition to the insurance coverage to protect against defaults on the
underlying mortgages, mortgage-backed securities can be protected against the
nonperformance or poor performance of servicers. Performance bonding of
obligations such as those of the servicers under the origination, servicing or
other contractual agreement will protect the value of the pool of insured
mortgages and enhance the marketability.
The rating received by a mortgage security will be a major factor in its
marketability. For public issues, a rating is always required, but it may be
optional for private placements depending on the demands of the marketplace and
investors.
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Before rating an issue, a nationally recognized statistical rating organization
such as Standard & Poor's Rating Group ("Standard & Poor's"), Moody's Investors
Service, Inc. ("Moody's"), Fitch's IBCA Investors Service ("Fitch") or Duff and
Phelps ("Duff") will consider several factors, including: the creditworthiness
of the issuer; the issuer's track record as an originator and servicer; the
type, term and characteristics of the mortgages, as well as loan-to-value ratio
and loan amounts; the insurer and the level of mortgage insurance and hazard
insurance provided. Where an equity reserve account or letter of credit is
offered, the rating agency will also examine the adequacy of the reserve and
the strength of the issuer of the letter of credit.
STRATEGIC TRANSACTIONS. The STAR Portfolio may, but is not required to, utilize
various other investment strategies as described below to seek to hedge various
market risks (such as interest rates and broad or specific fixed-income market
movements), to manage the effective maturity or duration of fixed-income
securities, or to enhance potential gain. Such strategies are generally
accepted as part of modern portfolio management and are regularly utilized by
many mutual funds and other institutional investors. Techniques and instruments
used by the STAR Portfolio may change over time as new instruments and
strategies are developed or regulatory changes occur.
In the course of pursuing its investment objective, the STAR Portfolio may
purchase and sell (write) exchange-listed and over-the-counter put and call
options on securities, indices and other financial instruments; purchase and
sell financial futures contracts and options thereon; and enter into various
interest rate transactions such as swaps, caps, floors or collars
(collectively, all the above are called "Strategic Transactions"). Strategic
Transactions may be used to seek to protect against possible changes in the
market value of securities held in or to be purchased for the STAR Portfolio's
portfolio resulting from securities market or interest rate fluctuations, to
protect the STAR Portfolio's unrealized gains in the value of its portfolio
securities, to facilitate the sale of such securities for investment purposes,
to manage the effective maturity or duration of the STAR Portfolio's portfolio,
or to establish a position in the derivatives markets as a temporary substitute
for purchasing or selling particular securities.
In addition to the hedging transactions referred to in the preceding paragraph,
Strategic Transactions may also be used by the STAR Portfolio to seek to
enhance potential gain in circumstances where hedging is not involved although
the STAR Portfolio will attempt to limit its net loss exposure resulting from
Strategic Transactions entered into for such purposes to not more than 1% of
its net assets at any one time and, to the extent necessary, the STAR Portfolio
will close out transactions in order to comply with this limitation.
(Transactions such as writing covered call options are considered to involve
hedging for the purposes of this limitation.) In calculating the STAR
Portfolio's net loss exposure from such Strategic Transactions, an unrealized
gain from a particular Strategic Transaction position would be netted against
an unrealized loss from a related Strategic Transaction position. For example,
if the STAR Portfolio's Adviser believes that short-term interest rates as
indicated in the forward yield curve are too high, the STAR Portfolio may take
a short position in a near-term Eurodollar futures contract and a long position
in a longer-dated Eurodollar futures contract. Under such circumstances, any
unrealized loss in the near-term Eurodollar futures position would be netted
against any unrealized gain in the near-term Eurodollar futures position (and
vice versa) for purposes of calculating the STAR Portfolio's net loss exposure.
The ability of the STAR Portfolio to utilize these Strategic Transactions
successfully will depend on its Adviser's ability to predict pertinent market
and interest rate movements, which cannot be assured. The STAR Portfolio will
comply with applicable regulatory requirements when implementing these
strategies, techniques and instruments. The STAR Portfolio's activities
involving Strategic Transactions may be limited by the requirements of
Subchapter M of the Internal Revenue Code of 1986, as amended
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(the "Code"), that apply to investors in the STAR Portfolio that intend to
qualify as regulated investment companies.
RISKS OF STRATEGIC TRANSACTIONS. The use of Strategic Transactions by the STAR
Portfolio has associated risks including possible default by the other party to
the transaction, illiquidity and, to the extent its Adviser's view as to
certain market or interest rate movements is incorrect, the risk that the use
of such Strategic Transactions could result in losses greater than if they had
not been used. Writing put and call options may result in losses to the STAR
Portfolio, force the purchase or sale, respectively, of portfolio securities at
inopportune times or for prices higher than (in the case of purchases due to
the exercise of put options) or lower than (in the case of sales due to the
exercise of call options) current market values, limit the amount of
appreciation the STAR Portfolio can realize on its investments or cause the
STAR Portfolio to hold a security it might otherwise sell.
The use of options and futures transactions entails certain other risks. In
particular, the variable degree of correlation between price movements of
futures contracts and price movements in the related portfolio position of the
STAR Portfolio creates the possibility that losses on the hedging instrument
may be greater than gains in the value of the STAR Portfolio's position.
Writing options could significantly increase the STAR Portfolio's portfolio
turnover rate and, therefore, associated brokerage commissions or spreads. In
addition, futures and options markets may not be liquid in all circumstances
and certain over-the-counter options may have no markets. As a result, in
certain markets, the STAR Portfolio might not be able to close out a
transaction without incurring substantial losses, if at all. Although the use
of futures and options transactions for hedging should tend to minimize the
risk of loss due to a decline in the value of the hedged position, at the same
time, in certain circumstances, they tend to limit any potential gain which
might result from an increase in value of such position.
The loss incurred by the STAR Portfolio in writing options on futures and
entering into futures transactions is potentially unlimited; however, as
described above, the STAR Portfolio will attempt to limit its net loss exposure
resulting from Strategic Transactions entered into for non-hedging purposes to
not more than 1% of its net assets at any one time. Futures markets are highly
volatile and the use of futures may increase the volatility of the STAR
Portfolio's NAV. Finally, entering into futures contracts would create a
greater ongoing potential financial risk than would purchases of options where
the exposure is limited to the cost of the initial premium. Losses resulting
from the use of Strategic Transactions would reduce NAV and the net result may
be less favorable than if the Strategic Transactions had not been utilized.
GENERAL CHARACTERISTICS OF OPTIONS. Put options and call options typically have
similar structural characteristics and operational mechanics regardless of the
underlying instrument on which they are purchased or sold. Thus, the following
general discussion relates to each of the particular types of options discussed
in greater detail below. In addition, many Strategic Transactions involving
options require segregation of the STAR Portfolio's assets in special accounts,
as described below under "Use of Segregated Accounts."
A put option gives the purchaser of the option, in consideration for the
payment of a premium, the right to sell, and the writer the obligation to buy
(if the option is exercised), the underlying security, commodity, index or
other instrument at the exercise price. For instance, the STAR Portfolio's
purchase of a put option on a security might be designed to protect its
holdings in the underlying instrument (or, in some cases, a similar instrument)
against a substantial decline in the market value by giving the STAR Portfolio
the right to sell such instrument at the option exercise price. A call option,
in consideration for the payment of a premium, gives the purchaser of the
option the right to buy, and the seller the obligation
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to sell (if the option is exercised), the underlying instrument at the exercise
price. The STAR Portfolio may purchase a call option on a security, futures
contract, index or other instrument to seek to protect the STAR Portfolio
against an increase in the price of the underlying instrument that it intends
to purchase in the future by fixing the price at which it may purchase such
instrument. An American style put or call option may be exercised at any time
during the option period while a European style put or call option may be
exercised only upon expiration or during a fixed period prior thereto. The STAR
Portfolio is authorized to purchase and sell exchange listed options and
over-the-counter options ("OTC options"). Exchange listed options are issued by
a regulated intermediary such as the Options Clearing Corporation ("OCC"),
which guarantees the performance of the obligations of the parties to such
options. The discussion below uses the OCC as an example, but is also
applicable to other financial intermediaries.
With certain exceptions, exchange listed options generally settle by physical
delivery of the underlying security, although in the future cash settlement may
become available. Index options and Eurodollar instruments are cash settled for
the net amount, if any, by which the option is "in-the-money" (i.e., where the
value of the underlying instrument exceeds, in the case of a call option, or is
less than, in the case of a put option, the exercise price of the option) at
the time the option is exercised. Frequently, rather than taking or making
delivery of the underlying instrument through the process of exercising the
option, listed options are closed by entering into offsetting purchase or sale
transactions that do not result in ownership of the new option.
The STAR Portfolio's ability to close out its position as a purchaser or seller
of an exchange listed put or call option is dependent, in part, upon the
liquidity of the option market. There is no assurance that a liquid option
market on an exchange will exist. In the event that the relevant market for an
option on an exchange ceases to exist, outstanding options on that exchange
would generally continue to be exercisable in accordance with their terms.
The hours of trading for listed options may not coincide with the hours during
which the underlying financial instruments are traded. To the extent that the
option markets close before the markets for the underlying financial
instruments, significant price and rate movements can take place in the
underlying markets that cannot be reflected in the option markets.
OTC options are purchased from or sold to securities dealers, financial
institutions or other parties ("Counterparties") through direct agreement with
the Counterparty. In contrast to exchange listed options, which generally have
standardized terms and performance mechanics, all the terms of an OTC option,
including such terms as method of settlement, term, exercise price, premium,
guarantees and security, are set by negotiation of the parties. The STAR
Portfolio will generally sell (write) OTC options that are subject to a
buy-back provision permitting the STAR Portfolio to require the Counterparty to
sell the option back to the STAR Portfolio at a formula price within seven
days. OTC options purchased by the STAR Portfolio, and portfolio securities
"covering" the amount of the STAR Portfolio's obligation pursuant to an OTC
option sold by it (the cost of the sell-back plus the in-the-money amount, if
any) are subject to the STAR Portfolio's restriction on illiquid securities,
unless determined to be liquid in accordance with procedures adopted by the
Board of Trustees of the Standish Portfolio Trust. For OTC options written with
"primary dealers" pursuant to an agreement requiring a closing purchase
transaction at a formula price, the amount which is considered to be illiquid
may be calculated by reference to a formula price. The STAR Portfolio expects
generally to enter into OTC options that have cash settlement provisions,
although it is not required to do so.
Unless the parties provide for it, there is no central clearing or guaranty
function in the OTC option market. As a result, if the Counterparty fails to
make delivery of the security, currency or other
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instrument underlying an OTC option it has entered into with the STAR Portfolio
or fails to make a cash settlement payment due in accordance with the terms of
that option, the STAR Portfolio will lose any premium it paid for the option as
well as any anticipated benefit of the transaction. Accordingly, the STAR
Portfolio's Adviser must assess the creditworthiness of each such Counterparty
or any guarantor or credit enhancement of the Counterparty's credit to
determine the likelihood that the terms of the OTC option will be satisfied.
The STAR Portfolio will engage in OTC option transactions only with U.S.
Government securities dealers recognized by the Federal Reserve Bank of New
York as "primary dealers," or broker-dealers, domestic or foreign banks or
other financial institutions which have received, combined with any credit
enhancements, a long-term debt rating of A from Standard & Poor's or Moody's or
an equivalent rating from any other nationally recognized statistical rating
organization ("NRSRO") or which issue debt that is determined to be of
equivalent credit quality by the STAR Portfolio's Adviser.
If the STAR Portfolio sells (writes) a call option, the premium that it
receives may serve as a partial hedge, to the extent of the option premium,
against a decrease in the value of the underlying securities or instruments in
its portfolio or will increase the STAR Portfolio's income. The sale (writing)
of put options can also provide income.
The STAR Portfolio may purchase and sell (write) put and call options on
securities, including U.S. Treasury and agency securities and Eurodollar
instruments that are traded on U.S. and foreign securities exchanges and in the
OTC markets and on securities indices and futures contracts.
All calls sold by the STAR Portfolio must be "covered" (i.e., the STAR
Portfolio must own the securities or the futures contract subject to the call)
or must meet the asset segregation requirements described below as long as the
call is outstanding. In addition, the STAR Portfolio may cover a written call
option or put option by entering into an offsetting forward contract and/or by
purchasing an offsetting option or any other option which, by virtue of its
exercise price or otherwise, reduces the STAR Portfolio's net exposure on its
written option position. Even though the STAR Portfolio will receive the option
premium to help offset any loss, the STAR Portfolio may incur a loss if the
exercise price is below the market price for the security subject to the call
at the time of exercise. A call sold by the STAR Portfolio also exposes the
Portfolio during the term of the option to possible loss of opportunity to
realize appreciation in the market price of the underlying security or
instrument and may require the STAR Portfolio to hold a security or instrument
which it might otherwise have sold.
The STAR Portfolio will not sell put options if, as a result, more than 50% of
the STAR Portfolio's assets would be required to be segregated to cover its
potential obligations under such put options other than those with respect to
futures and options thereon. In selling put options, there is a risk that the
STAR Portfolio may be required to buy the underlying security at a price above
the market price.
OPTIONS ON SECURITIES INDICES AND OTHER FINANCIAL INDICES. The STAR Portfolio
may also purchase and sell (write) call and put options on securities indices
and other financial indices. Options on securities indices and other financial
indices are similar to options on a security or other instrument except that,
rather than settling by physical delivery of the underlying instrument, they
settle by cash settlement. For example, an option on an index gives the holder
the right to receive, upon exercise of the option, an amount of cash if the
closing level of the index upon which the option is based exceeds, in the case
of a call, or is less than, in the case of a put, the exercise price of the
option (except if, in the case of an OTC option, physical delivery is
specified). This amount of cash is equal to the differential between the
closing price of the index and the exercise price of the option, which also may
be multiplied by a formula value. The seller of the option is obligated, in
return for the premium received, to make delivery
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of this amount upon exercise of the option. In addition to the methods
described above, the STAR Portfolio may cover call options on a securities
index by owning securities whose price changes are expected to be similar to
those of the underlying index, or by having an absolute and immediate right to
acquire such securities without additional cash consideration (or for
additional cash consideration held in a segregated account by its custodian)
upon conversion or exchange of other securities in its portfolio.
GENERAL CHARACTERISTICS OF FUTURES. The STAR Portfolio may enter into financial
futures contracts or purchase or sell put and call options on such futures.
Futures are generally bought and sold on the commodities exchanges where they
are listed and involve payment of initial and variation margin as described
below. All futures contracts entered into by the STAR Portfolio are traded on
U.S. exchanges or boards of trade that are licensed and regulated by the
Commodity Futures Trading Commission ("CFTC") or on certain foreign exchanges.
The sale of futures contracts creates a firm obligation by the STAR Portfolio,
as seller, to deliver to the buyer the specific type of financial instrument
called for in the contract at a specific future time for a specified price (or,
with respect to index futures and Eurodollar instruments, the net cash amount).
The purchase of futures contracts creates a corresponding obligation by the
STAR Portfolio, as purchaser, to purchase a financial instrument at a specific
time and price. Options on futures contracts are similar to options on
securities except that an option on a futures contract gives the purchaser the
right in return for the premium paid to assume a position in a futures contract
and obligates the seller to deliver such position upon exercise of the option.
The STAR Portfolio's use of financial futures and options thereon will in all
cases be consistent with applicable regulatory requirements and in particular
the regulations of the CFTC relating to exclusions from regulation as a
commodity pool operator. Those regulations currently provide that the STAR
Portfolio may use commodity futures and option positions (i) for bona fide
hedging purposes without regard to the percentage of assets committed to margin
and option premiums, or (ii) for other purposes permitted by the CFTC to the
extent that the aggregate initial margin and option premiums required to
establish such non-hedging positions (net of the amount that the positions were
"in the money" at the time of purchase) do not exceed 5% of the NAV of the STAR
Portfolio's portfolio, after taking into account unrealized profits and losses
on such positions. Typically, maintaining a futures contract or selling an
option thereon requires the STAR Portfolio to deposit, with its custodian for
the benefit of a futures commission merchant, or directly with the futures
commission merchant, as security for its obligations an amount of cash or other
specified assets (initial margin) which initially is typically 1% to 10% of the
face amount of the contract (but may be higher in some circumstances).
Additional cash or assets (variation margin) may be required to be deposited
directly with the futures commission merchant thereafter on a daily basis as
the value of the contract fluctuates. The purchase of an option on financial
futures involves payment of a premium for the option without any further
obligation on the part of the STAR Portfolio. If the STAR Portfolio exercises
an option on a futures contract it will be obligated to post initial margin
(and potential subsequent variation margin) for the resulting futures position
just as it would for any position. Futures contracts and options thereon are
generally settled by entering into an offsetting transaction but there can be
no assurance that the position can be offset prior to settlement at an
advantageous price, nor that delivery will occur. The segregation requirements
with respect to futures contracts and options thereon are described below.
COMBINED TRANSACTIONS. The STAR Portfolio may enter into multiple transactions,
including multiple options transactions, multiple futures transactions and
multiple interest rate transactions, structured notes and any combination of
futures, options and interest rate transactions ("component transactions")
instead of a single Strategic Transaction, as part of a single or combined
strategy when, in the opinion of the STAR Portfolio's Adviser, it is in the
best interests of the STAR Portfolio to do so. A combined transaction will
usually contain elements of risk that are present in each of its component
transactions.
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Although combined transactions are normally entered into by the STAR Portfolio
based on its Adviser's judgment that the combined strategies will reduce risk
or otherwise more effectively achieve the desired portfolio management goal, it
is possible that the combination will instead increase such risks or hinder
achievement of the portfolio management objective.
SWAPS, CAPS, FLOORS AND COLLARS. Among the Strategic Transactions into which
the STAR Portfolio may enter are interest rate, index and total return swaps
and the purchase or sale of related caps, floors and collars. The STAR
Portfolio expects to enter into these transactions primarily for hedging
purposes, including, but not limited to, preserving a return or spread on a
particular investment or portion of its portfolio, as a duration management
technique or protecting against an increase in the price of securities that the
STAR Portfolio anticipates purchasing at a later date. Swaps, caps, floors and
collars may also be used to enhance potential gain in circumstances where
hedging is not involved although, as described above, the STAR Portfolio will
attempt to limit its net loss exposure resulting from swaps, caps, floors and
collars and other Strategic Transactions entered into for such purposes to not
more than 1% of its net assets at any one time. The STAR Portfolio will not
sell interest rate caps, floors or collars where it does not own securities or
other instruments providing the income stream the STAR Portfolio may be
obligated to pay. Interest rate swaps involve the exchange by the STAR
Portfolio with another party of their respective commitments to pay or receive
interest, e.g., an exchange of floating rate payments for fixed rate payments
with respect to a notional amount of principal. An index swap is an agreement
to swap cash flows on a notional amount based on changes in the values of the
reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the
extent that a specified index exceeds a predetermined interest rate or amount.
The purchase of a floor entitles the purchaser to receive payments on a
notional principal amount from the party selling such floor to the extent that
a specified index falls below a predetermined interest rate or amount. A collar
is a combination of a cap and a floor that preserves a certain rate of return
within a predetermined range of interest rates or values.
The STAR Portfolio will usually enter into swaps on a net basis, i.e., the two
payment streams are netted out in a cash settlement on the payment date or
dates specified in the instrument, with the STAR Portfolio receiving or paying,
as the case may be, only the net amount of the two payments. The STAR Portfolio
will not enter into any swap, cap, floor or collar transaction unless, at the
time of entering into such transaction, the unsecured long-term debt of the
Counterparty, combined with any credit enhancements, is rated at least A by
Standard & Poor's or Moody's or has an equivalent rating from an NRSRO or the
Counterparty issues debt that is determined to be of equivalent credit quality
by the STAR Portfolio's Adviser. If there is a default by the Counterparty, the
STAR Portfolio may have contractual remedies pursuant to the agreements related
to the transaction. The swap market has grown substantially in recent years
with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a
result, the swap market has become relatively liquid. Caps, floors and collars
are more recent innovations for which standardized documentation has not yet
been fully developed. Swaps, caps, floors and collars are considered illiquid
for purposes of the STAR Portfolio's policy regarding illiquid securities,
unless it is determined, based upon continuing review of the trading markets
for the specific security, that such security is liquid. The Trustees of the
Standish Portfolio Trust have adopted guidelines and delegated to the STAR
Portfolio's Adviser the daily function of determining and monitoring the
liquidity of swaps, caps, floors and collars. Such Trustees, however, retain
oversight focusing on factors such as valuation, liquidity and availability of
information and they are ultimately responsible for such determinations. The
staff of the Securities and Exchange Commission ("SEC") currently takes the
position that swaps, caps, floors and collars are illiquid, and are subject to
the STAR Portfolio's limitation on investing in illiquid securities.
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EURODOLLAR CONTRACTS. The STAR Portfolio may make investments in Eurodollar
contracts. Eurodollar contracts are U.S. dollar-denominated futures contracts
or options thereon which are linked to the London Interbank Offered Rate
("LIBOR"), although foreign currency-denominated instruments are available from
time to time. Eurodollar futures contracts enable purchasers to obtain a fixed
rate for the lending of funds and sellers to obtain a fixed rate for
borrowings. The STAR Portfolio might use Eurodollar futures contracts and
options thereon to hedge against changes in LIBOR, to which many interest rate
swaps and fixed income instruments are linked.
USE OF SEGREGATED ACCOUNTS. The STAR Portfolio will hold securities or other
instruments whose values are expected to offset its obligations under the
Strategic Transactions. The STAR Portfolio will cover Strategic Transactions as
required by interpretive positions of the staff of the SEC. The STAR Portfolio
will not enter into Strategic Transactions that expose the STAR Portfolio to an
obligation to another party unless it owns either (i) an offsetting position in
securities or other options, futures contracts or other instruments or (ii)
cash, receivables or liquid securities with a value sufficient to cover its
potential obligations. The STAR Portfolio may have to comply with any
applicable regulatory requirements for Strategic Transactions, and if required,
will set aside cash and other assets in a segregated account with its custodian
bank (or marked as segregated on the STAR Portfolio's books) in the amount
prescribed. In that case, the STAR Portfolio's custodian would maintain the
value of such segregated account equal to the prescribed amount by adding or
removing additional cash or other assets to account for fluctuations in the
value of the account and the STAR Portfolio's obligations on the underlying
Strategic Transactions. Assets held in a segregated account would not be sold
while the Strategic Transaction is outstanding, unless they are replaced with
similar assets. As a result, there is a possibility that segregation of a large
percentage of the STAR Portfolio's assets could impede portfolio management or
the Portfolio's ability to meet redemption requests or other current
obligations.
"WHEN-ISSUED" AND "DELAYED DELIVERY" Securities. Each Portfolio may invest in
securities purchased on a "when-issued" or "delayed delivery" basis. Delivery
and payment for securities purchased on a when-issued or delayed delivery basis
will normally take place 15 to 45 days after the date of the transaction. The
payment obligation and interest rate on the securities are fixed at the time
that a Portfolio enters into the commitment, but interest will not accrue to a
Portfolio until delivery of and payment for the securities. Although each such
Portfolio will only make commitments to purchase "when-issued" and "delayed
delivery" securities with the intention of actually acquiring the securities,
each such Portfolio may sell the securities before the settlement date if
deemed advisable by their investment adviser or sub-adviser. The Cash, Treasury
and Treasury Plus Portfolios may also, with respect to up to 25% of their total
assets, enter into contracts to purchase securities for a fixed price at a
future date beyond customary settlement time. The STAR Portfolio's limitation
is 10% of its total assets.
Unless the Portfolios have entered into an offsetting agreement to sell the
securities purchased on a "when-issued" or "forward commitment" basis, cash or
liquid obligations with a market value equal to the amount of a Portfolio's
commitment will be segregated with a Portfolio's custodian bank. If the market
value of these securities declines, additional cash or securities will be
segregated daily so that the aggregate market value of the segregated
securities equals the amount of a Portfolio's commitment.
Securities purchased on a "when-issued" and "delayed delivery" basis may have a
market value on delivery which is less than the amount paid by a Portfolio.
Changes in market value may be based upon the public's perception of the
creditworthiness of the issuer or changes in the level of interest rates.
Generally, the value of "when-issued", "delayed delivery" and "forward
commitment" securities will fluctuate inversely to changes in interest rates,
i.e., they will appreciate in value when interest rates fall and will decline
in value when interest rates rise.
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FUND POLICIES
The Funds and the Portfolios have adopted the following fundamental policies.
Each of the Fund's and Portfolio's fundamental policies cannot be changed
unless the change is approved by a "vote of the outstanding voting securities"
of a Fund or a Portfolio, as the case may be, which phrase as used herein means
the lesser of (i) 67% or more of the voting securities of a Fund or Portfolio
present at a meeting, if the holders of more than 50% of the outstanding voting
securities of a Fund or Portfolio are present or represented by proxy, or (ii)
more than 50% of the outstanding voting securities of a Fund or Portfolio.
As a matter of fundamental policy, the Cash Portfolio (Series), the Treasury
Portfolio (Series) and the Treasury Plus Portfolio (Series) may not:
(1) purchase any securities that would cause more than 25% of the total assets
of the Portfolio at the time of such purchase to be invested in securities of
one or more issuers conducting their principal business activities in the same
industry, provided that there is no limitation with respect to U.S. Government
Securities or (for the Cash Portfolio (Series)) and the Treasury Plus Portfolio
(Series)) bank obligations or repurchase agreements collateralized by any of
such obligations as applicable;
(2) borrow money, except as a temporary measure for extraordinary or
emergency purposes or to facilitate redemptions, provided that
borrowing does not exceed an amount equal to 33 1/3% of the current
value of the Portfolio's assets taken at market value, less
liabilities, other than borrowings;
(3) purchase securities on margin (except for delayed delivery or
when-issued transactions or such short-term credits as are necessary
for the clearance of transactions);
(4) make loans to any person or firm; provided, however, that the
making of a loan shall not include entering into repurchase agreements,
and provided further that a Portfolio may lend its portfolio securities
to broker-dealers or other institutional investors if the aggregate
value of all securities loaned does not exceed 33 1/3% of the value of
a Portfolio's total assets;
(5) engage in the business of underwriting the securities issued by
others, except that a Portfolio will not be deemed to be engaging in
the business of underwriting with respect to the purchase or sale of
securities subject to legal or contractual restrictions on disposition;
(6) issue senior securities, except as permitted by its investment
objective, policies and restrictions, and except as permitted by the
1940 Act; and
(7) purchase or sell real estate, commodities, or commodity contracts
unless acquired as a result of ownership of securities, and provided
further that a Portfolio may invest in securities backed by real estate
and in financial futures contracts and options thereon.
If any percentage restriction described above for the Cash Portfolio (Series),
Treasury Portfolio (Series) or Treasury Plus Portfolio (Series) is adhered to
at the time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the net assets of the Portfolios (Fund) will not
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constitute a violation of the restriction. The above restrictions also apply to
each Fund, with the exception that a Fund may invest all of its investable
assets without limitation in its respective Portfolio.
As a matter of fundamental policy, the STAR Portfolio (Series) may not:
(1) Issue senior securities. For purposes of this restriction,
borrowing money, making loans, the issuance of shares of beneficial
interest in multiple classes or series, the deferral of Trustees' fees,
the purchase or sale of options, futures contracts, forward commitments
and repurchase agreements entered into in accordance with the
Portfolio's (Fund's) investment policies, are not deemed to be senior
securities.
(2) Borrow money, except (i) in amounts not to exceed 33 1/3% of the
value of the Portfolio's (Fund's) total assets (including the amount
borrowed) taken at market value from banks or through reverse
repurchase agreements or forward roll transactions, (ii) up to an
additional 5% of its total assets for temporary purposes, (iii) in
connection with short-term credits as may be necessary for the
clearance of purchases and sales of portfolio securities and (iv) the
Portfolio (Series) may purchase securities on margin to the extent
permitted by applicable law. For purposes of this investment
restriction, investments in short sales, roll transactions, futures
contracts, options on futures contracts, securities or indices and
forward commitments, entered into in accordance with the Portfolio's
(Fund's) investment policies, shall not constitute borrowing.
(3) Underwrite the securities of other issuers, except to the extent
that, in connection with the disposition of portfolio securities, the
Portfolio (Series) may be deemed to be an underwriter under the
Securities Act of 1933.
(4) Purchase or sell real estate except that the Portfolio (Series) may
(i) acquire or lease office space for its own use, (ii)invest in
securities of issuers that invest in real estate or interests therein,
(iii) invest in securities that are secured by real estate or interests
therein, (iv) purchase and sell mortgage-related securities and (v)
hold and sell real estate acquired by the Portfolio (Series) as a
result of the ownership of securities.
(5) Purchase or sell commodities or commodity contracts, except the
Portfolio (Series) may purchase and sell options on securities,
securities indices and currency, futures contracts on securities,
securities indices and currency and options on such futures, forward
foreign currency exchange contracts, forward commitments, securities
index put or call warrants and repurchase agreements entered into in
accordance with the Portfolio's (Series') investment policies.
(6) Make loans, except that the Portfolio (Series) (1) may lend
portfolio securities in accordance with the Portfolio's (Series')
investment policies up to 33 1/3% of the Portfolio's (Series') total
assets taken at market value, (2) enter into repurchase agreements, and
(3) purchase all or a portion of an issue of debt securities, bank loan
participation interests, bank certificates of deposit, bankers'
acceptances, debentures or other securities, whether or not the
purchase is made upon the original issuance of the securities.
(7) With respect to 75% of its total assets, purchase securities of an
issuer (other than the U.S. Government, its agencies, instrumentalities
or authorities or repurchase agreements collateralized by U.S.
Government securities and other investment companies), if: (a) such
purchase would cause more than 5% of the Portfolio's (Series') total
assets taken at market value to be invested
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in the securities of such issuer; or (b) such purchase would at the
time result in more than 10% of the outstanding voting securities of
such issuer being held by the Portfolio (Series).
(8) Invest more than 25% of its total assets in the securities of one
or more issuers conducting their principal business activities in the
same industry (excluding the U.S. Government or its agencies or
instrumentalities).
The following restrictions are not fundamental policies and may be changed by
the Trustees of the Standish Portfolio Trust without investor approval in
accordance with applicable laws, regulations or regulatory policy. The STAR
Portfolio (Series) may not:
a. Purchase securities on margin (except that the Portfolio (Series)
may obtain such short-term credits as may be necessary for the
clearance of purchases and sales of securities).
b. Invest in the securities of an issuer for the purpose of exercising
control or management, but it may do so where it is deemed advisable to
protect or enhance the value of an existing investment.
c. Purchase the securities of any other investment company except to
the extent permitted by the 1940 Act.
d. Invest more than 15% of its net assets in securities which are
illiquid.
e. Purchase additional securities if the Portfolio's (Series')
borrowings exceed 5% of its net assets.
It is expected that not more than 5% of the STAR Portfolio's net assets will be
at risk as a result of investment in inverse floating rate securities.
Notwithstanding any fundamental or non-fundamental policy, the STAR Series may
invest all of its assets (other than assets which are not "investment
securities" (as defined in the 1940 Act) or are excepted by the SEC) in an
open-end investment company with substantially the same investment objective as
the STAR Series.
For the purposes of STAR Portfolio's (Series') fundamental restriction 8, state
and municipal governments and their agencies, authorities and instrumentalities
are not deemed to be industries; telephone companies are considered to be a
separate industry from water, gas or electric utilities; personal credit
finance companies and business credit finance companies are deemed to be
separate industries; and wholly-owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents. Fundamental restriction 8 does not
apply to investments in municipal securities which have been prefunded by the
use of obligations of the U.S. Government or any of its agencies or
instrumentalities. For purposes of fundamental restriction 8, the industry
classification of an asset-backed security is determined by its underlying
assets. For example, certificates for automobile receivables and certificates
for amortizing revolving debts constitute two different industries.
If any percentage restriction described above for the STAR Portfolio (Series)
is adhered to at the time of investment, a subsequent increase or decrease in
the percentage resulting from a change in the value of the Portfolio's
(Series') assets will not constitute a violation of the restriction.
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MANAGEMENT OF THE TRUSTS
BOARD OF TRUSTEES
Overall responsibility for management and supervision of the Trust and the
Funds rests with the Board of Trustees. The Trustees approve all significant
agreements between the Trust and the persons and companies that furnish
services to the Trust or the Funds, including agreements with its distributor,
custodian, transfer agent, investment adviser, sub-adviser and administrator.
The day-to-day operations of the Funds are delegated to their Sub-Adviser. The
SAI contains background information regarding each of the Trustees and
executive officers of the Trust.
TRUSTEES AND OFFICERS. The names, addresses, dates of birth and principal
occupation(s) during the last five years of the Trustees and officers of the
Trust, the Portfolio Trust and the Standish Portfolio Trust are listed below.
The business address of the Trustees and officers of the Trust and the
Portfolio Trust is 200 Clarendon Street, Boston, Massachusetts 02116. Unless
otherwise noted, the business address of the Trustees and officers of the
Standish Portfolio Trust is One Financial Center, Boston, Massachusetts 02111.
TRUSTEES AND OFFICERS OF THE TRUST
KEVIN J. SHEEHAN, TRUSTEE*, 6/22/51, Director 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.
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.
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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, Associate, Simpson Thacher & Bartlett,
1989 - 1993.
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, Associate, Simpson Thacher & Bartlett,
1989 - 1993.
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.
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TRUSTEES AND OFFICERS OF THE STANDISH PORTFOLIO TRUST
D. BARR CLAYSON, VICE PRESIDENT AND TRUSTEE***, 7/29/35, Vice President and
Managing Director, Standish, Ayer & Wood, Inc.; Chairman of the Board and
Director, Standish International Management Company, L.P.; Director, CareGroup
Inc..
SAMUEL C. FLEMING, TRUSTEE, 9/30/40, Chairman of the Board and Chief Executive
Officer, Decision Resources, Inc., Trustee, Cornell University; Director,
CareGroup Inc. His address is c/o Decision Resources, Inc., 1100 Winter Street,
Waltham, Massachusetts 02154.
BENJAMIN M. FRIEDMAN, TRUSTEE, 8/5/44, William Joseph Maier, Professor of
Political Economy, Harvard University. His address is c/o Harvard University,
Cambridge, Massachusetts 02138.
JOHN H. HEWITT, TRUSTEE, 4/11/35, Trustee, The Peabody Foundation; Trustee,
Visiting Nurse Alliance of Vermont and New Hampshire; Trustee, Mertens House,
Inc.. His address is P.O. Box 307, South Woodstock, Vermont 05071.
EDWARD H. LADD, VICE PRESIDENT AND TRUSTEE***, 1/3/38, Chairman of the Board
and Managing Director, Standish, Ayer & Wood, Inc.; Director, Standish
International Management Company, L.P.
CALEB LORING III, TRUSTEE, 11/14/43, Trustee, Essex Street Associates (family
investment trust office); Director, Holyoke Mutual Insurance Company; Director,
Carter Family Corporation; Board Member, Gordon-Conwell Theological Seminary;
Chairman of the Advisory Board, Salvation Army; Chairman, Vision New England.
His address is c/o Essex Street Associates, P.O. Box 5600, Beverly Farms,
Massachusetts 01915.
RICHARD S. WOOD, PRESIDENT AND TRUSTEE***, 5/21/54, Vice President and Managing
Director, Standish, Ayer & Wood, Inc.; Executive Vice President and Director,
Standish International Management Company, L.P.
JAMES E. HOLLIS III, EXECUTIVE VICE PRESIDENT, 11/21/48, Vice President and
Director, Standish, Ayer & Wood, Inc.
ANNE P. HERRMANN, VICE PRESIDENT AND SECRETARY, 1/26/56, Senior Fund
Administration Manager, Standish, Ayer & Wood, Inc.
PAUL G. MARTINS, VICE PRESIDENT AND TREASURER, 3/10/56, Vice President of
Finance, Standish, Ayer & Wood, Inc., since October 1996; formerly Senior Vice
President, Treasurer and Chief Financial Officer of Liberty Financial Bank
Group.
BEVERLY E. BANFIELD, VICE PRESIDENT, 7/6/56, Vice President, Associate Director
and Compliance Officer, Standish, Ayer & Wood, Inc.
LAVINIA B. CHASE, VICE PRESIDENT, 6/4/46, Vice President and Associate
Director, Standish, Ayer & Wood, Inc.
DENISE B. KNEELAND, VICE PRESIDENT, 8/19/51, Vice President and Manager, Mutual
Fund Operations, Standish, Ayer & Wood, Inc. since December 1995; formerly Vice
President, Scudder, Stevens and Clark.
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DAVID C. STUEHR, VICE PRESIDENT, 3/1/58, Vice President and Director, Standish,
Ayer & Wood, Inc.
SARAH WALCOTT-ABRAMSON, VICE PRESIDENT, 12/9/65, Compliance Administrator,
Standish, Ayer & Wood, Inc.
KATHLEEN M. BROCCOLI, VICE PRESIDENT, 4/13/65, Vice President and Manager,
Portfolio Accounting, Standish, Ayer & Wood, Inc.
THOMAS J. HANLON, VICE PRESIDENT, 9/25/60, Vice President and Manager, Trade
Settlement and Pricing, Standish, Ayer & Wood, Inc.
ROSALIND J. LILLO, VICE PRESIDENT, 2/6/38, Broker/Dealer Administrator,
Standish, Ayer & Wood, Inc. (since 1995); formerly Compliance Administrator,
New England Securities Corp.
GIGI K. SZEKELY, VICE PRESIDENT, 5/8/67, Manager, Client Communications,
Standish, Ayer & Wood, Inc.
* Indicates that the Trustee is an "interested person" of the Trust as
defined in the 1940 Act.
** Indicates that the Trustee is an "interested person" of the Portfolio
Trust as defined in the 1940 Act.
*** Indicates that the Trustee is an "interested person" of the Standish
Portfolio Trust as defined in the 1940 Act.
COMPENSATION OF THE TRUSTEES AND OFFICERS. Neither the Trust nor the Portfolio
Trust compensates the Trustees or officers of the Trust and the Portfolio Trust
who are affiliated with Investors Bank or the Distributor. Neither the Trust
nor the Standish Portfolio Trust compensates the Trustees and officers of the
Standish Portfolio Trust who are affiliated with Standish. None of the Trustees
or officers of the Trust or the Portfolio Trust have engaged in any financial
transactions with the Trust or the Portfolio Trust, respectively, during the
fiscal year ended December 31, 1998. None of the Trustees or officers of the
Standish Portfolio Trust have engaged in any financial transactions with the
Standish Portfolio Trust during the fiscal year ended December 31, 1998.
The Trustees of the Portfolio Trust are paid an annual retainer of $10,000,
payable in equal quarterly installments, and a $2,500 meeting fee for each
quarterly meeting attended. Each Fund bears its pro rata allocation of
Trustees' fees paid by its corresponding Portfolio to the Trustees of the
Portfolio Trust. The Trustees of the Trust are paid a $1,000 meeting fee for
each quarterly meeting attended. The following table reflects the compensation
paid by the Trust, by the Portfolio Trust and by another related open end
investment company, to each Trustee for the fiscal period ended December 31,
1998.
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<TABLE>
<CAPTION>
<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 nine series as of December 31,
1998.
</TABLE>
CONTROL PERSONS
As of February 8, 1999, the Standish Short-Term Asset Reserve Fund owned
approximately 97.37% of the outstanding interests of the STAR Portfolio and,
therefore, was deemed to control the STAR Portfolio. As of February 8, 1999,
the Merrimac Cash Fund beneficially owned approximately 83.08% of the
outstanding interests of the Cash Portfolio (and was, therefore, deemed to
control the Cash Portfolio) and the Merrimac Cash Series beneficially owned
approximately 16.19% of the outstanding interests of the Cash Portfolio. As of
February 8, 1999, the Merrimac Treasury Series owned 100% of the outstanding
interests of the Treasury Portfolio and, therefore, was deemed to control the
Treasury Portfolio. As controlling persons, Standish Short-Term Asset Reserve
Fund, the Merrimac Cash Fund and the Merrimac Treasury Series each may be able
to take actions regarding their corresponding Portfolio without the consent or
approval of other interest holders.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISERS AND SUBADVISERS
The Cash Portfolio, the Treasury Portfolio and the Treasury Plus Portfolio each
retain Investors Bank & Trust Company ("Investors Bank" or the "Adviser") as
their investment adviser. The Investment Adviser Agreements (the "Adviser
Agreements") between Investors Bank and each of the Cash Portfolio, the
Treasury Portfolio and the Treasury Plus Portfolio provides that Investors Bank
will manage the operations of the Cash Portfolio, the Treasury Portfolio and
the Treasury Plus Portfolio, subject to the policies established by the Board
of Trustees of the Trust. Investors Bank also provides office space,
facilities, equipment and personnel necessary to supervise the Cash, Treasury
and the Treasury Plus Portfolios' operations and pays the compensation of each
such Portfolio's officers, employees and directors affiliated with Investors
Bank. The Cash Portfolio, Treasury Portfolio and Treasury Plus Portfolio each
pays Investors Bank a unitary fee for servicing these Portfolios as Investment
Adviser, Administrator, Custodian, Fund Accountant and Transfer Agent. For a
description of the rate of compensation that the Cash Portfolio, the Treasury
Portfolio and the Treasury Plus Portfolio pay Investors Bank under the Adviser
Agreements, see "Administrator, Transfer Agent and Fund Accountant" below.
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<PAGE>
Each Portfolio pays Investors Bank a fee for its services. The fee paid to
Investors Bank by the Cash Portfolio for the fiscal year ended December 31,
1998 was $1,760,305. Invesstors Bank waived $384,213 in fees during the fiscal
year ended December 31, 1998. The fee paid to Investors Bank by the Treasury
Portfolio for the fiscal year ended December 31, 1998 was $98,068. As of
December 31, 1998, Treasury Plus 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 Cash Portfolio. AAM is compensated by Investors
Bank at no additional cost to the Cash Portfolio. Subject to the supervision of
Investors Bank and of the Portfolio Trust's Board of Trustees, AAM furnishes to
the Cash Portfolio investment research, advice and supervision and determines
what securities will be purchased, held or sold by the Cash Portfolio. AAM is
rendered an annual fee, computed and paid monthly, based on the average net
assets ("ANA") of the Cash Portfolio according to the following schedule: 0.09%
on the first $500 million in assets; 0.07% on the next $500 million in assets,
and 0.06% on assets exceeding $1 billion. Prior to September 1, 1998, the Cash
Portfolio was advised by The Bank of New York ("BNY") and was paid an annual
fee, computed and paid monthly, based on 0.08% of the ANA of the Cash
Portfolio. The amount paid by Investors Bank to BNY for the period January 1,
1998 to August 31, 1998 was $429,014. The amount paid by Investors Bank to AAM
for the period September 1, 1998 to December 31, 1998 was $233,588.
Pursuant to Investment Sub-Adviser Agreements (the "M&I Sub-Adviser
Agreements"), Investors Bank has retained M&I Investment Management Corp.
("M&I") as sub-adviser to the Treasury Portfolio and the Treasury Plus
Portfolio. M&I is compensated by Investors Bank at no additional cost to the
Treasury Portfolio and the Treasury Plus Portfolio. Subject to the supervision
of Investors Bank and of the Portfolio Trust's Board of Trustees, M&I furnishes
to the Treasury Portfolio and the Treasury Plus Portfolio investment research,
advice and supervision and determines what securities will be purchased, held
or sold by the Treasury Portfolio and the Treasury Plus Portfolio. M&I is
rendered an annual fee, computed and paid monthly, based on 0.08% of the ANA of
each of the Treasury Portfolio and the Treasury Plus Portfolio. For the fiscal
year ended December 31, 1998, the Treasury Portfolio was advised by Aeltus
Investment Management, Inc. ("Aeltus") and Aeltus received the same fees as M&I
currently receives. The amount paid by Investors Bank to Aeltus for the fiscal
year ended December 31, 1998 was $46,158. The Treasury Plus Portfolio had not
commenced operations as of December 31, 1998.
The Cash, Treasury and Treasury Plus Portfolios bear the expenses of their
operations other than those incurred by AAM or M&I, respectively. Among the
other expenses, the Portfolios pay share pricing and shareholder servicing fees
and expenses; custodian fees and expenses; legal and auditing fees and
expenses; expenses of shareholder reports; registration and reporting fees and
expenses; and the Portfolio Trust's Trustee fees and expenses.
The STAR Portfolio and Standish, Ayer & Wood, Inc. ("Standish") have entered
into an investment advisory agreement (the "Standish Advisory Agreement") under
which Standish serves as investment adviser. Prior to the close of business on
January 1, 1998, Standish managed directly the assets of the Standish STAR Fund
pursuant to an investment advisory agreement. This agreement was terminated by
the Standish STAR Fund on such date subsequent to the approval by Standish STAR
Fund's shareholders on December 17, 1997 to implement certain changes in the
Standish STAR Fund's investment restrictions which would enable the Standish
STAR Fund to invest all of its investable assets in the newly-created STAR
Portfolio. Each of the STAR Series and the Standish STAR Fund invests all of
its investable assets in the STAR Portfolio as a separate management investment
company.
23
<PAGE>
For its services as investment adviser to the STAR Portfolio, Standish is
rendered an annual fee, computed and paid monthly, based on 0.25% of the ANA of
the STAR Portfolio. The fee paid to Standish for the fiscal year ended December
31, 1998 was $709,540.
The following, constituting all of the Directors and all of the shareholders of
Standish, are Standish's controlling persons: Caleb F. Aldrich, Nicholas S.
Battelle, David H. Cameron, Karen K. Chandor, D. Barr Clayson, W. Charles Cook,
Joseph M. Corrado, Richard C. Doll, Dolores S. Driscoll, Mark A. Flaherty,
Maria D. Furman, James E. Hollis III, Raymond J. Kubiak, Edward H. Ladd,
Laurence A. Manchester, George W. Noyes, Arthur H. Parker, Howard B. Rubin,
Austin C. Smith, Thomas P. Sorbo, David C. Stuehr, Ralph S. Tate, Michael W.
Thompson and Richard S. Wood.
The STAR Portfolio bears expenses of its operations other than those incurred
by Standish. Among the other expenses, the Portfolio pays share pricing and
expenses; custodian fees and expenses; legal and auditing fees and expenses;
expenses of prospectuses, statements of additional information and shareholder
reports; registration and reporting fees and expenses; and Standish Portfolio
Trust's Trustees fees and expenses.
DISTRIBUTOR
The Premium, Institutional and Investment Class shares of the Funds 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 Funds'
shares. Pursuant to the Distribution Agreement, the Distributor has agreed to
use its best efforts to obtain orders for the continuous offering of the Funds'
shares. The Distributor receives no commissions or other compensation from the
Funds for its services, but receives compensation from Investors Bank for
services it performs in acting as the Funds' 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 each Fund after having concluded that there is a
reasonable likelihood that the Distribution Plan will benefit the Funds and
their shareholders. The Distribution Plan provides that the Distribution Agent
(defined therein) shall receive a fee from each Fund at an annual rate not to
exceed 0.25% of the average daily net assets of such Fund attributable to
shareholders who are clients of the Distribution Agent, plus reimbursement of
direct out of pocket expenditures incurred in connection with the offer or sale
or shares, including expenses relating to the preparation, printing and
distribution of sales literature and reports.
The Distribution Plan will initially be effective for one year from its
effective date. Thereafter, the Distribution Plan shall continue in effect only
if such continuance is specifically approved at least annually by a vote of
both a majority of the Board of Trustees of the Trust and a majority of the
Trustees
24
<PAGE>
of the Trust who are not "interested persons" of the Trust (the "Disinterested
Trustees.") The Distribution Plan may be terminated with respect to a Fund at
any time by a vote of a majority of the Disinterested Trustees, or by a vote of
a majority of the outstanding voting shares of such Fund.
The Board of Trustees of the Trust have also adopted a Shareholder Servicing
Plan (the "Servicing Plan") with respect to the Institutional Class and
Investment Class shares of each Fund after having concluded that there is a
reasonable likelihood that the Servicing Plan will benefit the Funds and their
shareholders. The Servicing Plan provides that the Shareholder Servicing Agent
shall receive a fee from each Fund at an annual rate not to exceed 0.25% of the
average daily net assets of such Fund.
The Servicing Plan will initially be effective for one year from its effective
date. Thereafter, the Servicing Plan continues in effect if such continuance is
specifically approved at least annually by a vote of both a majority of the
Board of Trustees of the Trust and a majority of the Qualified Trustees. The
Servicing Plan requires that at least quarterly, the Treasurer of the Trust
provide to the Trustees of the Trust and that the Trustees review a written
report of the amounts expended pursuant to the Servicing Plan and the purposes
for which such expenditures were made. The Servicing Plan further provides that
the selection and nomination of the Trust's Qualified Trustees is committed to
the discretion of the Trust's disinterested Trustees then in office. The
Servicing Plan may be terminated at any time by a vote of a majority of the
Qualified Trustees, or by a vote of a majority of the outstanding voting shares
of such Fund. The Plan may not be amended to increase materially the amount of
a Fund's permitted expenses thereunder without the approval of a majority of
the outstanding voting securities of the affected Class of such Fund and may
not be materially amended in any case without a vote of the majority of both
the Trust's Trustees and the Trust's Qualified Trustees.
ADMINISTRATOR, TRANSFER AGENT, CUSTODIAN AND FUND ACCOUNTANT
Investors Bank serves as Administrator to the Funds and IBT Trust & Custodial
Services (Ireland) LMTD ("IBT Ireland"), a subsidiary of Investors Bank, serves
as Administrator to the Portfolios. The services provided by Investors Bank and
IBT Ireland include certain accounting, clerical and bookkeeping services, Blue
Sky (for the Funds only), corporate secretarial services and assistance in the
preparation and filing of tax returns and reports to shareholders and the
SEC.
Investors Bank also serves as transfer and dividend paying agent for the Funds
and IBT Fund Services (Canada) Inc., ("IBT Canada") a subsidiary of Investors
Bank, serves as transfer and dividend paying agent for the Portfolios. As
transfer agent, Investors Bank is responsible for the issuance, transfer and
redemption of interests, the establishment and maintenance of accounts and the
payment of distributions for each Fund and IBT Canada is responsible for
maintaining records of holders in interest and for the payment of distributions
for each Portfolio.
Investors Bank also acts as custodian for the Funds and for the Portfolios. As
custodian, Investors Bank holds cash, securities and other assets of the Funds
and the Portfolios as required by the 1940 Act. IBT Canada also serves as fund
accounting agent for the Funds and the Portfolios. As fund accounting agent,
IBT Canada performs certain accounting, clerical and bookkeeping services, and
the daily calculation of net asset value for each Fund and Portfolio.
For its services as Investment Adviser, Administrator, Transfer Agent,
Custodian and Fund Accounting Agent, the Cash Portfolio, the Treasury Portfolio
and the Treasury Plus Portfolio each pay Investors Bank an aggregate fee, which
is calculated daily and paid monthly, at an annual rate of 0.17% of the ANA of
such Portfolio. For its services as Transfer Agent, Custodian and Fund
Accounting Agent, the
25
<PAGE>
STAR Portfolio pays Investors Bank an aggregate fee, which is calculated daily
and paid monthly, at an annual rate of 0.05% of the first $50 million of ANA,
0.03% of the next $100 million of ANA and .01% of ANA over $150 million. For
its services as Administrator, Transfer Agent, Custodian and Fund Accounting
Agent, the Cash Series, the Treasury Series and the Treasury Plus Series each
pays Investors Bank an aggregate fee, which is calculated daily and paid
monthly, at an annual rate of 0.01% of ANA of such Fund and the STAR Series
pays Investors Bank an aggregate fee, calculated daily and paid monthly, at an
annual rate of 0.03% of ANA of the STAR Series.
BROKERAGE ALLOCATION AND OTHER PRACTICES
Purchases and sales of securities for the Cash, Treasury and Treasury Plus
Portfolios usually are principal transactions. Securities are normally
purchased directly from the issuer or from an underwriter or market maker for
the securities. There usually are no brokerage commissions paid for such
purchases. The Cash Portfolio, Treasury Portfolio and the Treasury Plus
Portfolio do not anticipate paying brokerage commissions. Any transaction for
which the Cash Portfolio, Treasury Portfolio or the Treasury Plus 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 the respective Sub-Advisers in their best judgment and in a
manner deemed to be in the best interest of each of the Cash Series, Treasury
Series and the Treasury Plus Series and the other investors in the Cash
Portfolio, Treasury Portfolio or the Treasury Plus Portfolio rather than by any
formula. The primary consideration is prompt execution of orders in an
effective manner at the most favorable price.
Investment decisions for the Cash Portfolio, Treasury Portfolio and the
Treasury Plus Portfolio will be made independently from those for any other
account or investment company that is or may in the future become managed by
the Sub-Advisers. If, however, the Cash Portfolio, Treasury Portfolio or the
Treasury Plus Portfolio and other accounts managed by its Sub-Adviser are
contemporaneously engaged in the purchase or sale of the same security, the
transactions may be averaged as to price and allocated equitably to each
account. In some cases, this policy might adversely affect the price paid or
received by the Cash Portfolio, Treasury Portfolio or the Treasury Plus
Portfolio or the size of the position obtainable for the Cash Portfolio,
Treasury Portfolio or the Treasury Plus Portfolio. In addition, when purchases
or sales of the same security for the Cash Portfolio, Treasury Portfolio or the
Treasury Plus Portfolio and for other accounts managed by their Sub-Adviser
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantages available to large denomination purchases or
sales.
Standish is responsible for placing the STAR Portfolio's portfolio transactions
and will do so in a manner deemed fair and reasonable to the STAR Portfolio and
not according to any formula. The primary consideration in all portfolio
transactions will be prompt execution of orders in an efficient manner at the
most favorable price. In selecting broker-dealers and in negotiating
commissions, Standish will consider the firm's reliability, the quality of its
execution services on a continuing basis and its financial condition. If
Standish determines in good faith that the amount of commissions charged by a
broker is reasonable in relation to the value of the brokerage and research
services provided by such broker, the STAR Portfolio may pay commissions to
such broker in an amount greater than the amount another firm may charge.
Research services may include (i) furnishing advice as to the value of
securities, the advisability of investing in, purchasing or selling securities,
and the availability of securities or purchasers or sellers of
26
<PAGE>
securities, (ii) furnishing seminars, information, analyses and reports
concerning issuers, industries, securities, trading markets and methods,
legislative developments, changes in accounting practices, economic factors and
trends, portfolio strategy, access to research analysts, corporate management
personnel, industry experts and economists, comparative performance evaluation
and technical measurement services and quotation services, and products and
other services (such as third party publications, reports and analysis, and
computer and electronic access, equipment, software, information and
accessories that deliver, process or otherwise utilize information, including
the research described above) that assist Standish in carrying out its
responsibilities and (iii) effecting securities transactions and performing
functions incidental thereto (such as clearance and settlement). Research
services furnished by firms through which the STAR Portfolio effects its
securities transactions may be used by Standish in servicing other accounts;
not all of these services may be used by Standish in connection with the STAR
Portfolio. The investment advisory fee paid by the STAR Portfolio under the
Standish Advisory Agreement will not be reduced as a result of Standish's
receipt of research services.
Standish also places portfolio transactions for other advisory accounts.
Standish will seek to allocate portfolio transactions equitably whenever
concurrent decisions are made to purchase or sell securities for the STAR
Portfolio and another advisory account. In some cases, this procedure could
have an adverse effect on the price or the amount of securities available to
the STAR Portfolio. In making such allocations, the main factors considered by
Standish will be the respective investment objectives, the relative size of
portfolio holdings of the same or comparable securities, the availability of
cash for investment, the size of investment commitments generally held, and
opinions of the persons responsible for recommending the investment. To the
extent permitted by law, securities to be sold or purchased for STAR Portfolio
may be aggregated with those to be sold or purchased for other investment
clients of Standish and Standish's personnel in order to obtain best execution.
Because most of the STAR Portfolio's securities transactions will be effected
on a principal basis involving a "spread" or "dealer mark-up," the Portfolio
does not expect to pay any brokerage commissions.
PORTFOLIO TURNOVER
It is not the policy of the STAR Portfolio to purchase or sell securities for
trading purposes. However, the STAR Portfolio does not place any restrictions
on portfolio turnover and may sell any portfolio security without regard to the
period of time it has been held. The STAR Portfolio may therefore generally
change its portfolio investments at any time in accordance with its Adviser's
appraisal of factors affecting any particular issuer or market, or relevant
economic conditions. The portfolio turnover rate for the STAR Portfolio is
generally not expected to exceed 150% on an annual basis. A rate of turnover of
100% would occur if the value of the lesser of purchases and sales of portfolio
securities for a particular year equaled the average monthly value of portfolio
securities owned during the year (excluding short-term securities). A high rate
of portfolio turnover (100% or more) involves a correspondingly greater amount
of brokerage commissions and other costs which must be borne directly by the
STAR Portfolio and thus indirectly by its interestholders. It may also result
in the realization of larger amounts of net short-term capital gains,
distributions of which by an interestholder in the STAR Portfolio that is a
regulated investment company are taxable as ordinary income.
27
<PAGE>
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 each Fund. The Master Trust Agreement authorizes the Board of
Trustees to divide the shares into any number of classes or series, each class
or series having such designations, powers, preferences, rights,
qualifications, limitations and restrictions, as shall be determined by the
Board subject to the 1940 Act and other applicable law. The shares of any such
additional classes or series might therefore differ from the shares of the
present class and series of capital stock and from each other as to
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications or terms or conditions of
redemption, subject to applicable law, and might thus be superior or inferior
to the other classes or series in various characteristics.
The Trust generally is not required to hold meetings of its shareholders. Under
the Master Trust Agreement, however, shareholder meetings will be held in
connection with the following matters: (1) the election or removal of Trustees
if a meeting is called for such purpose; (2) the adoption of any investment
advisory contract; (3) any amendment of the Master Trust Agreement (other than
amendments changing the name of the Trust, supplying any omission, curing any
ambiguity or curing, correcting or supplementing any defective or inconsistent
provision thereof); and (4) such additional matters as may be required by law,
the Master Trust Agreement, the By-laws of the Trust or any registration of the
Trust with the SEC or any state, or as the Trust's Trustees may consider
necessary or desirable. The shareholders also would vote upon changes in
fundamental investment objectives, policies or restrictions.
Each Trustee serves until the next meeting of shareholders, if any, called for
the purpose of electing Trustees and until the election and qualification of
his successor or until such Trustee sooner dies, resigns or is removed by a
vote of two-thirds of the shares entitled to vote, or a majority of the
Trustees. In accordance with the 1940 Act (i) the Trust will hold a shareholder
meeting for the election of Trustees at such time as less than a majority of
the Trustees have been elected by shareholders, and (ii) if, as a result of a
vacancy in the Board of Trustees, less than two-thirds of the Trustees have
been elected by the shareholders, that vacancy will be filled only by a vote of
the shareholders. A shareholders' meeting shall be held for the purpose of
voting upon the removal of a Trustee upon the written request of the holders of
not less than 10% of the outstanding shares. Upon the written request of ten or
more shareholders who have been such for at least six months and who hold
shares constituting at least 1% of the outstanding shares of a Fund stating
that such shareholders wish to communicate with the other shareholders for the
purpose of obtaining the signatures necessary to demand a meeting to consider
removal of a Trustee, the Trust has undertaken to disseminate appropriate
materials at the expense of the requesting shareholders.
The Master Trust Agreement provides that the presence at a shareholder meeting
in person or by proxy of at least 30% of the shares entitled to vote on a
matter shall constitute a quorum. Thus, a meeting of shareholders of the Trust
could take place even if less than a majority of the shareholders were
represented on its scheduled date. Shareholders would in such a case be
permitted to take action which does not require a larger vote than a majority
of a quorum, such as the election of Trustees and ratification of the selection
of auditors. Some matters requiring a larger vote under the Master Trust
Agreement, such as termination or reorganization of the Trust and certain
amendments of the Master Trust Agreement, would not be affected by this
provision; nor would matters which under the 1940 Act require the vote of a
"majority of the outstanding voting securities" as defined in the 1940 Act.
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<PAGE>
The Master Trust Agreement specifically authorizes the Board of Trustees to
terminate the Trust (or any series Fund thereof) by notice to the shareholders
without shareholder approval. The Board of Trustees may by amendment to the
Master Trust Agreement add to, delete, replace or otherwise modify any
provisions relating to any series or class, provided that before adopting any
such amendment without shareholder approval, the Board of Trustees determined
that it was consistent with the fair and equitable treatment of all
shareholders and, if shares have been issued, shareholder approval shall be
required to adopt any amendments which would adversely affect to a material
degree the rights and preferences of the shares of any series or class.
Each share of a Fund has equal voting rights with every other share of a Fund,
and all shares of a Fund vote as a single group except where a separate vote of
any class is required by the 1940 Act, the laws of the State of Delaware, the
Master Trust Agreement or the By-Laws, or as the Board may determine in its
sole discretion. Where a separate vote is required with respect to one or more
classes, then the shares of all other classes vote as a single class, provided
that, as to any matter which does not affect the interest of a particular
class, only the holders of shares of the one or more affected classes is
entitled to vote.
Interests in each Portfolio have no preemptive or conversion rights, and are
fully paid and non-assessable, except as set forth in the Prospectus. The
Portfolio Trust and the Standish Portfolio Trust normally will not hold
meetings of holders of such interests except as required under the 1940 Act.
The Portfolio Trust and the Standish Portfolio Trust would be required to hold
a meeting of holders in the event that at any time less than a majority of its
Trustees holding office had been elected by holders. The Trustees of the
Portfolio Trust and the Standish Portfolio Trust continue to hold office until
their successors are elected and have qualified. Holders holding a specified
percentage of interests in a Portfolio may call a meeting of holders in such
Portfolio for the purpose of removing any Trustee. A Trustee of the Portfolio
Trust or the Standish Portfolio Trust may be removed upon a majority vote of
the interests held by holders in the Portfolio Trust or the Standish Portfolio
Trust qualified to vote in the election. The 1940 Act requires the Portfolio
Trust and the Standish Portfolio Trust to assist its holders in calling such a
meeting. Upon liquidation of a Portfolio, holders in a Portfolio would be
entitled to share pro rata in the net assets of the Portfolio available for
distribution to holders. Each holder in a Portfolio is entitled to a vote in
proportion to its percentage interest in such Portfolio
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 Commission may permit for
the protection of shareholders of the Fund.
29
<PAGE>
The Trust intends to pay redemption proceeds in cash for all Fund shares
redeemed but, under certain conditions, the Trust, with respect to the STAR
Series, may make payment wholly or partly in portfolio securities, in
conformity with a rule of the Commission. Portfolio securities paid upon
redemption of Fund shares will be valued at their then current market value. An
investor may incur brokerage costs in converting portfolio securities received
upon redemption to cash. The Portfolios have advised the Trust that the
Portfolios will not redeem in-kind except in circumstances in which a Fund is
permitted to redeem in-kind or except in the event a Fund completely withdraws
its interest from a Portfolio.
VALUATION OF SHARES
The following is a description of the procedures used by the Funds in valuing
their assets.
CASH PORTFOLIO, TREASURY PORTFOLIO AND TREASURY PLUS PORTFOLIO. The investment
securities in the Cash Portfolio, the Treasury Portfolio and the Treasury Plus
Portfolio are valued based upon the amortized cost method which involves
valuing a security at its cost and thereafter assuming a constant amortization
to maturity of any discount or premium. Although the amortized cost method
provides consistency in valuation, it may result in periods during which the
stated value of a security is higher or lower than the price the Cash
Portfolio, Treasury Portfolio or Treasury Plus Portfolio would receive if the
security were sold. This method of valuation is used in order to stabilize the
NAV of shares of the Cash Series, the Treasury Series or the Treasury Plus
Series at $1.00; however, there can be no assurance that the Cash Series, the
Treasury Series or the Treasury Plus Series' NAV will always remain at $1.00
per share.
STAR PORTFOLIO. Securities that are fixed income securities (other than money
market instruments) for which accurate market prices are readily available are
valued at their current market value on the basis of quotations, which may be
furnished by a pricing service or provided by dealers in such securities.
Securities not listed on an exchange or national securities market, certain
mortgage-backed and asset-backed securities and securities for which there were
no reported transactions are valued at the last quoted bid prices. Fixed income
securities for which accurate market prices are not readily available and all
other assets are valued at fair value as determined in good faith by Standish
in accordance with procedures approved by the Trustees of the Standish
Portfolio Trust, which may include the use of yield equivalents or matrix
pricing.
Money market instruments with less than sixty days remaining to maturity when
acquired by the STAR Portfolio are valued on an amortized cost basis unless the
Trustees determine that amortized cost does not represent fair value. If the
STAR Portfolio acquires a money market instrument with more than sixty days
remaining to its maturity, it is valued at current market value until the
sixtieth day prior to maturity and will then be valued at amortized cost based
upon the value on such date unless the Trustees determine during such sixty-day
period that amortized cost does not represent fair value.
The Board of Trustees of the Standish Portfolio Trust has approved determining
the current market value of securities with one year or less remaining to
maturity on a spread basis which will be employed in conjunction with the
periodic use of market quotations. Under the spread process, Standish
determines in good faith the current market value of these portfolio securities
by comparing their quality, maturity and liquidity characteristics to those of
United States Treasury bills.
30
<PAGE>
TAXATION OF THE TRUST
Each Fund is treated as a separate entity for accounting and tax purposes. Each
Fund will elect (when it files its initial federal tax return) to be treated
and to qualify as a "regulated investment company" ("RIC") under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"), and intends to
continue to so qualify in the future. As such and by complying with the
applicable provisions of the Code regarding the sources of its income, the
timing of its distributions, and the diversification of its assets, each Fund
will not be subject to Federal income tax on its investment company taxable
income (i.e., all taxable income, after reduction by deductible expenses, other
than its "net capital gain," which is the excess, if any, of its net long-term
capital gain over its net short-term capital loss) and net capital gain which
are distributed to shareholders in accordance with the timing and other
requirements of the Code.
Each Portfolio is treated as a partnership for federal income tax purposes. As
such, a Portfolio is not subject to federal income taxation. Instead, a Fund
must take into account, in computing its federal income tax liability (if any),
its share of the Portfolio's income, gains, losses, deductions, credits and tax
preference items, without regard to whether it has received any cash
distributions from its corresponding Portfolio. Because a Fund invests its
assets in its corresponding Portfolio, the Portfolio normally must satisfy the
applicable source of income and diversification requirements in order for its
corresponding Fund to satisfy them. Each Portfolio will allocate at least
annually among its investors, each investor's distributive share of the
Portfolio's net investment income, net realized capital gains, and any other
items of income, gain, loss, deduction or credit. A Portfolio will make
allocations to its corresponding Fund in a manner intended to comply with the
Code and applicable regulations and will make moneys available for withdrawal
at appropriate times and in sufficient amounts to enable the Fund to satisfy
the tax distribution requirements that apply to the Fund and that must be
satisfied in order to avoid Federal income and/or excise tax on the Fund. For
purposes of applying the requirements of the Code regarding qualification as a
RIC, each Fund will be deemed (i) to own its proportionate share of each of the
assets of its corresponding Portfolio and (ii) to be entitled to the gross
income of the Portfolio attributable to such share.
Each Fund will be subject to a 4% non-deductible federal excise tax on certain
amounts not distributed (and not treated as having been distributed) on a
timely basis in accordance with annual minimum distribution requirements. Each
Fund intends under normal circumstances to seek to avoid liability for such tax
by satisfying such distribution requirements. Certain distributions made in
order to satisfy the Code's distribution requirements may be declared by a Fund
during October, November or December but paid during the following January.
Such distributions will be taxable to taxable shareholders as if received on
December 31 of the year the distributions are declared, rather than the year in
which the distributions are received.
At the discretion of the officers of a Fund, each Fund will distribute net
realized capital gains. For federal income tax purposes, a Fund is permitted to
carry forward a net capital loss in any year to offset its own net capital
gains, if any, during the eight years following the year of the loss. To the
extent subsequent net capital gains are offset by such losses, they would not
result in federal income tax liability to a Fund and, as noted above, would not
be distributed as such to shareholders.
If a Portfolio invests in zero coupon securities, certain increasing rate or
deferred interest securities or, in general, other securities with an original
issue discount (or with market discount if an election is in effect to include
market discount in income currently), the Portfolio must accrue income on such
investments prior to the receipt of the corresponding cash payments. However,
the Fund
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<PAGE>
must distribute, at least annually, all or substantially all of its net income,
including its distributive share of such income accrued by the STAR Portfolio,
to shareholders to qualify as a regulated investment company under the Code and
avoid federal income and excise taxes. Therefore, the 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.
Limitations imposed by the Code on regulated investment companies may restrict
the STAR Portfolio's ability to enter into futures, options or currency forward
transactions.
Certain options or futures transactions undertaken by the STAR Portfolio may
cause the STAR Series to recognize gains or losses from marking to market even
though the STAR Portfolio's positions have not been sold or terminated and
affect the character as long-term or short-term and timing of some capital
gains and losses realized by the Portfolio and allocable to the Fund.
Additionally, the STAR Portfolio (and STAR Series) may be required to recognize
gain if an option, future, forward contract, short sale, swap or other
strategic transaction that is not subject to the mark to market rules is
treated as a "constructive sale" of an "appreciated financial position" held by
the Portfolio under Section 1259 of the Code. Any net mark-to-market gains
and/or gains from constructive sales may also have to be distributed by the
STAR Series to satisfy the distribution requirements referred to above even
though no corresponding cash amounts may concurrently be received, possibly
requiring the disposition of portfolio securities or borrowing to obtain the
necessary cash. Also, certain losses on transactions involving options, futures
or forward contracts and/or offsetting or successor positions may be deferred
rather than being taken into account currently in calculating the STAR Series'
taxable income or gain. Certain of the applicable tax rules may be modified if
the STAR Portfolio is eligible and chooses to make one or more of certain tax
elections that may be available. These transactions may affect the amount,
timing and character of the STAR Series' distributions to shareholders. The
STAR Series will take into account the special tax rules applicable to options,
futures, forward contracts and constructive sales in order to minimize any
potential adverse tax consequences.
The Federal income tax rules applicable to dollar rolls, certain structured or
hybrid securities, interest rate swaps, caps, floors and collars, and possibly
other investments or transactions are unclear in certain respects, and the STAR
Portfolio will account for these instruments in a manner that is intended to
allow the STAR Series and other similar investors to qualify as RICs. Due to
possible unfavorable consequences under present tax law, the STAR Portfolio
does not currently intend to acquire "residual" interests in real estate
mortgage investment conduit ("REMICs"), although it may acquire "regular"
interests in REMICs.
Distributions from a Fund's current or accumulated earnings and profits
("E&P"), as computed for Federal income tax purposes, will be taxable as
described in the Prospectus whether taken in shares or in cash. Distributions,
if any, in excess of E&P will constitute a return of capital, which will first
reduce an investor's tax basis in Fund shares and thereafter (after such basis
is reduced to zero) will generally give rise to capital gains. Shareholders
electing to receive distributions in the form of additional shares will have a
cost basis for federal income tax purposes in each share so received equal to
the amount of cash they would have received had they elected to receive the
distributions in cash, divided by the number of shares received. As a result of
the enactment of the Taxpayer Relief Act of 1997 (the "1997 TRA") on August 5,
1997, gain recognized after May 6, 1997 from the sale of a capital asset is
taxable to individual (noncorporate) investors at different maximum federal
income tax rates, depending generally upon the tax holding period for the
asset, the federal income tax bracket of the taxpayer, and the dates the asset
was acquired and/or sold. The Treasury Department has issued guidance under the
1997 TRA that
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<PAGE>
(subject to possible modification by any "technical corrections" that may be
enacted) will enable the Funds to pass through to their shareholders the
benefits of the capital gains tax rates contained in the 1997 TRA. Shareholders
should consult their own tax advisers on the correct application of these new
rules in their particular circumstances.
It is anticipated that, due to the nature of each Portfolio's investments, no
portion of any Fund's distributions will generally qualify for the dividends
received deduction. A Fund's distributions to its corporate shareholders would
potentially qualify in their hands for the corporate dividends received
deduction, subject to certain holding period requirements and limitations on
debt financing under the Code, only to the extent the Fund was allocated
dividend income of its corresponding Portfolio from stock investments in U.S.
domestic corporations.
At the time of an investor's purchase of STAR Series shares, a portion of the
purchase price may be attributable to undistributed realized or unrealized
appreciation in the STAR Series' share of the STAR Portfolio's portfolio.
Consequently, subsequent distributions by the STAR Series on such shares from
such appreciation may be taxable to such investor even if the NAV of the
investor's shares is, as a result of the distributions, reduced below the
investor's cost for such shares, and the distributions economically represent a
return of a portion of the purchase price.
Upon a redemption or other disposition of shares of the STAR Series in a
transaction that is treated as a sale for tax purposes, a shareholder may
realize a taxable gain or loss, depending upon the difference between the
redemption proceeds and the shareholder's tax basis in his shares. Such gain or
loss will generally be treated as capital gain or loss if the shares are
capital assets in the shareholder's hands. Any loss realized on a redemption
may be disallowed to the extent the shares disposed of are replaced with other
shares of the STAR Series within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of, such as pursuant to
automatic dividend reinvestments. In such a case, the basis of the shares
acquired will be adjusted to reflect the disallowed loss. Any loss realized
upon the redemption of shares with a tax holding period of six months or less
will be treated as a long-term capital loss to the extent of any amounts
treated as distributions of long-term capital gain with respect to such shares.
Shareholders should consult their own tax advisers regarding their particular
circumstances to determine whether a disposition of Fund shares is properly
treated as a sale for tax purposes, as is assumed in the foregoing discussion.
Also, future Treasury Department regulations issued to implement the 1997 TRA
may contain rules for determining different tax rates applicable to sales of
Fund shares held for more than one year, more than 18 months, and (for certain
sales after the year 2000 or the year 2005) more than five years. These
regulations may also modify some of the provisions described above.
Dividends and certain other distributions may be subject to "backup
withholding" of federal income tax at a 31% rate for shareholders who fail to
provide required taxpayer identification numbers or related certifications,
provide incorrect information, or are otherwise subject to such withholding.
Different tax treatment, including penalties on certain excess contributions
and deferrals, certain pre-retirement and post-retirement distributions and
certain prohibited transactions, is accorded to accounts maintained as
qualified retirement plans. Shareholders should consult their tax adviser for
more information.
The STAR Portfolio may be subject to withholding and other taxes imposed by
foreign countries with respect to any investments in foreign securities, and
the STAR Series does not expect to pass its share of such taxes or any related
deductions or credits through to its shareholders. Foreign exchange gains and
losses may be recognized by the STAR Portfolio in connection with hybrid or
structured securities or
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<PAGE>
Strategic Transactions in which its return is dependent upon changes in the
value of a foreign currency. Such gains or losses may be subject in particular
cases to Section 988 of the Code, which generally would cause them to be
treated as ordinary income and losses and could affect the amount, timing and
character of the STAR Series' distributions to its shareholders.
The foregoing discussion relates solely to U.S. Federal income tax law as
applicable to U.S. persons (i.e., U.S. citizens or residents and U.S. domestic
corporations, partnerships, trusts or estates) subject to tax under such law.
The discussion does not address special tax rules applicable to any foreign
investors (who may be subject to withholding or other taxes) or certain other
classes of investors, such as tax-exempt entities, insurance companies, and
financial institutions. Dividends, capital gain distributions, and ownership of
or gains realized on the redemption (including an exchange) of Fund shares may
also be subject to state and local taxes. A state income (and possibly local
income and/or intangible property) tax exemption is generally available to the
extent, if any, the Fund's distributions are derived from interest on (or, in
the case of intangible property taxes, the value of its assets is attributable
to) investments in certain U.S. Government Securities, provided in some states
that certain thresholds for holdings of such obligations and/or reporting
requirements are satisfied. Shareholders should consult their tax advisers
regarding the applicable requirements in their particular states, including the
effect, if any, of the Fund's indirect ownership (through the Portfolio) of any
such obligations, the Federal, and any other state or local, tax consequences
of ownership of shares of, and receipt of distributions from, the Fund in their
particular circumstances.
CALCULATION OF PERFORMANCE DATA
From time to time, the Cash Series, the Treasury Series and the Treasury Plus
Series may quote their "yield" and "effective yield" and the STAR Series may
quote certain "total return," "yield" and "yield-to-maturity" information in
advertisements, reports and other communications to shareholders and compare
their performance figures to those of other funds or accounts with similar
objectives and to relevant indices. Such performance information will be
calculated as described below. Yield quotations are expressed in annualized
terms and may be quoted on a compounded basis.
YIELD
The current yield for the Cash Series, the Treasury Series and the Treasury
Plus Series is computed by (a) determining the net change in the value of a
hypothetical pre-existing account in the Fund having a balance of one share at
the beginning of a seven calendar day period for which yield is to be quoted;
(b) dividing the net change by the value of the account at the beginning of the
period to obtain the base period return; and (c) annualizing the results (i.e.,
multiplying the base period return by 365/7).
The Funds' 7-day yield for the period ended December 31, 1998, were as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Class Cash Series Treasury Series Treasury Plus Series
- -------------------------------------------------------------------------------
Premium 5.18 N/A** N/A***
- -------------------------------------------------------------------------------
Institutional 4.93 3.45 N/A***
- -------------------------------------------------------------------------------
Investment N/A* N/A** N/A***
- -------------------------------------------------------------------------------
* The INVESTMENT Class did not have invested assets on December 31, 1998.
** The PREMIUM and INVESTMENT Class did not have invested assets on December
31, 1998.
*** The Treasury Plus Series is newly operational and therefore does not have
7-day yield for the period ended December 31, 1998.
</TABLE>
The STAR Series' yield is computed by dividing the net investment income per
share earned during a base period of 30 days, or one month, by the maximum
offering price per share on the last day of the period. For the purpose of
determining net investment income, the calculation includes, among expenses of
the Fund, all recurring fees that are charged to all shareholder accounts and
any non-recurring charges for the period stated. In particular, yield is
determined according to the following formula:
Yield = 2[(A - B + 1)(6) - 1]
- -----------------------------
CD
Where: A=interest earned during the period; B=net expenses accrued
for the period; C=the average daily number of shares outstanding
during the period that were entitled to receive dividends; D=the
maximum offering price (NAV) per share on the last day of the period.
The 30 day yield for the STAR Series for the period ended December 31,
1998 was ________%.
EFFECTIVE YIELD
In addition, the Cash Series, the Treasury Series and the Treasury Plus Series
may calculate a compound effective annualized yield by determining the net
change in the value of a hypothetical pre-existing account in the Fund having a
balance of one share at the beginning of a seven calendar day period for which
yield is to be quoted according to the following formula:
Effective Yield = [( Base Period return +1 ) (365/7 exponentional power)] -
1 (I.E., adding 1 to the base period return (calculated as described above),
raising the sum to a power equal to 365/7 and subtracting 1.)
The net change in the value of the account reflects the value of additional
shares, but does not include realized gains and losses or unrealized
appreciation and depreciation.
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<PAGE>
The Funds' 7-day effective yield for the period ended December 31, 1998, were
as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Class Cash Series Treasury Series Treasury Plus Series
- -------------------------------------------------------------------------------
Premium 5.32 N/A** N/A***
- -------------------------------------------------------------------------------
Institutional 5.03 4.02 N/A***
- -------------------------------------------------------------------------------
Investment N/A* N/A** N/A***
- -------------------------------------------------------------------------------
* The INVESTMENT Class did not have invested assets on December 31, 1998.
** The PREMIUM and INVESTMENT Class did not have invested assets on December
31, 1998.
*** The Treasury Plus Series is newly operational and therefore does not have
7-day yield for the period ended December 31, 1998.
</TABLE>
TOTAL RETURN
The Funds may advertise performance in terms of average annual total return for
1-, 5-, and 10 year periods, or for such lesser periods as any of such Funds
have been in existence. Average annual total return is computed by finding the
average annual compounded rates of return over the periods that would equate
the initial amount invested to the ending redeemable value, according the
following formula: subtracting the NAV per share at the beginning of the period
from the NAV per share at the end of the period (after adjusting for the
reinvestment of any income dividends and capital gain distributions), and
dividing the result by the NAV per share at the beginning of the period. In
particular, the Funds' average annual total return ("T") is computed by using
the redeemable value at the end of a specified period of time ("ERV") of a
hypothetical initial investment of $1,000 ("P") over a period of time ("n")
according to the formula P(1+T)n=ERV.
The STAR Series may also quote non-standardized yield, such as
yield-to-maturity ("YTM"). YTM represents the rate of return an investor will
receive if a long-term, interest bearing investment, such as a bond, is held to
its maturity date. YTM does not take into account purchase price, redemption
value, time to maturity, coupon yield and the time between interest payments.
With respect to the treatment of discount and premium on mortgage or other
receivables-backed obligations which are expected to be subject to monthly
payments of principal and interest ("pay downs"), the STAR Portfolio accounts
for gain or loss attributable to actual monthly pay downs as an increase or
decrease to interest income during the period. In addition, the STAR Portfolio
may elect (i) to amortize the discount or premium remaining on a security,
based on the cost of the security, to the weighted average maturity date, if
such information is available, or to the remaining term of the security, if the
weighted average maturity date is not available, or (ii) not to amortize the
discount or premium remaining on a security.
In addition to average annual return quotations, the STAR Series may quote
quarterly and annual performance on a net (with management and administration
fees deducted) and gross basis. The STAR Series may also from time to time
advertise total return on a cumulative, average, year-by-year or other basis
for various specified periods by means of quotations, charts, graphs or
schedules.
Past performance quotations should not be considered as representative of any
Fund's performance for any specified period in the future. The Funds'
performance may be compared in sales literature to the performance of other
mutual funds having similar objectives or to standardized indices or other
measures of investment performance. In particular, the STAR Series may compare
its performance to The IBC/Donoghue Money Market Average/All Taxable Index,
which is generally considered to be
36
<PAGE>
representative of the performance of domestic, taxable money market funds, and
the One Year Treasury Bills. However, the average maturity of the STAR Series'
portfolio is longer than that of a money market fund and, unlike a money market
fund, the NAV of the STAR Series' shares may fluctuate.
The Cash Series began operations on June 25, 1998. The average annual total
return for the Premium Class of the Merrimac Cash Fund (which is a separate
feeder fund that invests all of its assets in the Cash Portfolio) for the
fiscal year ended December 31, 1998 was 5.59%.
The Treasury Series began operations on June 25, 1998. The average annual total
return for the Premium Class of Fund is 4.80%. This performance represents a
blend of the performance for the Premium Class of the Merrimac Treasury Fund (a
separate feeder fund that invests all of its assets in the Treasury Portfolio)
for the period January 1, 1998 to June 24, 1998 and the performance for Premium
Class of the Fund from June 24, 1998 to December 31, 1998.
The Treasury Plus Series is newly operational and therefore does not have total
return information for the period ended December 31, 1998.
The STAR Series began operations on August 7, 1998. The total return for the
Standish STAR Fund, which is a separate feeder fund that invests all of its
assets in the STAR Portfolio, for the one, five and ten year period beginning
January 3, 1989 (inception of the Standish STAR Fund) through December 31, 1998
was ____%, ____% and ____%, respectively.
Each Fund's performance will vary from time to time depending upon market
conditions, the combustion of the Fund's portfolio and its operating expenses.
As described above, total return is based on historical earnings and is not
intended to indicate future performance. Consequently, any given performance
quotation should not be considered as representative of a Fund's performance
for any specified period in the future. Performance information may be useful
as a basis for comparison with other investment alternatives. However, a Fund's
performance will fluctuate, unlike certain bank deposits or other investments
which pay a fixed yield for a stated period of time.
INDEPENDENT AUDITORS
Ernst & Young LLP serves as the independent auditors to the Trust and the
Portfolio Trust and PricewaterhouseCoopers LLP serves as independent
accountants to the Standish STAR Portfolio.
COUNSEL
Goodwin, Procter & Hoar LLP serves as counsel to the Trust and the Portfolio
Trust and Hale and Dorr LLP serves as counsel to the Standish Portfolio Trust.
FINANCIAL STATEMENTS
The Cash Series, Treasury Series and STAR Series' financial statements
contained in the 1998 Annual Report of the Merrimac Series have been audited by
Ernst & Young LLP, independent auditors, and are incorporated by reference into
this SAI. Copies of the Merrimac Series 1998 Annual Report may be obtained by
calling 1-888-MERRMAC.
37
<PAGE>
APPENDIX
DESCRIPTION OF COMMERCIAL PAPER RATINGS
The following descriptions of short-term debt ratings have been published by
Standard & Poor's Ratings Service ("Standard & Poor's"), Moody's Investors
Service ("Moody's"), Fitch's IBCA Investors Service ("Fitch"), and Duff and
Phelps ("Duff"), respectively. These obligations have an original maturity not
exceeding thirteen months, unless explicitly noted.
A -- Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt considered short-term in the relevant
market. Commercial paper issues rated A-1 by Standard & Poor's reflect a very
strong degree of safety of timely payment. Commercial paper issues rated A-2
reflect a strong degree of safety of timely payment but not as strong as for
issues designated A-1.
Commercial paper issues rated Prime-1 by Moody's are judged by Moody's to be of
the "highest" quality on the basis of relative repayment capacity with a
superior ability for repayment of senior short-term debt obligations.
Commercial paper issues rated Prime-2 are judged by Moody's to be of the
"second highest" quality with a strong ability for repayment of senior
short-term debt obligations.
The rating Fitch-1 (Highest Grade) is the highest commercial rating assigned by
Fitch. Paper rated Fitch-1 is regarded as having the strongest degree of
assurance for timely payment. Commercial paper issues rated Fitch-2 are
regarded as having only a slightly less assurance of timely payment than those
issues rated Fitch-1.
The rating Duff-1 is the highest commercial paper rating assigned by Duff.
Paper rated Duff-1 is regarded as having very high certainty of timely payment
with excellent liquidity factors that are supported by ample asset protection.
Risk factors are minor. The rating Duff-2 is regarded as having good certainty
of timely payment with sound liquidity factors supported by good asset
protection. Risk factors are small.
DESCRIPTION OF LONG-TERM DEBT RATINGS
The following is a description of Moody's debt instrument ratings:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edged". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements
are likely to change, such changes as can be visualized are most unlikely to
impair the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known
as high-grade bonds. They are rated lower than the best bonds because margins
of protection may not be as large as in Aaa securities or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risk appear somewhat larger than the Aaa
securities.
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<PAGE>
Moody's applies numerical modifiers 1, 2 and 3 in each generic rating
classification. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates a midrange
ranking; and the modifier 3 indicates a ranking in the lower end of that
generic rating category.
The following is a description of Standard & Poor's debt instrument ratings:
Standard & Poor's ratings are based, in varying degrees, on the following
considerations: (i) the likelihood of default -- capacity and willingness of
the obligor as to the timely payment of interest and repayment of principal in
accordance with the terms of the obligations; (ii) the nature of and provisions
of the obligation; and (iii) the protection afforded by, and relative position
of, the obligation in the event of bankruptcy, reorganization, or other
arrangement under the laws of bankruptcy and other laws affecting creditors'
rights.
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in small degree.
Plus (+) or minus (-): The ratings may be modified by the addition of a plus or
minus sign to show relative standing within the major rating categories.
39
<PAGE>
BANK WATCH SHORT-TERM DEBT RATINGS
THOMSON BANK WATCH ratings represent an assessment of the likelihood of an
untimely payment of principal and interest. Important factors that may
influence this assessment are the overall financial health of the particular
company, and the probability that the government will come to the aid of a
troubled institution in order to avoid a default or failure. The probability of
government intervention stems from four primary factors:
O GOVERNMENT GUARANTEES
O GOVERNMENT OR QUASI-GOVERNMENT OWNERSHIP OR CONTROL
O THE DEGREE OF CONCENTRATION IN THE BANKING SYSTEM
O GOVERNMENT PRECEDENT
As with the Issuer Ratings, the Short-Term Debt Ratings incorporate both
qualitative and quantitative factors. The ratings are not meant to be
"pass/fail" but rather to provide a relative indication of creditworthiness.
Therefore, obligations rated TBW-3 are still considered investment-grade.
These Short-Term Debt Ratings can also be restricted to local currency
instruments. In such cases, the ratings will be preceded by the designation LC
for Local Currency. Short-Term Debt Ratings are based on the following scale
and the definitions are:
TBW-1 LC-1
The highest category; indicates a very high likelihood that principal
and interest will be paid on a timely basis.
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.
40
<PAGE>
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. BANK WATCH Long-Term Debt Ratings are based on the following scale:
INVESTMENT GRADE
AAA LC-AAA
Indicates that the ability to repay principal and interest on a
timely basis is extremely high.
AA LC-AA
Indicates a very strong ability to repay principal and interest on a
timely basis, within limited incremental risk compared to issues
rated in the highest category.
A LC-A
Indicates the ability to repay principal and interest is strong.
Issues rated A could be more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
BBB LC-BBB
The lowest investment-grade category; indicates an acceptable
capacity to repay principal and interest. BBB issues are more
vulnerable to adverse developments (both internal and external) than
obligations with higher ratings.
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
41
<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)
(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)
(5) Investment Sub-Adviser Agreement between Investors Bank and Allmerica
Asset Management, Inc. (Cash Portfolio)(3)
(6) Investment Sub-Adviser Agreement between Investors Bank and M&I
Investment Management Corp. (Treasury Portfolio)
(7) Investment Sub-Adviser Agreement between Investors Bank and M&I
Investment Management Corp. (Treasury Plus 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) Agreement between Funds Distributor and Investors Bank(2)
(i) (1) Opinion of Counsel(2)
(2) Opinion of Counsel(3)
(j) Consent of Independent Auditors
<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) Financial Data Schedules
(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).
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.
The business and other connections of the officers and Directors of Standish,
Ayer & Wood, Inc. ("Standish"), the investment adviser to the Short-Term Asset
Reserve Portfolio, a series of the Standish, Ayer & Wood Master Portfolio, are
listed on the Form ADV of Standish as currently on file with the Commission
(File No. 801-584).
ITEM 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 Short-Term Asset Reserve Series are collectively referred to
as the "Funds" and the Merrimac Cash Portfolio, the Merrimac Treasury
Portfolio, the Merrimac Treasury Plus Portfolio and the Standish Short-Term
Asset Reserve Portfolio are collectively referred to as the "Portfolios").
Investors Bank & Trust Company
200 Clarendon Street
Boston, MA 02116
(Investment Adviser to the Merrimac Cash Portfolio, the Merrimac Treasury
Portfolio and the Merrimac Treasury Plus Portfolio; Administrator and Transfer
Agent for the Funds; Custodian for the Funds and the Portfolios).
Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
(Investment Adviser to the Standish Short-Term Asset Reserve Portfolio)
Allmerica Asset Management, Inc.
40 Lincoln Street
Worcester, Massachusetts 01653
(Investment Sub-Adviser to the Merrimac Cash 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. 2 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 25th day of February, 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. 2 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 25th day of February, 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 and the Investment
Company Act of 1940, Standish, Ayer & Wood Master Portfolio (the "Standish
Portfolio Trust") has duly caused this Post-Effective Amendment No. 2 to the
Registration Statement of Merrimac Series to be signed on behalf of the
Standish Portfolio Trust by the undersigned, thereunto duly authorized, in the
City of Boston and Commonwealth of Massachusetts, on the 25th day of February,
1999.
STANDISH, AYER & WOOD
MASTER PORTFOLIO
/s/ Richard S. Wood
-------------------
Richard S. Wood
President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No. 2 to the Registration Statement of Merrimac Series has been
signed by the following persons in their capacities with the Standish Portfolio
Trust and on the date indicated.
Signature Title Date
Richard S. Wood* Trustee and President February 25, 1999
- ---------------- (principal executive
Richard S. Wood officer)
Paul G. Martins* Treasurer (principal February 25, 1999
- ---------------- financial and accounting
Paul G. Martins officer)
D. Barr Clayson* Trustee February 25, 1999
- ----------------
D. Barr Clayson
Samuel C. Fleming* Trustee February 25, 1999
- ------------------
Samuel C. Fleming
Benjamin M. Friedman* Trustee February 25, 1999
- ---------------------
Benjamin M. Friedman
John H. Hewitt* Trustee February 25, 1999
- ---------------
John H. Hewitt
Edward H. Ladd* Trustee February 25, 1999
- ---------------
Edward H. Ladd
Caleb Loring III* Trustee February 25, 1999
- -----------------
Caleb Loring III
*By: /s/ James E. Hollis, III
------------------------
James E. Hollis, III
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. 2 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 25th
day of February, 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. 2 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 25th day of February, 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.d(4) Investment Adviser Agreement
EX-99.d(6) Investment Sub-Adviser Agreement
EX-99.d(7) Investment Sub-Adviser Agreement
EX-99.h(3) Third Party Feeder Fund Agreement
EX-99.j Consent of Independent Auditors
EX-99.n Financial Data Schedules
INVESTMENT ADVISER AGREEMENT
Agreement made as of this 4th day of January, 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 TREASURY PLUS 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 Treasury Plus 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 a ny 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 Treasury Plus Portfolio ("PORTFOLIO")
By: /s/ Paul J. Jasinski
---------------------------
Title: President
-----------------------
INVESTORS BANK & TRUST COMPANY
("ADVISER")
By: /s/ Kevin J. Sheehan
---------------------------
Title: President and Chief Executive Officer
-------------------------------------
5
INVESTMENT SUB-ADVISER AGREEMENT
Agreement made as of this 4th day of January 1999, between Investors Bank and
Trust Company (the "Adviser"), a Massachusetts banking corporation, and M&I
Investment Management Corp. (the "Sub-Adviser"), a Wisconsin corporation.
WHEREAS, MERRIMAC TREASURY 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 Treasury 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.
2. Delivery of Documents
- -------------------------
1
<PAGE>
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 hereto and made a part
hereof. Such fee shall be paid by the Adviser and the Trust shall have no
liability therefor.
2
<PAGE>
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 in accordance with procedures
adopted by the Sub-Adviser and reviewed and approved by the Adviser.
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
or any other applicable provisions or state or federal law.
(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.
(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-
3
<PAGE>
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 of 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.
(e) This Agreement shall terminate automatically in the event of its
assignment.
4
<PAGE>
(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.
5
<PAGE>
INVESTORS BANK & TRUST COMPANY ("ADVISER")
By: /s/ Kevin J. Sheehan
--------------------
Name: Kevin J. Sheehan
Title: President
M&I INVESTMENT MANAGEMENT CORP. ("SUB-ADVISER")
By: /s/ David W. Schulz
--------------------
Name: David W. Schulz
Title: President
The Merrimac Master Portfolio on behalf of the
Merrimac Treasury Portfolio hereby acknowledges
the execution of this Agreement
Merrimac Master Portfolio
("THE TRUST")
By: /s/ Paul J. Jasinski
--------------------
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 at an
annual rate of 0.08% of the average daily net assets of the Portfolio. 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.
7
INVESTMENT SUB-ADVISER AGREEMENT
Agreement made as of this 14th day of January 1999, between Investors Bank and
Trust Company (the "Adviser"), a Massachusetts banking corporation, and M&I
Investment Management Corp. (the "Sub-Adviser"), a Wisconsin corporation.
WHEREAS, MERRIMAC TREASURY PLUS 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 Treasury Plus Fund, an open-end diversified management
investment company registered as such with the SEC pursuant to the 1940 Act,
will invest all of its investable assets in the Portfolio and the Merrimac
Treasury Plus 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
- -----------------------------------
2
<PAGE>
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 hereto and made a part
hereof. Such fee shall be paid by the Adviser and the Trust shall have no
liability therefor.
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 in accordance with procedures
adopted by the Sub-Adviser and reviewed and approved by the Adviser.
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
or any other applicable provisions or state or federal law.
(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
3
<PAGE>
maintenance of compliance procedures pursuant to this Section 8 as
the Adviser may reasonably request.
(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 of 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
4
<PAGE>
outstanding voting securities.
(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.
5
<PAGE>
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: /s/Kevin J. Sheehan
-------------------
Name: Kevin J. Sheehan
Title: President & CEO
M&I INVESTMENT MANAGEMENT CORP. ("SUB-ADVISER")
By: /s/David W. Schulz
------------------
Name: David W. Schulz
Title: President
The Merrimac Master Portfolio on behalf of the
Merrimac Treasury Plus Portfolio hereby acknowledges
the execution of this Agreement
MERRIMAC MASTER PORTFOLIO
("THE TRUST")
By: /s/Paul J. Jasinski
-------------------
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 at an
annual rate of 0.08% of the average daily net assets of the Portfolio. 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.
7
THIRD PARTY FEEDER FUND
AGREEMENT
AMONG
MERRIMAC SERIES,
STANDISH, AYER & WOOD MASTER PORTFOLIO,
INVESTORS BANK & TRUST COMPANY
AND
STANDISH, AYER & WOOD, INC.
dated as of
June 24, 1998
1
<PAGE>
AGREEMENT
----------
THIS AGREEMENT is made and entered into as of the 24th day of June, 1998,
by and among Merrimac Series, (the "Trust"), a Delaware business trust, in
respect of Merrimac Short-Term Asset Reserve Series, a series thereof (the
"Fund"), Standish, Ayer & Wood Master Portfolio (the "Portfolio Trust"), a
trust organized under the common law of the State of New York in respect of the
Standish Short-Term Asset Reserve Portfolio (the "Portfolio"), Standish, Ayer &
Wood, Inc. a Massachusetts corporation (the "Adviser"), and Investors Bank &
Trust Company, a Massachusetts trust company ("Investors Bank") with respect to
the proposed investment by the Fund in the Portfolio.
WITNESSETH
----------
WHEREAS, the Trust and the Portfolio Trust are each open-end management
investment companies and the Fund and the Portfolio have the same investment
objectives and substantively the same investment policies;
WHEREAS, the Adviser currently serves as the investment adviser of the
Portfolio;
WHEREAS, the Trust desires to invest all of the Fund's investable assets
in the Portfolio in exchange for a beneficial interest in the Portfolio (the
"Investment") on the terms and conditions set forth in this Agreement;
WHEREAS, the Portfolio Trust is willing to accept the Investment; and
NOW, THEREFORE, in consideration of the foregoing, the mutual promises
herein made and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
I
THE INVESTMENT
--------------
1.1 Agreement to Effect the Investment. The Trust agrees to assign, transfer
----------------------------------
and deliver all of the Fund's investable assets (the "Assets") to the Portfolio
Trust at each Closing (as hereinafter defined). The Portfolio Trust agrees in
exchange therefor to issue to the Fund a beneficial interest (the "Interest")
in the Portfolio equal in value to the net value of the Assets of the Fund
conveyed to the Portfolio on that date of Closing.
2
<PAGE>
II
CLOSING AND CLOSING DATE
------------------------
2.1 Time of Closing. The conveyance of the Assets in exchange for the
---------------
Interest, as described in Article I, together with related acts necessary to
consummate such transactions, shall occur initially on the date the Trust
commences its offering of shares of the Fund to the public and at each
subsequent date as the Trust desires to make a further Investment in the
Portfolio (each, a "Closing"). Except as otherwise provided in Section 4.1(j),
all acts occurring at any Closing shall be deemed to occur simultaneously as of
the determination of the Portfolio's net asset value on the date of Closing.
2.2 Related Closing Matters. On each date of Closing, the Trust, on
-----------------------
behalf of the Fund, shall authorize the Fund's custodian to deliver all of the
Assets held by such custodian to the Portfolio's custodian. The Fund's and the
Portfolio's custodians shall acknowledge, in a form acceptable to the other
party, their respective delivery and acceptance of the Assets. The Portfolio
shall deliver to the Trust acceptable evidence of the Fund's ownership of the
Interest. In addition, each party shall deliver to each other party such bills
of sale, checks, assignments, securities instruments, receipts or other
documents as such other party or its counsel may reasonably request. Each of
the representations and warranties set forth in Article III shall be deemed to
have been made anew on each date of Closing.
2.3 Rejection of Certain Assets. The Portfolio Trust may refuse to
---------------------------
accept Assets other than in the form of cash if: (a) acceptance of such Assets
or the issuance of an Interest in exchange therefor at that time would result
in a violation of any of the Portfolio's policies or restrictions or any
provision of the 1940 Act; (b) such Assets do not have a readily ascertainable
market value; or (c) acceptance of such Assets at that time would result, in
the absence of corrective action by the Adviser or otherwise, in any investor
in the Portfolio failing to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code").
3
<PAGE>
III
REPRESENTATIONS AND WARRANTIES
------------------------------
3.1 The Trust and Investors Bank. The Trust and Investors Bank each
----------------------------
represents and warrants to the Portfolio Trust and the Adviser that:
(a) Organization. The Trust is a business trust duly organized,
------------
validly existing and in good standing under the laws of the State of Delaware,
the Fund is a duly and validly designated series of the Trust, and the Trust
and the Fund have the requisite power and authority to own their property and
conduct their business as now being conducted and as proposed to be conducted
pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by the Trust and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Trust and no other action or proceeding is necessary for the
execution and delivery of this Agreement by the Trust, the performance by the
Trust of its obligations hereunder and the consummation by the Trust of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Trust and constitutes a legal, valid and binding obligation of
the Trust in respect of the Fund, enforceable against them in accordance with
its terms.
(c) Authorization of Investment. The Investment has been duly
---------------------------
authorized by all necessary action on the part of the Board of Trustees of the
Trust.
(d) No Bankruptcy Proceedings. Neither the Trust nor the Fund
-------------------------
is under the jurisdiction of a court in a proceeding under Title 11 of the
United States Code (the "Bankruptcy Code") or similar case within the meaning
of Section 368(a)(3)(A) of the Bankruptcy Code.
(e) Fund Assets. The Fund's Assets will, at the initial
-----------
Closing, consist solely of cash.
(f) Taxable and Fiscal Year. The taxable and fiscal year end
-----------------------
for the Fund is December 31.
4
<PAGE>
(g) Auditors. The Trust has appointed Ernst & Young LLP as the
--------
Fund's independent public accountants to certify the Fund's financial
statements in accordance with Section 32 of the Investment Company Act of 1940,
as amended (the "1940 Act").
(h) Registration Statement. The Trust has reviewed the
----------------------
Portfolio's registration statement on Form N-1A, as filed with the Securities
and Exchange Commission ("SEC") and the Declaration of Trust of the Portfolio
Trust, and understands and agrees to the Portfolio Trust's and the Portfolio's
policies and methods of operations as described therein.
(i) Errors and Omissions Insurance Policy. The Trust has in
-------------------------------------
force an errors and omissions liability insurance policy insuring the Fund and
other entities jointly against loss up to $10 million in the aggregate for
negligence or wrongful acts.
(j) SEC Filings. The Trust has duly filed all forms, reports,
-----------
proxy statements and other documents (collectively, the "SEC Filings") required
to be filed under the Securities Act of 1933, as amended (the "1933 Act"), the
Securities Exchange Act of 1934 (the "1934 Act") and the 1940 Act
(collectively, the "Securities Laws") in connection with the registration of
its shares, any meetings of its shareholders and its registration as an
investment company. The SEC Filings were prepared in accordance with the
requirements of the Securities Laws, as applicable, and the rules and
regulations of the SEC thereunder, and do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(k) 1940 Act, 1933 Act Registration and State Qualification.
-------------------------------------------------------
The Trust is duly registered as an open-end management investment company under
the 1940 Act and the Fund's shares are registered with the SEC under the 1933
Act. The Fund and its shares are qualified in any states where such
qualification is necessary and such qualifications are in full force and
effect.
3.2 The Portfolio Trust and the Adviser. The Portfolio Trust and the
-----------------------------------
Adviser each represents and warrants to the Trust that:
(a) Organization. The Portfolio Trust is a trust duly
-------------
organized and validly existing under the common law of the State of New York
and has the requisite power
5
<PAGE>
and authority to own its property and conduct its business as now being
conducted and as proposed to be conducted pursuant to this Agreement.
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by the Portfolio Trust and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary action on the
part of the Portfolio Trust by its Board of Trustees and no other action or
proceeding is necessary for the execution and delivery of this Agreement by the
Portfolio Trust, the performance by the Portfolio Trust of its obligations
hereunder and the consummation by the Portfolio Trust of the transactions
contemplated hereby. This Agreement has been duly executed and delivered by the
Portfolio Trust and constitutes a legal, valid and binding obligation of the
Portfolio, enforceable against it in respect of the Portfolio in accordance
with its terms.
(c) Authorization of Issuance of Interest. The issuance by the
-------------------------------------
Portfolio of the Interest in exchange for the Investment by the Fund of its
Assets has been duly authorized by all necessary action on the part of the
Board of Trustees of the Portfolio Trust. When issued in accordance with the
terms of this Agreement, the Interest will be validly issued, fully paid and
non-assessable by the Portfolio Trust.
(d) No Bankruptcy Proceedings. The Portfolio Trust is not under
-------------------------
the jurisdiction of a court in a proceeding under Title 11 of the Bankruptcy
Code or similar case within the meaning of Section 368(a)(3)(A) of the
Bankruptcy Code.
(e) Taxable and Fiscal Year. The taxable and fiscal year end of
-----------------------
the Portfolio is December 31.
(f) Auditors. The Portfolio has appointed Coopers & Lybrand LLP
--------
as the Portfolio's independent public accountants to certify the Portfolio's
financial statements in accordance with Section 32 of the 1940 Act.
(g) Errors and Omissions Insurance Policy. The Portfolio Trust
-------------------------------------
has in force an errors and omissions liability insurance policy insuring the
Portfolio and other entities jointly against loss up to $10 million in the
aggregate for negligence or wrongful acts.
(h) SEC Filings. The Portfolio Trust has duly filed all SEC Filings
-----------
required to be filed with the SEC pursuant to the 1934 Act and the 1940 Act in
connection with any meetings of its investors and its registration as an
investment company. Beneficial interests in the Portfolio
6
<PAGE>
are not required to be registered under the 1933 Act because such interests are
offered solely in private placement transactions that do not involve any
"public offering" within the meaning of Section 4(2) of the 1933 Act. The SEC
Filings were prepared in accordance with the requirements of the Securities
Laws, as applicable, and the rules and regulations of the SEC thereunder, and
do not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(i) 1940 Act Registration. The Portfolio Trust is duly registered
---------------------
as an open-end management investment company under the 1940 Act and such
registration is in full force and effect.
(j) Tax Status. The Portfolio is taxable as a partnership under
----------
the Code.
3.3 The Adviser. The Adviser represents and warrants to the Trust and
-----------
and Investors Bank that:
(a) Organization. The Adviser is a corporation, duly
-------------
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the requisite power and authority to
conduct its business as now being conducted.
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by the Adviser have been duly authorized by all necessary action
on the part of the Adviser and no other action or proceeding is necessary for
the execution and delivery of this Agreement by the Adviser. This Agreement has
been duly executed and delivered by the Adviser and constitutes a legal, valid
and binding obligation of the Adviser.
(c) Advisers Act. The Adviser is a registered investment
------------
adviser under the Investment Advisers Act of 1940, as amended (the "Advisers
Act").
3.4 Investors Bank. Investors Bank represents and warrants to the
--------------
Portfolio Trust and the Adviser that:
(a) Organization. Investors Bank is a limited purpose trust
------------
company duly organized, validly existing and in good standing under the laws of
the Commonwealth of Massachusetts and has the requisite power and authority to
conduct its business as now being conducted.
7
<PAGE>
(b) Authorization of Agreement. The execution and delivery of
--------------------------
this Agreement by Investors Bank have been duly authorized by all necessary
action on the part of Investors Bank and no other action or proceeding is
necessary for the execution and delivery of this Agreement by Investors Bank.
This Agreement has been duly executed and delivered by Investors Bank and
constitutes a legal, valid and binding obligation of Investors Bank.
IV
COVENANTS
---------
4.1 The Trust. The Trust covenants that:
---------
(a) Advance Review of Certain Documents. The Trust will
-----------------------------------
furnish the Portfolio Trust and the Adviser, at least 10 business days prior to
filing or first use, as the case may be, with drafts of its registration
statement on Form N-1A (including amendments) and prospectus supplements or
amendments relating to the Fund. The Trust will furnish the Portfolio Trust and
the Adviser with any proposed advertising or sales literature relating to the
Fund at least 2 business days prior to filing or first use. The Trust agrees
that it will include in all such Fund documents any disclosures that may be
required by law, and it will include in all such Fund documents any material
comments reasonably made by the Adviser or Portfolio Trust. The Portfolio and
Adviser will, however, in no way be liable for any errors or omissions in such
documents, whether or not they make any objection thereto, except to the extent
such errors or omissions result from information provided by the Adviser or the
Portfolio for the purpose of inclusion therein. The Trust will not make any
other written or oral representation about the Portfolio Trust, the Portfolio
or the Adviser without their prior written consent.
(b) Tax Status. The Fund will qualify for treatment as a
----------
regulated investment company under Subchapter M of the Code for all periods
during which this Agreement is in effect, except to the extent a failure to so
qualify may result from any action or omission of the Portfolio Trust.
(c) Investment Securities. The Fund will own no investment
---------------------
security (as defined in Section 3(a)(3) of the 1940 Act) other than its
Interest in the Portfolio.
(d) Proxy Voting. If requested to vote on matters pertaining
------------
to the Portfolio Trust or the Portfolio (other than a vote by the Trust to
continue the operation of the Portfolio
8
<PAGE>
upon the withdrawal of another investor in the Portfolio), the Trust will (i)
call a meeting of shareholders of the Fund for the purpose of seeking
instructions from shareholders regarding such matters, (ii) vote the Fund's
Interest proportionally as instructed by Fund shareholders, and (iii) vote the
Fund's Interest with respect to the shares held by Fund shareholders who do not
give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. The Trust will hold each suc
meeting of Fund shareholders in accordance with a timetable reasonably
established by the Portfolio Trust.
(e) Insurance. The Trust shall at all times maintain errors
---------
and omissions liability insurance with respect to the Fund covering losses for
negligence and wrongful acts in an amount not less than $10 million provided
that such insurance may be joint with other entities and the $10 million
coverage amount may apply in the aggregate to all joint insureds.
(f) Auditors. In the event the Fund's independent public
--------
accountants differ from those of the Portfolio, the Fund shall be responsible
for any costs and expenses associated with the need for the Portfolio's
independent public accountants to provide information to the Fund's independent
public accountants.
(g) Compliance with Portfolio Trust. The Trust will comply
-------------------------------
with all provisions of the Declaration of the Trust of the Portfolio Trust
applicable to investors in the Portfolio Trust, including without limitation
the restrictions on transfer of Interests set forth therein.
(h) Taxable and Fiscal Year. It will not change its taxable
-----------------------
or fiscal year from December 31, without the express written consent of the
Portfolio Trust.
(i) Principal Underwriter. At all times it will retain a
---------------------
principal underwriter (as defined in Section 2(a)(29) of the 1940 Act) which is
either registered as a broker-dealer under the 1934 Act, as amended, or a
person controlled by such a registered broker-dealer.
(j) Acceptance of Purchases and Redemptions and Purchase and
--------------------------------------------------------
Redemption of Interests. The Trust will accept orders for
-----------------------
the purchase and redemption of shares of the Fund only on such days and during
such times as the Portfolio Trust is obligated to accept orders for the
purchase and redemption of Interests in the Portfolio; and the Trust will not
transmit to the Portfolio Trust after the net asset value of the Portfolio is
determined on a Closing Date any order to purchase or redeem Interests in the
Portfolio for execution at the net asset value
9
<PAGE>
so determined except to reflect purchase and redemption orders accepted by i
prior to the time the Portfolio's net asset value was determined on that
Closing Date.
4.2 The Portfolio Trust. The Portfolio Trust covenants that:
-------------------
(a) Advance Review of Certain Documents. The Portfolio Trust
-----------------------------------
will furnish the Trust, at least 10 business days prior to filing or first use,
as the case may be, with drafts of its registration statement on Form N-1A
(including amendments). The Portfolio Trust will not make any written or oral
representation about the Trust without its prior written consent.
(b) Tax Status. The Portfolio Trust will qualify to be taxable
----------
as a partnership under the Code for all periods during which this Agreement is
in effect, except to the extent that the failure to so qualify results from any
action or omission of the Fund.
(c) Insurance. The Portfolio Trust shall at all times maintain
---------
errors and omissions liability insurance covering losses for negligence and
wrongful acts in an amount not less than $10 million provided that such
insurance may be joint with other entities and the $10 million coverage amount
may apply in the aggregate to all joint insureds.
(d) Availability of Interests. Conditional upon the Trust
-------------------------
complying with the terms of this Agreement, the Portfolio Trust shall permit
the Fund to make additional Investments in the Portfolio on each business day
on which shares of the Fund are sold to the public; provided, however, that
-----------------
the Portfolio Trust may refuse to permit the Fund to make additional
Investments in the Portfolio (i) on any day on which the Portfolio Trust
refuses to permit all other investors in the Portfolio to make additional
Investments in the Portfolio or (ii) in the event the Trustees of the Portfolio
Trust have reasonably determined that permitting additional Investments by the
Fund in the Portfolio would constitute a breach of their fiduciary duties to
the Portfolio.
4.3 Indemnification by the Adviser.
------------------------------
(a) The Adviser will indemnify and hold harmless Investors Bank,
the Trust, and their respective Trustees, directors, officers and employees and
each other person who controls Investors Bank, the Trust or the Fund, as the
case may be, within the meaning of Section 15 of the 1933 Act (each, a
"Merrimac Covered Person" and collectively, "Merrimac Covered Persons"),
against any and all losses, claims, demands, damages, liabilities and expenses
(each, a "Liability" and collectively, the "Liabilities") (including, unless
the Adviser elects to assume the
10
<PAGE>
defense pursuant to paragraph (b), the reasonable costs of investigating and
defending against any claims therefor and any counsel fees incurred in
connection therewith), joint or several, whether incurred directly or
indirectly by the Trust through the Trust's Investment in the Portfolio, which
(i) arise out of or are based upon any of the Securities
Laws, any other statute or common law or are incurred in connection with or as
a result of any formal or informal administrative proceeding or investigation
by a regulatory agency, insofar as such Liabilities arise out of or are based
upon the ground or alleged ground that any direct or indirect omission or
commission by the Portfolio Trust (either during the course of its daily
activities or in connection with the accuracy or its representations or its
warranties in this Agreement) caused or continues to cause the Trust to violate
any federal or state securities laws or regulations or any other applicable
domestic or foreign law or regulations or common law duties or obligations, but
only to the extent that such Liabilities do not arise out of and are not based
upon an omission or commission of the Fund, Trust or IBT;
(ii) arise out of or are based upon an inaccurate
calculation of the Portfolio's net asset value which is considered material
under procedures adopted by the Board of Trustees of the Portfolio Trust
(whether by the Portfolio, the Adviser or any party retained for that purpose);
(iii) arise out of (A) any alleged misstatement of a
material fact or an omission of a material fact in the Portfolio Trust's
registration statement (including amendments thereto) or in disclosure included
at the Adviser's or Portfolio Trust's request in advertising or sales
literature used by the Fund, or (B) any misstatement of a material fact or an
omission of a material fact in the registration statement of an investor in the
Portfolio, other than the Trust;
(iv) arise out of the Portfolio's having caused the Fund to
fail to qualify as a regulated investment company under the Code;
(v) result from the failure of any representation or
warranty made by the Portfolio Trust or Adviser to be accurate when made or the
failure of the Portfolio Trust or Adviser to perform any covenant contained
herein or to otherwise comply with the terms of this Agreement;
11
<PAGE>
(vi) arise out of any unlawful or negligent act by the
Portfolio Trust, the Adviser or any director, trustee, officer, employee or
agent of the Portfolio Trust or Adviser, whether such act was committed against
the Portfolio, the Trust or any third party; or
(vii) result from any Liability of the Portfolio to any
investor in the Portfolio (or shareholder thereof), other than the Fund (and
its shareholders);
provided, however, that in no case shall the Adviser be
-----------------
liable with respect to any claim made against any such Merrimac Covered Person
unless such Merrimac Covered Person shall have notified the Adviser in writing
of the nature of the claim within a reasonable time after the summons, other
first legal process or formal or informal initiation of a regulatory
investigation or proceeding shall have been served upon or provided to a
Merrimac Covered Person or any federal, state or local tax deficiency has come
to the attention of the Trust, or another Merrimac Covered Person. Failure to
notify the Adviser of such claim shall not relieve it from any liability that
it may have to any Merrimac Covered Person otherwise than on account of the
indemnification contained in this paragraph.
(b) The Adviser will be entitled to participate at its own expense
in the defense or, if it so elects, to assume the defense of any suit brought
to enforce any such liability, but, if the Adviser elects to assume the
defense, such defense shall be conducted by counsel chosen by the Adviser. In
the event the Adviser elects to assume the defense of any such suit and retain
such counsel, each Merrimac Covered Person and any other defendant or
defendants in the suit may retain additional counsel but shall bear the fees
and expenses of such counsel unless (A) the Adviser shall have specifically
authorized the retaining of such counsel or (B) the parties to such suit
include any Merrimac Covered Person and the Adviser, and any such Merrimac
Covered Person has been advised by counsel that one or more legal defenses may
be available to it that may not be available to the Adviser, in which case the
Adviser shall not be entitled to assume the defense of such suit
notwithstanding the obligation to bear the fees and expenses of such counsel.
The Adviser shall not be liable to indemnify any Merrimac Covered Person for
any settlement of any such claim effected without the Adviser's written
consent, which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any liability
that the Portfolio might otherwise have to a Merrimac Covered Person.
12
<PAGE>
4.4 Indemnification by Investors Bank.
---------------------------------
(a) Investors Bank will indemnify and hold harmless the Adviser,
the Portfolio Trust, and their respective Trustees, directors, officers and
employees and each other person who controls the Adviser, the Portfolio Trust
or the Portfolio, as the case may be, within the meaning of Section 15 of the
1933 Act (each, a "Standish Covered Person" and collectively, "Standish Covered
Persons"), against any and all Liabilities (as defined in Section 4.3(a))
(including, any amounts the Adviser is obligated to pay pursuant to its
indemnification obligation under Section 4.3, and, unless Investors Bank elects
to assume the defense pursuant to paragraph (b), the reasonable costs of
investigating and defending against any claims therefor and any counsel fees
incurred in connection therewith), joint or several, whether incurred directly
or indirectly by the Adviser, the Portfolio Trust, which
(i) arise out of or are based upon any of the Securities
Laws, any other statute or common law or are incurred in connection with or as
a result of any formal or informal administrative proceeding or investigation
by a regulatory agency, insofar as such Liabilities arise out of or are based
upon the ground or alleged ground that any direct or indirect omission or
commission by Investors Bank, the Trust or Fund (either during the course of
its daily activities or in connection with the accuracy or its representations
or its warranties in this Agreement) caused or continues to cause the Portfolio
Trust to violate any federal or state securities laws or regulations or any
other applicable domestic or foreign law or regulations or common law duties or
obligations, but only to the extent that such Liabilities do not arise out of
and are not based upon an omission or commission of the Adviser, the Portfolio
Trust or the Portfolio;
(ii) arise out of or are based upon an inaccurate
calculation of the Portfolio's net asset value by Investors Bank or its
affiliates as custodian or administrator of the Portfolio (which calculation is
considered material under procedures approved by the Portfolio Trust's Board of
Trustees), to the extent such inaccurate calculation is attributable to the
negligence of Investors Bank or its affiliates;
(iii) arise out of any alleged misstatement of a material
fact or an omission of a material fact in the Trust's registration statement
(including amendments thereto) or in disclosure included in advertising or
sales literature used by the Fund or the Trust's principal underwriter, except
to the extent such misstatement or omission was (a) also contained
13
<PAGE>
in the Portfolio Trust's registration statement (including amendments thereto)
and was included in the Trust's registration statement in conformity therewith;
or (b) in disclosure provided by the Adviser or the Portfolio Trust for the
express purpose of its inclusion in the Trust's registration statement or sales
literature;
(iv) arise out of the Fund's having caused the Portfolio to
fail to qualify as a partnership under the Code;
(v) result from the failure of any representation or
warranty made by the Trust or Investors Bank to be accurate when made or the
failure of the Trust or Investors Bank to perform any covenant contained herein
or to otherwise comply with the terms of this Agreement;
(vi) arise out of any unlawful or negligent act by the
Trust or Investors Bank or any director, trustee, officer, employee or agent of
the Trust or Investors Bank, whether such act was committed against the
Portfolio Trust, the Portfolio, the Adviser or any third party; or
(vii) arise out of or are based upon any alleged
misstatement or misrepresentation of a material fact (other than in the Trust's
registration statement or sales literature used by the Fund) by, or alleged
misleading or fraudulent sales practices of, Investors Bank, the Trust's
principal underwriter, or their respective representatives.
provided, however, that in no case shall Investors Bank be
-----------------
liable with respect to any claim made against any such Standish Covered Person
unless such Standish Covered Person shall have notified Investors Bank in
writing of the nature of the claim within a reasonable time after the summons,
other first legal process or formal or informal initiation of a regulatory
investigation or proceeding shall have been served upon or provided to a
Standish Covered Person or any federal, state or local tax deficiency has come
to the attention of the Portfolio Trust, or another Standish Covered Person.
Failure to notify Investors Bank of such claim shall not relieve it from any
liability that it may have to any Standish Covered Person otherwise than on
account of the indemnification contained in this paragraph.
(b) Investors Bank will be entitled to participate at its own
expense in the defense or, if it so elects, to assume the defense of any suit
brought to enforce any such liability, but, if Investors Bank elects to assume
the defense, such defense shall be conducted by counsel chosen by Investors
Bank. In the event Investors Bank elects to assume the defense of any such suit
and
14
<PAGE>
retain such counsel, each Standish Covered Person and any other defendant or
defendants in the suit may retain additional counsel but shall bear the fees
and expenses of such counsel unless (A) Investors Bank shall have specifically
authorized the retaining of such counsel or (B) the parties to such suit
include any Standish Covered Person and Investors Bank, and any such Standish
Covered Person has been advised by counsel that one or more legal defenses may
be available to it that may not be available to Investors Bank, in which case
Investors Bank shall not be entitled to assume the defense of such suit
notwithstanding the obligation to bear the fees and expenses of such counsel.
Investors Bank shall not be liable to indemnify any Standish Covered Person for
any settlement of any such claim effected without Investors Bank 's written
consent, which consent shall not be unreasonably withheld or delayed. The
indemnities set forth in paragraph (a) will be in addition to any liability
that the Fund might otherwise have to a Standish Covered Person.
4.5 In-Kind Redemption.
------------------
(a) In the event the Trust desires to withdraw or redeem all or
part of the Fund's Interests in the Portfolio, unless otherwise agreed, the
Portfolio Trust may in its discretion effect such redemption in whole or part
in kind provided that to the extent any such redemption is to be effected in
kind: (a) it shall be in compliance with the Portfolio Trust's election under
Rule 18f-1 of the 1940 Act unless such election has been revoked by order of
the SEC or otherwise made ineffective by a published position of specific or
general application of the SEC or the SEC staff; and (b) it shall be effected
in such a manner that the securities delivered to the Fund's custodian for the
account of the Fund shall mirror, as closely as practicable, the composition of
the Portfolio immediately prior to such redemption.
(b) It is agreed that in the event of a redemption in-kind which
represents either a complete or partial withdrawal of the Fund's Interest in
the Portfolio, the Portfolio Trust need not deliver to the Trust's custodian
any portfolio securities the distribution of which to the Trust would result in
the recognition of taxable gain to any other investor in the Portfolio which
had contributed such security to the Portfolio.
4.6 Reasonable Actions. Each party covenants that it will, subject to
------------------
the provisions of this Agreement, from time to time, as and when requested by
another party or in its own discretion, as the case may be, execute and deliver
or cause to be executed and delivered all such
15
<PAGE>
assignments and other instruments, take or cause to be taken such actions, and
do or cause to be done all things reasonably necessary, proper or advisable in
order to consummate the transactions contemplated by this Agreement and to
carry out its intent and purpose.
V
CONDITIONS PRECEDENT
--------------------
The obligations of each party to consummate the transactions provided for
herein shall be subject to (a) performance by the other parties of all the
obligations to be performed by the other parties hereunder on or before each
Closing, (b) all representations and warranties of the other parties contained
in this Agreement being true and correct in all material respects as of the
date hereof and, except as they may be affected by the transactions
contemplated by this Agreement, as of each date of Closing, with the same force
and effect as if made on and as of the time of such Closing, and (c) the
following further conditions that shall be fulfilled on or before each Closing:
5.1 Regulatory Status. All necessary filings shall have been made
-----------------
with the SEC and state securities authorities, and no order or directive shall
have been received that any other or further action is required to permit the
parties to carry out the transactions contemplated hereby.
5.2 Investment Objective/Restrictions. The Fund shall have the same
---------------------------------
investment objective and substantively the same investment restrictions as the
Portfolio.
VI
ADDITIONAL AGREEMENTS
---------------------
6.1 Notification of Certain Matters. Each party will give prompt
-------------------------------
notice to the other parties of (a) the occurrence or non-occurrence of any
event the occurrence or non-occurrence of which would be likely to cause either
(i) any representation or warranty contained in this Agreement to be untrue or
inaccurate, or (ii) any condition precedent set forth in Article V hereof to be
unsatisfied in any material respect at the time of any Closing and (b) any
material failure of a party or any trustee, director, officer, employee or
agent thereof to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by such person hereunder; provided, however that
-----------------
the delivery of any notice pursuant to this Section 6.1 shall not limit or
otherwise affect the remedies available, hereunder or otherwise, to the party
receiving such notice.
16
<PAGE>
6.2 Access to Information. The Portfolio Trust and the Trust shall
---------------------
afford each other access at all reasonable times to such party's officers,
employees, agents and offices and to all its relevant books and records
reasonably necessary to permit the other to perform this Agreement and to
comply with applicable legal requirements and shall furnish each other party
with all relevant financial and other data and information as reasonably
requested; provided, however, that nothing contained herein shall obligate the
-----------------
Trust to provide the Portfolio Trust with access to the books and records of
the Trust relating to any series of the Trust other than the Fund, or obligate
the Portfolio Trust to provide the Trust with access to the books and records
of the Portfolio Trust relating to any series of the Portfolio Trust other than
the Portfolio nor shall anything contained herein obligate either party to
furnish the other with its shareholder list, except as may be required to
comply with applicable law or any provision of this Agreement.
6.3 Confidentiality. Each party agrees that it shall hold in strict
---------------
confidence all data and information obtained from another party (unless such
information is or becomes readily ascertainable through no act or fault of the
disclosing party from public or published information or trade sources) and
shall ensure that its officers, employees and authorized representatives do not
disclose such information to others without the prior written consent of the
party from whom it was obtained, except if disclosure is required by the SEC,
any other regulatory body or the Fund's or Portfolio's respective auditors, or
in the opinion of counsel such disclosure is required by law, and then only
with as much prior written notice to the other party as is practical under the
circumstances.
6.4 Public Announcements. No party shall issue any press release or
--------------------
otherwise make any public statements with respect to the matters covered by
this Agreement without the prior consent of the other parties hereto, which
consent shall not be unreasonably withheld; provided, however, that consent
-----------------
shall not be required if, in the opinion of counsel, such disclosure is
required by law, provided further however, that the party making such a
----------------
disclosure considered legally required shall provide the other parties heret
with as much prior written notice of such disclosure as is practical under the
circumstances.
17
<PAGE>
VII
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
7.1 Termination.
-----------
(a) This Agreement may be terminated by the mutual agreement of all
parties.
(b) This Agreement may be terminated at any time by the Trust by
withdrawing all of the Fund's Interest in the Portfolio.
(c) This Agreement may be terminated by the Portfolio Trust on not
less than 120 days' prior written notice by the Portfolio Trust to the Trust.
(d) This Agreement shall terminate automatically with respect to
the Adviser and Investors Bank upon the effective date of termination by either
the Trust or the Portfolio Trust.
(e) This Agreement may be terminated by any party immediately upon
notice to the others in the event that the terminating party's continuing to
act under the Agreement would be in contravention of applicable law.
(f) This Agreement may be terminated at any time immediately upon
written notice to the other parties in the event that formal proceedings are
instituted against another party to this Agreement by the SEC or any other
regulatory body, provided that the terminating party has a reasonable belief
that the institution of the proceeding is not without foundation and will have
a material adverse impact on the terminating policy.
(g) The indemnification obligations of the Adviser and Investors
Bank set forth in Article IV, Sections 4.4 and 4.5 respectively, shall survive
the termination of this Agreement.
7.2 Amendment. This Agreement may be amended, modified of
---------
supplemented at any time in such manner as may be mutually agreed upon in
writing by the parties.
7.3 Waiver. At any time prior to any Closing, any party may (a)
------
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(c) waive compliance with any of the agreements or conditions contained herein.
18
<PAGE>
VIII
DAMAGES
-------
8.1 The parties agree that, in the event of a breach of this
Agreement, the remedy of money damages would not be adequate and agree that
injunctive relief would be the appropriate relief.
IX
GENERAL PROVISIONS
------------------
9.1 Notices. All notices and other communications given or made
-------
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made when actually received in person or by fax, or three days after being
sent by certified or registered United States mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Trust: Merrimac Series
200 Clarendon Street, MER91
Boston, Massachusetts 02116
Attn.: Paul J. Jasinski, Treasurer
Fax Number: 617-587-4402
If to Investors Bank: Investors Bank & Trust Company
200 Clarendon Street, ADM27
Boston, Massachusetts 02116
Attn.: John Henry, General Counsel
Fax Number: 617-351-4282
If to the Adviser: Standish, Ayer & Wood, Inc.
One Financial Center
Boston, MA 02111
Attn: James E. Hollis, Director
Fax Number: 617-386-8080
If to the Portfolio Trust Standish, Ayer & Wood Master Portfolio
Deloitte & Touche House
29 Earlsfort Terrace
Dublin 2, Ireland
Attn: Raymond O'Neill, Vice President
Fax Number: 011-353-1-475-2240
19
<PAGE>
Any party to this Agreement may change the identity of the person to receive
notice by providing written notice thereof to all other parties to the
Agreement.
9.2 Expenses, No Finders Fees, Etc.. All costs and expenses incurred
------------------------------
in connection with this Agreement and the transactions contemplated hereby
shall be paid by the party incurring such costs and expenses. No party hereto
shall be liable to any other party hereto or to any party with which a party
hereto may have contracted, for any "finder's" fees, referral fees, or software
licensing or similar fees as a result of execution of this Agreement or the
transactions contemplated herein, except as otherwise expressly agreed in
writing by the relevant parties.
9.3 Headings. The headings and captions contained in this Agreement
--------
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 Severability. If any term or other provision of this Agreement
------------
is invalid, illegal or incapable of being enforced by any rule of law, or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the extent possible.
9.5 Entire Agreement. This Agreement and the agreements and other
----------------
documents delivered pursuant hereto set forth the entire understanding between
the parties concerning the subject matter of this Agreement and incorporate or
supersede all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than those
set forth herein. No representation or warranty has been made by or on behalf
of any party to this Agreement (or any officer, director, trustee, employee or
agent thereof) to induce any other party to enter into this Agreement or to
abide by or consummate any transactions contemplated by any terms of this
Agreement, except representations and warranties expressly set forth herein.
20
<PAGE>
9.6 Successors and Assignments. Each and all of the provisions of this
--------------------------
Agreement shall be binding upon and inure to the benefit of the parties hereto
and, except as otherwise specifically provided in this Agreement, their
respective successors and assigns. Notwithstanding the foregoing, no party
shall make any assignment of this Agreement or any rights or obligations
hereunder without the written consent of all other parties. As used herein, the
term "assignment" shall have the meaning ascribed thereto in the 1940 Act.
9.7 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the Commonwealth of Massachusetts
without giving effect to the choice of law or conflicts of law provisions
thereof.
9.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing one or more
counterparts.
9.9 Third Parties. Nothing herein expressed or implied is intended or
-------------
shall be construed to confer upon or give any person, other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
9.10 Interpretation. Any uncertainty or ambiguity existing herein
--------------
shall not presumptively be interpreted against any party, but shall be
interpreted according to the application of the rules of interpretation for
arm's length agreements.
9.11 Limitation of Liability. The parties hereby acknowledge that
-----------------------
the Trust and the Portfolio Trust have entered into this Agreement solely on
behalf of the Fund and the Portfolio, respectively and that no other series of
the Trust or the Portfolio Trust, nor any of the Trust's or the Portfolio
Trust's Trustees, Officers or Shareholders, individually, shall have any
obligation hereunder with respect to any liability arising hereunder.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective officers, thereunto duly authorized, as of the date first
written above.
21
<PAGE>
MERRIMAC SERIES
on behalf of itself and the
MERRIMAC SHORT-TERM ASSET
RESERVE SERIES,
a series thereof
By /s/Paul J. Jasinski
-------------------
Name: Paul J. Jasinski
Title: Treasurer
STANDISH, AYER & WOOD MASTER
PORTFOLIO on behalf of itself and
the STANDISH SHORT TERM ASSET
RESERVE PORTFOLIO, a series thereof
By /s/Raymond O'Neill
------------------
Name: Raymond O'Neill
Title: Vice President
STANDISH, AYER & WOOD, INC.
By /s/Richard S. Wood
---------------
Name:
Title:
INVESTORS BANK & TRUST
COMPANY
By /s/Kevin J. Sheehan
----------------
Name: Kevin J. Sheehan
Title: President
22
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" and "Financial
Statements" in the Statement of Additional Information and to the incorporation
by reference of our reports dated February 16, 1999 on the Merrimac Cash
Portfolio and the Merrimac Treasury Portfolio of the Merrimac Master Portfolio
and the Merrimac Cash Series, Merrimac Treasury Series, and Merrimac Short-Term
Asset Reserve Series of the Merrimac Series included in Post-Effective
Amendment Number 2 to the Registration Statement (Form N-1A No. 811-08741) of
the Merrimac Series.
ERNST & YOUNG LLP
Boston, Massachusetts
February 25, 1999
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Merrimac Series,
form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 1
<NAME> Merrimac Cash Series Premium Class
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 115,928,788
<INVESTMENTS-AT-VALUE> 115,928,788
<RECEIVABLES> 0
<ASSETS-OTHER> 17,170
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,945,958
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 718,849
<TOTAL-LIABILITIES> 718,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,223,400
<SHARES-COMMON-STOCK> 100,000
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 100,002
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 34,071
<OTHER-INCOME> 0
<EXPENSES-NET> 2,042
<NET-INVESTMENT-INCOME> 32,029
<REALIZED-GAINS-CURRENT> 2
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 32,031
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 32,029
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 33,618,994
<NUMBER-OF-SHARES-REDEEMED> 33,618,994
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 0
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 497,227
<AVERAGE-NET-ASSETS> 1,161,652
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.33
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Merrimac Series,
form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 2
<NAME> Merrimac Cash Series Institutional Class
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 115,928,788
<INVESTMENTS-AT-VALUE> 115,928,788
<RECEIVABLES> 0
<ASSETS-OTHER> 17,170
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 115,945,958
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 718,849
<TOTAL-LIABILITIES> 718,849
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 115,223,400
<SHARES-COMMON-STOCK> 115,123,400
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,707
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 115,127,107
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 4,887,531
<OTHER-INCOME> 0
<EXPENSES-NET> 495,185
<NET-INVESTMENT-INCOME> 4,392,346
<REALIZED-GAINS-CURRENT> 3,707
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 4,396,053
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 4,392,346
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 412,188,188
<NUMBER-OF-SHARES-REDEEMED> 297,082,990
<SHARES-REINVESTED> 18,202
<NET-CHANGE-IN-ASSETS> 115,123,400
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 497,227
<AVERAGE-NET-ASSETS> 167,366,852
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.03
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.03)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Merrimac Series,
form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 5
<NAME> Merrimac Treasury Series Institutional Cla
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 114,725,941
<INVESTMENTS-AT-VALUE> 114,725,941
<RECEIVABLES> 0
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 19,180
<TOTAL-ASSETS> 114,745,121
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 423,665
<TOTAL-LIABILITIES> 423,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 114,320,187
<SHARES-COMMON-STOCK> 114,320,187
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 1,269
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 114,321,456
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,708,363
<OTHER-INCOME> 0
<EXPENSES-NET> 238,388
<NET-INVESTMENT-INCOME> 1,469,975
<REALIZED-GAINS-CURRENT> 1,269
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,471,244
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,469,975
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 285,700,675
<NUMBER-OF-SHARES-REDEEMED> 171,380,488
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 114,320,187
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 238,388
<AVERAGE-NET-ASSETS> 68,047,734
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.02
<PER-SHARE-GAIN-APPREC> 0.00
<PER-SHARE-DIVIDEND> (0.02)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.67
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
This schedule contains summary financial information
extracted from Merrimac Series,
form N-SAR for the period ended December 31, 1998
and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<SERIES>
<NUMBER> 7
<NAME> Merrimac STAR Series Premium Class
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<INVESTMENTS-AT-COST> 1,015,161
<INVESTMENTS-AT-VALUE> 1,015,161
<RECEIVABLES> 9,912
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 4,910
<TOTAL-ASSETS> 1,029,983
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 22,096
<TOTAL-LIABILITIES> 22,096
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 1,007,780
<SHARES-COMMON-STOCK> 101,107
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 3,822
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (3,715)
<NET-ASSETS> 1,007,887
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 130,868
<OTHER-INCOME> 0
<EXPENSES-NET> 7,643
<NET-INVESTMENT-INCOME> 123,225
<REALIZED-GAINS-CURRENT> 3,822
<APPREC-INCREASE-CURRENT> (3,715)
<NET-CHANGE-FROM-OPS> 123,332
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 123,225
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 1,401,014
<NUMBER-OF-SHARES-REDEEMED> 1,310,686
<SHARES-REINVESTED> 10,779
<NET-CHANGE-IN-ASSETS> 1,007,780
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 17,979
<AVERAGE-NET-ASSETS> 0
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.24
<PER-SHARE-GAIN-APPREC> (0.03)
<PER-SHARE-DIVIDEND> (0.24)
<PER-SHARE-DISTRIBUTIONS> 0.00
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 9.97
<EXPENSE-RATIO> 0.36
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0.00
</TABLE>
