Reg. ICA No. 811-08877
File No. 333-59083
As filed via EDGAR with the Securities and Exchange Commission on November 25,
1998
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 [X]
Pre-Effective Amendment No. 2 [ ]
Post-Effective Amendment No.
and/or
REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
Amendment No. 2
THE RAMIREZ TRUST
(Exact Name of Registrant as Specified in Charter)
61 Broadway
New York, New York 10006
(Address of Principal Executive Office) (Zip Code)
Registrant's Telephone Number, including Area Code: 1-877-RAM-6868
Peter J. O'Rourke, Esq.
Kramer, Levin, Naftalis & Frankel
919 Third Avenue
New York, New York 10022
(Name and Address of Agent for Service)
Copy to:
Samuel A. Ramirez
Ramirez Asset Management, Inc.
61 Broadway
New York, New York 10006
Approximate Date of Proposed Public Offering:
As soon as practicable after this registration statement becomes
effective.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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CROSS-REFERENCE SHEET
(Pursuant to Rule 404 showing location in each form of Prospectus of
the responses to the Items in Part A and location in each form of Prospectus and
the Statement of Additional Information of the responses to the Items in Part B
of Form N-1A).
THE RAMIREZ TRUST
Item Number
Form N-1A, Statement of Additional
Part A Prospectus Caption Information Caption
The Prospectus is incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed electronically on November 2, 1998, as
accession number 0000922423-98-001205.
1(a) Front Cover Page *
(b) Back Cover Page *
2(a) Fund Expenses *
(b) Investment Objective and *
Policies Common Investment
Practices of the Funds
(c) Risk Factors *
3 Fees and Expenses of the Fund *
4(a) Investment Limitations *
5 Not Applicable *
6(a) Management of The Trust *
(b) Not Applicable *
7(a) Purchase of Shares *
(b) Purchase Orders Placed *
through the Transfer Agent,
Purchase Orders placed
through Registered
Representatives
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(c) Redemption of Shares *
Redemption Orders Placed
through the Transfer Agent,
Shareholder Services
(d) Finances - Dividends and *
Distributions
(e) Finances - Dividends and Tax *
Matters
(f) Not Applicable *
8(a) Not Applicable *
(b) Not Applicable *
(c) Not Applicable *
9 Financial Highlights *
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THE RAMIREZ TRUST
Item Number
Form N-1A, Statement of Additional
Part B Prospectus Caption Information Caption
10 * Front Cover Page
11 * Fund History
12(a) * Fund History
12(b) and (c) Investment Objectives
and Policies
* Investment Objectives
and Policies
12(d) * Additional Information on
Portfolio Instruments
12(e) Not Applicable
13(a)-(d) * Management of the Trust
13(e) * Not Applicable
14(a) * Not Applicable
14(b) * Management of the Trust
14(c) * Management of the Trust
15(a) Administration, Custody and
Transfer Agent Services
(b) * Not Applicable
(c) Administration, Custody and
Transfer Agent Services
(d) * Administration, Custody and
Transfer Agent Services
(e) * Not Applicable
(f) * Not Applicable
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(g) * Not Applicable
(h) * Administration, Custody and
Transfer Agent Services
16(a)-(c) * Portfolio Transactions
* Portfolio Transactions
(d) * Not Applicable
(e) * Not Applicable
17(a) * Portfolio Transactions,
Shareholder Organizations
(b) * Not Applicable
18(a) Shareholder Organizations
(b) * Not Applicable
(c) Shareholder Organizations
(d) * Not Applicable
19(a) * Tax Matters
(b) * Tax Matters
20(a) * Not Applicable
(b) * Not Applicable
(c) * Not Applicable
21(a) * Yield and Other Performance
Information
(b) * Performance Information
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22(a) * Financial Statements
(b) * Financial Statements
(c) * Financial Statements
* See Prospectus
Part C
Information required to be included int forth under the appropriate
Item, so numbered, in Part C to this Rtatement.
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PART A. PROSPECTUS
The Prospectus is incorporated by reference to Pre-Effective Amendment No. 1 to
Registrant's Registration Statement filed electronically on November 2, 1998, as
accession number 0000922423- 98-001205
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THE RAMIREZ TRUST
61 Broadway
New York, New York 10006
1-877-RAM-6868
STATEMENT OF ADDITIONAL INFORMATION
For the
Ramirez Cash Management Money Market Fund
Ramirez New York Tax-Free Money Market Fund
Ramirez U.S. Treasury Money Market Fund
October ___, 1998
This Statement of Additional Information ("SAI") is meant to be read in
conjunction with The Ramirez Trust's prospectus ("Prospectus") dated September
__, 1998 for the Ramirez Cash Management Money Market Fund, the Ramirez New York
Tax-Free Money Market Fund and Ramirez U.S. Treasury Money Market Fund
(collectively referred to as the "Funds"), and is incorporated by reference in
its entirety into the Prospectus. Because this SAI is not itself a prospectus,
no investment in shares of these Funds should be made solely upon the
information contained herein. Copies of the Prospectus for the Funds may be
obtained from your account representative or by writing to the Fund's
Administrator, Firstar Trust Company at 615 East Michigan Street, P.O. Box 701,
Milwaukee, Wisconsin 53201-0701 or by calling 1- 887-RAM- 6868. Capitalized
terms used but not defined herein have the same meanings as in the Prospectus.
SHARES OF THE FUNDS ARE NOT BANK DEPOSITS, AND ARE NEITHER ENDORSED BY, INSURED
BY, GUARANTEED BY, OBLIGATIONS OF, NOR OTHERWISE SUPPORTED BY THE FDIC, THE
FEDERAL RESERVE BOARD, OR ANY OTHER BANK, OR OTHER GOVERNMENTAL AGENCY. AN
INVESTMENT IN THE FUNDS INVOLVES INVESTMENT RISKS, INCLUDING POSSIBLE LOSS OF
PRINCIPAL.
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TABLE OF CONTENTS
Page
----
THE RAMIREZ TRUST .................................................. 3
INVESTMENT OBJECTIVES AND POLICIES................................... 3
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS...................... 5
ADDITIONAL INVESTMENT LIMITATIONS ................................... 16
NET ASSET VALUE..................................................... 19
DESCRIPTION OF SHARES............................................... 21
ADDITIONAL INFORMATION CONCERNING TAXES ........................... 22
MANAGEMENT OF THE TRUST............................................. 29
PORTFOLIO TRANSACTIONS.............................................. 34
INDEPENDENT ACCOUNTANTS............................................. 38
COUNSEL............................................................. 38
YIELD AND OTHER PERFORMANCE INFORMATION............................. 39
APPENDIX A
APPENDIX B
DESCRIPTION OF RATINGS...................................................... A-1
ADDITIONAL INFORMATION CONCERNING NEW YORK ISSUERS.................. B-1
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THE RAMIREZ TRUST
The Ramirez Trust (the "Trust") is a Delaware business trust which was
incorporated on June 30, 1998 as a management investment company. The Trust is
authorized to issue separate classes of shares of Common Stock representing
interests in separate investment portfolios. This SAI pertains to three
portfolios, the Ramirez Cash Management Money Market Fund (the "Cash Management
Fund"), the Ramirez New York Tax-Free Money Market Fund (the "New York Tax-Free
Fund") and the Ramirez U.S. Treasury Fund (the "U.S. Treasury Fund")
(collectively, the "Funds"). For information concerning these portfolios,
contact your account representative or the Funds' transfer agent, Firstar Trust
Company at 615 East Michigan Street, P.O. Box 701, Milwaukee, Wisconsin
53201-0701 or by calling 1-887-RAM-6868.
INVESTMENT OBJECTIVES AND POLICIES
Cash Management Fund. The Cash Management Fund's investment objective is to
provide a high level of current income while preserving capital and maintaining
liquidity. The Cash Management Fund seeks to achieve its objective by investing
in high quality, short-term U.S. dollar denominated money market instruments.
New York Tax-Free Fund. The New York Tax-Free Fund's investment objective is to
provide a high level of current income exempt from federal, New York State and
New York City income taxes while preserving capital and maintaining liquidity.
The New York Tax-Free Fund seeks to achieve its investment objective by
investing primarily in short-term, fixed rate and variable rate municipal
obligations which are exempt from regular federal, New York State and New York
City income tax.
U.S. Treasury Fund. The U.S. Treasury Fund's investment objective is to provide
a high level of current income consistent with maximum safety of principal and
maintenance of liquidity. The U.S. Treasury Fund seeks to achieve its objective
by investing in direct obligations of the U.S. Treasury, including Treasury
bills, bonds and notes, and repurchase agreements collateralized by these
obligations.
Portfolio Transactions
Subject to the general supervision of the Board of Trustees, the Adviser is
responsible for, makes decisions with respect to, and places orders for all
purchases and sales of portfolio securities for each Fund.
Securities purchased and sold by each Fund are generally traded in the
over-the-counter market on a net basis (i.e., without commission) through
dealers, or otherwise involve transactions directly with the issuer of an
instrument. The cost of securities purchased from underwriters includes an
underwriting commission or concession, and the prices at which securities are
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purchased from and sold to dealers include a dealer's mark-up or mark-down. With
respect to over-the-counter transactions, the Adviser will normally deal
directly with dealers who make a market in the instruments involved except in
those circumstances where more favorable prices and execution are available
elsewhere.
The Funds may participate, if and when practicable, in bidding for the purchase
of portfolio securities directly from an issuer in order to take advantage of
the lower purchase price available to members of a bidding group. The Funds will
engage in this practice, however, only when the Adviser, in its sole discretion,
believes such practice to be in the Funds' interests.
The Investment Advisory Agreement between the Trust and the Adviser provides
that, in executing portfolio transactions and selecting brokers or dealers, the
Adviser will seek to obtain the best overall terms available. In assessing the
best overall terms available for any transaction, the Adviser shall consider
factors it deems relevant, including the breadth of the market in the security,
the price of the security, the financial condition and execution capability of
the broker or dealer, and the reasonableness of the commission, if any, both for
the specific transaction and on a continuing basis. In addition, the Agreement
authorizes the Adviser to cause the Funds to pay a broker-dealer which furnishes
brokerage and research services a higher commission than that which might be
charged by another broker-dealer for effecting the same transaction, provided
that the Adviser determines in good faith that such commission is reasonable in
relation to the value of the brokerage and research services provided by such
broker-dealer, viewed in terms of either the particular transaction or the
overall responsibilities of the Adviser to the Funds. Such brokerage and
research services might consist of reports and statistics relating to specific
companies or industries, general summaries of groups of stocks or bonds and
their comparative earnings and yields, or broad overviews of the stock, bond and
government securities markets and the economy.
Supplementary research information so received is in addition to, and not in
lieu of, services required to be performed by the Adviser and does not reduce
the advisory fees payable to it by the Funds. The Trustees will periodically
review the commissions paid by the Funds to consider whether the commissions
paid over representative periods of time appear to be reasonable in relation to
the benefits inuring to the Funds. It is possible that certain of the
supplementary research or other services received will primarily benefit one or
more other investment companies or other accounts for which investment
discretion is exercised. Conversely, a Fund may be the primary beneficiary of
the research or services received as a result of portfolio transactions effected
for such other account or investment company.
Portfolio securities will not be purchased from or sold to (and savings deposits
will not be made in and repurchase and reverse repurchase agreements will not be
entered into with) the Adviser, the Distributor or an affiliated person of
either of them (as such term is defined in the 1940 Act) acting as principal. In
addition, the Funds will not purchase securities during the existence of any
underwriting or selling group relating thereto of which the Distributor or the
Adviser, or an
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affiliated person of either of them, is a member, except to the extent permitted
by the Securities and Exchange Commission ("SEC").
Investment decisions for the Funds are made independently from those for other
investment companies and accounts advised or managed by the Adviser. Such other
investment companies and accounts may also invest in the same securities as the
Funds. When a purchase or sale of the same security is made at substantially the
same time on behalf of a Fund and another investment company or account, the
transaction will be averaged as to price and available investments allocated as
to amount, in a manner which the Adviser believes to be equitable to the Fund
and such other investment company or account. In some instances, this investment
procedure may adversely affect the price paid or received by a Fund or the size
of the position obtained or sold by the Fund. To the extent permitted by law,
the Adviser may aggregate the securities to be sold or purchased for a Fund with
those to be sold or purchased for other investment companies or accounts in
executing transactions.
ADDITIONAL INFORMATION ON PORTFOLIO INSTRUMENTS
Ratings. Subsequent to its purchase by a Fund, a rated security may cease to be
rated or its rating may be reduced below the minimum rating required for
purchase by a Fund. The Board of Trustees or the Adviser, pursuant to guidelines
adopted by the Board, will, in accordance with Rule 2a-7 under the Investment
Company Act of 1940, as amended (the "1940 Act"), consider such an event in
determining whether the Fund involved should continue to hold the security. In
addition, it is possible that unregistered securities purchased by a Fund in
reliance upon Rule 144A under the Securities Act of 1933 could have the effect
of increasing the level of the Fund's illiquidity to the extent that qualified
institutional buyers become, for a period, uninterested in purchasing these
securities.
Variable and Floating Rate Instruments. With respect to the variable and
floating rate instruments that may be acquired by the Funds, the Adviser will
consider the earning power, cash flows and other liquidity ratios of the issuers
and guarantors of such instruments and, if the instrument is subject to a demand
feature, will monitor their financial status to meet payment on demand. In
determining average weighted portfolio maturity, an instrument will usually be
deemed to have a maturity equal to the longer of the period remaining to the
next interest rate adjustment or the time the Fund involved can recover payment
of principal as specified in the instrument. Variable U.S. Government
obligations held by a Fund, however, will be deemed to have maturities equal to
the period remaining until the next interest rate adjustment.
The variable and floating rate demand instruments that the New York Tax-Free
Fund may purchase include participations in municipal obligations purchased from
and owned by financial institutions, primarily banks. Participation interests
provide the Fund with a specified undivided interest (up to 100%) in the
underlying obligation and the right to demand payment of the unpaid principal
balance plus accrued interest on the participation interest from the institution
upon a specified number of days' notice, not to exceed thirty days. Each
participation interest is backed
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by an irrevocable letter of credit or guarantee of a bank that the Adviser has
determined meets the prescribed quality standards for the Fund. The bank
typically retains fees out of the interest paid on the obligation for servicing
the obligation, providing the letter of credit and issuing the repurchase
commitment.
U.S. Government Obligations. Examples of the types of U.S. government
obligations that may be acquired by the Funds include U.S. Treasury bonds, notes
and bills. The Cash Management Fund and the New York Tax Free Fund may also
invest in other U.S. Government obligations such as, but not limited to: Federal
Home Loan Banks, Federal Farm Credit Banks, Federal Land Banks, the Federal
Housing Administration, Farmers Home Administration, Export-Import Bank of the
United States, Small Business Administration, Government National Mortgage
Association, Federal National Mortgage Association, General Services
Administration, Central Bank for Cooperatives, Federal Home Loan Mortgage
Corporation, Federal Intermediate Credit Banks, Maritime Administration, and
Resolution Trust Corp.
Stripped U.S. Government Obligations and Government-Backed Trusts. Each Fund
other than the U.S. Treasury Fund may acquire U.S. government obligations and
their unmatured interest coupons which have been separated ("stripped") by their
holder, typically a custodian bank or investment brokerage firm. Having
separated the interest coupons from the underlying principal of the U.S.
government obligations, the holder will resell the stripped securities in
custodial receipt programs with a number of different names, including Treasury
Income Growth Receipts ("TIGRs") and Certificate of Accrual on Treasury
Securities ("CATs"). The stripped coupons are sold separately from the
underlying principal, which is sold at a deep discount because the buyer
receives only the right to receive a future fixed payment on the security and
does not receive any rights to periodic interest (cash) payments. Purchasers of
stripped securities acquire, in effect, discount obligations that are
economically identical to the zero coupon securities that the Treasury
Department sells itself. The underlying U.S. Treasury bonds and notes themselves
are held in book-entry form at the Federal Reserve Bank or, in the case of
bearer securities (i.e., unregistered securities which are owned ostensibly by
the bearer or holder), in trust on behalf of the owners. Counsel to the
underwriters of these certificates or other evidences of ownership of the U.S.
Treasury securities have stated that, in their opinion, purchasers of the
stripped securities, such as the Funds, most likely will be deemed the
beneficial holders of the underlying U.S. government obligations for federal tax
and security purposes. Although the SEC staff believes that participations in
CATs and TIGRs and other similar trusts are not U.S. government securities, the
Fund will consider stripped securities to be U.S. government securities.
The Treasury Department has also facilitated transfers of ownership of zero
coupon securities by accounting separately for the beneficial ownership of
particular interest coupon and principal payments on Treasury securities through
the Federal Reserve book-entry record-keeping system. The Federal Reserve
program as established by the Treasury Department is known as "STRIPS" or
"Separate Trading of Registered Interest and Principal of Securities." Under the
STRIPS program, a Fund will be able to have its beneficial ownership of zero
coupon securities recorded
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directly in the book-entry record-keeping system in lieu of having to hold
certificates or other evidences of ownership of the underlying U.S. Treasury
securities.
The Cash Management Fund may also invest in certificates issued by
government-backed trusts. Such certificates represent an undivided fractional
interest in the respective government-backed trust's assets. The assets of each
government-backed trust consist of (i) a promissory note issued by a foreign
government (the "Note"), (ii) a guaranty by the U.S. Government, acting through
the Defense Security Assistance Agency of the Department of Defense, of the due
and punctual payment of 90% of all principal and interest due on such Note and
(iii) a beneficial interest in a government securities trust holding U.S.
Treasury bills, notes and other direct obligations of the U.S. Treasury
sufficient to provide the Trust with funds in an amount equal to at least 10% of
all principal and interest payments due on the Note. No more than 35% of the
value of a Fund's total assets will be invested in stripped securities not
purchased through the Federal Reserve's STRIPS program and government-backed
trusts.
Investment Companies. Each Fund other than the U.S Treasury Fund currently may
invest in securities issued by other investment companies. Each such Fund
intends to limit its investments in securities issued by other investment
companies so that, as determined immediately after a purchase of such securities
is made: (i) not more than 5% of the value of the Fund's total assets will be
invested in the securities of any one investment company; (ii) not more than 10%
of the value of its total assets will be invested in the aggregate in securities
of investment companies as a group; and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by the Fund
or by the Trust as a whole.
Repurchase Agreements. Each Fund may agree to purchase securities from financial
institutions subject to the seller's agreement to repurchase them at an
agreed-upon time and price ("Repurchase Agreements"). During the term of the
agreement, the Adviser will continue to monitor the creditworthiness of the
seller and will require the seller to maintain the value of the securities
subject to the agreement at not less than 102% of the repurchase price. Default
or bankruptcy of the seller would, however, expose the Fund to possible loss
because of adverse market action or delay in connection with the disposition of
the underlying securities. The securities held subject to a repurchase agreement
may have stated maturities exceeding thirteen months, provided the repurchase
agreement itself matures in less than one year.
The repurchase price under the repurchase agreements described in the Prospectus
generally equals the price paid by a Fund plus interest negotiated on the basis
of current short-term rates (which may be more or less than the rate on the
securities underlying the repurchase agreement). Securities subject to
repurchase agreements will be held by the Funds' custodian (or sub-custodian) or
in the Federal Reserve/Treasury book-entry system or other authorized securities
depository. Repurchase agreements are considered to be loans under the 1940 Act.
While the maturity of the underlying securities in a repurchase agreement
transaction may be more than one year, the term of the repurchase agreement is
always less than thirteen months.
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The maturities of the underlying securities will have to be taken into account
in calculating the Fund's dollar weighted average portfolio maturities if the
seller of the repurchase agreement fails to perform under such agreement. In
these transactions, the securities acquired by each Fund
are held by the Fund's custodian bank until they are repurchased. The Adviser
will continually monitor the value of the underlying securities to ensure that
their value always equals or exceeds the repurchase price plus accrued interest.
Repurchase agreements are considered to be loans collateralized by the
underlying securities under the 1940 Act.
Repurchase agreements may involve certain risks. If the seller in the
transaction becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code, recent amendments to the Code permit the Funds to exercise
a contractual right to liquidate the underlying securities. However, if the
seller is a stockbroker or other entity not afforded protection under the Code,
an agency having jurisdiction over the insolvent entity may determine that a
Fund does not have the immediate right to liquidate the underlying securities.
If the seller defaults, a Fund might incur a loss if the value of the underlying
securities declines. A Fund may also incur disposition costs in connection with
the liquidation of the securities. While the Funds' management acknowledges
these risks, it is expected that they can be controlled through selection
criteria established by the Board of Trustees and careful monitoring procedures.
Income from repurchase agreements is taxable.
Reverse Repurchase Agreements. Reverse repurchase agreements are considered to
be borrowings under the 1940 Act. At the time a Fund enters into a reverse
repurchase agreement (an agreement under which a Fund sells portfolio securities
and agrees to repurchase them at an agreed-upon date and price), it will place
in a segregated custodial account U.S. government securities or other liquid
high-grade debt securities having a value equal to or greater than the
repurchase price (including accrued interest), and will subsequently monitor the
account to insure that such value is maintained. Reverse repurchase agreements
involve the risk that the market value of the securities sold by a Fund may
decline below the price of the securities it is obligated to repurchase.
Securities Lending. To increase return on portfolio securities, the Funds may
lend their portfolio securities to broker/dealers and other institutional
investors pursuant to agreements requiring that the loans be secured by
collateral equal in value to at least the market value of the securities loaned.
Collateral for such loans may include cash, securities of the U.S. Government,
its agencies or instrumentalities, or an irrevocable letter of credit issued by
a bank which meets the investment standards of the Fund or any combination
thereof. Such loans will not be made, if, as a result, the aggregate of all
outstanding loans of the Fund exceeds 30% of the value of its total assets.
There may be risks of delay in receiving additional collateral or in recovering
the securities loaned or even a loss of rights in the collateral should the
borrower of the securities fail financially. However, loans will be made only to
borrowers deemed by the Adviser to be of good standing and when, in the
Adviser's judgment, the income to be earned from the loan justifies the
attendant risks. When a Fund lends its securities, it continues to receive
interest or dividends on the securities loaned and may simultaneously earn
interest on
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the investment of the cash collateral which will be invested in readily
marketable, high-quality, short-term obligations. Although voting rights, or
rights to consent, attendant to securities on loan pass to the borrower,
such loans may be called at any time and will be called so that the securities
may be voted by a Fund if a material event affecting the investment is to occur.
Securities lending arrangements with broker/dealers require that the loans be
secured by collateral equal in value to at least the market value of the
securities loaned. During the term of such arrangements, a Fund will maintain
such value by the daily marking-to-market of the collateral.
When-Issued Securities and Forward Commitments. Each Fund may, without
restriction, purchase securities on a when-issued basis or forward commitment,
in which case delivery and payment normally take place 15 to 45 days after the
date of the commitment to purchase. A Fund will make commitments only to
purchase securities on a when-issued basis with the intention of actually
acquiring the securities but may sell them before the settlement date if it is
deemed advisable. The when-issued securities are subject to market fluctuation
and no interest accrues to the purchaser during this period. The payment
obligation and the interest rate that will be received on the securities are
each fixed at the time the purchaser enters into the commitment. Purchasing
securities on a when-issued basis is a form of leveraging and can involve a risk
that the yields available in the market when the delivery takes place may
actually be higher than those obtained in the transaction itself, in which case
there could be an unrealized loss at the time of delivery.
A Fund will maintain liquid assets in segregated accounts in an amount at least
equal in value to the Fund's commitments to purchase when-issued securities. If
the value of these assets declines, the Fund will place additional liquid assets
in the account on a daily basis so that the value of the assets in the account
is equal to the amount of such commitments.
Other Investment Considerations - Cash Management Fund
Bank Obligations -- Investments by the Cash Management Fund in short-term debt
securities include investments in obligations (including certificates of
deposits and bankers' acceptances) of those U.S. banks which have total assets
at the time of purchase in excess of $1 billion and the deposits of which are
insured by either the Bank Insurance Fund or the Savings and Loan Insurance Fund
of the Federal Deposit Insurance Corporation.
The Cash Management Fund may also make interest-bearing savings deposits in
commercial and savings bank in amounts not in excess of 5% of its total assets
in any one institution. Bank obligations include certificates of deposit, time
deposits and bankers' acceptances issued or guaranteed by a U.S. bank (including
their foreign branches) and foreign banks (including their U.S. branches). These
obligations may be general obligations of the parent bank or may be limited to
the issuing branch by the terms of the specific obligations or by government
regulation.
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The Cash Management Fund limits its investments in United States bank
obligations to obligations of United States banks (including foreign branches)
which have more than $1 billion in total assets at the time of investment and
are members of the Federal Reserve System or are examined by the Comptroller of
the currency or whose deposits are insured by the Federal Deposit Insurance
Corporation. The Cash Management Fund limits its investment in foreign bank
obligations to United States dollars denominated obligations of foreign banks
(including United States branches) which at the time of investment (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; (ii)
have branches or agencies in the United States; and (iii) in the opinion of the
Fund's investment adviser, are of an investment quality comparable to
obligations of the United States banks which may be purchased by the Fund and
present minimal credit risk.
The Cash Management Fund may not invest in fixed time deposits subject to
withdrawal penalties maturing in more than seven calendar days. Fixed time
deposits may be withdrawn on demand by the investor, but may be subject to early
withdrawal penalties which vary depending upon market conditions and the
remaining maturity of the obligation. Investments in fixed time deposits subject
to withdrawal penalties maturing from two business days through seven calendar
days may not exceed 10% of the value of the total assets of the Fund.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of United States banks, including the possibilities
that their liquidity could be impaired because of future political and economic
developments, that the obligations may be less marketable than comparable
obligations of United States banks, that a foreign jurisdiction might impose
withholding taxes on interest income payable on those obligations, that foreign
deposits may be seized or nationalized, that foreign governmental restrictions
like exchange controls may be adopted which might adversely affect the payment
of principal and interest on those obligations and that the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to United States banks. In that connection, foreign
banks are not subject to examination by any United States Government agency or
instrumentalities. There is no limitation on the amount Cash Management Fund
assets which may be invested in obligations of foreign banks which meet the
conditions set forth above.
Securities Of Foreign Governments And Supranational Agencies. The Fund intends
to invest from time to time in securities of foreign governments and
supranational agencies. Obligations of supranational agencies, such as the
International Bank for Reconstruction and Development (also known as the World
Bank) are supported by subscribed, but unpaid, commitments of member countries.
There is no assurance that these commitments will be undertaken or complied with
in the future, and therefore foreign and supranational securities are subject to
certain risks associated with foreign investing.
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Other Investment Considerations - New York Tax-Free Fund
Municipal obligations which may be acquired by the New York Tax-Free Fund
include debt obligations issued by governmental entities to obtain funds for
various public purposes, including the construction of a wide range of public
facilities, the refunding of outstanding obligations, the payment of general
operating expenses and the extension of loans to public institutions and
facilities.
The two principal classifications of municipal obligations which may be held by
the New York Tax-Free Fund are general obligation securities and revenue
securities. The Fund may also acquire Moral Obligation securities.
Municipal obligations purchased by the New York Tax-Free Fund are debt
obligations issued by or on behalf of states, cities, municipalities and other
public authorities and include:
Municipal Bonds. Municipal bonds generally have a maturity at the time of
issuance of more than a year. Investments in municipal bonds are limited to
bonds with a remaining maturity of 397 days or less and which are rated at the
date of purchase "A" or better by S&P and "A" or better by Moody's or have
comparably high quality ratings by other NRSROs that have rated such bonds, or
which if not rated, are, in the opinion of the Adviser, of comparable investment
quality. See Appendix A for a description of the Rating system.
Municipal Notes. Municipal notes generally have maturities at the time of
issuance of thirteen months or less. Investments in municipal notes are limited
to notes which are rated at the date of purchase "MIG 1" or "VMIG.1" or "MIG2"
or "VMIG2" by Moody's and/or (if only rated by one agency) "SP-1" or "SP-2" by
S&P or "FIN-1" or "FIN-2" by Fitch or of comparable high quality as determined
by ICBA or Duff & Phelps Credit Rating Co., or, if not rated, are, in the
opinion of the Adviser, of comparable investment quality.
Municipal Commercial Paper. Municipal commercial paper is a debt obligation with
a stated maturity of 397 days or less which is issued to finance seasonal
working capital needs or as a short-term financing in anticipation of
longer-term debt. Investments in municipal commercial paper are limited to
commercial paper which is at the time of purchase rated (or issued by an issuer
with a similar security rated) in the highest short-term rating category by two
or more NRSROs, or the only NRSRO rating the security, or if unrated, determined
to be of comparable credit quality by the Adviser.
After purchase by the Fund, a security may cease to be rated or its rating may
be reduced below the minimum required for purchase by the Fund. Neither event
will require a sale of such security by the Fund. However, if the security is
downgraded to a level below that permitted for money market funds under Rule
2a-7 of the 1940 Act, the Fund's Adviser must report such event to the Board of
Trustees as soon as possible to permit the board to reassess the security
promptly to determine whether it may be retained as an eligible investment for
the Fund. To
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the extent the ratings given by a NRSRO may change as a result of changes in
such organizations or their rating systems, the Fund will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies contained in this SAI and in the Prospectus.
Floating Rate Instruments. Certain of the municipal obligations which the New
York Tax-Free Fund may purchase have a floating or variable rate of interest.
Such obligations bear interest at rates which are not fixed, but which vary with
changes in specified market rates or indices, such as a Federal Reserve
composite index. Certain of such obligations may carry a demand or "put" feature
which would permit the holder to tender them back to the issuer (or to a third
party) at par value prior to maturity. The New York Tax-Free Fund may invest in
floating and variable rate Municipal Obligations even if they carry stated
maturities in excess of thirteen months, upon certain conditions contained in
Rule 2a-7 of the 1940 Act. It is the present position of the SEC that the
maturity of a short term (the principal amount must unconditionally be paid in
397 days or less) floating rate security is [one day] and the maturity of a long
term (the principal amount is scheduled to be paid in more than 397 days)
floating rate security that is subject to a demand feature shall be deemed to
have a maturity equal to the period remaining until the principal amount can be
recovered through demand. The New York Tax-Free Fund will limit its purchases of
floating and variable rate Municipal Obligations to those meeting the quality
standards set forth above. The adviser will monitor on an ongoing basis the
earning power, cash flow and other liquidity ratios of the issuers of such
obligations, and will similarly monitor the ability of an issuer of a demand
instrument to pay principal and interest on demand. The New York Tax-Free Fund's
right to obtain payment at par on a demand instrument could be affected by
events occurring between the date the Fund elects to demand payment and the date
payment is due, which may affect the ability of the issuer of the instrument to
make payment when due.
Taxable Securities. The New York Tax-Free Fund may invest up to 20% of the
current value of its total assets in securities subject to the Federal
alternative minimum tax. In addition, the New York Tax-Free Fund may invest up
to 100% of its total assets in these and other taxable securities to maintain a
temporary "defensive" posture when, in the opinion of the Adviser, it is prudent
to do so. The conditions for which such a posture would be undertaken include
adverse market conditions or the unavailability of suitable tax-exempt
securities. During these times when the New York Tax-Free Fund is maintaining a
temporary "defensive" posture, it may be unable to fully achieve its investment
objective.
The types of taxable securities (in addition to "alternative minimum tax"
securities) in which the New York Tax-Free Fund may invest are limited to the
following money market instruments which have remaining maturities not exceeding
397 days: (i) obligations of the United States Government, its agencies or
instrumentalities; (ii) negotiable certificates of deposit, bankers'
acceptances, time deposits and other obligations issued or supported by United
States banks which have more than $1 billion in total assets at the time of
investment and are members of the Federal Reserve System or are examined by the
Comptroller of the Currency or whose deposits
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are insured by the Federal Deposit Insurance Corporation; (iii) domestic and
foreign commercial paper rated in accordance with the standards set forth above
under "Cash Management Fund-Commercial Paper" and (iv) repurchase agreements.
The New York Tax-Free Fund also has the right to hold cash reserves of up to
100% of their total assets when the Adviser deems it necessary for temporary
defensive purposes.
Securities with Put Rights. The New York Tax-Free Fund may, subject to Rule 2a-7
of the 1940 Act, enter into put transactions, sometimes referred to as stand-by
commitments, with respect to municipal obligations held in their portfolios. The
amount payable to the Fund by the seller upon its exercise of a put will
normally be (i) the Fund's acquisition cost of the securities (excluding any
accrued interest which the Fund paid on their acquisition), less any amortized
market premium or plus any amortized market or original issue discount during
the period the Fund owned the securities, plus (ii) all interest accrued on the
securities since the last interest payment date during the period the securities
were owned by the Fund. Absent unusual circumstances, the Fund values the
underlying securities at their amortized cost. Accordingly, the amount payable
by a broker-dealer or bank during the time a put is exercisable will be
substantially the same as the value of the underlying securities.
If necessary and advisable, the New York Tax-Free Fund may pay for certain puts
either separately in cash or by paying a higher price for portfolio securities
which are acquired subject to such a put (thus reducing the yield to maturity
otherwise available for the same securities).
The Fund's ability to exercise a put will depend on the ability of the
broker-dealer or bank to pay for the underlying securities at the time the put
is exercised. In the event that a broker-dealer or bank should default on its
obligation to repurchase an underlying security, the Fund might be unable to
recover all or a portion of any loss sustained from having to sell the security
elsewhere.
There are, of course, variations in the quality of Municipal Obligations both
within a particular classification and between classifications, and the yields
on Municipal Obligations depend upon a variety of factors, including general
money market conditions, the financial condition of the issuer, general
conditions of the municipal bond market, the size of a particular offering, the
maturity of the obligation and the rating of the issue. The ratings of NRSROs
represent their opinions as to the quality of Municipal Obligations. It should
be emphasized, however, that ratings are general and are not absolute standards
of quality, and Municipal Obligations with the same maturity, interest rate and
rating may have different yields while Municipal Obligations of the same
maturity and interest rate with different ratings may have the same yield.
The payment of principal and interest on most securities purchased by the New
York Tax-Free Fund will depend upon the ability of the issuers to meet their
obligations. An issuer's obligations under its Municipal Obligations are subject
to the provisions of bankruptcy, insolvency, and other laws affecting the rights
and remedies of creditors, such as the Federal Bankruptcy Code, and laws, if
any, which may be enacted by federal or state legislatures
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extending the time for payment of principal or interest, or both, or imposing
other constraints upon enforcement of such obligations or upon the ability of
municipalities to levy taxes. The power or ability of an issuer to meet its
obligations for the payment of interest on, and principal of, its Municipal
Obligations may be materially adversely affected by litigation or other
conditions.
Certain of the Municipal Obligations held by the New York Tax-Free Fund may be
insured at the time of issuance as to the timely payment of principal and
interest. The insurance policies will usually be obtained by the issuer of the
Municipal Obligation at the time of its original issuance. In the event that the
issuer defaults on interest or principal payment, the insurer will be notified
and will be required to make payment to the bondholders. There is, however, no
guarantee that the insurer will meet its obligations. In addition, such
insurance will not protect against market fluctuations caused by changes in
interest rates and other factors. The New York Tax-Free Fund may, from time to
time, invest more than 25% of its assets in Municipal Obligations covered by
insurance policies.
Municipal Obligations acquired by the New York Tax-Free Fund may include
short-term General Obligation Notes, Tax Anticipation Notes, Bond Anticipation
Notes, Revenue Anticipation Notes, Tax-Exempt Commercial Paper, Construction
Loan Notes and other forms of short-term tax-exempt loans. Such instruments are
issued with a short-term maturity in anticipation of the receipt of tax funds,
the proceeds of bond placements or other revenues. In addition, the Fund may
invest in bonds and other types of tax-exempt instruments provided they have
remaining maturities of thirteen months or less at the time of purchase.
Certain types of Municipal Obligations (private activity bonds) have been or are
issued to obtain funds to provide privately operated housing facilities,
pollution control facilities, convention or trade show facilities, mass transit,
airport, port or parking facilities and certain local facilities for water
supply, gas, electricity or sewage or solid waste disposal. Private activity
bonds are also issued on behalf of privately held or publicly owned corporations
in the financing of commercial or industrial facilities. State and local
governments are authorized in most states to issue private activity bonds for
such purposes in order to encourage corporations to locate within their
communities. The principal and interest on these obligations may be payable from
the general revenues of the users of such facilities.
From time to time, proposals have been introduced before Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on Municipal Obligations. For example, under the Tax Reform Act of
1986, interest on certain private activity bonds must be included in an
investor's alternative minimum taxable income, and corporate investors must
include all tax-exempt interest in their federal alternative minimum taxable
income. The Trust cannot predict what legislation, if any, may be proposed in
the future as regards the income tax status of interest on Municipal
Obligations, or which proposals, if any, might be enacted. Such proposals, while
pending or if enacted, might materially and adversely affect the availability of
Municipal Obligations for investment by the New York Tax-Free Fund and the
liquidity and
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value of the Fund's portfolio. In such an event, the Trust would reevaluate the
Fund's investment objective and policies and consider possible changes in its
structure or possible dissolution.
Stand-By Commitments. The New York Tax-Free Fund may acquire "stand-by
commitments" with respect to Municipal Obligations held in its portfolio. Under
a stand-by commitment, a dealer or bank agrees to purchase at the Fund's option
specified Municipal Obligations at a specified price. Stand-by commitments may
be exercisable by the Fund at any time before the maturity of the underlying
Municipal Obligations and may be sold, transferred or assigned only with the
instruments involved.
The amount payable to the Fund upon its exercise of a stand-by commitment is
normally (i) the Fund's acquisition cost of the Municipal Obligations (excluding
any accrued interest which the Fund paid on their acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the securities, plus (ii) all interest accrued
on the securities since the last interest payment date during that period. A
"stand-by commitment" may be sold, transferred or assigned by the Fund only with
the instrument involved.
The Fund expects that stand-by commitments will generally be available without
the payment of any direct or indirect consideration. However, if necessary or
advisable, the Fund may pay for a stand-by commitment either separately in cash
or by paying a higher price for portfolio securities which are acquired subject
to the commitment (thus reducing the yield to maturity otherwise available for
the same securities). Where the Fund has paid any consideration directly or
indirectly for a stand-by commitment, its cost would be reflected as unrealized
loss for the period during which the commitment was held by the Fund and will be
reflected in realized gain or loss when the commitment is exercised or expires.
The total amount paid in either manner for outstanding stand-by commitments held
by the Fund will not exceed 1/2 of 1% of the value of its total assets
calculated immediately after each stand-by commitment is acquired.
The Fund intends to enter into stand-by commitments only with dealers, banks and
broker-dealers which, in the Adviser's opinion, present minimal credit risks.
The Fund's reliance upon the credit of those dealers, banks and broker/dealers
is secured by the value of the underlying Municipal Obligations that are subject
to a commitment.
The Fund would acquire stand-by commitments solely to facilitate portfolio
liquidity and does not intend to exercise its rights thereunder for trading
purposes. The acquisition of a stand-by commitment will not affect the valuation
or assumed maturity of the underlying Municipal Obligations which will continue
to be valued in accordance with the ordinary method of valuation employed by the
Fund. Stand-by commitments acquired by the Fund would be valued at zero in
determining net asset value where the Fund paid any consideration directly or
indirectly for a stand-by commitment; its cost would be reflected as unrealized
depreciation for the period in which the commitment was held by the Fund.
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ADDITIONAL INVESTMENT LIMITATIONS
The following fundamental policies and investment restrictions have been adopted
by the Fund and except as noted, such policies and restrictions cannot be
changed without approval by the vote of a majority of the outstanding voting
shares of the Fund which, as defined by the Investment Company Act of 1940, as
amended (the "1940 Act"), means the affirmative vote of the lesser of (a) 67% or
more of the shares of the Fund present at a meeting at which the holders of more
than 50% of the outstanding shares of the Fund are represented in person or by
proxy, or (b) more than 50% of the outstanding shares of the Fund.
Each Fund may not:
1. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments but this shall not prevent a Fund
from (i) purchasing or selling options and futures contracts or from investing
in securities or other instruments backed by physical commodities or (ii)
engaging in forward purchases of sales of foreign currencies or securities.
2. Purchase or sell real estate unless acquired as a result of ownership of
securities or other instruments (but this shall not prevent a Fund from
investing in securities or other instruments backed by real estate or securities
of companies engaged in the real estate business). Investments by a Fund in
securities backed by mortgages on real estate or in marketable securities of
companies engaged in such activities are not hereby precluded.
3. Issue any senior security (as defined in the 1940 Act as amended), except
that (a) a Fund may engage in transactions that may result in the issuance of
senior securities to the extent permitted under applicable regulations and
interpretations of the 1940 Act or an exemptive order; (b) a Fund may acquire
other securities, the acquisition of which may result in the issuance of a
senior security, to the extent permitted under applicable regulations or
interpretations of the 1940 Act; (c) subject to the restrictions set forth
below, the Fund may borrow money as authorized by the 1940 Act. For purposes of
this restriction, collateral arrangements with respect to a Fund's permissible
options and futures transactions, including deposits of initial and variation
margin, are not considered to be the issuance of a senior security.
4. Borrow money, except that a Fund may borrow money for temporary or emergency
purposes or by engaging in reverse repurchase agreements in an amount not
exceeding 10% of the value of its total assets at the time when the loan is made
and may pledge, mortgage, or hypothecate no more than 10% of its assets to
secure such borrowings. Any borrowing representing more than 5% of a Fund's
total assets must be repaid before a Fund may make additional investments.
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5. Make loans, except that each Fund may: (i) purchase and hold debt instruments
(including without limitation, bonds, notes, debentures or other obligations and
certificates of deposit, bankers' acceptances and fixed time deposits) in
accordance with its investment objectives and policies; (ii) enter into
repurchase agreements with respect to portfolio securities; and (iii) lend
portfolio securities with a value not in excess of one-third of the value of its
total assets.
6. Underwrite securities issued by others, except to the extent that a Fund may
be considered an underwriter within the meaning of the Securities Act of 1933,
as amended (the "1933 Act") in the disposition of portfolio securities.
7. Purchase the securities of any issuer (other than securities issued or
guaranteed by the U.S. government or any of its agencies or instrumentalities,
or repurchase agreements secured thereby) if, as a result, more than 25% of the
Fund's total assets would be invested in the securities of companies whose
principal business activities are in the same industry. Notwithstanding the
foregoing, (i) with respect to a Fund's permissible futures and options
transactions in U.S. Government securities, positions in options and futures
shall not be subject to this restriction; (ii) the Funds may invest more than
25% of their total assets in obligations issued by banks, including U.S. banks;
and (iii) the New York Tax-Free Fund may invest more than 25% of its assets in
municipal obligations secured by bank letters of credit or guarantees, including
participation certificates.
For purposes of investment restriction (2) above, real estate includes
Real Estate Limited Partnerships. For purposes of investment restriction (7)
above, industrial development bonds, where the payment of principal and interest
is the ultimate responsibility of companies within the same industry, are
grouped together as an "industry." Investment restriction (7) above, however, is
not applicable to investments by a fund in municipal obligations where the
issuer is regarded as a state, city, municipality or other public authority
since such entities are not members of any "industry." Supranational
organizations are collectively considered to be members of a single "industry"
for purposes of restriction (7) above.
The following restrictions are non-fundamental and may be changed by the Fund's
Board of Trustees. Pursuant to such restrictions, each Fund will not:
1. Make short sales of securities, other than short sales "against the box," or
purchase securities on margin except for short-term credits necessary for
clearance of portfolio transactions, provided that this restriction will not be
applied to limit the use of options, futures contracts and related options, in
the manner otherwise permitted by the investment restrictions, policies and
investment program of the Fund;
2. Purchase the securities of any other investment company, if the Fund,
immediately after such purchase or acquisition, owns in the aggregate, (i) more
than 3% of the total outstanding voting stock of such investment company, (ii)
securities issued by such investment company
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having an aggregate value in excess of 5% of the value of the total assets of
the Fund, or (iii) securities issued by such investment company and all other
investment companies having an aggregate value in excess of 10% of the value of
the total assets of the Fund;
3. Invest more than 10% of its net assets in illiquid securities. Illiquid
securities are securities that are not readily marketable or cannot be disposed
of promptly within seven days and in the usual course of business without taking
a materially reduced price. Such securities include, but are not limited to,
time deposits and repurchase agreements with maturities longer than seven days.
Securities that may be resold under Rule 144A or securities offered pursuant to
Section 4(2) of the Securities Act of 1933, as amended, shall not be deemed
illiquid solely by reason of being unregistered. The Investment Adviser shall
determine whether a particular security is deemed to be liquid based on the
trading markets for the specific security and other factors.
4. The Cash Management Fund may not, with respect to 75% of its assets, hold
more than 10% of the outstanding voting securities of any issuer or invest more
than 5% of its assets in the securities of any one issuer (other than
obligations of the U.S. Government, its agencies and instrumentalities); the New
York Tax-Free Fund may not, with respect to 50% of its assets, hold more than
10% of the outstanding voting securities of any issuer.
5. Each Fund may not purchase or sell interest in oil, gas or mineral leases.
6. Each Fund may not write, purchase or sell any put or call option or any
combination thereof, provided that this shall not prevent (i) the writing,
purchasing or selling of puts, calls or combinations thereof with respect to
portfolio securities or (ii) with respect to a Fund's permissible futures and
options transactions, the writing, purchasing, ownership, holding or selling of
futures and options positions or of puts, call or combinations thereof with
expect to futures.
It is the Trust's position that proprietary strips, such as CATS and TIGRS, are
United States Government securities. However, the Trust has been advised that
the staff of the Securities and Exchange Commission's Division of Investment
Management does not consider these to be United States Government securities, as
defined under the 1940 Act.
For purposes of the Funds' investment restrictions, the issuer of a tax-exempt
security is deemed to be the entity (public or private) ultimately responsible
for the payment of the principal of and interest on the security.
General. The policies and limitations listed above supplement those set forth in
the Prospectus. Unless otherwise noted, whenever an investment policy or
limitation states a maximum percentage of the Fund's assets that may be invested
in any security or other asset, or sets forth a policy regarding quality
standards, such standard or percentage limitation will be determined immediately
after and as a result of the Fund's acquisition of such security or other asset
except
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in the case of borrowing (or other activities that may be deemed to result in
the issuance of a "senior security" under the 1940 Act). Accordingly, any
subsequent change in values, net assets, or other circumstances will not be
considered when determining whether the investment complies with the Fund's
investment policies and limitations. If the value of the Fund's holdings of
illiquid securities at any time exceeds the percentage limitation applicable at
the time of acquisition due to subsequent fluctuations in value or other
reasons, the Trustees will consider what actions, if any, are appropriate to
maintain adequate liquidity.
Each Fund is subject to the investment limitations enumerated in this subsection
which may be changed with respect to a particular Fund only by a vote of the
holders of a majority of such Fund's outstanding shares (as defined under
"Miscellaneous" below).
Although the foregoing investment limitations would permit the Funds to invest
in options, futures contracts and options on future contracts, the Funds, during
the current fiscal year, do not intend to trade in such instruments. Prior to
making any such investments, the Funds would notify their shareholders and add
appropriate descriptions concerning the instruments to the Prospectus and this
SAI.
NET ASSET VALUE
The net asset value per share of each Fund described in this SAI is calculated
separately by adding the amortized cost of all portfolio securities and other
assets belonging to the particular Fund, subtracting the liabilities charged to
the Fund, and dividing the result by the number of outstanding shares of that
Fund. Assets belonging to a Fund consist of the consideration received upon the
issuance of shares of the particular Fund together with all net investment
income, realized gains/losses and proceeds derived from the investment thereof,
including any proceeds from the sale of such investments, any funds or payments
derived from any reinvestment of such proceeds, and a portion of any general
assets of the Trust not belonging to a particular investment portfolio. Assets
belonging to a particular Fund are charged with the direct liabilities of that
Fund and with a share of the general liabilities of the Trust which are normally
allocated in proportion to the relative net asset values of all of the Trust's
investment portfolios at the time of allocation. Subject to the provisions of
the Trust Instrument, determinations by the Board of Trustees as to the direct
and allocable liabilities, and the allocable portion of any general assets, with
respect to a particular Fund are conclusive.
The Trust uses the amortized cost method of valuation to value each Fund's
portfolio securities, pursuant to which an instrument is valued at its cost
initially and thereafter a constant amortization to maturity of any discount or
premium is assumed, regardless of the impact of fluctuating interest rates on
the market value of the instrument. This method may result in periods during
which value, as determined by amortized cost, is higher or lower than the price
a Fund would receive if it sold the instrument. The market value of portfolio
securities held by a Fund can be expected to vary inversely with changes in
prevailing interest rates.
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Each Fund attempts to maintain a dollar-weighted average portfolio maturity
appropriate to its objective of maintaining a stable net asset value per share.
In this regard, except for securities subject to repurchase agreements, each
Fund will neither purchase a security deemed to have a remaining maturity of
more than thirteen months within the meaning of the 1940 Act nor maintain a
dollar-weighted average maturity which exceeds 90 days. The Board of Trustees
has also established procedures that are intended to stabilize the net asset
value per share of each Fund for purposes of sales and redemptions at $1.00.
These procedures include the weekly determination of the extent, if any, to
which the net asset value per share of each Fund calculated by using available
market quotations deviates from $1.00 per share. In the event such deviation
exceeds one-half of one percent, the Board will promptly consider what action,
if any, should be initiated. If the Board believes that the extent of any
deviation from a $1.00 amortized cost price per share may result in material
dilution or other unfair results to new or existing investors, it has agreed to
take such steps as it considers appropriate to eliminate or reduce to the extent
reasonably practicable any such dilution or unfair results. These steps may
include selling portfolio instruments prior to maturity; shortening the average
portfolio maturity; withholding or reducing dividends; redeeming shares in kind;
reducing the number of outstanding shares without monetary consideration; or
utilizing a net asset value per share determined by using available market
quotations.
Special Procedures for In-Kind Payments
Payment for shares of a Fund may, in the discretion of the Fund, be made in the
form of securities that are permissible investments for the Fund as described in
the Prospectus. For further information about this form of payment, contact the
Funds' transfer agent at 1-887-RAM- 6868. In connection with an in-kind
securities payment, a Fund will require, among other things, that the securities
be valued on the day of purchase in accordance with the pricing methods used by
the Fund; that the Fund receive satisfactory assurances that it will have good
and marketable title to the securities received by it; that the securities be in
proper form for transfer to the Fund; that adequate information be provided to
the Fund concerning the basis and other tax matters relating to the securities;
and that the amount of the purchase be at least $1,000,000.
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DESCRIPTION OF SHARES
The Trust Instrument authorizes the Board of Trustees an unlimited amount of
full and fractional series of shares $0.001 value per share that may be divided
into classes (each a designated "Class" or "Fund").
In the event of a liquidation or dissolution of the Trust or an individual Fund,
shareholders of a particular Fund would be entitled to receive the assets
available for distribution belonging to such Fund, and a proportionate
distribution, based upon the relative assets of the Trust's respective
investment portfolios, of any general assets not belonging to any particular
portfolio which are available for distribution. Subject to the allocation of
certain costs, expenses, charges and reserves attributable to the operation of a
particular series, shareholders of a Fund are entitled to participate equally in
the net distributable assets of the particular Fund involved on liquidation,
based on the number of shares of the Fund that are held by each shareholder.
Shareholders of the Funds, as well as those of any other investment portfolio
offered by the Trust, will vote together in the aggregate and not separately on
a fund-by-fund basis, except as otherwise required by law or when the Board of
Trustees determines that the matter to be voted upon affects only the interests
of the shareholders of a particular series. Rule 18f-2 under the 1940 Act
provides that any matter required to be submitted to the holders of the
outstanding voting securities of an investment company such as the Trust shall
not be deemed to have been effectively acted upon unless approved by the holders
of a majority of the outstanding shares of each fund affected by the matter. A
fund is affected by a matter unless it is clear that the interests of each fund
in the matter are substantially identical or that the matter does not affect any
interest of the fund. Under the Rule, the approval of an investment advisory
agreement or any change in a fundamental investment policy would be effectively
acted upon with respect to a fund only if approved by a majority of the
outstanding shares of such fund. However, the Rule also provides that the
ratification of the appointment of independent accountants, the approval of
principal underwriting contracts and the election of Trustees may be effectively
acted upon by shareholders of the Trust voting together in the aggregate without
regard to particular fund.
When issued for payment as described in the Funds' Prospectus and this SAI,
shares of the Funds will be fully paid and non-assessable by the Trust.
The Trust Instrument authorize the Board of Trustees, without shareholder
approval (unless otherwise required by applicable law), to: (a) sell and convey
the assets belonging to a series of shares to another management investment
company for consideration which may include securities issued by the purchaser
and, in connection therewith, to cause all outstanding shares of such series to
be redeemed at a price which is equal to their net asset value and which may be
paid in cash or by distribution of the securities or other consideration
received from the sale and conveyance; (b) sell and convert the assets belonging
to a series of shares into money and,
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in connection therewith, to cause all outstanding shares of such series to be
redeemed at their net asset value; or (c) combine the assets belonging to a
series of shares with the assets belonging to one or more other series of shares
if the Board of Trustees reasonably determines that such combination will not
have a material adverse effect on the shareholders of any series participating
in such combination and, in connection therewith, to cause all outstanding
shares of any such series to be redeemed or converted into shares of another
series of shares at their net asset value.
ADDITIONAL INFORMATION CONCERNING TAXES
The following is only a summary of certain additional federal income tax
considerations generally affecting the Funds and their shareholders that are not
described in their Prospectuses. No attempt is made to present a detailed
explanation of the tax treatment of each Fund or its shareholders, and the
discussions here and in the Prospectuses are not intended as substitutes for
careful tax planning.
Qualification as a Regulated Investment Company
Each Fund has elected to be taxed as a regulated investment company for federal
income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"). As a regulated investment company, a Fund is not subject
to federal income tax on the portion of its net investment income (i.e., taxable
interest, dividends and other taxable ordinary income, net of expenses) and
capital gain net income (i.e., the excess of capital gains over capital losses)
that it distributes to shareholders, provided that it distributes at least 90%
of its investment company taxable income (i.e., net investment income and the
excess of net short-term capital gain over net long-term capital loss) and, with
respect to the New York Tax-Free Fund, at least 90% of its tax-exempt income
(net of expenses allocable thereto) for the taxable year (the "Distribution
Requirement"), and satisfies certain other requirements of the Code that are
described below. Distributions by a Fund made during the taxable year or, under
specified circumstances, within twelve months after the close of the taxable
year, will be considered distributions of income and gains of the taxable year
and will therefore count toward satisfaction of the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated investment
company must derive at least 90% of its gross income from dividends, interest,
certain payments with respect to securities loans, gains from the sale or other
disposition of stock or securities or foreign currencies (to the extent such
currency gains are directly related to the regulated investment company's
principal business of investing in stock or securities) and other income
(including but not limited to gains from options, futures or forward contracts)
derived with respect to its business of investing in such stock, securities or
currencies (the "Income Requirement").
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<PAGE>
In general, gain or loss recognized by a Fund on the disposition of an asset
will be a capital gain or loss. In addition, gain will be recognized as a result
of certain constructive sales, including
short sales "against the box." However, gain recognized on the disposition of a
debt obligation (including municipal obligations) purchased by a Fund at a
market discount (generally, at a price less than its principal amount) will be
treated as ordinary income to the extent of the portion of the market discount
which accrued during the period of time the Fund held the debt obligation.
Further, the Code also treats as ordinary income a portion of the capital gain
attributable to a transaction where substantially all of the return realized is
attributable to the time value of a Fund's net investment in the transaction
and: (1) the transaction consists of the acquisition of property by the Fund and
a contemporaneous contract to sell substantially identical property in the
future; (2) the transaction is a straddle within the meaning of section 1092 of
the Code; (3) the transaction is one that was marketed or sold to the Fund on
the basis that it would have the economic characteristics of a loan but the
interest-like return would be taxed as capital gain; or (4) the transaction is
described as a conversion transaction in the Treasury Regulations. The amount of
the gain recharacterized generally will not exceed the amount of the interest
that would have accrued on the net investment for the relevant period at a yield
equal to 120% of the federal long-term, mid-term, or short-term rate, depending
upon the type of instrument at issue, reduced by an amount equal to: (1) prior
inclusions of ordinary income items from the conversion transaction and (2) the
capital interest on acquisition indebtedness under Code section 263(g). Built-in
losses will be preserved where the Fund has a built-in loss with respect to
property that becomes a part of a conversion transaction. No authority exists
that indicates that the converted character of the income will not be passed
through to the Fund's shareholders.
In general, for purposes of determining whether capital gain or loss recognized
by a Fund on the disposition of an asset is long-term or short-term, the holding
period of the asset may be affected if (1) the asset is used to close a "short
sale" (which includes for certain purposes the acquisition of a put option) or
is substantially identical to another asset so used, (2) the asset is otherwise
held by the Fund as part of a "straddle" (which term generally excludes a
situation where the asset is stock and the Fund grants a qualified covered call
option (which, among other things, must not be deep-in-the-money) with respect
thereto) or (3) the asset is stock and the Fund grants an in-the-money qualified
covered call option with respect thereto. In addition, a Fund may be required to
defer the recognition of a loss on the disposition of an asset held as part of a
straddle to the extent of any unrecognized gain on the offsetting position.
Any gain recognized by a Fund on the lapse of, or any gain or loss recognized by
a Fund from a closing transaction with respect to, an option written by the Fund
will be treated as a short-term capital gain or loss.
Certain transactions that may be engaged in by a Fund (such as regulated futures
contracts and options on futures contracts) will be subject to special tax
treatment as "Section 1256 contracts." Section 1256 contracts are treated as if
they are sold for their fair market value on the last business day of the
taxable year, even though a taxpayer's obligations (or rights) under such
- 23 -
<PAGE>
contracts have not terminated (by delivery, exercise, entering into a closing
transaction or otherwise) as of such date. Any gain or loss recognized as a
consequence of the year-end
deemed disposition of Section 1256 contracts is taken into account for the
taxable year together with any other gain or loss that previously was recognized
upon the termination of Section 1256 contracts during that taxable year. Any
capital gain or loss for the taxable year with respect to Section 1256 contracts
(including any capital gain or loss arising as a consequence of the year-end
deemed sale of such contracts) is generally treated as 60% long-term capital
gain or loss and 40% short-term capital gain or loss. A Fund, however, may elect
not to have this special tax treatment apply to Section 1256 contracts that are
part of a "mixed straddle" with other investments of the Fund that are not
Section 1256 contracts.
Treasury Regulations permit a regulated investment company, in determining its
investment company taxable income and net capital gain (i.e., the excess of net
long-term capital gain over net short-term capital loss) for any taxable year,
to elect (unless it made a taxable year election for excise tax purposes as
discussed below) to treat all or any part of any net capital loss, any net
long-term capital loss or any net foreign currency loss incurred after October
31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, each Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of each Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to each of which the
Fund has not invested more than 5% of the value of the Fund's total assets in
securities of such issuer and does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (call
or put) with respect to a security is treated as issued by the issuer of the
security, not the issuer of the option. For purposes of asset diversification
testing, obligations issued or guaranteed by agencies or instrumentalities of
the U.S. Government such as the Federal Agricultural Mortgage Corporation, the
Farm Credit System Financial Assistance Corporation, a Federal Home Loan Bank,
the Federal Home Loan Mortgage Corporation, the Federal National Mortgage
Association, the Government National Mortgage Corporation, and the Student Loan
Marketing Association are treated as U.S. Government securities.
If for any taxable year a Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's current and
accumulated earnings and profits. Such distributions generally will be eligible
for the dividends-received deduction in the case of corporate shareholders.
- 24 -
<PAGE>
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company that
fails to distribute in each calendar year an amount equal to 98% of ordinary
taxable income for the calendar year and 98% of capital gain net income for the
one-year period ended on October 31 of such calendar year (or, at the election
of a regulated investment company having a taxable year ending November 30 or
December 31, for its taxable year (a "taxable year election")). (Tax-exempt
interest on municipal obligations is not subject to the excise tax.) The balance
of such income must be distributed during the next calendar year. For the
foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1) reduce
its capital gain net income (but not below its net capital gain) by the amount
of any net ordinary loss for the calendar year; and (2) exclude foreign currency
gains and losses incurred after October 31 of any year (or after the end of its
taxable year if it has made a taxable year election) in determining the amount
of ordinary taxable income for the current calendar year (and, instead, include
such gains and losses in determining ordinary taxable income for the succeeding
calendar year).
Each Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that a Fund may in certain circumstances be required to liquidate portfolio
investments to make sufficient distributions to avoid excise tax liability.
Fund Distributions
Each Fund anticipates distributing substantially all of its investment company
taxable income for each taxable year. Such distributions will be taxable to
shareholders as ordinary income and treated as dividends for federal income tax
purposes, but they will not qualify for the 70% dividends-received deduction for
corporate shareholders.
Each Fund may either retain or distribute to shareholders its net capital gain
for each taxable year. Each Fund currently intends to distribute any such
amounts. Net capital gain that is distributed and designated as a capital gain
dividend will be taxable to shareholders as long-term capital gain, regardless
of the length of time the shareholder has held his shares or whether such gain
was recognized by the Fund prior to the date on which the shareholder acquired
his shares.
Conversely, if a Fund elects to retain its net capital gain, the Fund will be
taxed thereon (except to the extent of any available capital loss carryovers) at
the 35% corporate tax rate. If a Fund elects to retain its net capital gain, it
is expected that the Fund also will elect to have shareholders of record on the
last day of its taxable year treated as if each received a distribution
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<PAGE>
of his pro rata share of such gain, with the result that each shareholder will
be required to report his pro rata share of such gain on his tax return as
long-term capital gain, will receive a refundable tax credit for his pro rata
share of tax paid by the Fund on the gain, and will increase the tax basis for
his shares by an amount equal to the deemed distribution less the tax credit.
The New York Tax-Free Fund intends to qualify to pay exempt-interest dividends
by satisfying the requirement that at the close of each quarter of its taxable
year at least 50% of such Fund's total assets consists of tax-exempt municipal
obligations. Distributions from the New York Tax-Free Fund will constitute
exempt-interest dividends to the extent of such Fund's tax-exempt interest
income (net of expenses and amortized bond premium). Exempt-interest dividends
distributed to shareholders of the New York Tax-Free Fund are excluded from
gross income for federal income tax purposes. However, shareholders required to
file a federal income tax return will be required to report the receipt of
exempt-interest dividends on their returns. Moreover, while exempt-interest
dividends are excluded from gross income for federal income tax purposes, they
may be subject to alternative minimum tax in certain circumstances and may have
other collateral tax consequences as discussed below. Distributions by a Fund of
any investment company taxable income or of any net capital gain will be taxable
to shareholders as discussed above.
Alternative Minimum Tax ("AMT") is imposed in addition to, but only to the
extent it exceeds, the regular tax and is computed at a maximum marginal rate of
28% for non-corporate taxpayers and 20% for corporate taxpayers on the excess of
the taxpayer's alternative minimum taxable income ("AMTI") over an exemption
amount. Exempt-interest dividends derived from certain "private activity"
municipal obligations issued after August 7, 1986 will generally constitute an
item of tax preference includable in AMTI for both corporate and non-corporate
taxpayers. In addition, exempt-interest dividends derived from all municipal
obligations, regardless of the date of issue, must be included in adjusted
current earnings, which are used in computing an additional corporate preference
item (i.e., 75% of the excess of a corporate taxpayer's adjusted current
earnings over its AMTI (determined without regard to this item and the AMT net
operating loss deduction)) includable in AMTI.
Exempt-interest dividends must be taken into account in computing the portion,
if any, of social security or railroad retirement benefits that must be included
in an individual shareholder's gross income and subject to federal income tax.
Further, a shareholder of the New York Tax-Free Fund is denied a deduction for
interest on indebtedness incurred or continued to purchase or carry shares of
the Fund. Moreover, a shareholder who is (or is related to) a "substantial user"
of a facility financed by industrial development bonds held by the New York
Tax-Free Fund will likely be subject to tax on dividends paid by the Fund which
are derived from interest on such bonds. Receipt of exempt-interest dividends
may result in other collateral federal income tax consequences to certain
taxpayers, including financial institutions, property and casualty insurance
companies, and foreign corporations engaged in a trade or business in the United
States. Prospective investors should consult their own advisers as to such
consequences.
- 26 -
<PAGE>
Distributions by a Fund that do not constitute ordinary income dividends,
exempt-interest dividends, or capital gain dividends will be treated as a return
of capital to the extent of (and in reduction of) the shareholder's tax basis in
his shares; any excess will be treated as gain realized from a sale of the
shares, as discussed below.
Distributions by a Fund will be treated in the manner described above regardless
of whether such distributions are paid in cash or reinvested in additional
shares of the Fund (or of another fund). Shareholders receiving a distribution
in the form of additional shares will be treated as receiving a distribution in
an amount equal to the fair market value of the shares received, determined as
of the reinvestment date. In addition, if the net asset value at the time a
shareholder purchases shares of a Fund reflects realized but undistributed
income or gain, or unrealized appreciation in the value of the assets held by
the Fund, distributions of such amounts will be taxable to the shareholder in
the manner described above, although such distributions economically constitute
a return of capital to the shareholder.
Ordinarily, shareholders are required to take distributions by a Fund into
account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month will be deemed to have been received by the
shareholders (and made by the U.S. Government Series) on December 31 of such
calendar year provided such dividends are actually paid in January of the
following year. Shareholders will be advised annually as to the U.S. federal
income tax consequences of distributions made (or deemed made) to them during
the year.
Each Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of ordinary income dividends and capital gain dividends, and the
proceeds of redemption of shares, paid to any shareholder (1) who has failed to
provide a correct taxpayer identification number, (2) who is subject to backup
withholding for failure properly to report the receipt of interest or dividend
income, or (3) who has failed to certify to the Fund that it is not subject to
backup withholding or that it is an "exempt recipient" (such as a corporation).
Sale or Redemption of Shares
Each Fund seeks to maintain a stable net asset value of $1.00 per share;
however, there can be no assurance that the Funds will do this. If the net asset
value deviates from $1.00 per share, a shareholder will recognize gain or loss
on the sale or redemption of shares of a Fund in an amount equal to the
difference between the proceeds of the sale or redemption and the shareholder's
adjusted tax basis in the shares. All or a portion of any loss so recognized may
be disallowed if the shareholder purchases other shares of a Fund within 30 days
before or after the sale or redemption. In general, any gain or loss arising
from (or treated as arising from) the sale or redemption of shares of a Fund
will be considered capital gain or loss and will be long-term capital gain or
loss if the shares were held for longer than one year. However, any capital loss
arising from the sale or redemption of shares held for six months or less will
be disallowed to the extent of the amount of exempt-interest dividends received
with respect to such
- 27 -
<PAGE>
shares and (to the extent not disallowed) will be treated as a long-term capital
loss to the extent of the amount of capital gain dividends received on such
shares. For this purpose, the special holding period rules of Code section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Capital losses in any year are deductible only to the extent of capital
gains plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident alien
individual, foreign trust or estate, foreign corporation, or foreign partnership
("foreign shareholder"), depends on whether the income from a Fund is
"effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from a Fund is not effectively connected with a U.S. trade or
business carried on by a foreign shareholder, ordinary income dividends paid to
the shareholder will be subject to U.S. withholding tax at the rate of 30% (or
lower applicable treaty rate) on the gross amount of the dividend. Such a
foreign shareholder would generally be exempt from U.S. federal income tax on
gains realized on the sale or redemption of shares of a Fund, capital gain
dividends, exempt-interest dividends, and amounts retained by a Fund that are
designated as undistributed capital gains.
If the income from a Fund is effectively connected with a U.S. trade or business
carried on by a foreign shareholder, then ordinary income and capital gain
dividends received in respect of, and any gains realized upon the sale of,
shares of the Fund will be subject to U.S. federal income tax at the rates
applicable to U.S. taxpayers.
In the case of a noncorporate foreign shareholder, a Fund may be required to
withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding (or subject to withholding at a reduced treaty
rate), unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits of
an applicable tax treaty may be different from those described herein. Foreign
shareholders are urged to consult their own tax advisers with respect to the
particular tax consequences to them of an investment in a Fund, including the
applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and Treasury Regulations issued thereunder as in effect on the
date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect.
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<PAGE>
Rules of state and local taxation of ordinary income dividends, exempt-interest
dividends and capital gain dividends from regulated investment companies may
differ from the rules for U.S. federal income taxation described above.
Shareholders are urged to consult their tax advisers as to the consequences of
these and other state and local tax rules affecting investment in a Fund.
MANAGEMENT OF THE TRUST
Trustees and Officers
The Trustees and Officers of the Trust, their addresses, principal occupations
during the past five years and other affiliations are as follows:
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<PAGE>
<TABLE>
<CAPTION>
Name, Address & Age Position Principal Occupation
During Past 5 Years and
Other Affiliations
<S> <C> <C>
* Samuel A. Ramirez President and Chairman Chairman, Ramirez Asset
Management, Inc. (1998 -
present); Chairman, Ramirez
& Co., Inc. (1972 - present)
*Alexander Vermitsky, Jr. Vice-President & Secretary Vice President, Ramirez
Asset Management, Inc.
(1998 - present); Vice
President - Compliance,
Ramirez & Co., Inc. (1973-
present)
*John Kick Vice-President & Treasurer Chief Financial Officer,
Ramirez Asset Management,
Inc. (1998-present); Chief
Financial Officer, Ramirez
& Co., Inc. (1995 -1998
present); formerly, Chief
Financial Officer, Barr
Brothers (1993-1995)
Alfonse Santagata Trustee Real Estate Consultant
(19__-present).
*Alan J. Dlugash Trustee Certified Public Accountant;
Dlugash & Kevelson (1990-
present).
Charles H. Falk Trustee Past President, Louis
Dreyfus Corporation (1996-
Present); formerly, President
Louis Dreyfus Corporation
(1984-1996).
Paul Voigt Trustee Retired; formerly Vice
President, Ramirez & Co.,
(1984-1994).
</TABLE>
* Interested Person of the Fund or the Adviser as defined in the 1940 Act.
- 30 -
<PAGE>
<TABLE>
<CAPTION>
Estimated Trustee Compensation
(For Calendar Year 1999)
Pension or Total
Retirement Compensation
Aggregate Benefits Accrued Estimated from Trust and
Name of Person/ Compensation as Part of Fund Annual Benefits Fund Complex*
Position from the Trust Expenses Upon Retirement Paid to Trustees
<S> <C> <C> <C> <C>
Samuel Ramirez, $0 $0 $0 $0
Trustee
Alexander Vermitsky, $0 $0 $0 $0
Trustee
John Kick, $0 $0 $0 $0
Trustee
Alfonse Sagata, $2000 $0 $0 $2000
Trustee
Alan J. Dlugash $2000 $0 $0 $2000
Trustee
Charles H. Falk $2000 $0 $0 $2000
Trustee
Paul Voigt, $2000 $0 $0 $2000
Trustee
=====================================================================================================
</TABLE>
*The "Fund Complex" includes only the Trust.
Each Trustee receives $500 per meeting attendance fee and reimbursement of
expenses incurred as a Trustee. As of the date of this SAI, the Trustees and
Officers of the Trust, as a group, owned less than 1% of the outstanding shares
of each Fund.
Advisory Services
Ramirez Asset Management, Inc. is the Investment Adviser to the Funds pursuant
to an Investment Advisory Agreement dated September 15, 1998. The Adviser is the
investment affiliate of Ramirez & Co., Inc. Ramirez & Co., Inc. has guaranteed
all obligations incurred by Ramirez Asset Management, Inc. in connection with
its Investment Advisory Agreement with the Funds. In its Investment Advisory
Agreement, the Adviser has agreed to pay all expenses incurred by it in
connection with its advisory activities, other than the cost of securities and
other
- 31 -
<PAGE>
investments, including brokerage commissions and other transaction charges, if
any, purchased or sold for the Funds.
Under its Investment Advisory Agreement, the Adviser is not liable for any error
of judgment or mistake of law or for any loss suffered by the Trust in
connection with the performance of such Agreement, except a loss resulting from
a breach of fiduciary duty with respect to the receipt of compensation for
services or a loss resulting from willful misfeasance, bad faith or gross
negligence on the part of the Adviser in the performance of its duties or from
its reckless disregard of its duties and obligations under the Agreement.
Unless sooner terminated, the Investment Advisory Agreement provides that it
will continue in effect until September 14, 2000 and for consecutive one year
terms thereafter, provided such continuance is approved at least annually by the
Trust's Board of Trustees or by a vote of a majority of the outstanding shares
of the Fund (as defined in the 1940 Act), and, in either case, by a majority of
the Trustees who are not parties to the contract or "interested persons" (as
defined in the 1940 Act) of any party by votes cast in person at a meeting
called for such purpose. The Advisory Agreement may be terminated by the Trust
or the Adviser on 60 days' written notice, and will terminate immediately in the
event of its assignment.
Ramirez & Co., Inc., an affiliate of the Adviser, serves as distributor for
shares of the Funds under a Distribution Agreement with the Trust which is
subject to annual approval by a majority of the Fund's Board of Trustees,
including a majority of directors who are not "interested persons."
The Adviser may from time to time and for such periods as it deems appropriate
voluntarily reduce its compensation hereunder (and/or voluntarily assume
expenses) for the Fund. The Adviser may, at any later date, recoup such amounts
after such time as the Adviser is no longer reducing its compensation and/or
assuming expenses for the Fund provided (i) that the aggregate expenses in the
year such amounts are recouped do not exceed any limitation to which the Adviser
has agreed and (ii) such recoupment occurs prior to the third anniversary of the
close of the fiscal year in which the fee was deferred or the expense
reimbursed.
Administration, Custody and Transfer Agent Services
Firstar Trust Company is the Trust's Administrator. Under the Administration
Agreement, the Administrator has agreed to provide the following administrative
services: (1) assist in maintaining office facilities for the Funds, furnish
clerical and certain other services required by the Funds; (2) compile data for
and prepare notices to the SEC; (3) prepare annual and semiannual reports to the
SEC and current shareholders and filings with state securities commissions; (4)
coordinate federal and state tax returns; (5) monitor the arrangements
pertaining to the Funds' agreements with shareholder organizations; (6) monitor
the Funds' expense accruals; (7) monitor compliance with the Funds' investment
policies and limitations;
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<PAGE>
and (8) generally assist the Funds' operations;
Trust's arrangements with respect to services provided by Shareholder
Organizations; and generally assist in the Funds' operations.
The Administration Agreement continues in effect until September 15, 1999 and
from year to year thereafter if such continuance is approved at least annually
by the Trust's Board of Trustees and by a majority of the Trustees who are not
parties to such Agreement or "interested persons" (as defined in the 1940 Act).
Firstar Trust Company serves as the Trust's Transfer Agent and Dividend
Disbursing Agent pursuant to a transfer agency agreement (the "Transfer Agency
Agreement") with the Trust. Under the Transfer Agency Agreement, Firstar has
agreed, among other things, to: (i) issue and redeem shares of the Funds; (ii)
transmit all communications by a Fund to its shareholders of record, including
reports to shareholders, dividend and distribution notices and proxy materials
for meetings of shareholders; (iii) respond to correspondence by shareholders
and others relating to its duties; (iv) maintain shareholder accounts; and (v)
make periodic reports to the Board of Trustees concerning each Fund's
operations. The Fund pays Firstar such compensation as may be agreed upon from
time to time. The Transfer Agency Agreement continues in effect until September
14, 2000 and from year to year thereafter if such continuance is approved at
least annually by the Trust's Board of Trustees and by a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of any
party, and such Agreement may be terminated by either party on 60 days' written
notice.
Firstar Trust Company (the "Custodian") serves as the Trust's custodian pursuant
to a custodian agreement (the "Custodian Agreement") with the Trust. The
Custodian is located at 615 East Michigan Street, Milwaukee, Wisconsin 53202.
Under the Custodian Agreement, the Custodian has agreed to (i) maintain a
segregated account or accounts in the name of each Fund; (ii) hold and disburse
portfolio securities on account of each Fund; (iii) collect and receive all
income and other payments and distributions on account of each Fund's portfolio
securities; (iv) respond to correspondence relating to its duties; and (v) make
periodic reports to the Trust's Board of Trustees concerning each Fund's
operations. The Custodian is authorized under the Custodian Agreement to select
one or more banks or trust companies to serve as sub-custodian on behalf of a
Fund, provided that the Custodian remains responsible for the performance of all
of its duties under the Custodian Agreement. The Custodian is entitled to
receive such compensation from the Fund as may be agreed upon from time to time.
Firstar and Starbank contemplate that a merger between the two institutions will
be consummated on or about November 1, 1998. All Firstar contracts were approved
in the current form and the Board of Trustees also approved the entry of the
Fund into similar agreements with the resultant entity post-merger in the event
of any potential assignment of the contracts.
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<PAGE>
Other Information Concerning Fees and Expenses. All or part of the fees payable
by any or all of the Funds to the organizations retained to provide services for
the Funds may be waived from time to time in order to increase such Funds' net
investment income available for distribution to shareholders.
Except as otherwise noted, the Adviser and the Administrator pay all expenses in
connection with the performance of their advisory and administrative services
respectively. The Trust bears the expenses incurred in its operations,
including: taxes; interest; fees (including fees paid to its Trustees who are
not affiliated with the Trust); fees payable to the SEC; costs of preparing
prospectuses for regulatory purposes and for distribution; advisory and
administration fees; charges of its custodian and transfer agent; certain
insurance costs; auditing and legal expenses; fees of independent pricing
services; costs of shareholders' reports and shareholder meetings, including
proxy statements and related materials; and any extraordinary expenses. Each
Fund also pays for brokerage fees and commissions, if any, in connection with
the purchase of portfolio securities.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any dealer or group of dealers in the
execution of transactions in portfolio securities. Subject to policy established
by the Trust's Board of Trustees, the Adviser is primarily responsible for the
Trust's portfolio decisions and the placing of the Trust's portfolio
transactions. It is the Fund's policy to seek execution of its purchases and
sales at the most favorable prices through responsible broker-dealers and in
agency transactions, at competitive commission rates. When considering
broker-dealers, the Fund will take into account such factors as the price of the
security, the size and difficulty of the order, the rate of commission, if any,
the reliability, financial condition, integrity and general execution and
operational capabilities of competing broker-dealers, and the brokerage and
research services which they provide to the Fund's management.
Portfolio securities normally will be purchased or sold from or to dealers
serving as market makers for the securities at a net price, which may include
dealer spreads and underwriting commissions. Purchases and sales of securities
on a stock exchange are effected through brokers who charge a commission. In the
over-the-counter market securities are generally traded on a "net" basis with
dealers acting as principal for their own accounts without a stated commission,
although the price of the security usually includes a profit to the dealer.
Newly issued securities are usually purchased from the issuer or an underwriter,
at prices including underwriting fees; other purchases and sales are usually
placed with those dealers from whom it appears that the best price or execution
will be obtained.
The Funds may sell portfolio securities prior to their maturity if market
conditions and other considerations indicate, in the opinion of the Adviser,
that such sale would be advisable. In addition, the Adviser may engage in
short-term trading when it believes it is consistent with the
- 34 -
<PAGE>
Fund's investment objective. Also, a security may be sold and another of
comparable quality may be simultaneously purchased to take advantage of what the
Adviser believes to be a temporary disparity in the normal yield relationships
of two securities. The frequency of portfolio transactions -- the Fund's
turnover rates -- will vary from year to year depending upon market conditions.
Because a high turnover rate increases transaction costs and the possibility of
taxable short-term gains (see "Dividends and Tax Status" in the Fund's
Prospectus), the Adviser weighs the added costs of short-term investment against
anticipated gains. The Adviser is generally responsible for the implementation,
or supervision of the implementation, of investment decisions, including the
allocation of principal business and portfolio brokerage, and the negotiation of
commissions.
Under the 1940 Act, persons affiliated with the Trust are prohibited from
dealing with the Trust as a principal in the purchase and sale of securities
unless the transaction is conducted in accordance with procedures established by
the Trust's Board of Trustees and complies in all other respects with certain
criteria or an exemptive order allowing such transactions is obtained from the
SEC. Affiliated persons of the Trust, or affiliated persons of such persons, may
from time to time be selected to execute portfolio transactions for the Trust as
agent. Subject to the considerations discussed above and in accordance with
procedures expected to be adopted by the Board of Trustees, in order for such an
affiliated person to be permitted to effect any portfolio transactions for the
Trust, the commissions, fees or other remuneration received by such affiliated
person must be reasonable and fair compared to the commissions, fees and other
remuneration received by other brokers in connection with comparable
transactions. This standard would allow such an affiliated person to receive no
more than the remuneration which would be expected to be received by an
unaffiliated broker in a commensurate arm's-length agency transaction.
Investment decisions for the Trust are made independently from those for other
funds and accounts advised or managed by the Adviser. Such other funds and
accounts may also invest in the same securities as the Trust. If those funds or
accounts are prepared to invest in, or desire to dispose of, the same security
at the same time as the Trust, however, transactions in such securities will be
made, insofar as feasible, for the respective funds and accounts in a manner
deemed equitable to all. In some cases, this procedure may adversely affect the
size of the position obtained for or disposed of by the Trust or the price paid
or received by the Trust. In addition, because of different investment
objectives, a particular security may be purchased for one or more funds or
accounts when one or more funds or accounts are selling the same security. To
the extent permitted by law, the Adviser may aggregate the securities to be sold
or purchased for the Trust with those to be sold or purchased for other funds or
accounts in order to obtain best execution.
The Trust reserves the right, in its sole discretion, to (i) suspend the
offering of shares of its Funds, and (ii) reject purchase orders when, in the
judgment of management, such suspension or rejection is in the best interest of
the Trust.
- 35 -
<PAGE>
Furthermore, if the Board of Trustees determines that it is in the best
interests of the remaining shareholders of the Fund, such Fund may pay the
redemption price, in whole or in part, by a distribution in kind.
Distribution Plans
The Funds' distributor is Ramirez & Co., Inc. Each Fund has adopted a Rule 12b-1
distribution plan which provides that such Fund will pay distribution fees at
annual rates of up to 0.25% of the average daily net assets attributable to its
shares. Payments under the distribution plan shall be used to compensate or
reimburse the Funds' distributor and broker-dealer for services provided and
expenses incurred in connection with the sale of shares, and are not tied to the
amount of actual expenses that are incurred. Some activities intended to promote
the sale of shares will be conducted generally by Ramirez Family of Funds, and
activities intended to promote Funds shares may also benefit the Funds' other
shares and other Ramirez Funds.
Ramirez & Co., Inc. may provide promotional incentives to broker-dealers that
meet specified sales targets for one or more Ramirez funds. These incentives may
include gifts of up to $100 per person annually; an occasional meal, ticket to a
sporting event or theater for entertainment for broker-dealers and their guests;
and payment for reimbursements for travel expenses, including lodging and meals
in connection with attendance at training and educational meetings within and
outside of the U.S.
Shareholder Organizations
As stated in the Funds' Prospectus, the Funds intend to enter into agreements
from time to time with Shareholder Organizations providing for support and/or
distribution services to customers of the Shareholder Organizations who are the
beneficial owners of Fund shares. Under the agreements, the Funds may pay
Shareholder Organizations up to 0.15% (on an annualized basis) of the average
daily net asset value of the shares beneficially owned by their customers.
Support services provided by Shareholder Organizations under their Service
Agreements or Distribution and Service Agreements may include: (i) processing
dividend and distribution payments from a Fund; (ii) providing information
periodically to customers showing their share positions; (iii) arranging for
bank wires; (iv) responding to customer inquiries; (v) providing sub-accounting
with respect to shares beneficially owned by customers or the information
necessary for sub-accounting; (vi) forwarding shareholder communications; (vii)
assisting in processing share purchase, exchange and redemption requests from
customers; (viii) assisting customers in changing dividend options, account
designations and addresses; and (ix) other similar services requested by the
Funds. In addition, under the Distribution and Service Plan, Shareholder
Organizations may provide assistance (such as the forwarding of sales literature
and advertising to their customers) in connection with the distribution of Fund
shares.
The Funds' arrangements with Shareholder Organizations under the agreements are
governed by two Plans (a Service Plan and a Distribution and Service Plan),
which have been adopted by the
- 36 -
<PAGE>
Board of Trustees. Because the Distribution and Service Plan contemplates the
provision of services related to the distribution of Fund shares (in addition to
support services), that Plan has been adopted in accordance with Rule 12b-1
under the 1940 Act. In accordance with the Plans, the Board of Trustees reviews,
at least quarterly, a written report of the amounts expended in connection with
the Funds' arrangements with Shareholder Organizations and the purposes for
which the expenditures were made. In addition, the Funds' arrangements with
Shareholder Organizations must be approved annually by a majority of the
Trustees, including a majority of the Trustees who are not "interested persons"
of the Funds as defined in the 1940 Act and have no direct or indirect financial
interest in such arrangements (the "Disinterested Trustees").
The Funds believe that there is a reasonable likelihood that their arrangements
with Shareholder Organizations have benefited each Fund and its shareholders as
a way of allowing Shareholder Organizations to participate with the Funds in the
provision of support and distribution services to customers of the Shareholder
Organizations who own Fund shares. Any material amendment to the arrangements
with Shareholder Organizations under the agreements must be approved by a
majority of the Board of Trustees (including a majority of the Disinterested
Trustees), and any amendment to increase materially the costs under the
Distribution and Service Plan with respect to a Fund must be approved by the
holders of a majority of the outstanding shares of the Fund involved. So long as
the Distribution and Service Plan is in effect, the selection and nomination of
the members of the Board of Trustees who are not "interested persons" (as
defined in the 1940 Act) of the Funds will be committed to the discretion of
such Disinterested Trustees.
Servicing Agreements. The Funds may enter into agreements (the "Servicing
Agreement") with certain financial institutions, banks and corporations (the
"Participating Organizations") so that each Participating Organization handles
record keeping and provides certain administrative services for its customers
who invest in the Funds through accounts maintained at that Participating
Organization. In such cases, the Participating Organization or one of its
nominees will be the shareholder of record as nominee for its customers and will
maintain subaccounts for its customers. In addition, the Participating
Organization will credit cash distributions to each customer account, process
purchase and redemption requests, mail statements of all transactions with
respect to each customer and if required by law, distribute the Trust's
shareholder reports and proxy statements. However, any customer of a
Participating Organization may become the shareholder of record upon written
request to its Participating Organization or transfer agent. Each Participating
Organization will receive monthly payments which in some cases may be based upon
expenses that the Participating Organization has incurred in the performance of
its services under the Servicing Agreement. The payments will not exceed, on an
annualized basis, an amount equal to 0.35% of the average daily net asset value
during the month of Fund shares in the subaccount of which the Participating
Organization is record owner as nominee for its customers. Such payments will be
separately negotiated with each Participating Organization and will vary
depending upon such factors as the services provided and the costs incurred by
each Participating Organization. The payments may be more or less than the fees
payable to Firstar Trust Company for the services it provides pursuant to the
Transfer Agency Agreement for similar services.
- 37 -
<PAGE>
The payments will be made by the Fund to the Participating Organizations
pursuant to the Servicing Agreements. Firstar Trust Company will not receive any
compensation as transfer or dividend disbursing agent with respect to the
subaccounts maintained by Participating Organizations. The Board of Trustees
will review, at least quarterly, the amounts paid and the purposes for which
such expenditures were made pursuant to the Servicing Agreements.
Under separate agreements, the Adviser (not the Funds) may make supplementary
payments from its own revenues to a Participating Organization that agrees to
perform services such as advising customers about the status of their
subaccounts, the current yield and dividends declared to date and providing
related services a shareholder may request. Such payments will vary depending
upon such factors as the services provided and the costs incurred by each
Participating Organization.
Investors who purchase and redeem shares of the Funds through a customer account
maintained at a Participating Organization may be charged one or more of the
following types of fees, as agreed upon by the Participating Organization and
the investor, with respect to the customer services provided by the
Participating Organization: account fees (a fixed amount per month or per year);
transaction fees (a fixed amount per transaction processed); compensating
balance requirements (a minimum dollar amount a customer must maintain in order
to obtain the services offered); or account maintenance fees (a periodic charge
based upon a percentage of the assets in the account or of the dividend paid on
those assets).
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP provides the Funds with audit services, tax return
review and assistance and consultation with respect to the preparation of
filings with the Securities and Exchange Commission.
COUNSEL
Kramer, Levin, Naftalis & Frankel, 919 Third Avenue, New York, New York 10022,
serves as counsel to the Trust and will pass upon the legality of the shares
offered by the Funds' Prospectus.
- 38 -
<PAGE>
YIELD AND OTHER PERFORMANCE INFORMATION
From time to time each Fund may quote its "yield" and "effective yield," and the
New York Tax-Free Fund may also quote its "tax-equivalent yield," in
advertisements or in communications to shareholders. Each yield figure is based
on historical earnings and is not intended to indicate future performance. The
"yield" of a Fund refers to the income generated by an investment in
the Fund over a seven-day period identified in the advertisement. This income is
then "annualized." That is, the amount of income generated by the investment
during that week is assumed to be generated each week over a 52-week period and
is shown as a percentage of the investment. The "effective yield" is calculated
similarly but, when annualized, the income earned by an investment in the Fund
is assumed to be reinvested. The "effective yield" will be slightly higher than
the "yield" because of the compounding effect of this assumed reinvestment. The
"yield" and "effective yield" of each Fund are calculated according to formulas
prescribed by the SEC. The standardized seven-day yield for each Fund is
computed separately by determining the net change, exclusive of capital changes
and income other than investment income, in the value of a hypothetical
pre-existing account in the particular Fund involved having a balance of one
share at the beginning of the period, dividing the net change in account value
by the value of the account at the beginning of the base period to obtain the
base period return, and multiplying the base period return by (365/7). The net
change in the value of an account in a Fund includes the value of additional
shares purchased with dividends from the original share, and dividends declared
on both the original share and any such additional shares and all fees, other
than nonrecurring account sales charges, that are charged to all shareholder
accounts in proportion to the length of the base period and the Fund's average
account size. The capital changes to be excluded from the calculation of the net
change in account value are realized gains and losses from the sale of
securities and unrealized appreciation and depreciation. The effective
annualized yield for each Fund is computed by compounding a particular Fund's
unannualized base period return (calculated as above) by adding 1 to the base
period return, raising the sum to a power equal to 365 divided by 7, and
subtracting one from the result. The fees which may be imposed by financial
intermediaries directly on their customers for cash management services are not
reflected in the Trust's calculations of yields for the Funds.
The "tax-equivalent yield" of the New York Tax-Free Fund shows the level of
taxable yield needed to produce an after-tax equivalent to the Fund's tax-free
yield. This is done by increasing the Fund's yield (calculated as above) by the
amount necessary to reflect the payment of federal income tax at a stated tax
rate. The Fund's standardized "tax-equivalent yield" is computed by: (a)
dividing the portion of the Fund's yield (as calculated above) that is exempt
from federal income tax by one minus a stated federal income tax rate; and (b)
adding the figure resulting from (a) above to that portion, if any, of the
Fund's yield that is not exempt from federal income tax. The "tax-equivalent
yield" will always be higher than the "yield" of the New York Tax-Free Fund.
- 39 -
<PAGE>
Each Fund may compute "average annual total return." Average annual total return
reflects the average annual percentage change in value of an investment in
shares of a series over the measuring period. Each Fund may compute aggregate
total return, which reflects the total percentage change in value over the
measuring period.
Additionally, the total return and yields of the Funds may be compared in such
advertisements or reports to shareholders to those of other mutual funds with
similar investment objectives and to other relevant indices or to rankings
prepared by independent services or other financial or
industry publications that monitor the performance of mutual funds. For example,
the yields of the Money Market Fund and the Institutional Money Market Fund may
be compared to the Donoghue's Money Fund Average, the yields of the U.S.
Treasury Money Market Fund and the U.S. Government Money Market Fund may be
compared to the Donoghue's Government Money Fund Average, and the yields of the
New York Tax-Free Fund may be compared to the Donoghue's Tax-Free Money Fund
Average, which are averages compiled by IBC/Donoghue's Money Fund Report, a
widely recognized independent publication that monitors the performance of money
market funds. In addition, the yields of the Money Market, Institutional Money
Market, U.S. Treasury Money Market and the U.S. Government Money Market Funds
may be compared to the average yields reported by the Bank Rate Monitor for
money market deposit accounts offered by the 50 leading banks and thrift
institutions in the top five standard metropolitan statistical areas.
Yield data and total return as reported in national financial publications
including Forbes, Barron's, Morningstar Mutual Funds, The Wall Street Journal
and The New York Times, or in publications of a local or regional nature, may
also be used in comparing the yields of the Funds.
Since performance fluctuates, performance data cannot necessarily be used to
compare an investment in a Fund's shares with bank deposits, savings accounts
and similar investment alternatives which often provide an agreed or guaranteed
fixed yield for a stated period of time. Investors should remember that
performance and yield are generally functions of the kind and quality of the
instruments held in a portfolio, portfolio maturity, operating expenses, and
market conditions. Any fees charged by Shareholder Organizations directly to
their customer accounts in connection with investments in shares of the Funds
will not be included in the Funds' calculations of yield and total return.
OTHER INFORMATION
The Prospectus and this Statement of Additional Information do not contain all
the information included in the Registration Statement filed with the SEC under
the Securities Act of 1933 with respect to the securities offered by the
Prospectus. Certain portions of the Registration Statement have been omitted
from the Prospectus and this Statement of Additional Information pursuant
- 40 -
<PAGE>
to the rules and regulations of the SEC. The Registration Statement including
the exhibits filed therewith may be examined at the office of the SEC in
Washington, D.C.
Statements contained in the Prospectus or in this Statement of Additional
Information as to the contents of any contract or other document referred to are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement of which the Prospectus and this Statement of Additional Information
form a part, each such statement being qualified in all respects by such
reference.
FINANCIAL STATEMENTS
The Funds Statement of Assets and Liabilities as of September 30, 1998, has been
audited by PricewaterhouseCoopers LLP and is attached to this Statement of
Additional Information.
- 41 -
<PAGE>
Report of Independent Accountants
To the Shareholder and Board of Trustees of
the Ramirez Trust
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of each of the portfolios of The Ramirez Trust (the "Trust")
at September 28, 1998 and the results of each of their operations for the period
indicated, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the funds' management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
September 30, 1998
- 42 -
<PAGE>
The Ramirez Trust
Statement of Assets and Liabilities
September 28, 1998
<TABLE>
<CAPTION>
Ramirez Ramirez Ramirez
Cash New York U.S.
Management Tax-Free Treasury
Money Money Money
Market Fund Market Market
Assets fund Fund
<S> <C> <C> <C>
Cash $90,000 $9,900 $ 10
Receivable from sponsor 33,978 34,530 -
Prepaid initial registration expenses 4,535 950 -
-------- ------- ---------
Total Assets 128,513 45,470 10
------- ------- --------
LIABILITIES
Payable to sponsor 38,513 35,480 -
-------- ------ ---------
Total Liabilities 38,513 35,480 -
-------- ------ ---------
NET ASSETS $ 90,000 $ 9,990 $ 10
-------- ------- ---------
Capital shares, $0.001 par value,
indefinite shares authorized per $ 90,000 9,990 10
-------- ------- ---------
portfolio
Net asset value, offering and
redemption price per share (net $ 1.00 $ 1.00 $ 1.00
--------- -------- -------
assets/shares outstanding)
</TABLE>
- 43 -
<PAGE>
See accompanying notes to the financial statements
The Ramirez Trust
Statement of Operations
For the Period June 30, 1998 (inception) through September 28, 1998
<TABLE>
<CAPTION>
Ramirez Ramirez Ramirez
Cash New York U.S.
Management Tax-Free Treasury
Money Money Money
Market Market Market
EXPENSES Fund Fund Fund
<S> <C> <C> <C>
Organizational expenses $ 33,978 $ 34,530 $--
Less: Expenses paid by sponsor $(33,978) $(34,530) $--
-------- -------- --
Prepaid initial registration expenses
Net income/(loss) $ 0 $ 0 $0
-------- -------- --
</TABLE>
See accompanying notes to the financial statements
- 44 -
<PAGE>
The Ramirez Trust
Notes to the Financial Statements
For the Period June 30, 1998 (inception) through September 28, 1998
1. Organization
The Ramirez Trust (the "Trust") was organized as a Delaware business
trust on June 30, 1998 and is registered under the Investment Company
Act of 1940, as amended (the "1940 Act"), as an open-end management
investment company issuing its shares in series, each series
representing a distinct portfolio with its own investment objectives and
policies. The series presently authorized are the Ramirez Cash
Management Money Market Fund (the "Cash Management Fund"), the Ramirez
New York Tax-Free Money Market Fund (the "New York Tax-Free Fund") and
the Ramirez U.S. Treasury Money Market Fund (the "U.S. Treasury Fund")
(collectively referred to as the "Funds"). Pursuant to the 1940 Act, the
Cash Management Fund and U.S. Treasury Fund are "diversified" series of
the Trust and the New York Tax-Free Fund is a "non-diversified" series
of the Trust. The funds have had no operations other than those relating
to organizational matters, including the sale of 90,000 shares for each
in the amount of $90,000 of the Cash Management Fund, 9,990 shares for
cash in the amount of $9,990 of the New York Tax Free Fund and 10 shares
for cash in the amount of $10 of the U.S. Treasury Fund to capitalize
the Funds, which were sold to Ramirez Asset Management, Inc. (the
"Adviser"), on September 28, 1998. There are currently no plans to offer
U.S. Treasury Fund shares for sale to the public.
2. Significant Accounting Policies
(a) Organization and Prepaid Initial Registration Expenses
Expanses incurred by the Trust in connection with the
organization and the initial public offering of shares are
expenses as incurred. These expenses were advance by the Adviser,
and the Adviser has agreed to voluntarily reimburse the funds'
for these expenses, subject to potential recovery (see Note 3).
Prepaid initial registration expenses are deferred and amortized
over the period of benefit.
(b) Federal Income Taxes
Each Fund intends to comply with the requirements of the Internal
Revenue Code necessary to qualify as a regulated investment
company and to make the requisite distributions of income and
capital gains to their shareholders sufficient to relieve it from
all or substantially all Federal income taxes.
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<PAGE>
3. Investment Adviser
The Trust has an Investment Advisory Agreement (the "Agreement") with
the Adviser, with whom certain officers and Trustees of the Trust are
affiliated, to furnish investment advisory services to the funds. Under
the terms of the Agreement, the Trust, on behalf of the Funds,
compensates the Adviser for its management services at the annual rate
of 0.35% of the respective Fund's average daily net assets.
The Adviser has agreed to voluntarily waive its management fee and/or
reimburse the Funds' other expenses, including organization expenses, to
the extent necessary to ensure that each of the funds' operating
expenses, do not exceed 0.85% of its average daily net assets. Any such
waiver or reimbursement is subject to later adjustment to allow the
Adviser to recoup amounts waived or reimbursed to the extent actual fees
and expenses for a period are less than the expense limitation caps,
provided, however, that the Adviser shall only be entitled to recoup
such amounts for a period of three years from the date such amount was
waived or reimbursed.
4. Distribution Plan
The Trust, on behalf of each of the Funds, has adopted a distribution
plan pursuant to Rule 12b-1 under the 1940 Act (the "12b-1 Plan"), which
provides that such Fund will pay distribution fees to Ramirez & Co.,
Inc. (the "Distributor") at annual rates of up to 0.25% of the average
daily net assets attributable to its shares. Payments under the
distribution plan shall be used to compensate or reimburse the Funds'
distributor for services provided and expenses incurred in connection
with the sale of shares, and are not tied to the amount of actual
expenses incurred.
- 46 -
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS
Commercial Paper Ratings
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. The following summarizes the rating categories used by Standard and
Poor's for commercial paper.
"A-1" - Issue's degree of safety regarding timely payment is strong. Those
issues determined to possess extremely strong safety characteristics are denoted
"A-1+."
"A-2" - Issue's capacity for timely payment is satisfactory. However, the
relative degree of safety is not as high as for issues designated "A-1."
"A-3" - Issue has an adequate capacity for timely payment. It is, however,
somewhat more vulnerable to the adverse effects of changes and circumstances
than an obligation carrying a higher designation.
"B"- Issue has only a speculative capacity for timely payment.
"C" - Issue has a doubtful capacity for payment.
"D" - Issue is in payment default.
Moody's commercial paper ratings are opinions of the ability of issuers to repay
punctually promissory obligations not having an original maturity in excess of 9
months. The following summarizes the rating categories used by Moody's for
commercial paper:
"Prime-1" - Issuer or related supporting institutions are considered to have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
leading market positions in well-established industries; high rates of return on
funds employed; conservative capitalization structures with moderate reliance on
debt and ample asset protection; broad margins in earning coverage of fixed
financial charges and high internal cash generation; and well-established access
to a range of financial markets and assured sources of alternate liquidity.
"Prime-2" - Issuer or related supporting institutions are considered to have a
strong capacity for repayment of short-term promissory obligations. This will
normally be evidenced by many of the characteristics cited above but to a lesser
degree. Earnings trends and coverage ratios, while sound, will be more subject
to variation. Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternative liquidity is maintained.
Appendix A-1
<PAGE>
"Prime-3" - Issuer or related supporting institutions have an acceptable
capacity for repayment of short-term promissory obligations. The effects of
industry characteristics and market composition may be more pronounced.
Variability in earnings and profitability may result in changes in the level of
debt protection measurements and the requirement for relatively high financial
leverage. Adequate alternate liquidity is maintained.
"Not Prime" - Issuer does not fall within any of the Prime rating categories.
The three rating categories of Duff & Phelps for investment grade commercial
paper and short-term debt are "D- 1," "D- 2" and "D- 3." Duff & Phelps employs
three designations, "D- 1+," " D- 1" and "D- 1-," within the highest rating
category. The following summarizes the rating categories used by Duff & Phelps
for commercial paper:
"D-1+" - Debt possesses highest certainty of timely payment. Short-term
liquidity, including internal operating factors and/or access to alternative
sources of funds, is outstanding, and safety is just below risk-free U.S.
Treasury short-term obligations.
"D-1" - Debt possesses very high certainty of timely payment. Liquidity factors
are excellent and supported by good fundamental protection factors. Risk factors
are minor.
"D-1-" - Debt possesses high certainty of timely payment. Liquidity factors are
strong and supported by good fundamental protection factors. Risk factors are
very small.
"D-2" - Debt possesses good certainty for timely payment. Liquidity factors and
company fundamentals are sound. Although ongoing funding needs may enlarge total
financing requirements, access to capital markets is good. Risk factors are
small.
"D-3" - Debt possesses satisfactory liquidity, and other protection factors
qualify issue as investment grade. Risk factors are larger and subject to more
variation. Nevertheless, timely payment is expected.
"D-4" - Debt possesses speculative investment characteristics. Liquidity is not
sufficient to insure against disruption in debt service. Operating factors and
market access may be subject to a high degree of variation.
"D-5" - Issuer failed to meet scheduled principal and/or interest payments.
Fitch IBCA short-term ratings apply to debt obligations that are payable on
demand or have original maturities of generally up to three years. The following
summarizes the rating categories used by Fitch IBCA for short-term obligations:
"F-1+" - Securities possess exceptionally strong credit quality. Issues assigned
this rating are regarded as having the strongest degree of assurance for timely
payment.
Appendix A-2
<PAGE>
"F-1" - Securities possess highest credit quality. Issues assigned this rating
reflect an assurance of timely payment only slightly less in degree than issues
rated "F-1+."
"F-2" - Securities possess good credit quality. Issues assigned this rating have
a satisfactory degree of assurance for timely payment, but the margin of safety
is not as great as the "F-1+" and "F-1" categories.
"F-3" - Securities possess fair credit quality. Issues assigned this rating have
characteristics suggesting that the degree of assurance for timely payment is
adequate; however, near-term adverse changes could cause these securities to be
rated below investment grade.
"B" - Securities are speculative. Issues assigned this rating have
characteristics suggesting a minimal degree of assurance for timely payment and
are vulnerable to near-term adverse changes in financial and economic
conditions.
"C" - Default is a real possibility for these securities. Capacity for meeting
financial commitments is solely reliant upon a sustained, favorable business and
economic environment.
"D" - Securities are in actual or imminent payment default.
Fitch IBCA may also use the symbol "LOC" with its short-term ratings to indicate
that the rating is based upon a letter of credit issued by a commercial bank.
Thomson BankWatch short-term ratings assess the likelihood of an untimely
payment of principal or interest of unsubordinated instruments having a maturity
of one year or less which is issued by United States commercial banks, thrifts
and non-bank banks; non-United States banks; and broker-dealers. The following
summarizes the ratings used by Thomson BankWatch:
"TBW-1" - This designation represents Thomson BankWatch's highest rating
category and indicates a very high likelihood that principal and interest will
be paid on a timely basis.
"TBW-2" - This designation indicates that 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" - This designation represents the lowest investment grade category and
indicates that while the debt is more susceptible to adverse developments (both
internal and external) than obligations with higher ratings, the capacity to
service principal and interest in a timely fashion is considered adequate.
"TBW-4" - This designation indicates that the debt is regarded as non-investment
grade and therefore speculative. Corporate and Municipal Long-Term Debt Ratings.
Appendix A-3
<PAGE>
The following summarizes the ratings used by Standard & Poor's for corporate and
municipal debt:
"AAA" - This designation represents the highest rating assigned by Standard &
Poor's to a debt obligation and indicates an extremely strong capacity to pay
interest and repay principal.
"AA" - Debt is considered to have a very strong capacity to pay interest and
repay principal and differs from AAA issues only in small degree.
"A" - Debt is considered to have a strong capacity to pay interest and repay
principal although such issues are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt in
higher-rated categories.
"BBB" - Debt is regarded as having an adequate capacity to pay interest and
repay principal. Whereas such issues normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than in higher-rated categories.
"BB," "B," "CCC," "CC," and "C" - Debt is regarded, on balance, as predominantly
speculative with respect to capacity to pay interest and repay principal in
accordance with the terms of the obligation. "BB" indicates the lowest degree of
speculation and "C" the highest degree of speculation. While such debt will
likely have some quality and protective characteristics, these are outweighed by
large uncertainties or major risk exposures to adverse conditions.
"CI" - This rating is reserved for income bonds on which no interest is being
paid.
"D" - Debt is in payment default. This rating is used when interest payments or
principal payments are not made on the date due, even if the applicable grace
period has not expired, unless S&P believes such payments will be made during
such grace period. Rating is also used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
PLUS (+) OR MINUS (-) - The ratings from "AA" through "CCC" may be modified by
the addition of a plus or minus sign to show relative standing within the major
rating categories.
"r" - This rating is attached to highlight derivative, hybrid, and certain other
obligations that S & P believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such
obligations are: securities whose principal or interest return is indexed to
equities, commodities, or currencies; certain swaps and options; and interest
only and principal only mortgage securities.
The following summarizes the ratings used by Moody's for corporate and municipal
long-term debt:
Appendix A-4
<PAGE>
"Aaa" - Bonds 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 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 risks appear somewhat larger than in "Aaa" securities.
"A" - Bonds possess many favorable investment attributes and are to be
considered as upper medium-grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
"Baa" - Bonds considered medium-grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
"Ba," "B," "Caa," "Ca," and "C" - Bonds that possess one of these ratings
provide questionable protection of interest and principal ("Ba" indicates some
speculative elements; "B" indicates a general lack of characteristics of
desirable investment; "Caa" represents a poor standing; "Ca" represents
obligations which are speculative in a high degree; and "C" represents the
lowest rated class of bonds). "Caa," "Ca" and "C" bonds may be in default.
Con. ( ) - Bonds for which the security depends upon the completion of some act
or the fulfillment of some condition are rated conditionally. These are bonds
secured by (a) earnings of projects under construction, (b) earnings of projects
unseasoned in operation experience, (c) rentals which begin when facilities are
completed, or (d) payments to which some other limiting condition attaches.
Parenthetical rating denotes the probable credit stature upon completion of
construction or elimination of basis of condition.
(P) - When applied to forward delivery bonds, indicates that the rating is
provisional pending delivery of the bonds. The ratings may be revised prior to
delivery if changes occur in the legal documents or the underlying credit
quality of the bonds.
Moody's applies numerical modifiers 1, 2 and 3 in each generic classification
from "Aa" to "B" in its bond rating system. The modifier 1 indicates that the
issuer ranks in the higher end of its
Appendix A-5
<PAGE>
generic rating category; the modifier 2 indicates a mid-range ranking; and the
modifier 3 indicates that the issuer ranks at the lower end of its generic
rating category.
The following summarizes the long-term debt ratings used by Duff & Phelps for
corporate and municipal long-term debt:
"AAA" - Debt is considered to be of the highest credit quality. The risk factors
are negligible, being only slightly more than for risk-free U.S. Treasury debt.
"AA" - Debt is considered of high quality. Protection factors are strong. Risk
is modest but may vary slightly from time to time because of economic
conditions.
"A" - Debt possesses protection factors which are average but adequate. However,
risk factors are more variable and greater in periods of economic stress.
"BBB" - Debt possesses below average protection factors but such protection
factors are still considered sufficient for prudent investment. Considerable
variability in risk is present during economic cycles.
"BB," "B," "CCC," "DD," and "DP" - Debt that possesses one of these ratings is
considered to be below investment grade. Although below investment grade, debt
rated "BB" is deemed likely to meet obligations when due. Debt rated "B"
possesses the risk that obligations will not be met when due. Debt rated "CCC"
is well below investment grade and has considerable uncertainty as to timely
payment of principal, interest or preferred dividends. Debt rated "DD" is a
defaulted debt obligation, and the rating "DP" represents preferred stock with
dividend arrearages.
To provide more detailed indications of credit quality, the "AA," "A," "BBB,"
"BB" and "B" ratings may be modified by the addition of a plus (+) or minus (-)
sign to show relative standing within these major categories.
The following summarizes the highest four ratings used by Fitch IBCA for
corporate and municipal bonds:
"AAA" - bonds considered to be investment grade and of the highest credit
quality. The obligor has an exceptionally strong ability to pay interest and
repay principal, which is unlikely to be affected by reasonably foreseeable
events.
"AA" - Bonds considered to be investment grade and of very high credit quality.
The obligor's ability to pay interest and repay principal is very strong,
although not quite as strong as bonds rated "AAA." Because bonds rated in the
"AAA" and "AA" categories are not significantly vulnerable to foreseeable future
developments, short-term debt of these issuers is generally rated "F-1+."
Appendix A-6
<PAGE>
"A" - Bonds considered to be investment grade and of high credit quality. The
obligor's ability to pay interest and repay principal is considered to be
strong, but may be more vulnerable to adverse changes in economic conditions and
circumstances than bonds with higher ratings.
"BBB" - Bonds considered to be investment grade and of good credit quality. The
obligor's ability to pay interest and repay principal is considered to be
adequate. Adverse changes in economic conditions and circumstances, however, are
more likely to have an adverse impact on these bonds, and, therefore, impair
timely payment. The likelihood that the ratings of these bonds will fall below
investment grade is higher than for bonds with higher ratings.
To provide more detailed indications of credit quality, the Fitch IBCA ratings
from and including "AA" to "BBB" may be modified by the addition of a plus (+)
or minus (-) sign to show relative standing within these major rating
categories.
Thomson BankWatch assesses the likelihood of an untimely repayment of principal
or interest over the term to maturity of long-term debt and preferred stock
which are issued by United States commercial banks, thrifts and non-bank banks;
non-United States banks; and broker-dealers. The following summarizes the rating
categories used by Thomson BankWatch for long-term debt ratings:
"AAA" - This designation represents the highest category assigned by Thomson
BankWatch to long-term debt and indicates that the ability to repay principal
and interest on a timely basis is very high.
"AA" - This designation indicates a very strong ability to repay principal and
interest on a timely basis with limited incremental risk versus issues rated in
the highest category.
"A" - This designation indicates that 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" - This designation represents Thomson BankWatch's lowest investment grade
category and indicates an acceptable capacity to repay principal and interest.
Issues rated "BBB" are, however, more vulnerable to adverse developments (both
internal and external) than obligations with higher ratings.
"BB," "B," "CCC," and "CC" - These designations are assigned by Thomson
BankWatch to non-investment grade long-term debt. Such issues are regarded as
having speculative characteristics regarding the likelihood of timely payment of
principal and interest. "BB" indicates the lowest degree of speculation and "CC"
the highest degree of speculation.
"D" - this designation indicates that the long-term debt is in default.
Appendix A-7
<PAGE>
PLUS (+) OR MINUS (-) - The ratings from "AAA" through "CC" may include a plus
or minus sign designation which indicates where within the respective category
the issue is placed.
Municipal Note Ratings
A Standard and Poor's rating reflects the liquidity concerns and market access
risks unique to notes due in three years or less. The following summarizes the
ratings used by Standard & Poor's Rating Group for municipal notes:
"SP-1" - The issuers of these municipal notes exhibit very strong or strong
capacity to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a plus (+) designation.
"SP-2" - The issuers of these municipal notes exhibit satisfactory capacity to
pay principal and interest.
"SP-3" - The issuers of these municipal notes exhibit speculative capacity to
pay principal and interest.
Moody's ratings for state and municipal notes and other short-term loans are
designated Moody's Investment Grade ("MIG") and variable rate demand obligations
are designated Variable Moody's Investment Grade ("VMIG"). Such ratings
recognize the differences between short-term credit risk and long-term risk. The
following summarizes the ratings by Moody's Investors Service, Inc. for
short-term notes:
"MIG-1" / "VMIG-1" - Loans bearing this designation are of the best quality,
enjoying strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
"MIG-2" / ""VMIG-2" - Loans bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
"MIG-3" / "VMIG-3" - Loans bearing this designation are of favorable quality,
with all security elements accounted for but lacking the undeniable strength of
the preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
"MIG-4" / "VMIG-4" - Loans bearing this designation are of adequate quality,
carrying specific risk but having protection commonly regarded as required of an
investment security and not distinctly or predominantly speculative.
"SG" - Loans bearing this designation are of speculative quality and lack
margins of protection.
Appendix A-8
<PAGE>
Duff & Phelps and Fitch IBCA use the short-term ratings described under
commercial Paper Ratings for Municipal notes.
Appendix A-9
<PAGE>
APPENDIX B
RISK FACTORS--INVESTING IN NEW YORK MUNICIPAL OBLIGATIONS
The financial condition of New York State (the "State") and certain of its
public bodies (the "Agencies") and municipalities, particularly New York City
(the "City"), could affect the market values and marketability of New York
Municipal Obligations which may be held by the Fund. The following information
constitutes only a brief summary, does not purport to be a complete description,
and is based on information drawn from official statements relating to
securities offerings of the State, the City and the Municipal Assistance
Corporation for the City of New York ("MAC") available as of the date of this
Statement of Additional Information. While the Fund has not independently
verified such information, it has no reason to believe that such information is
not correct in all material respects.
The State's budget for the 1997-98 fiscal year was enacted by the Legislature on
August 4, 1997, more than four months after the start of the fiscal year on
April 1. Prior to adoption of the budget, the Legislature enacted appropriations
for disbursements considered to be necessary for State operations and other
purposes, including all necessary appropriations for debt service. The State
Financial Plan for the 1997-98 fiscal year was formulated on August 11, 1997 and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor, as well as actual results for the first quarter of the 1997-98
fiscal year.
After adjustments for comparability between fiscal years, the adopted 1997-98
budget projects an increase in General Fund disbursements of $1.7 billion or
5.2% over 1996-97 levels. The average annual growth rate over the last three
fiscal years has been 1.2%. Adjusted State Funds (excluding Federal grants)
disbursements are projected to increase by 5.4% from the 1996-97 fiscal year.
All Governmental Funds projected disbursements increase by 7.0% over the prior
fiscal year, after adjustments for comparability.
The 1997-98 State Financial Plan is projected to be balanced on a cash basis.
The Financial Plan projections include a reserve for future needs of $530
million. As compared to the Governor's Executive Budget as amended in February
1997, the State's adopted budget for 1997-98 increases General Fund spending by
$1.7 billion, primarily from increases for local assistance ($1.3 billion).
Resources used to fund these additional expenditures include increased revenues
projected for the 1997-98 fiscal year, increased resources produced in the
1996-97 fiscal year that will be utilized in 1997-98, reestimates of social
service, fringe benefit and other spending, and certain non-recurring resources.
Total non-recurring resources included in the 1997-98 Financial Plan are
projected by State Division of the Budget ("DOB") to be $270 million, or 0.7% of
total General Fund receipts.
The 1997-98 adopted budget includes multi-year tax reductions, including a State
funded property and local income tax reduction program, estate tax relief,
utility gross receipts tax reductions, permanent reductions in the State sales
tax on clothing, and elimination of
Appendix B-1
<PAGE>
assessments on medical providers. These reductions are intended to reduce the
overall level of State and local taxes in New York and to improve the State's
competitive position vis-a-vis other states. The various elements of the State
and local tax and assessment reductions have little or no impact on the 1997-98
Financial Plan, and do not begin to materially affect the outyear projections
until the State's 1999-2000 fiscal year.
The 1997-98 Financial Plan also includes: a projected General Fund reserve of
$530 million; a projected balance of $332 million in the Tax Stabilization
Reserve Fund; and a projected $65 million balance in the Contingency Reserve
Fund.
The major factor affecting the General Fund GAAP-basis results for 1996-97 and
the projections for 1997-98 is the 1996-97 cash-basis surplus, which helped
produce a GAAP-basis surplus in the 1996-97 fiscal year of $1.93 billion. The
use of this cash-basis surplus to fund liabilities in the 1997-98 fiscal year,
offset by the $494 million change in the projected 1997-98 cash-basis fund
balance, is the primary reason for the projected 1997-98 GAAP-basis deficit of
$959 million. This represents an increase of $191 million from the prior
projection, issued in January 1997 as part of the 1997-98 Executive Budget. The
new projection reflects the impact of legislative changes to the Executive
Budget, and the increase in the 1996-97 cash-basis surplus since that time.
Across the two fiscal years, the General Fund accumulated deficit is projected
to be reduced by $974 million to $1.95 billion.
For 1997-98, total revenues in the General Fund are projected at $33.37 billion,
total expenditures are projected at $34.66 billion, and net operating sources
and uses are projected to contribute $331 million. For all governmental funds,
total revenues are projected at $67.48 billion, total expenditures are projected
at $68.24 billion, and financing uses are projected to exceed financing sources
by $220 million. The all governmental funds GAAP-basis Financial Plan
projections show a deficiency of revenues and other financing sources over
expenditures and other financing uses of $979 million, after a reported 1996-97
all funds surplus of $2.1 billion. The State Financial Plan was based upon
forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies. Many uncertainties exist in forecasts of
both the national and State economies, including consumer attitudes toward
spending, Federal financial and monetary policies, the availability of credit
and the condition of the world economy, which could have an adverse effect on
the State. There can be no assurance that the State economy will not experience
worse-than-predicted results, with corresponding material and adverse effects on
the State's projections of receipts and disbursements.
There can be no assurance that the State will not face substantial potential
budget gaps in future years resulting from a significant disparity between tax
revenues projected from a lower recurring receipts base and the spending
required to maintain State programs at current levels. To address any potential
budgetary imbalance, the State may need to take significant actions to align
recurring receipts and disbursements in future fiscal years.
Appendix B-2
<PAGE>
On June 6, 1990, Moody's changed its ratings on all the State's outstanding
general obligation bonds from A1 to A. On March 26, 1990 and January 13, 1992,
S&P changed its ratings on all of the State's outstanding general obligation
bonds from AA- to A and from A to A-, respectively. In February 1991, Moody's
lowered its rating on the City's general obligation bonds from A to Baa1 and in
July 1995, S&P lowered its rating on such bonds from A- to BBB+. Ratings reflect
only the respective views of such organizations, and their concerns about the
financial condition of New York State and City, the debt load of the State and
City and any economic uncertainties about the region. There is no assurance that
a particular rating will continue for any given period of time or that any such
rating will not be revised downward or withdrawn entirely if, in the judgment of
the agency originally establishing the rating, circumstances so warrant.
(1) The State, Agencies and Other Municipalities. During the mid-1970s, some of
the Agencies and municipalities (in particular, the City) faced extraordinary
financial difficulties, which affected the State's own financial condition.
These events, including a default on short-term notes issued by the New York
State Urban Development Corporation ("UDC") in February 1975, which default was
cured shortly thereafter, and a continuation of the financial difficulties of
the City, created substantial investor resistance to securities issued by the
State and by some of its municipalities and Agencies. For a time, in late 1975
and early 1976, these difficulties resulted in a virtual closing of public
credit markets for State and many State related securities.
In response to the financial problems confronting it, the State developed and
implemented programs for its 1977 fiscal year that included the adoption of a
balanced budget on a cash basis (a deficit of $92 million that actually resulted
was financed by issuing notes that were paid during the first quarter of the
State's 1978 fiscal year). In addition, legislation was enacted limiting the
occurrence of additional so-called "moral obligation" and certain other Agency
debt, which legislation does not, however, apply to MAC debt.
GAAP-Basis Results--1996-97 Fiscal Year. The State completed its 1996-97 fiscal
year with a combined Governmental Funds operating surplus of $2.1 billion, which
included an operating surplus in the General Fund of $1.9 billion, in Capital
Projects Funds of $98 million and in the Special Revenue Funds of $65 million,
offset in part by an operating deficit of $37 million in the Debt Service Funds.
GAAP-Basis Results--1995-96 Fiscal Year. The State completed its 1995-96 fiscal
year with a combined Governmental Funds operating surplus of $432 million, which
included an operating surplus in the General Fund of $380 million, in the
Capital Projects Funds of $276 million and in the Debt Service Funds of $185
million. There was an operating deficit of $409 million in the Special Revenue
Funds. The State's Combined Balance Sheet as of March 31, 1996 showed an
accumulated deficit in its combined Governmental Funds of $1.23 billion,
reflecting liabilities of $14.59 billion and assets of $13.35 billion. This
accumulated Governmental Funds deficit includes a $2.93 billion accumulated
deficit in the General Fund and an accumulated deficit of
$712 million in the Capital Projects Fund type as partially offset by
accumulated surpluses of
Appendix B-3
<PAGE>
$468 million and $1.94 billion in the Special Revenue and Debt Service Fund
types, respectively.
GAAP-Basis Results--1994-95 Fiscal Year. The State's Combined Balance Sheet as
of March 31, 1995 showed an accumulated deficit in its combined Governmental
Funds of $1.666 billion reflecting liabilities of $14.778 billion and assets of
$13.112 billion. This accumulated Governmental Funds deficit includes a $3.308
billion accumulated deficit in the General Fund, as well as accumulated
surpluses in the Special Revenue and Debt Service Fund types of $877 million and
$1.753 billion, respectively, and a $988 million accumulated deficit in the
Capital Projects Fund type.
The State completed its 1994-95 fiscal year with a combined Governmental Funds
operating deficit of $1.791 billion, which included operating deficits in the
General Fund of $1.426 billion, in the Capital Projects Funds of $366 million,
and in the Debt Service Funds of $38 million. There was an operating surplus in
the Special Revenue Funds of $39 million.
State Financial Plan--Cash-Basis Results--General Fund. The General Fund is the
principal operating fund of the State and is used to account for all financial
transactions, except those required to be accounted for in another fund. It is
the State's largest fund and receives almost all State taxes and other resources
not dedicated to particular purposes. General Fund moneys are also transferred
to other funds, primarily to support certain capital projects and debt service
payments in other fund types.
In the State's 1997-98 fiscal year, the General Fund is expected to account for
approximately 48% of total Governmental Funds disbursements and 71% of total
State Funds disbursements. The General Fund is projected to be balanced on a
cash basis for the 1997-98 fiscal year. Total receipts and transfers from other
funds are projected to be $35.09 billion, an increase of $2.05 billion from the
prior fiscal year. Total General Fund disbursements and transfers to other funds
are projected to be $34.60 billion, an increase of $1.70 billion from the total
in the prior fiscal year.
New York State's financial operations have improved during recent fiscal years.
During the period 1989-90 through 1991-92, the State incurred General Fund
operating deficits that were closed with receipts from the issuance of tax and
revenue anticipation notes ("TRANs"). First, the national recession, and then
the lingering economic slowdown in the New York and regional economy, resulted
in repeated shortfalls in receipts and three budget deficits. During its last
five fiscal years, however, the State recorded balanced budgets on a cash basis,
with positive fund balances as described below.
The State ended its 1996-97 fiscal year on March 31, 1997 in balance on a cash
basis, with a General Fund cash surplus as reported by DOB of approximately $1.4
billion. The cash surplus was derived primarily from higher-than-expected
revenues and lower-than-expected spending for social services programs. The
Governor in his Executive Budget applied $1.05 billion of the
Appendix B-4
<PAGE>
cash surplus amount to finance the 1997-98 Financial Plan, and the additional
$373 million is available for use in financing the 1997-98 Financial Plan when
enacted by the State Legislature.
The General Fund closing fund balance was $433 million. Of that amount, $317
million was in the Tax Stabilization Reserve Fund ("TSRF"), after a required
deposit of $15 million and an additional deposit of $65 million in 1996-97. The
TSRF can be used in the event of any future General Fund deficit, as provided
under the State Constitution and State Finance Law. In addition, $41 million
remains on deposit in the Contingency Reserve Fund ("CRF"). This fund assists
the State in financing any extraordinary litigation costs during the fiscal
year. The remaining $75 million reflects amounts on deposit in the Community
Projects Fund. This fund was created to fund certain legislative initiatives.
The General Fund closing fund balance does not include $1.86 billion in the tax
refund reserve account, of which $521 million was made available as a result of
the Local Government Assistance Corporation ("LGAC") financing program as was
required to be on deposit as of March 31, 1997.
General Fund receipts and transfers from other funds for the 1996-97 fiscal year
totaled $33.04 billion, and increase of 0.7% from the previous fiscal year
(excluding deposits into the tax refund reserve account). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7% from the 1995-96 fiscal year.
The State ended its 1995-96 fiscal year on March 31, 1996 with a General Fund
cash surplus, as reported by DOB, of $445 million. Of that amount, $65 million
was deposited into the TSRF, and $380 million was used to reduce 1996-97
Financial Plan liabilities by accelerating 1996-97 payments, deferring 1995-96
revenues, and making a deposit to the tax refund reserve account.
The General Fund closing fund balance was $287 million, an increase of $129
million from 1994-95 levels. The $129 million change in fund balance is
attributable to the $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance includes $237
million on deposit in the TSRF, to be used in the event of any future General
Fund deficit as provided under the State Constitution and State Finance Law. In
addition, $41 million is on deposit in the CRF. The CRF was established in State
fiscal year 1993-94 to assist the State in financing the costs of extraordinary
litigation. The remaining $9 million reflects amounts on deposit in the Revenue
Accumulation Fund.
This fund was created to hold certain tax receipts temporarily before their
deposit to other accounts. In addition, $678 million was on deposit in the tax
refund reserve account, of which $521 million was necessary to complete the
restructuring of the State's cash flow under the LGAC program.
General Fund receipts totaled $32.81 billion, a decrease of 1.1% from 1994-95
levels. This decrease reflects the impact of tax reductions enacted and
effective in both 1994 and 1995.
Appendix B-5
<PAGE>
General Fund disbursements totaled $32.68 billion for the 1995-96 fiscal year, a
decrease of 2.2% from 1994-95 levels.
The State ended its 1994-95 fiscal year with the General Fund in balance. The
$241 million decline in the fund balance reflects the planned use of $264
million from the CRF, partially offset by the required deposit of $23 million to
the TSRF. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited to continue the process of
restructuring the State's cash flow as part of the LGAC program. The closing
fund balance of $158 million reflects $157 million in the TSRF and $1 million in
the CRF.
General Fund receipts totaled $33.16 billion, an increase of 2.9% from 1993-94
levels. General Fund disbursements totaled $33.40 billion for the 1994-95 fiscal
year, an increase of 4.7% from the previous fiscal year.
Cash-Basis Results--Other Governmental Funds. Activity in the three other
governmental funds has remained relatively stable over the last three fiscal
years ended March 31, 1997, with Federally-funded programs comprising
approximately two-thirds of these funds. The most significant change in the
structure of these funds has been the redirection of a portion of
transportation-related revenues from the General Fund to two new dedicated funds
in the Special Revenue and Capital Projects Fund types. These revenues are used
to support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority ("MTA").
The Special Revenue Funds account for State receipts from specific sources that
are legally restricted in use to specified purposes and include all moneys
received from the Federal government. Disbursements from Special Revenue Funds
increased from $24.38 billion to $26.02 billion over the last three years,
primarily as a result of increased costs for the federal share of Medicaid.
Other activity reflected dedication of taxes to a new fund for mass
transportation, new lottery games, and new fees for criminal justice programs.
Although activity in this fund type is expected to comprise approximately 42% of
total governmental funds receipts in the 1997-98 fiscal year, three-quarters of
that activity relates to federally-funded programs.
Projected receipts in this fund type for the 1997-98 fiscal year total $28.22
billion, an increase of $2.51 billion (9.7%) over the prior year. Projected
disbursements in this fund type total $28.45 billion, an increase of $2.43
billion (9.3%) over 1996-97 levels. Disbursements from federal funds, primarily
the federal share of Medicaid and other social services programs, are projected
to total $21.19 billion in the 1997-98 fiscal year. Remaining projected spending
of $7.26 billion primarily reflects aid to SUNY supported by tuition and
dormitory fees, education aid funded from lottery receipts, operating aid
payments to the MTA funded from the proceeds of dedicated transportation taxes,
and costs of a variety of self-supporting programs which deliver services
financed by user fees.
Appendix B-6
<PAGE>
The Capital Projects Funds are used to finance the acquisition, construction or
rehabilitation of major state capital facilities and to aid local government
units and Agencies in financing capital construction.
Disbursements in the Capital Projects Funds declined from $3.62 billion to $3.54
billion over the last three years, as spending for miscellaneous capital
programs decreased, partially offset by increases for mental hygiene, health and
environmental programs. The composition of this fund type's receipts also
changed as the dedicated transportation taxes began to be deposited, general
obligation bond proceeds declined substantially, federal grants remained stable,
and reimbursements from public authority bonds (primarily transportation
related) increased. The increase in the negative fund balance in 1994-95
resulted from delays in reimbursements caused by delays in the timing of public
authority bond sales.
In the 1997-98 fiscal year, activity in these funds is expected to comprise 5%
of total governmental receipts.
Total receipts in this fund type for the 1997-98 fiscal year are projected at
$3.30 billion. Bond and note proceeds are expected to provide $605 million in
other financing sources. Disbursements from this fund type are projected to be
$3.70 billion, an increase of $154 million (4.3%) over prior-year levels. The
Dedicated Highway and Bridge Trust Fund is the single largest dedicated fund,
comprising an estimated $982 million (27%) of the activity in this fund type.
Total spending for capital projects will be financed through a combination of
sources: federal grants (29%), public authority bond proceeds (31%), general
obligation bond proceeds (15%), and pay-as-you-go revenues (25%).
The Debt Service Funds serve to fulfill State debt service on long-term general
obligation State debt and other State lease/purchase and contractual obligation
financing commitments.
Activity in the Debt Service Funds reflected increased use of bonds during the
three-year period for improvements to the State's capital facilities and the
continued implementation of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund. This fund type is expected to comprise 4% of total governmental
fund receipts and 4.7% of total government disbursements in the 1997-98 fiscal
year. Receipts in these funds in excess of debt service requirements may be
transferred to the General Fund and Special Revenue Funds, pursuant to law.
The Debt Service fund type consists of the General Debt Service Fund, which is
supported primarily by tax receipts transferred from the General Fund, and other
funds established to accumulate moneys for the payment of debt service. In the
1997-998 fiscal year, total disbursements in this fund type are projected at
$3.17 billion, an increase of $641 million or 25.3%, most of which is explained
by increases in the General Fund transfer as discussed
Appendix B-7
<PAGE>
earlier. The projected transfer from the General Fund of $2.07 billion is
expected to finance 65% of these payments.
The remaining payments are expected to be financed by pledged revenues,
including $2.03 billion in taxes and $601 million in dedicated fees and other
miscellaneous receipts. After required impoundment for debt service, $3.77
billion is expected to be transferred to the General Fund and other funds in
support of State operations. The largest transfer-$1.86 billion-is made to the
Special Revenue fund type in support of operations of the mental hygiene
agencies. Another $1.47 billion in excess sales taxes is expected to be
transferred to the General Fund, following payments of projected debt service on
LGAC bonds.
State Borrowing Plan. The State anticipates that its capital programs will be
financed, in part, through borrowings by the State and public authorities in the
1997-98 fiscal year. The State expects to issue $605 million in general
obligation bonds (including $140 million for purposes of redeeming outstanding
BANs) and $140 million in general obligation commercial paper. The Legislature
has also authorized the issuance of $311 million in COPs during the State's
1997-98 fiscal year for equipment purchases. The projection of the State
regarding its borrowings for the 1997-98 fiscal year may change if circumstances
require.
State Agencies. The fiscal stability of the State is related, at least in part,
to the fiscal stability of its localities and various of its Agencies. Various
Agencies have issued bonds secured, in part, by non-binding statutory provisions
for State appropriations to maintain various debt service reserve funds
established for such bonds (commonly referred to as "moral obligation"
provisions).
At September 30, 1996, there were 17 Agencies that had outstanding debt of $100
million or more. The aggregate outstanding debt, including refunding bonds, of
these 17 Agencies was $75.4 billion as of September 30, 1996. As of March 31,
1997, aggregate Agency debt outstanding as State-supported debt was $32.8
billion and as State-related was $37.1 billion. Debt service on the outstanding
Agency obligations normally is paid out of revenues generated by the Agencies'
projects or programs, but in recent years the State has provided special
financial assistance, in some cases on a recurring basis, to certain Agencies
for operating and other expenses and for debt service pursuant to moral
obligation indebtedness provisions or otherwise. Additional assistance is
expected to continue to be required in future years.
Several Agencies have experienced financial difficulties in the past. Certain
Agencies continue to experience financial difficulties requiring financial
assistance from the State. Failure of the State to appropriate necessary amounts
or to take other action to permit certain Agencies to meet their obligations
could result in a default by one or more of such Agencies. If a default were to
occur, it would likely have a significant effect on the marketability of
obligations of the State and the Agencies. These Agencies are discussed below.
Appendix B-8
<PAGE>
The New York State Housing Finance Agency ("HFA") provides financing for
multifamily housing, State University construction, hospital and nursing home
development, and other programs. In general, HFA depends upon mortgagors in the
housing programs it finances to generate sufficient funds from rental income,
subsidies and other payments to meet their respective mortgage repayment
obligations to HFA, which provide the principal source of funds for the payment
of debt service on HFA bonds, as well as to meet operating and maintenance costs
of the projects financed. From January 1, 1976 through March 31, 1987, the State
was called upon to appropriate a total of $162.8 million to make up deficiencies
in the debt service reserve funds of HFA pursuant to moral obligation
provisions. The State has not been called upon to make such payments since the
1986-87 fiscal year.
UDC has experienced, and expects to continue to experience, financial
difficulties with the housing programs it had undertaken prior to 1975, because
a substantial number of these housing program mortgagors are unable to make full
payments on their mortgage loans.
Through a subsidiary, UDC is currently attempting to increase its rate of
collection by accelerating its program of foreclosures and by entering into
settlement agreements. UDC has been, and will remain, dependent upon the State
for appropriations to meet its operating expenses. The State also has
appropriated money to assist in the curing of a default by UDC on notes which
did not contain the State's moral obligation provision.
The MTA oversees New York City's subway and bus lines by its affiliates, the New
York City Transit Authority and the Manhattan and Bronx Surface Transit
Operating Authority (collectively, the "TA"). Through MTA's subsidiaries, the
Long Island Rail Road Company, the Metro-North Commuter Railroad Company and the
Metropolitan Suburban Bus Authority, the MTA operates certain commuter rail and
bus lines in the New York metropolitan area. In addition, the Staten Island
Rapid Transit Authority, an MTA subsidiary, operates a rapid transit line on
Staten Island. Through its affiliated agency, the Triborough Bridge and Tunnel
Authority (the "TBTA"), the MTA operates certain toll bridges and tunnels.
Because fare revenues are not sufficient to finance the mass transit portion of
these operations, the MTA has depended and will continue to depend for operating
support upon a system of State, local government and TBTA support and, to the
extent available, Federal operating assistance, including loans, grants and
subsidies. If current revenue projections are not realized and/or operating
expenses exceed current projections, the TA or commuter railroads may be
required to seek additional State assistance, raise fares or take other actions.
Since 1980, the State has enacted several taxes--including a surcharge on the
profits of banks, insurance corporations and general business corporations doing
business in the 12-county region (the "Metropolitan Transportation Region")
served by the MTA and a special .25% regional sales and use tax--that provide
additional revenues for mass transit purposes, including assistance to the MTA.
In addition, since 1987, State law has required that the proceeds of .25%
mortgage recording tax paid on certain mortgages in the Metropolitan
Transportation Region be deposited in a special MTA fund for operating or
capital expenses. Further, in 1993, the State dedicated
Appendix B-9
<PAGE>
a portion of certain additional State petroleum business tax receipts to fund
operating or capital assistance to the MTA. For the 1997-98 State fiscal year,
total State assistance to the MTA is estimated at approximately $1.2 billion, an
increase of $76 million over the 1996-97 fiscal year.
In 1981, the State Legislature authorized procedures for the adoption, approval
and amendment of a five-year plan for the capital program designed to upgrade
the performance of the MTA's transportation systems and to supplement, replace
and rehabilitate facilities and equipment, and also granted certain additional
bonding authorization therefor.
State legislation accompanying the 1996-97 adopted State budget authorized the
MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds to finance a
portion of a new $11.98 billion MTA capital plan for the 1995 through 1999
calendar years (the "1995-99 Capital Program"), and authorized the MTA to submit
the 1995-99 Capital Program to the Capital Program Review Board for approval.
This plan supersedes the overlapping portion of the MTA's 1992-96 Capital
Program. This is the fourth capital plan since the Legislature authorized
procedures for the adoption, approval and amendment of MTA capital programs and
is designed to upgrade the performance of the MTA's transportation systems by
investing in new rolling stock, maintaining replacement schedules for existing
assets and bringing the MTA system into a state of good repair. The 1995-99
Capital Program assumes the issuance of an estimated $5.1 billion in bonds under
this $6.5 billion aggregate bonding authority. The remainder of the plan is
projected to be financed through assistance from the State, the Federal
government, and the City of New York, and from various other revenues generated
from actions taken by the MTA.
There can be no assurance that such governmental actions will be taken, that
sources currently identified will not be decreased or eliminated, or that the
1995-1999 Capital Program will not be delayed or reduced. If the MTA capital
program is delayed or reduced because of funding shortfalls or other factors,
ridership and fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional State
assistance.
The cities, towns, villages and school districts of the State are political
subdivisions of the State with the powers granted by the State Constitution and
statutes. As the sovereign, the State retains broad powers and responsibilities
with respect to the government, finances and welfare of these political
subdivisions, especially in education and social services. In recent years the
State has been called upon to provide added financial assistance to certain
localities.
Other Localities. Certain localities in addition to the City could have
financial problems leading to requests for additional State assistance during
the last several State fiscal years. The potential impact on the State of such
actions by localities is not included in the projections of the State receipts
and disbursements in the State's 1997-98 fiscal year.
Fiscal difficulties experienced by the City of Yonkers resulted in the
re-establishment of the Financial Control Board for the City of Yonkers by the
State in 1984. That Board is charged
Appendix B-10
<PAGE>
with oversight of the fiscal affairs of Yonkers. Future actions taken by the
State to assist Yonkers could result in increased State expenditures for
extraordinary local assistance.
Beginning in 1990, the City of Troy experienced a series of budgetary deficits
that resulted in the establishment of a Supervisory Board for the City of Troy
in 1994. The Supervisory Board's powers were increased in 1995, when Troy MAC
was created to help Troy avoid default on certain obligations. The legislation
creating Troy MAC prohibits the City of Troy from seeking federal bankruptcy
protection while Troy MAC bonds are outstanding.
Eighteen municipalities received extraordinary assistance during the 1996
legislative session through $50 million in special appropriations targeted for
distressed cities, and that was largely continued in 1997.
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1995, the total indebtedness of all localities in the
State, other than the City, was approximately $19 billion. A small portion
(approximately $102.3 million) of this indebtedness represented borrowing to
finance budgetary deficits and was issued pursuant to enabling State
legislation. State law requires the Comptroller to review and make
recommendations concerning the budgets of those local government units other
than the City authorized by State law to issue debt to finance deficits during
the period that such deficit financing is outstanding. Eighteen localities had
outstanding indebtedness for deficit financing at the close of their fiscal year
ending in 1995.
From time to time, Federal expenditure reductions could reduce, or in some cases
eliminate, Federal funding of some local programs and accordingly might impose
substantial increased expenditure requirements on affected localities to
increase local revenues to sustain those expenditures. If the State, the City or
any of the Agencies were to suffer serious financial difficulties jeopardizing
their respective access to the public credit markets, the marketability of notes
and bonds issued by localities within the State could be adversely affected.
Localities also face anticipated and potential problems resulting from certain
pending litigation, judicial decisions and long-range economic trends.
Long-range, potential problems of declining urban population, increasing
expenditures and other economic trends could adversely affect localities and
require increasing State assistance in the future.
Certain litigation pending against the State or its officers or employees could
have a substantial or long-term adverse effect on State finances. Among the more
significant of these litigations are those that involve: (i) the validity and
fairness of agreements and treaties by which various Indian tribes transferred
title to the State of approximately six million acres of land in central New
York; (ii) certain aspects of the State's Medicaid rates and regulations,
including reimbursements to providers of mandatory and optional Medicaid
services; (iii) contamination in the Love Canal area of Niagara Falls; (iv) a
challenge to the State's practice of reimbursing certain Office of Mental Health
patient-care expenses with clients' Social Security benefits; (v) a challenge to
the methods by which the State reimburses localities for the administrative
costs
Appendix B-11
<PAGE>
of food stamp programs; (vi) a challenge to the State's possession of certain
funds taken pursuant to the State's Abandoned Property law; (vii) alleged
responsibility of State officials to assist in remedying racial segregation in
the City of Yonkers; (viii) an action, in which the State is a third party
defendant, for injunctive or other appropriate relief, concerning liability for
the maintenance of stone groins constructed along certain areas of Long Island's
shoreline; (ix) actions challenging the constitutionality of legislation enacted
during the 1990 legislative session which changed the actuarial funding methods
for determining contributions to State employee retirement systems; (x) an
action against State and City officials alleging that the present level of
shelter allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (xi) an action challenging legislation
enacted in 1990 which had the effect of deferring certain employer contributions
to the State Teachers' Retirement System and reducing State aid to school
districts by a like amount; (xii) a challenge to the constitutionality of
financing programs of the Thruway Authority authorized by Chapters 166 and 410
of the Laws of 1991 (described below in this Part); (xiii) a challenge to the
constitutionality of financing programs of the Metropolitan Transportation
Authority and the Thruway Authority authorized by Chapter 56 of the Laws of 1993
(described below in this Part); (xiv) challenges to the delay by the State
Department of Social Services in making two one-week Medicaid payments to the
service providers; (xv) challenges by commercial insurers, employee welfare
benefit plans, and health maintenance organizations to provisions of Section
2807-c of the Public Health Law which impose 13%, 11% and 9% surcharges on
inpatient hospital bills and a bad debt and charity care allowance on all
hospital bills paid by such entities; (xvi) challenges to the promulgation of
the State's proposed procedure to determine the eligibility for and nature of
home care services for Medicaid recipients; (xvii) a challenge to State
implementation of a program which reduces Medicaid benefits to certain
home-relief recipients; and (xviii) challenges to the rationality and
retroactive application of State regulations recelebrating nursing home Medicaid
rates.
(2) New York City. In the mid-1970s, the City had large accumulated past
deficits and until recently was not able to generate sufficient tax and other
ongoing revenues to cover expenses in each fiscal year. However, the City has
achieved balanced operating results for each of its fiscal years since 1981 as
reported in accordance with the then-applicable GAAP standards. The City's
ability to maintain balanced operating results in future years is subject to
numerous contingencies and future developments.
In 1975, the City became unable to market its securities and entered a period of
extraordinary financial difficulties. In response to this crisis, the State
created MAC to provide financing assistance to the City and also enacted the New
York State Financial Emergency Act for the City of New York (the "Emergency
Act") which, among other things, created the Financial Control Board (the
"Control Board") to oversee the City's financial affairs and facilitate its
return to the public credit markets. The State also established the Office of
the State Deputy Comptroller ("OSDC") to assist the Control Board in exercising
its powers and responsibilities. On June 30, 1986, the Control Board's powers of
approval over the City Financial Plan were suspended pursuant to the Emergency
Act. However, the Control Board, MAC and OSDC continue to
Appendix B-12
<PAGE>
exercise various monitoring functions relating to the City's financial
condition. The City prepares and operates under a four-year financial plan which
is submitted annually to the Control Board for review and which the City
periodically updates.
The City's independently audited operating results for each of its fiscal years
from 1981 through 1995 show a General Fund surplus reported in accordance with
GAAP. The City has eliminated the cumulative deficit in its net General Fund
position.
During the 1990 and 1991 fiscal years, as a result of a slowing economy, the
City has experienced significant shortfalls in almost all of its major tax
sources and increases in social services costs, and was required to take actions
to close substantial budget gaps in order to maintain balanced budgets in
accordance with the Financial Plan.
According to a recent OSDC economic report, the City's economy was slow to
recover from the recession and was expected to have experienced a weak
employment situation, and moderate wage and income growth, during the 1995-96
period. Also, Financial Plan reports of OSDC, the Control Board, and the City
Comptroller have variously indicated that many of the City's balanced budgets
have been accomplished, in part, through the use of non-recurring resource, tax
and fee increases, personnel reductions and additional State assistance; that
the City has not yet brought its long-term expenditures in line with recurring
revenues; that the City's proposed gap-closing programs, if implemented, would
narrow future budget gaps; that these programs tend to rely heavily on actions
outside the direct control of the City; and that the City is therefore likely to
continue to face future projected budget gaps requiring the City to reduce
expenditures and/or increase revenues. According to the most recent staff
reports of OSDC, the Control Board and the City Comptroller during the four-year
period covered by the current Financial Plan, the City is relying on obtaining
substantial resources from initiatives needing approval and cooperation of its
municipal labor unions, Covered Organizations, and City Council, as well as the
State and Federal governments, among others, and there can be no assurance that
such approval can be obtained.
The City requires certain amounts of financing for seasonal and capital spending
purposes. The City issued $1.75 billion of notes for seasonal financing purposes
during the 1994 fiscal year. The City's capital financing program projects
long-term financing requirements of approximately $17 billion for the City's
fiscal years 1995 through 1998 for the construction and rehabilitation of the
City's infrastructure and other fixed assets. The major capital requirement
include expenditures for the City's water supply system, and waste disposal
systems, roads, bridges, mass transit, schools and housing. In addition, the
City and the Municipal Water Finance Authority issued about $1.8 billion in
refunding bonds in the 1994 fiscal year.
State Economic and Demographic Trends. The State historically has been one of
the wealthiest states in the nation. For decades, however, the State has grown
more slowly than the nation as a whole, gradually eroding its relative economic
position. Statewide, urban centers have experienced significant changes
involving migration of the more affluent to the suburbs and an
Appendix B-13
<PAGE>
influx of generally less affluent residents. Regionally, the older Northeast
cities have suffered because of the relative success that the South and the West
have had in attracting people and business. The City has also had to face
greater competition as other major cities have developed financial and business
capabilities which make them less dependent on the specialized services
traditionally available almost exclusively in the City.
During the 1982-83 recession, overall economic activity in the State declined
less than that of the nation as a whole. However, in the calendar years 1984
through 1991, the State's rate of economic expansion was somewhat slower than
that of the nation. In the 1990-91 recession, the economy of the State, and that
of the rest of the Northeast, was more heavily damaged than that of the nation
as a whole and has been slower to recover. The total employment growth rate in
the State has been below the national average since 1984. The unemployment rate
in the State dipped below the national rate in the second half of 1981 and
remained lower until 1991; since then, it has been higher. According to data
published by the U.S. Bureau of Economic Analysis, during the past ten years,
total personal income in the State rose slightly faster than the national
average only from 1986 through 1988.
The forecast of the State's economy shows moderate expansion during the first
half of calendar 1997 with the trend continuing through the year. Although
industries that export goods and services are expected to continue to do well,
growth is expected to be moderated by tight fiscal constraints on the health
care and social services industries. On an average annual basis, employment
growth in the State is expected to be up substantially from the 1996 rate.
Personal income is expected to record moderate gains in 1997. Bonus payments in
the securities industry are expected to increase further from last year's record
level.
Appendix B-14
<PAGE>
PART C. OTHER INFORMATION
<TABLE>
<CAPTION>
ITEM 23. Exhibits
<S> <C> <C>
(a) (1) Amended Certificate of Trust1
(a) (2) Amended Trust Instrument.1
(b) By-laws.1
(c) None.
(d) Investment Advisory Agreement dated September 15, 1998 between
Registrant and The Ramirez Trust.1
(e) Distribution Agreement dated September 15, 1998 by and between the
Registrant and Ramirez & Company.1
(f) None.
(g) Custodian Agreement dated September 15, 1998 between the Registrant
and Firstar Trust Company.1
(h) (1) Form of Transfer Agent Agreement dated September
15, 1998 by and between the Registrant and Firstar
Trust Company.1
(h) (2) Fund Administration Servicing Agreement dated
September 15, 1998 by and between the Registrant and
Firstar Trust Company.1
(h) (3) Shareholder Services Plan and Agreement approved
on September 15, 1998 by and between the Registrant
and Firstar Trust Company.1
(h) (4) Form of Fund Accounting Servicing Agreement
dated September 15, 1998 by and between the
Registrant and Firstar Trust Company.1
(h) (5) Form of Fulfillment Servicing Agreement dated September 15, 1998 by
and between the Registrant and Firstar Trust Company.1
(i) (1) Opinion of Kramer Levin Naftalis & Frankel LLP
as to legality of securities being registered.1
- - --------
/1/ Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registrant's
Registration statement filed electronically on November 2, 1998, as
accession number 0000922423- 98-001205.
C-1
<PAGE>
(j) (1) Consent of Kramer Levin Naftalis & Frankel LLP
Counsel for the Registrant, is filed herewith.
(j) (2) Consent of PricewaterhouseCoopers Independent Auditors for the
Registrant, is filed herewith.
(k) None
(l) Not Applicable
(m) The Ramirez Trust Service and Distribution Plan adopted as
of September 15, 1998, under Rule 12b-1.1
(n) None
(o) None
ITEM 24. Persons Controlled By or Under Common Control with Registrant
After commencement of the public offering of the Registrant's
shares, the Registrant expects that no person will be directly of
indirectly controlled by or under common control with the
Registrant.
- - --------
/1/ Filed as an Exhibit to Pre-Effective Amendment No. 1 to Registrant's
Registration statement filed electronically on November 2, 1998, as
accession number 0000922423- 98-001205.
C-2
</TABLE>
<PAGE>
ITEM 25. Indemnification
(a) "Subject to the exceptions and limitations contained in Subsection
10.02(b):
(i) every person who is, or has been, a Trustee or officer of
the Trust (hereinafter referred to as a "Covered Person") shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him
in connection with any claim, action, suit or proceeding in which he
becomes involved as a party or otherwise by virtue of his being or
having been a Trustee or officer and against amounts paid or incurred
by him in the settlement thereof;
(ii) the words "claim," "action," "suit," or "proceeding" shall
apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened while in office or
thereafter, and the words "liability" and "expenses" shall include,
without limitation, attorneys' fees, costs, judgments, amounts paid in
settlement, fines, penalties and other liabilities.
(b) No indemnification shall be provided hereunder to a Covered Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust or its
Shareholders by reason of willful misfeasance, bad faith, gross
negligence or reckless disregard of the duties involved in the conduct
of his office or (B) not to have acted in good faith in the reasonable
belief that his action was in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Trustee or officer did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of his office, (A) by the court or other
body approving the settlement; (B) by at least a majority of those
Trustees who are neither Interested Persons of the Trust nor are
parties to the matter based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written opinion of
independent legal counsel based upon a review of readily available
facts (as opposed to a full trial-type inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall
not be exclusive of or affect any other rights to which any Covered
Person may now or hereafter be entitled, shall continue as to a person
who has ceased to be a Covered Person and shall inure to the benefit of
the heirs, executors and administrators of such a person. Nothing
contained herein shall affect any rights to indemnification to which
Trust personnel, other than Covered Persons, and other persons may be
entitled by contract or otherwise under law.
(d) Expenses in connection with the preparation and presentation of a
defense to any claim, action, suit or proceeding of the character
described in Subsection (a) of this Section 10.02 may be paid by the
Trust or Series from time to time prior to final disposition thereof
upon receipt of an undertaking by or on behalf of such Covered Person
that such amount will be paid over by him to the Trust or Series if it
is ultimately
C-3
<PAGE>
determined that he is not entitled to indemnification under this
Section 10.02; provided, however, that either (i) such Covered Person
shall have provided appropriate security for such undertaking, (ii) the
Trust is insured against losses arising out of any such advance
payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the matter, or
independent legal counsel in a written opinion, shall have determined,
based upon a review of readily available facts (as opposed to a
trial-type inquiry or full investigation), that there is reason to
believe that such Covered Person will be found entitled to
indemnification under this Section 10.02."
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers, and controlling
persons or Registrant pursuant to the foregoing provisions, or
otherwise, Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Investment Company Act of 1940, as
amended, and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
Registrant of expenses incurred or paid by a trustee, officer, or
controlling person of Registrant 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,
Registrant 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 of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
ITEM 26. Business and Other Connections of Investment Adviser
Ramirez Asset Management, Inc. provides management services to the
Registrant. To the best of the Registrant's knowledge, the directors and
officers have not held at any time during the past two fiscal years or been
engaged for his own account or in the capacity of director, officer, employee,
partner or trustee in any other business, profession, vocation or employment of
a substantial nature.
ITEM 27. Principal Underwriters
(a) Ramirez & Co., Inc. is the Registrant's principal underwriter.
(b) The following information is furnished with respect to the officers
and directors of Ramirez & Co., Inc., Registrant's principal underwriter:
C-4
<PAGE>
<TABLE>
<CAPTION>
Name and Principal Position and Offices with Position and Offices
Business Address Principal Underwriter with Registrant
- - ---------------- --------------------- ---------------
<S> <C> <C>
Samuel A. Ramirez President Chairman/President
61 Broadway
New York, NY 10066
Alexander Vermitsky, Jr. Vice President/Secretary Vice
61 Broadway President/Secretary
New York, NY 10066
John Kick Chief Financial Officer Treasurer
61 Broadway
New York, NY 10066
</TABLE>
(c) not applicable
ITEM 28. Location of Accounts and Records
The accounts, books or other documents required to be
maintained by Section 31(a) of the 1940 Act and the rules promulgated thereunder
are maintained by Ramirez Asset Management, 61 Broadway, New York, NY 10066.
ITEM 29. Management Services
Not applicable.
ITEM 30. Undertakings
(1) Registrant undertakes to furnish each person to whom a prospectus
is delivered, a copy of the Fund's latest annual report to shareholders which
will include the information required by Item 5A, upon request and without
charge.
(2) Registrant undertakes to call a meeting of shareholders for the
purpose of voting upon the question of removal of a trustee or trustees if
requested to do so by the holders of at least 10% of the Registrant's
outstanding voting securities, and to assist in communications with other
shareholders as required by Section 16(c) of the 1940 Act.
C-5
<PAGE>
SIGNATURES
As required by the Securities Act of 1933 and the Investment Company Act of
1940, the Registrant has duly caused this Pre-Effective Amendment No. 1 to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York and State of New York, on the 24th day
of November, 1998.
The Ramirez Trust
By:
Samuel A. Ramirez
President
As required by the Securities Act of 1933, this Pre-Effective Amendment No. 1 to
its Registration Statement has been signed by the following persons in the
capacities on the 24th day of November, 1998.
<TABLE>
<CAPTION>
Name Title Date
- - ---- ----- ----
<S> <C>
/s/ Samule A. Ramirez President and Chairman November 24, 1998
- - ---------------------
Samuel A. Ramirez
/s/ John Kick Treasurer and Chief
- - ------------- Financial Officer
John Kick November 24, 1998
* Trustee November 24, 1998
- - --------------------
Alexander Vermitsky
* Trustee November 24, 1998
- - --------------------
Alfonse Santagata
* Trustee November 24, 1998
- - --------------------
Charles H. Falk
* Trustee November 24, 1998
- - --------------------
Paul Voigt
* Trustee November 24, 1998
- - --------------------
Alan Dlugash
*By:/s/ Peter O'Rourke
----------------------
Peter O'Rourke
Power of Attorney
C-6
<PAGE>
EXHIBIT INDEX
EX-99.B11(a) Consent of Kramer Levin Naftalis & Frankel LLP Counsel for the
Registrant
EX-99.B11(b) Consent of PricewaterhouseCoopers, Independent Auditors for the
Registrant
</TABLE>
KRAMER LEVIN NAFTALIS & FRANKEL LLP
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 - 3852
(212) 715 - 9100
FAX
(212) 715-8000
-----
WRITER'S DIRECT NUMBER
(212) 715-7669
November 24, 1998
The Ramirez Trust
61 Broadway
New York, NY 10006
Re: The Ramirez Trust
Registration Statement on Form N-1A
File No.333-59083; ICA No. 811-8877
-----------------------------------
Dear Gentlemen::
We hereby consent to the reference of our firm as Counsel in this
Registration Statement on Form N-1A.
Very truly yours,
[LETTERHEAD]
Consent of Independent Accountants
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 2 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 30, 1998, relating to the financial statements of The Ramirez Trust,
which appears in such Statement of Additional Information, and to the
incorporation by reference of our report into the Prospectus which constitutes
part of this Registration Statement. We also consent to the references to us
under the heading "Independent Accountants" in such Prospectus and the heading
"Independent Accountants" in such Statement of Additional Information.
/s/PricewaterhouseCoopers LLP
- - -----------------------------
PricewaterhouseCoopers LLP
Milwaukee, Wisconsin
November 25, 1998
