As filed with the Securities and Exchange Commission on January 23, 1996
Registration Nos. 33-7647 and 811-4782
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 35
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 36
Republic Funds
(Exact Name of Registrant as Specified in Charter)
6 St. James Avenue, Boston, Massachusetts 02116
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 423-0800
Philip W. Coolidge
6 St. James Avenue, Boston, Massachusetts 02116
(Name and Address of Agent for Service)
Copy to:
Allan S. Mostoff, Esq.
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, DC 20005
It is proposed that this filing will become effective (check appropriate box)
[ ] Immediately upon filing pursuant to paragraph (b)
[X] on January 26, 1996 pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
The Registrant has previously registered an indefinite number of its
shares under the Securities Act of 1933, as amended, pursuant to Rule 24f-2
under the Investment Company Act of 1940, as amended. The Registrant has filed
Rule 24f-2 notices with respect to its series as follows: Republic U.S.
Government Money Market Fund (for its fiscal year ended September 30, 1995) on
November 15, 1995; Republic New York Tax Free Money Market Fund, Republic New
York Tax Free Bond Fund, Republic Equity Fund, Republic Fixed Income Fund and
Republic International Equity Fund (for their fiscal years ended October 31,
1995) on December 28, 1995.
Republic Portfolios has also executed this Registration Statement.
<PAGE>
CROSS REFERENCE SHEET REQUIRED BY RULE 495 UNDER THE SECURITIES ACT
OF 1933
PART A; INFORMATION REQUIRED IN PROSPECTUS
ITEM NUMBER PROSPECTUS CAPTION
Item 1. Cover Page Cover Page
Item 2. Synopsis Highlights
Item 3. Condensed Financial Fee Table
Information
Item 4. General Description of Investment Objective
Registrant and Policies; Additional
Risk Factors and Policies
Item 5. Management of the Fund Management of the Fund
Item 5A. Management's Discussion Not Applicable
of Fund Performance
Item 6. Capital Stock and Other Dividends and
Securities Distributions; Tax Matters;
Description of
Shares, Voting Rights and
Liabilities
Item 7. Purchase of Securities Purchase of Shares;
Being Offered Determination of Net
Asset Value
Item 8. Redemption or Repurchase Redemption of Shares
Item 9. Legal Proceedings Not Applicable
<PAGE>
PART B; INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
Statement of Additional
ITEM NUMBER INFORMATION CAPTION
Item 10. Cover Page Cover Page
Item 11. Table of Contents Table of Contents
Item 12. General Information and Not Applicable
History
Item 13. Investment Objectives and Investment Objective,
Policies Policies and Restrictions
Item 14. Management of the Registrant Management of the Fund;
Management of the Trust
Item 15. Control Persons and Other Information
Principal Holders of
Securities
Item 16. Investment Advisory and Management of the Fund;
Other Services Management of the Trust
Item 17. Brokerage Allocation Portfolio Transactions
Item 18. Capital Stock and Other Other Information
Securities
Item 19. Purchase, Redemption and Prospectus - Purchase of
Pricing of Securities Being Shares; Prospectus -
Offered Redemption of Shares;
Prospectus - Determination
of Net Asset Value
Item 20. Tax Status Taxation
Item 21. Underwriters Management of the Fund -
Distributor and Sponsor;
Management of the Trust
Item 22. Calculation of Performance Performance Information
Data
Item 23. Financial Statements Not Applicable
PART C
Information required to be included in Part C is set forth under the
appropriate items, so numbered, in Part C of this Registration Statement.
<PAGE>
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
- --------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic U.S. Government Money Market Fund (the "Fund") is a separate series
(portfolio) of the Republic Funds (the "Trust"), an open-end management
investment company which currently consists of six funds, each of which has
different and distinct investment objectives and policies. Shares of the Fund
are being offered by this Prospectus. Republic National Bank of New York
("Republic" or the "Adviser") continuously manages the investment portfolio of
the Fund.
The investment objective of the Fund is to provide shareholders of the Fund
with liquidity and as high a level of current income as is consistent with the
preservation of capital. The Fund is a type of mutual fund commonly referred to
as a "money market fund". The Trust seeks to achieve the investment objective of
the Fund by investing the assets of the Fund in obligations issued or guaranteed
by the U.S. Government or its agencies or instrumentalities with maturities of
397 days or less, and repurchase agreements. There can be no assurance that the
investment objective of the Fund will be achieved.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
Shares of the Fund are continuously offered for sale at net asset value with
no sales charge by Signature Broker-Dealer Services, Inc. ("Signature" or the
"Distributor") (i) directly to the public, (ii) to customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a shareholder servicing agreement
with the Trust (collectively, "Shareholder Servicing Agents"), and (iii) to
customers of a securities broker that has entered into a dealer agreement with
the Distributor.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM THE DISTRIBUTOR SHOULD
OBTAIN FROM HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER
WHICH SHARES OF THE FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund (see page 20) and is
hereby incorporated by reference into this Prospectus. An investor may obtain
a copy of this Statement of Additional Information without charge by
contacting the Distributor or his Shareholder Servicing Agent (see back cover
for addresses and phone numbers).
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic U.S. Government Money Market Fund (the "Fund") is a separate
series (portfolio) of the Republic Funds (the "Trust"), a Massachusetts business
trust organized on April 22, 1987, which currently consists of six funds, each
of which has different and distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 6
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income as is consistent with
the preservation of capital. The Trust seeks to achieve the investment objective
of the Fund by investing the assets of the Fund in obligations issued or
guaranteed by the U.S. Government or its agencies or instrumentalities and
repurchase agreements with respect to such obligations. There can be no
assurance that the investment objective of the Fund will be achieved.
MANAGEMENT OF THE TRUST PAGE 7
Republic National Bank of New York ("Republic" or the "Adviser") acts as
investment adviser to the Fund. For its services, the Adviser receives from the
Fund a fee at the annual rate of 0.20% of the Fund's average daily net assets.
Signature Broker-Dealer Services, Inc. ("Signature" or the "Sponsor") acts
as administrator and sponsor of the Fund. The Sponsor provides certain
management and administrative services to the Fund for which it receives from
the Fund a fee at the annual rate of 0.20% of the Fund's average daily net
assets.
The Trust has also retained Signature (the "Distributor") to distribute
shares of the Fund pursuant to a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), under which the
Distributor is reimbursed from the Fund (in amounts up to 0.25% of the Fund's
average daily net assets) for marketing costs and payments to other
organizations for services rendered in distributing the Fund's shares. See
"Management of the Trust".
PURCHASES AND REDEMPTIONS PAGES 11 AND 14
The Fund is a type of mutual fund commonly referred to as a "money market
fund". The net asset value of each of the Fund's shares is expected to remain
constant at $1.00, although this cannot be assured. See "Determination of Net
Asset Value" and "Dividends and Distributions".
SHARES OF THE FUND ARE CONTINUOUSLY OFFERED FOR SALE BY THE DISTRIBUTOR AT NET
ASSET VALUE (NORMALLY $1.00 PER SHARE) WITH NO SALES CHARGE (I) DIRECTLY TO THE
PUBLIC, (II) TO CUSTOMERS OF A FINANCIAL INSTITUTION, SUCH AS A FEDERAL OR
STATE-CHARTERED BANK, TRUST COMPANY OR SAVINGS AND LOAN ASSOCIATION THAT HAS
ENTERED INTO A SHAREHOLDER SERVICING AGREEMENT WITH THE TRUST (COLLECTIVELY,
"SHAREHOLDER SERVICING AGENTS"), AND (III) TO CUSTOMERS OF A SECURITIES BROKER
THAT HAS ENTERED INTO A DEALER AGREEMENT WITH THE DISTRIBUTOR. FOR INVESTORS WHO
PURCHASE FUND SHARES DIRECTLY FROM THE DISTRIBUTOR, THE MINIMUM INITIAL
INVESTMENT IS $1,000 AND THE MINIMUM SUBSEQUENT INVESTMENT IS $100. THE TRUST
OFFERS TO BUY BACK (REDEEM) SHARES OF THE FUND FROM ITS SHAREHOLDERS AT ANY TIME
AT NET ASSET VALUE. SEE "PURCHASE OF SHARES" AND "REDEMPTION OF SHARES".
DIVIDENDS AND DISTRIBUTIONS PAGE 16
The Trust declares all the Fund's net investment income daily as a
dividend to Fund shareholders and distributes all such dividends monthly. Any
net realized capital gains are distributed at least annually. See "Dividends
and Distributions" .
<PAGE>
FEE TABLE
The following table provides (i) a summary of expenses relating to purchases
and sales of shares of the Fund, and the aggregate annual operating expenses of
the Fund, as a percentage of average net assets of the Fund during the Fund's
last completed fiscal year, and (ii) an example illustrating the dollar cost of
such expenses on a $1,000 investment in the Fund. Historical information in the
expense table regarding investment advisory and administrative services fees has
been restated to reflect expected fee waivers for the current fiscal year.
Shareholder Transaction Expenses ............................... 0%
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ...................... 0.10%
Distribution Fees (Rule 12b-1 fees) ........................ 0.09%
Other Expenses after waiver** ............................. 0.39%
-----
-- Shareholder Servicing Fee ........................ 0.09%
-- Administrative Services Fee after waiver** ........ 0.12%
-- Other Operating Expenses .......................... 0.18%
Total Fund Operating Expenses after expense limitation and
fee waivers*** ............................................... 0.58%
====
- ----------
*Investment Advisory Fee is shown net of expected waiver for the current
fiscal year. Without such waiver, such fee would be equal on an annual basis
to 0.20% of the Fund's average net assets.
**Other Expenses and the Administrative Services Fee are shown net of expected
fee waiver for the current fiscal year. Without such waiver, the
Administrative Services Fee and Other Expenses would be equal on an annual
basis to 0.20% and 0.47%, respectively, of the Fund's average net assets.
***Total Fund Operating Expenses are shown net of a voluntary expense limitation
and expected fee waivers. Without such voluntary expense limitation and
expected fee waivers, the Total Fund Operating Expenses would be equal on an
annual basis to 0.78% of the Fund's average net assets. There can be no
assurance that expenses will be reimbursed or waived in the future.
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
1 year .................................................... $ 6
3 years ................................................... $19
5 years ................................................... $32
10 years ................................................... $73
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of shares of the Fund.
The aggregate fees paid to the Shareholder Servicing Agent pursuant to the
Administrative Services Plan and to the Distributor pursuant to the Distribution
Plan may not exceed 0.25% of the average daily net assets of the Fund and are
expected to be limited to an amount such that the aggregate fees paid pursuant
to the Administrative Services Plan and the Distribution Plan do not exceed
0.20% of such assets.
Some Shareholder Servicing Agents and securities brokers may impose certain
conditions on their customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging their customers a direct fee for their
services. The effect of any such fees will be to reduce the net return on the
investment of customers of that Shareholder Servicing Agent or securities
broker. Each Shareholder Servicing Agent and securities broker has agreed to
transmit to shareholders who are its customers appropriate written disclosure of
any transaction fees that it may charge them directly at least 30 days before
the imposition of any such charge.
More complete descriptions of the following expenses are set forth on the
following pages: (i) investment advisory fee - page 7, (ii) distribution fee
page 8, (iii) administrative services fee - page 9, and (iv) shareholder
servicing agent fee - page 9.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through September 30,
1995. The information for the years ended September 30, 1995, 1994, 1993 and
1992 in the following schedule has been audited by Ernst & Young LLP,
independent auditors, whose report on the Fund's financial statements is
incorporated by reference into the Statement of Additional Information from the
Fund's Annual Report dated September 30, 1995. The Annual Report may be obtained
without charge upon request. This information should be read in conjunction with
the financial statements. The information for the fiscal year ended September
30, 1991 and for the fiscal period ended September 30, 1990 has been audited by
other auditors who have expressed an unqualified opinion thereon.
Republic became the Fund's investment adviser effective October 14, 1994.
Prior to that time, Republic Asset Management Corporation, an affiliate of
Republic, served as the Fund's adviser. Prior to September 1, 1993, M.D. Hirsch
Investment Management, Inc., also an affiliate of Republic, was the Fund's
investment adviser. Prior to February 1, 1991, Republic was the Fund's
investment adviser.
<PAGE>
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD:
REPUBLIC U.S. GOVERNMENT
MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 3, 1990
(COMMENCEMENT
YEARS ENDED SEPTEMBER 30, OF OPERATIONS) TO
-------------------------------------------------------------------------- SEPTEMBER 30,
1995 1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ---------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value,
beginning of
period ......... $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000
---------- ---------- ---------- ---------- ---------- ----------
Income from
investment
operations:
Net investment
income* ...... 0.051501 0.034570 0.026678 0.037513 0.061880 0.031846
---------- ---------- ---------- ---------- ---------- ----------
Total from
investment
operations . 0.051501 0.034570 0.026678 0.037513 0.061880 0.031846
---------- ---------- ---------- ---------- ---------- ----------
Less distributions:
Dividends to
shareholders from
net investment
income ....... (0.051501) (0.034570) (0.026678) (0.037513) (0.061880) (0.031846)
---------- ---------- ---------- ---------- ---------- ----------
Total
distributions (0.051501) (0.034570) (0.026678) (0.037513) (0.061880) (0.031846)
---------- ---------- ---------- ---------- ---------- ----------
Net asset value,
end of period ... $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000 $ 1.000000
========== ========== ========== ========== ========== ==========
Total return ..... 5.27% 3.51% 2.70% 3.82% 6.36% 8.03%**
==== ==== ==== ==== ==== ====
Ratios/supplemental data:
Net assets, end of
period (in
000's) $113,218 $100,443 $73,284 $46,499 $55,795 $36,017
Ratio of expenses
to average net
assets* ........ 0.58% 0.24% 0.56% 0.70% 0.70% 0.57%**
Ratio of net
investment income
to average net
assets* ........ 5.17% 3.50% 2.66% 3.76% 5.96% 7.65%**
- ---------------------------------------------------------------------------------------------------------------------
* Reflects a voluntary expense limitation and waivers of fees by affiliated parties of the Fund. If this limitation
and waivers had not been in effect, the annualized ratios of net investment income and expenses to average net
assets for the years ended September 30, 1995, 1994, 1993, 1992 and 1991 and for the period ended September 30, 1990
would have been 4.97% and 0.78%, 3.08% and 0.67%, 2.28% and 0.93%, 3.54% and 0.91%, 5.68% and 0.98%, and 7.25% and
0.98%, respectively.
**Annualized.
</TABLE>
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders of the Fund
with liquidity and as high a level of current income as is consistent with the
preservation of capital. There can be no assurance that the investment objective
of the Fund will be achieved. The investment objective of the Fund may be
changed without approval by the Fund's shareholders. If there is a change in the
investment objective of the Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
position and needs.
INVESTMENT POLICIES
The Trust seeks to achieve the investment objective of the Fund by investing
at least 65% of the assets of the Fund in debt obligations issued or guaranteed
by the U.S. Government, its agencies or instrumentalities, and commitments to
purchase such obligations. All investments on behalf of the Fund (i.e., 100% of
the Fund's investments) mature or are deemed to mature within 397 days from the
date of acquisition and the average maturity of the investments held in the
Fund's portfolio (on a dollar-weighted basis) is 90 days or less. The Fund may
invest in obligations issued or guaranteed by the U.S. Government, its agencies
or instrumentalities which are subject to repurchase agreements with recognized
securities dealers and banks.
U.S. GOVERNMENT SECURITIES
The Fund invests in obligations of, or guaranteed by, the U.S. Government,
its agencies or instrumentalities. These include issues of the U.S. Treasury,
such as bills, notes and bonds, and issues of agencies and instrumentalities
established under the authority of an Act of Congress. Some of the latter
category of obligations are supported by the "full faith and credit" of the
United States, others are supported by the right of the issuer to borrow from
the U.S. Treasury, and still others are supported only by the credit of the
agency or instrumentality. Examples of each of the three types of obligations
described in the preceding sentence are (i) obligations guaranteed by the
Export-Import Bank of the United States, (ii) obligations of the Federal
National Mortgage Association, and (iii) obligations of the Student Loan
Marketing Association, respectively.
REPURCHASE AGREEMENTS
A repurchase agreement arises when a buyer purchases an obligation and
simultaneously agrees with the vendor to resell the obligation to the vendor at
an agreed-upon price and time, which is usually not more than seven days from
the date of purchase. The resale price of a repurchase agreement is greater than
the purchase price, reflecting an agreed-upon market rate which is effective for
the period of time the buyer's funds are invested in the obligation and which is
not related to the coupon rate on the purchased obligation. Obligations serving
as collateral for each repurchase agreement are delivered to the Fund's
custodian bank either physically or in book entry form and the collateral is
marked to the market daily to ensure that each repurchase agreement is fully
collateralized at all times. A buyer of a repurchase agreement runs a risk of
loss if, at the time of default by the issuer, the value of the collateral
securing the agreement is less than the price paid for the repurchase agreement.
If the vendor of a repurchase agreement becomes bankrupt, the Trust might be
delayed, or may incur costs or possible losses of principal and income, in
selling the collateral on behalf of the Fund. The Trust may enter into
repurchase agreements on behalf of the Fund only with a vendor which is a member
bank of the Federal Reserve System or which is a "primary dealer" (as designated
by the Federal Reserve Bank of New York) in U.S. Government obligations. The
restrictions and procedures described above which govern the investment of the
Fund's assets in repurchase obligations are designed to minimize the Fund's risk
of losses from those investments. Repurchase agreements are considered
collateralized loans under the 1940 Act.
The investment policies of the Fund as described above may be changed by the
Board of Trustees of the Trust without approval by the shareholders of the Fund.
The Statement of Additional Information includes a further discussion of
investment policies and a listing of the specific investment restrictions which
govern the investment policies of the Fund, including a restriction that not
more than 10% of the Fund's net assets may be invested in securities that are
not readily marketable, such as repurchase agreements maturing in more than
seven days. Although the Trust currently does not borrow on behalf of the Fund
for the purpose of leveraging, these restrictions permit the Trust to borrow
money on behalf of the Fund for certain other purposes in amounts up to 33 1/3%
of the Fund's net assets (although no securities will be purchased for the Fund
at any time at which borrowings exceed five percent of the Fund's total assets
taken at market value). These specific investment restrictions may not be
changed without the approval of Fund shareholders. If a percentage restriction
(other than a restriction as to borrowing) or a rating restriction on investment
or utilization of assets is adhered to at the time an investment is made, or
assets are so utilized, a later change in percentage resulting from changes in
the value of the Fund's portfolio securities is not considered a violation of
policy.
MANAGEMENT OF THE TRUST
The business and affairs of the Fund are managed under the direction of
the Board of Trustees of the Trust. The Trustees are Frederick C. Chen, Alan
S. Parsow, Larry M. Robbins and Michael Seely. Additional information about
the Trustees, as well as the Trust's executive officers, may be found in the
Statement of Additional Information under the caption "Management of the Trust
- -- Trustees and Officers".
THE ADVISER
Republic National Bank of New York serves as investment adviser to the Fund.
Prior to October 14, 1994 Republic Asset Management Corporation advised the
Fund. The Adviser manages the investment and reinvestment of the assets of the
Fund and continuously reviews, supervises and administers the Fund's investments
pursuant to an Investment Advisory Contract (the "Investment Advisory
Contract"). Subject to such policies as the Board of Trustees may determine, the
Adviser places orders for the purchase and sale of the Fund's investments
directly with brokers or dealers selected by it in its discretion. The Adviser
does not place orders with the Distributor. For its services under the
Investment Advisory Contract, the Adviser receives from the Fund a fee, payable
monthly, at the annual rate of 0.20% of the Fund's average daily net assets.
Republic is a wholly-owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest bank holding company in the United States measured by assets and the
17th largest commercial bank measured by shareholder equity. Republic or an
affiliate of Republic serves as investment adviser to the other series of the
Trust. Republic currently provides investment advisory services for individuals,
trusts, estates and institutions.
Republic and its affiliates deal, trade and invest for their own accounts in
U.S. Government obligations and are dealers of various types of U.S. Government
obligations. Republic and its affiliates may sell U.S. Government obligations
to, and purchase them from, other investment companies sponsored by Signature.
The Adviser does not invest any Fund assets in any U.S. Government obligation
purchased from itself or any affiliate, although under certain circumstances
such obligations may be purchased from other members of an underwriting
syndicate in which Republic or an affiliate is a non-principal member. This
restriction should not limit the amount or type of U.S. Government obligations
available to be purchased for the Fund. The Adviser has informed the Trust that,
in making its investment decisions, it does not obtain or use material inside
information in the possession of any division or department of Republic or in
the possession of any affiliate of Republic.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Fund. If Republic were prohibited from acting as investment adviser to the
Fund, it is expected that the Board of Trustees would recommend to Fund
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action. If Republic were prohibited from acting as a
Shareholder Servicing Agent for the Fund, the Trust would seek alternative means
of providing such services.
Pursuant to a license agreement between the Trust and Republic dated October
6, 1994, the Trust may continue to use in its name "Republic" only if Republic
does not request that the Trust change its name to eliminate all reference to
"Republic" upon the expiration or earlier termination of any investment advisory
agreement between the Trust and Republic.
THE DISTRIBUTOR AND SPONSOR
Signature acts as sponsor and distributor to the Fund under a Distribution
Contract. The Distributor may, out of its own resources, make payments to
broker-dealers for their services in distributing Fund shares. Signature and its
affiliates also serve as administrator and distributor of other investment
companies. Signature is a wholly-owned subsidiary of Signature Financial Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly (subject to a limit of 0.25% per
annum of the Fund's average daily net assets) for costs and expenses incurred by
the Distributor in connection with the distribution of Fund shares and for the
provision of certain shareholder services with respect to Fund shares. Payments
to the Distributor are for various types of activities, including: (1) payments
to broker-dealers which advise shareholders regarding the purchase, sale or
retention of Fund shares and which provide shareholders with personal services
and account maintenance services ("service fees"), (2) payments to employees of
the Distributor, and (3) printing and advertising expenses. Such payments by the
Distributor to broker-dealers may be in amounts up to 0.25% per annum of the
Fund's average daily net assets. It is currently intended that the aggregate
fees paid to the Distributor pursuant to the Plan and to the Shareholder
Servicing Agents pursuant to the Administrative Services Plan (see below) will
not exceed 0.20% per annum of the Fund's average daily net assets. Salary
expense of Signature personnel who are responsible for marketing shares of the
various series of the Trust may be allocated to such series on the basis of
average net assets; travel expense is allocated to, or divided among, the
particular series for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets) payable under
the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to the Fund which provides that the Trust may
obtain the services of an administrator, a transfer agent, a custodian and one
or more Shareholder Servicing Agents for the Fund, and may enter into agreements
providing for the payment of fees for such services.
ADMINISTRATOR
Pursuant to an Administrative Services Contract, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust and the Fund, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust; the
preparation and filing of all documents required for compliance by the Trust
with applicable laws and regulations; and arranging for the maintenance of books
and records of the Trust and the Fund. Signature provides persons satisfactory
to the Board of Trustees of the Trust to serve as officers of the Trust. Such
officers, as well as certain other employees and Trustees of the Trust, may be
directors, officers or employees of Signature or its affiliates. For these
services and facilities, Signature receives from the Fund fees payable monthly
at an annual rate of 0.20% of the Fund's average daily net assets.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with Investors Bank &
Trust Company ("IBT"), pursuant to which IBT acts as transfer agent for the Fund
(the "Transfer Agent"). The Transfer Agent maintains an account for each
shareholder of the Fund (unless such account is maintained by the shareholder's
Shareholder Servicing Agent or securities broker), performs other transfer
agency functions and acts as dividend disbursing agent for the Fund. Pursuant to
a Custodian Agreement, IBT also acts as the custodian of the Fund's assets (the
"Custodian"). The Custodian's responsibilities include safeguarding and
controlling the Fund's cash and securities, handling the receipt and delivery of
securities, determining income and collecting interest on the Fund's
investments, maintaining books of original entry for portfolio and fund
accounting and other required books and accounts, and calculating the daily net
asset value of shares of the Fund. Securities held for the Fund may be deposited
into the Federal Reserve-Treasury Department Book Entry System or the Depositary
Trust Company. The Custodian does not determine the investment policies of the
Fund or decide which securities will be purchased or sold for the Fund. Assets
of the Fund may, however, be invested in securities of the Custodian and the
Trust may deal with the Custodian as principal in securities transactions for
the Fund. For its services, IBT receives such compensation as may from time to
time be agreed upon by it and the Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent pursuant to which a
Shareholder Servicing Agent, as agent for its customers, among other things:
answers customer inquiries regarding account status and history, the manner in
which purchases and redemptions of shares of the Fund may be effected and
certain other matters pertaining to the Fund; assists shareholders in
designating and changing dividend options, account designations and addresses;
provides necessary personnel and facilities to establish and maintain
shareholder accounts and records; assists in processing purchase and redemption
transactions; arranges for the wiring of funds; transmits and receives funds in
connection with customer orders to purchase or redeem shares; verifies and
guarantees shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnishes (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) monthly and year-end statements and confirmations
of purchases and redemptions; transmits, on behalf of the Trust, proxy
statements, annual reports, updated prospectuses and other communications from
the Trust to the Fund's shareholders; receives, tabulates and transmits to the
Trust proxies executed by shareholders with respect to meetings of shareholders
of the Fund or the Trust; and provides such other related services as the Trust
or a shareholder may request. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed 0.20% per annum of the Fund's average daily net
assets. Republic may act as a Shareholder Servicing Agent.
The Trust understands that some Shareholder Servicing Agents also may impose
certain conditions on their customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by the Trust, such as requiring a
different minimum initial or subsequent investment, account 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 on a percentage of the assets
in the account or of the dividends paid on those assets). Each Shareholder
Servicing Agent has agreed to transmit to its customers who are shareholders of
the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor or the Adviser. See "Management of the Trust --
Expenses and Expense Limits" in the Statement of Additional Information. Trust
expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the series in the Trust in
relation to the net assets of each series. For the most recent fiscal year, the
Fund's operating expenses equaled 0.58% of its average daily net assets.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on each
day on which the New York Stock Exchange is open for trading ("Fund Business
Day"). This determination is made once during each such day as of 12:00 noon,
New York time, by dividing the value of the Fund's net assets (i.e., the value
of its assets less its liabilities, including expenses payable or accrued) by
the number of shares of the Fund outstanding at the time the determination is
made. It is anticipated that the net asset value of each share of the Fund will
remain constant at $1.00 (although no assurance can be given that it will be so
constant on a continuing basis) and specific investment policies and procedures,
including the use of the amortized cost valuation method, are being employed to
accomplish this result. Income earned on the Fund's investments is accrued daily
and the Net Income, as defined under "Dividends and Distributions" on page 16,
is declared each Fund Business Day as a dividend.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor or is received by a Shareholder Servicing Agent or a securities
broker if it is transmitted to and accepted by the Distributor. Purchases are
therefore effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 12:00 noon, New York time,
on any Fund Business Day. Shares purchased earn dividends from and including the
day the purchase is effected. It is anticipated that the net asset value of
$1.00 per share of the Fund will remain constant, and although no assurance can
be given that it will be so constant on a continuing basis, specific investment
policies and procedures are being employed to accomplish this result.
The Trust intends the Fund to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets. Accordingly,
in order to make investments which will immediately generate income, the Trust
must have federal funds available for the Fund (i.e., monies credited by a
Federal Reserve Bank to the account of the Fund with the Fund's custodian bank).
Each Shareholder Servicing Agent and securities broker has agreed to provide
federal funds for each purchase at the time it transmits the order for such
purchase to the Distributor and the Distributor has agreed to provide the Fund
with federal funds for each purchase including those made directly through the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, the Distributor, his Shareholder Servicing Agent or
his securities broker, there may be a delay in transmitting and effecting the
purchase order since his check, bank draft, money order or similar negotiable
instrument will have to be converted into federal funds. If such a delay is
necessary, it is expected that in most cases it would not be longer than two
business days.
While there is no sales load on purchases of Fund shares, the Distributor
may receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor". Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
All purchase payments are invested in full and fractional shares of the
Fund. The Trust reserves the right to cease offering shares of the Fund for sale
at any time or to reject any order for the purchase of shares of the Fund.
An investor may purchase shares of the Fund through the Distributor directly
or by authorizing his Shareholder Servicing Agent or his securities broker to
purchase such shares on his behalf through the Distributor.
EXCHANGE PRIVILEGE. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Fund shares for shares of one or more other Republic Funds at net asset
value without a sales charge. An exchange may result in a change in the number
of shares held, but, when no sales charge is imposed, not in the value of such
shares immediately after the exchange. Each exchange involves the redemption of
the Fund shares to be exchanged and the purchase of the shares of the other
Republic Fund.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Fund and consider the differences in investment objectives and
policies before making any exchange.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Fund shares directly through the
Distributor, the Trust, as the shareholder's agent, establishes an open account
to which all shares purchased are credited together with any dividends and
capital gains distributions which are paid in additional shares. See "Dividends
and Distributions". The minimum initial investment is $1,000, except that the
minimum initial investment for an Individual Retirement Account is $250. The
minimum subsequent investment is $100. Initial and subsequent purchases may be
made by writing a check (in U.S. dollars) payable to The Republic Funds -- U.S.
Government Money Market Fund and mailing it to:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. #5999-99451
For further credit to the Republic Funds (U.S. Government Money Market
Fund, account name, account #)
The wire order must specify the Fund, the account name, number, confirmation
number, address, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order.
AUTOMATIC INVESTMENT PLAN. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. If an Automatic Investment Plan is selected,
subsequent investments will be automatic and will continue until such time as
the Trust and the investor's bank are notified to discontinue further
investments. Due to the varying procedure to prepare, process and to forward the
bank withdrawal information to the Trust, there may be a delay between the time
of the bank withdrawal and the time the money reaches the Fund. The investment
in the Fund will be made at the net asset value per share determined on the day
that both the check and the bank withdrawal data are received in required form
by the Distributor. Further information about the plan may be obtained from IBT
at the telephone number listed on the back cover.
For further information on how to purchase shares of the Fund directly from
the Distributor, an investor should contact the Distributor (see back cover for
address and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares of the Fund are being offered to the public, to customers of a
Shareholder Servicing Agent and to customers of a securities broker that has
entered into a dealer agreement with the Distributor. Shareholder Servicing
Agents and securities brokers may offer services to their customers, including
specialized procedures for the purchase and redemption of Fund shares, such as
pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs. Each Shareholder Servicing Agent and securities broker may
establish its own terms, conditions and charges, including limitations on the
amounts of transactions, with respect to such services. Charges for these
services may include fixed annual fees, account maintenance fees and minimum
account balance requirements. The effect of any such fees will be to reduce the
net return on the investment of customers of that Shareholder Servicing Agent or
securities broker. Conversely, certain Shareholder Servicing Agents may
(although they are not required by the Trust to do so) credit to the accounts of
their customers from whom they are already receiving other fees amounts not
exceeding such other fees or the fees received by the Shareholder Servicing
Agent from the Fund, which will have the effect of increasing the net return on
the investment of such customers of those Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase shares of the Fund, an investor should
contact his securities broker or his Shareholder Servicing Agent (see back cover
for address and phone number).
RETIREMENT PLANS
Shares of the Fund are offered in connection with tax-deferred retirement
plans. Application forms and further information about these plans, including
applicable fees, are available from the Trust or the Sponsor upon request.
Recently enacted federal tax legislation has substantially affected the tax
treatment of contributions to certain retirement plans. Before investing in the
Fund through one or more of these plans, an investor should consult his or her
tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be used as a funding medium for an IRA. An Internal
Revenue Service-approved IRA plan may be available from an investor's
Shareholder Servicing Agent. In any event, such a plan is available from the
Sponsor naming IBT, as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive compensation or earned income and their spouses whether
or not they are active participants in a tax-qualified or Government- approved
retirement plan. An IRA contribution by an individual who participates, or whose
spouse participates, in a tax-qualified or Government- approved retirement plan
may not be deductible depending upon the individual's income. Individuals also
may establish an IRA to receive a "rollover" contribution of distributions from
another IRA or a qualified plan. Tax advice should be obtained before planning a
rollover.
DEFINED CONTRIBUTION PLANS
Investors who are self-employed may purchase shares of the Fund for
retirement plans for self-employed persons which are known as Defined
Contribution Plans (formerly Keogh or H.R. 10 Plans). Republic offers a
prototype plan for Money Purchase and Profit Sharing Plans.
SECTION 457 PLAN, 401(K) PLAN, 403(B) PLAN
The Fund may be used as a vehicle for certain deferred compensation plans
provided for by Section 457 of the Code with respect to service for state
governments, local governments, rural electric cooperatives and political
subdivisions, agencies, instrumentalities and certain affiliates of such
entities. The Fund may also be used as a vehicle for both 401(k) plans and 403
(b) plans.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value (normally $1.00 per share) next determined after
a redemption order in proper form is furnished by the shareholder to the
Transfer Agent, with respect to shares purchased directly through the
Distributor, or to his securities broker or his Shareholder Servicing Agent and
is transmitted by it to and is received by the Transfer Agent. Redemptions are
effected on the same day the redemption order is received by the Transfer Agent
provided such order is received prior to 12:00 noon, New York time, on any Fund
Business Day. Shares redeemed earn dividends up to and including the day prior
to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists. To be in a position to eliminate excessive expenses, the Trust
reserves the right to redeem upon not less than 30 days' notice all shares of
the Fund in an account which has a value below $50. However, a shareholder will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account.
Unless shares of the Fund have been purchased directly from the Distributor,
a shareholder may redeem shares of the Fund only by authorizing his securities
broker or his Shareholder Servicing Agent to redeem such shares on his behalf
(since the account and records of such a shareholder are established and
maintained by his securities broker or his Shareholder Servicing Agent). For
further information as to how to direct a securities broker or a Shareholder
Servicing Agent to redeem shares of the Fund, a shareholder should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
REDEMPTION BY LETTER. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
REDEMPTION BY WIRE OR TELEPHONE. An investor may redeem Fund shares by wire
or by telephone if he has checked the appropriate box on the Purchase
Application or has filed a Telephone Authorization Form with the Trust. These
redemptions may be paid from the Fund by wire or by check. The Trust reserves
the right to refuse telephone wire redemptions and may limit the amount involved
or the number of telephone redemptions. The telephone redemption procedure may
be modified or discontinued at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. For instance, the following information must be verified by the
shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities broker or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
CHECK REDEMPTION SERVICE. Shareholders may redeem shares of the Fund by means of
a Check Redemption Service. If shares are held in book credit form and the Check
Redemption Service has been elected on the Purchase Application on file with the
Trust, redemptions of shares may be made by using redemption checks provided by
the Trust. There is no charge for this service. Checks must be written for
amounts of $250 or more, may be payable to anyone and negotiated in the normal
way. If more than one shareholder owns the shares, all must sign the check
unless an election has been made to require only one signature on checks and
that election has been filed with the Trust.
Shares represented by a redemption check continue to earn daily dividends
until the check clears the banking system. When honoring a redemption check, the
Trust causes the redemption of exactly enough full and fractional Fund shares
from an account to cover the amount of the check. The Check Redemption Services
may be terminated at any time by the Trust.
If the Check Redemption Service is requested for an account in the name of a
corporation or other institution, additional documents must be submitted with
the application, i.e., corporations (Certification of Corporate Resolution),
partnerships (Certification of Partnership) and trusts (Certification of
Trustees). In addition, since the share balance of each Fund account is changing
on a daily basis, the total value of a Fund account cannot be determined in
advance and a Fund account cannot be closed or entirely redeemed by check.
DIVIDENDS AND DISTRIBUTIONS
The Net Income of the Fund, as defined below, is determined each Fund
Business Day (and on such other days as the Trustees deem necessary in order to
comply with Rule 22c-1 under the 1940 Act). This determination is made once
during each such day as of 12:00 noon, New York time. All the Net Income of the
Fund so determined is declared in shares of the Fund as a dividend to
shareholders of record at the time of such determination. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly on
the last business day of each month. Unless a shareholder elects to receive
dividends in cash (subject to the policies of the shareholder's Shareholder
Servicing Agent or securities broker), dividends are distributed in the form of
additional shares of the Fund at the rate of one share (and fraction thereof) of
the Fund for each one dollar (and fraction thereof) of dividend income.
For this purpose the Net Income of the Fund (from the time of the
immediately preceding determination thereof) consists of (i) all income accrued,
less the amortization of any premium, on the assets of the Fund, less (ii) all
actual and accrued expenses determined in accordance with generally accepted
accounting principles. Interest income includes discount earned (including both
original issue and market discount) on discount paper accrued ratably to the
date of maturity and any net realized gains or losses on the assets of the Fund.
Obligations held in the Fund's portfolio are valued at amortized cost, which the
Trustees of the Trust have determined in good faith constitutes fair value for
the purposes of complying with the 1940 Act. This method provides certainty in
valuation, but may result in periods during which the stated value of an
obligation held for the Fund is higher or lower than the price the Fund would
receive if the obligation were sold. This valuation method will continue to be
used until such time as the Trustees of the Trust determine that it does not
constitute fair value for such purposes.
Since the Net Income of the Fund is declared as a dividend each time the Net
Income of the Fund is determined, the net asset value per share of the Fund is
expected to remain at $1.00 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment in the Fund, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares of the Fund in his account.
It is expected that the Fund will have a positive Net Income at the time of
each determination thereof. If for any reason the Net Income of the Fund
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of an obligation held in the Fund's portfolio, the
negative amount with respect to each shareholder account would first be offset
from the dividends declared during the month with respect to each such account.
If and to the extent that such negative amount exceeds such declared dividends
at the end of the month, the number of outstanding Fund shares would be reduced
by treating each shareholder as having contributed to the capital of the Fund
that number of full and fractional shares in the account of such shareholder
which represents his proportion of the amount of such excess. Each shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund. Thus, the net asset value per share of the Fund will be
maintained at a constant $1.00.
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his or her own tax advisor as to the tax consequences of an
investment in the Fund.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
realized capital gains of the Fund are distributed to shareholders in accordance
with the timing requirements imposed by the Code, no federal income or excise
taxes will be paid by the Fund on amounts so distributed.
At the end of each calendar year, each shareholder receives information for
tax purposes on the dividends and any realized net capital gains distributions
received during that calendar year including the portion taxable as ordinary
income, the portion taxable as capital gains, and the amount of dividends
eligible for the dividends-received deduction for corporations. However, since
no portion of the Fund's income is expected to consist of dividends paid by U.S.
corporations, no portion of the dividends paid by the Fund is expected to
qualify for the dividends-received deduction for corporations.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund.
The Trust may be required to withhold federal income tax at the rate of 31%
from all taxable distributions payable to shareholders who do not provide the
Trust with their correct taxpayer identification number or make required
certifications, or who have been notified by the Internal Revenue Service that
they are subject to backup withholding. Backup withholding is not an additional
tax. Any amounts withheld may be credited against the shareholder's federal
income tax liability.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
Distributions which are derived from interest on obligations of the U.S.
Government and certain of its agencies and instrumentalities (but generally not
from capital gains realized upon the disposition of such obligations) may be
exempt from state and local taxes in certain states. In other states, arguments
can be made on the basis of a U.S. Supreme Court decision to the effect that
such distributions should be exempt from state and local taxes. Shareholders of
the Fund are advised of the proportion of its distributions which consists of
such interest.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has ten series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, pre-emptive, conversion
or similar rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. Each Shareholder Servicing Agent has
agreed to transmit all proxies and voting materials from the Trust to their
customers who are beneficial owners of the Fund and such Shareholder Servicing
Agents have agreed to vote as instructed by such customers. The Trust is not
required and has no current intention to hold annual meetings of shareholders
although the Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust it is necessary or desirable to submit
matters for a shareholder vote. Shareholders of each series generally vote
separately, for example, to approve investment advisory agreements or changes in
fundamental investment policies or restrictions, but shareholders of all series
may vote together to the extent required under the 1940 Act, such as in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders of the
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
PERFORMANCE INFORMATION
From time to time the Trust may provide annualized "yield" and "effective
yield" quotations for the Fund in advertisements, shareholder reports or other
communications to shareholders and prospective investors. The methods used to
calculate the Fund's yield and effective yield are mandated by the Securities
and Exchange Commission. The "yield" of the Fund refers to the income generated
by an investment in the Fund over a seven day period (which period will be
stated in any such advertisement or communication). This income is then
"annualized". That is, the amount of income generated by the investment during
that seven day period is assumed to be generated each week over a 365 day period
and is shown as a percentage of the investment. The "effective yield" is
calculated similarly, but when annualized the income earned by the investment
during that seven day period is assumed to be reinvested. The effective yield
will be slightly higher than the yield because of the compounding effect of this
assumed reinvestment.
Since these yield and effective yield quotations are based on historical
earnings and since the Fund's yield and effective yield fluctuate from day to
day, these quotations should not be considered as an indication or
representation of the Fund's yield or effective yield in the future. Any
performance information should be considered in light of the Fund's investment
objective and policies, characteristics and quality of the Fund's portfolio and
the market quotations during the time period indicated, and should not be
considered to be representative of what may be achieved in the future. From time
to time the Trust may also use comparative performance information in such an
advertisement or communication, including the performance of unmanaged indices,
the performance of the Consumer Price Index (as a measure for inflation), and
data from Lipper Analytical Services, Inc., Bank Rate Monitor(tm) ,
IBC/Donoghue's Money Fund Report and other industry publications.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of the Fund varies based on the type, quality
and maturities of the obligations held for the Fund, fluctuations in short-term
interest rates, and changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate yields should be
considered when comparing the yield of the Fund to yields published for other
investment companies or other investment vehicles.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Conversely, the
Trust has been advised that certain Shareholder Servicing Agents may credit to
the accounts of their customers from whom they are already receiving other fees
amounts not exceeding such other fees or the fees received by the Shareholder
Servicing Agent from the Fund, which will have the effect of increasing the net
return on the investment of such customers of those Shareholder Servicing
Agents. Such customers may be able to obtain through their Shareholder Servicing
Agent or securities broker quotations reflecting such decreased or increased
return.
The yield and effective yield of the Fund are not fixed or guaranteed, and
an investment in the Fund is not insured. The Trust's Statement of Additional
Information with respect to the Fund includes more detailed information
concerning the calculation of yield and effective yield quotations for the Fund.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 6 St. James
Avenue, Boston, Massachusetts 02116.
GENERAL AND ACCOUNT INFORMATION (800) 782-8183 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated January 26, 1996,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Adviser and Sponsor of the Fund,
(iii) portfolio transactions, (iv) the Fund's shares, including rights and
liabilities of shareholders, and (v) additional yield information, including the
method used to calculate the annualized yield and effective yield of the Fund.
<PAGE>
- -----
REPUBLIC
U.S.GOVERNMENT
MONEY MARKET
FUND
INVESTMENT ADVISER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
INDEPENDENT AUDITORS
KPMGPeat Marwick
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
SHAREHOLDER SERVICING AGENTS:
Republic National Bank of New York
Republic Bank For Savings
452 Fifth Avenue
New York, NY 10018
(800) 782-8183
FOR NON-REPUBLIC CLIENTS:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
-----
REPUBLIC
U. S. GOVERNMENT
MONEY MARKET
FUND
PROSPECTUS
January 26, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
- --------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic New York Tax Free Money Market Fund (the "Fund") is a
non-diversified separate series (portfolio) of the Republic Funds (the "Trust"),
an open-end, management investment company which currently consists of six
funds, each of which has different and distinct investment objectives and
policies. Shares of the Fund are being offered by this Prospectus. Republic
National Bank of New York ("Republic" or the "Adviser") continuously manages the
investment portfolio of the Fund.
The investment objective of the Fund is to provide shareholders of the Fund
with liquidity and as high a level of current income exempt from federal, New
York State and New York City personal income taxes as is consistent with the
preservation of capital. The Fund is a type of mutual fund commonly referred to
as a "triple tax exempt money market fund". The Trust seeks to achieve the
investment objective of the Fund by investing the assets of the Fund primarily
in a non-diversified portfolio of short-term, high quality, tax-exempt money
market instruments with maturities of 397 days or less, including obligations of
the State of New York and its political subdivisions, and in participation
interests issued by banks or other financial institutions with respect to such
obligations. There can be no assurance that the investment objective of the Fund
will be achieved.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED. THERE CAN BE NO
ASSURANCE THAT THE FUND WILL BE ABLE TO MAINTAIN A STABLE NET ASSET VALUE OF
$1.00 PER SHARE.
Shares of the Fund are continuously offered for sale at net asset value with
no sales charge by Signature Broker-Dealer Services, Inc. ("Signature" or the
"Distributor") (i) directly to the public, (ii) to customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a shareholder servicing agreement
with the Trust (collectively, "Shareholder Servicing Agents"), and (iii) to
customers of a securities broker that has entered into a dealer agreement with
the Distributor.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM THE DISTRIBUTOR SHOULD
OBTAIN FROM HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER
WHICH SHARES OF THE FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund (see page 23) and is
hereby incorporated by reference into this Prospectus. An investor may obtain
a copy of this Statement of Additional Information without charge by
contacting the Distributor or his Shareholder Servicing Agent (see back cover
for addresses and phone numbers).
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic New York Tax Free Money Market Fund (the "Fund") is a separate
series (portfolio) of the Republic Funds (the "Trust"), a Massachusetts business
trust organized on April 22, 1987, which currently consists of six funds, each
of which has different and distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 5
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income exempt from federal,
New York State and New York City personal income taxes as is consistent with the
preservation of capital. The Trust seeks to achieve the investment objective of
the Fund by investing the assets of the Fund primarily in a non-diversified
portfolio of short-term, high quality, fixed rate and variable rate tax-exempt
money market instruments, including obligations issued by or on behalf of the
State of New York and its authorities, agencies, instrumentalities and political
subdivisions, and in participation interests issued by banks, insurance
companies or other financial institutions with respect to such obligations.
There can be no assurance that the investment objective of the Fund will be
achieved.
MANAGEMENT OF THE TRUST PAGE 11
Republic National Bank of New York ("Republic" or the "Adviser") acts as
investment adviser to the Fund. For its services, the Adviser receives from the
Fund a fee at the annual rate of 0.15% of the Fund's average daily net assets.
Signature Broker-Dealer Services, Inc. ("Signature" or the "Sponsor") acts
as administrator and sponsor of the Fund. The Sponsor provides certain
management and administrative services to the Fund for which it receives from
the Fund a fee at the annual rate of up to 0.15% of the Fund's average daily net
assets.
The Trust has also retained Signature (the "Distributor") to distribute
shares of the Fund pursuant to a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), under which the
Distributor is reimbursed from the Fund (in amounts up to 0.25% of the Fund's
average daily net assets) for marketing costs and payments to other
organizations for services rendered in distributing the Fund's shares. See
"Management of the Trust".
PURCHASES AND REDEMPTIONS PAGES 15 AND 17
The Fund is a type of mutual fund commonly referred to as a "triple tax
exempt money market fund". The net asset value of each of the Fund's shares is
expected to remain constant at $1.00, although this cannot be assured. See
"Determination of Net Asset Value" and "Dividends and Distributions".
Shares of the Fund are continuously offered for sale by the Distributor at
net asset value (normally $1.00 per share) with no sales charge (i) directly to
the public, (ii) to customers of a financial institution, such as a federal or
state-chartered bank, trust company or savings and loan association that has
entered into a shareholder servicing agreement with the Trust (collectively,
"Shareholder Servicing Agents"), and (iii) to customers of a securities broker
that has entered into a dealer agreement with the Distributor. For investors who
purchase Fund shares directly from the Distributor, the minimum initial
investment is $1,000 and the minimum subsequent investment is $100. The Trust
offers to buy back (redeem) shares of the Fund from its shareholders at any time
at net asset value. See "Purchase of Shares" and "Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 19
The Trust declares all the Fund's net investment income daily as a
dividend to Fund shareholders and distributes all such dividends monthly. Any
net realized capital gains are distributed at least annually. See "Dividends
and Distributions".
<PAGE>
FEE TABLE
The following table provides (i) a summary of expenses relating to purchases
and sales of shares of the Fund, and the aggregate annual operating expenses of
the Fund, as a percentage of average net assets of the Fund during the Fund's
last completed fiscal year, and (ii) an example illustrating the dollar cost of
such expenses on a $1,000 investment in the Fund. Historical information in the
expense table regarding investment advisory and administrative services fees has
been restated to reflect expected fee waivers for the current fiscal year.
Shareholder Transaction Expenses .............................. 0%
Annual Fund Operating Expenses
Investment Advisory Fee after waiver* ..................... 0.10%
Distribution Fees (Rule 12b-1 fees) ....................... 0.15%
Other Expenses after waiver** ............................ 0.35%
-----
-- Shareholder Servicing Fee ............................. 0.10%
-- Administrative Services Fee after waiver** ............. 0.10%
-- Other Operating Expenses ............................... 0.15%
----
Total Fund Operating Expenses after expense limitation and
fee waivers*** .............................................. 0.60%
====
- ----------
*Investment Advisory Fee is shown net of expected waiver for the current
fiscal year. Without such waiver, such fee would be equal on an annual basis
to 0.15% of the Fund's average net assets.
**Other Expenses and the Administrative Services Fee are shown net of expected
fee waiver for the current fiscal year. Without such waiver, the
Administrative Services Fee and Other Expenses would be euqal on an annual
basis to 0.15% and 0.40%, respectively, of the Fund's average net assets.
***Total Fund Operating Expenses are shown net of a voluntary expense limitation
and expected fee waivers. Without such voluntary expense limitation and
expected fee waivers, the Total Fund Operating Expenses would be equal on an
annual basis to 0.70% of the Fund's average net assets. There can be no
assurance that expenses will be reimbursed or waived in the future.
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
1 year ................................................... $ 6
3 years .................................................. $19
5 years .................................................. $33
10 years .................................................. $75
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of shares of the Fund.
The aggregate fees paid to the Distributor pursuant to the Distribution Plan and
to the Shareholder Servicing Agent pursuant to the Administrative Services Plan
may not exceed 0.25% of the average daily net assets of the Fund.
Some Shareholder Servicing Agents and securities brokers may impose certain
conditions on their customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging their customers a direct fee for their
services. The effect of any such fees will be to reduce the net return on the
investment of customers of that Shareholder Servicing Agent or securities
broker. Each Shareholder Servicing Agent and securities broker has agreed to
transmit to shareholders who are its customers appropriate written disclosure of
any transaction fees that it may charge them directly at least 30 days before
the imposition of any such charge.
More complete descriptions of the following expenses are set forth on the
following pages: (i) investment advisory fee -- page 11, (ii) distribution fee
- -- page 12, (iii) administrative services fee -- page 13, and (iv) shareholder
servicing agent fee -- page 13.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1995. The information shown in the following schedule has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the Fund's Annual Report dated October 31, 1995. The Annual
Report may be obtained without charge upon request. This information should be
read in conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD:
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
NOVEMBER 17, 1994
(COMMENCEMENT
OF OPERATIONS)
TO OCTOBER 31, 1995
-------------------
Net asset value, beginning of period ........................ $ 1.00
-------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.033
-------
Total income from investment operations ................. 0.033
-------
Less dividends:
From net investment income .............................. (0.033)
-------
Total dividends distributed to shareholders ............. (0.033)
-------
Net asset value, end of period .............................. $ 1.00
=======
Total return ................................................ 3.31%(A)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) .................... $52,652
Ratio of expenses to average net assets* ................ 0.41%(B)
Ratio of net investment income to average net assets* ... 3.45%(B)
- --------------------------------------------------------------------------------
*Reflects a voluntary expense limitation and waivers of fees by affiliated
parties of the Fund. If this limitation and waivers had not been in effect, the
annualized ratios of expenses and net investment income to average net assets
for the period from November 17, 1994 (commencement of operations) to October
31, 1995 would have been 0.65% and 3.20%, respectively.
(A) Not annualized.
(B) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders of the Fund
with liquidity and as high a level of current income exempt from federal, New
York State and New York City personal income taxes as is consistent with the
preservation of capital. There can be no assurance that the investment objective
of the Fund will be achieved. The investment objective of the Fund may be
changed without approval by the Fund's shareholders. If there is a change in the
investment objective of the Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
position and needs.
INVESTMENT POLICIES
The Trust seeks to achieve the investment objective of the Fund by investing
the assets of the Fund primarily in short-term, high quality, fixed rate and
variable rate obligations issued by or on behalf of the State of New York, other
states, territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which is
exempt from federal income taxes, including participation interests issued by
banks, insurance companies or other financial institutions with respect to such
obligations. (Such obligations, whether or not the interest thereon is subject
to the federal alternative minimum tax, are referred to herein as "Municipal
Obligations".) The Trust invests on behalf of the Fund in certain Municipal
Obligations of the State of New York and its authorities, agencies,
instrumentalities and political subdivisions, and of Puerto Rico, other U.S.
territories and their authorities, agencies, instrumentalities and political
subdivisions, the interest on which is exempt from federal, New York State and
New York City personal income taxes, including participation interests issued by
banks, insurance companies or other financial institutions with respect to such
obligations ("New York Municipal Obligations"). In determining the tax status of
interest on Municipal Obligations and New York Municipal Obligations, the
Adviser relies on opinions of bond counsel who may be counsel to the issuer.
Although under normal circumstances, the Trust attempts to invest 100%, and
does invest at least 65%, of the Fund's assets in New York Municipal
Obligations, market conditions may from time to time limit the availability of
such obligations. To the extent that acceptable New York Municipal Obligations
are not available for investment, the Trust may purchase on behalf of the Fund
Municipal Obligations issued by other states, their authorities, agencies,
instrumentalities and political subdivisions, the interest income on which is
exempt from federal income tax but is subject to New York State and New York
City personal income taxes. As a fundamental policy, the Trust will invest at
least 80% of the Fund's net assets in tax exempt obligations. As a temporary
defensive measure, the Trust may invest up to 20% of the Fund's total assets in
obligations the interest income on which is subject to federal, New York State
and New York City personal income taxes or the federal alternative minimum tax.
Uninvested cash reserves may be held temporarily for the Fund pending
investment.
The Trust may invest more than 25% of the Fund's assets in participation
interests issued by banks in industrial development bonds and other Municipal
Obligations. In view of this possible "concentration" in bank participation
interests, an investment in the Fund should be made with an understanding of the
characteristics of the banking industry and the risks which such an investment
may entail. See "Variable Rate Instruments and Participation Interests" below.
All investments on behalf of the Fund (i.e., 100% of the Fund's investments)
mature or are deemed to mature within 397 days from the date of acquisition and
the average maturity of the investments in the Fund's portfolio (on a
dollar-weighted basis) is 90 days or less. The maturities of variable rate
instruments held in the Fund's portfolio are deemed to be the longer of the
period remaining until the next interest rate adjustment or the period until the
Fund would be entitled to payment pursuant to demand rights, a letter of credit,
guarantee or insurance policy or a right to tender or put the instrument,
although the stated maturities may be in excess of 397 days. See "Variable Rate
Instruments and Participation Interests" below. As a fundamental policy, the
investments of the Fund are made primarily (i.e., at least 80% of its assets
under normal circumstances) in:
(1) Municipal bonds with remaining maturities of 397 days or less that
at the date of purchase are rated Aaa or Aa by Moody's Investors Service,
Inc. ("Moody's"), AAA or AA by Standard & Poor's Corporation ("Standard &
Poor's") or AAA or AA by Fitch Investors Service, Inc. ("Fitch") or, if not
rated by any of these rating agencies, are of comparable quality as
determined by or on behalf of the Board of Trustees of the Trust on the
basis of a credit evaluation of the obligor on the bonds or of the bank
issuing a participation interest or guarantee or of any insurance policy
issued in support of the bonds or the participation interest;
(2) Municipal notes with remaining maturities of 397 days or less that
at the date of purchase are rated MIG 1/VMIG 1 or MIG 2/VMIG 2 by Moody's,
SP-1+, SP-1 or SP-2 by Standard & Poor's or F-1+, F-1 or F-2 by Fitch or, if
not rated by any or these rating agencies, are of comparable quality as
determined by or on behalf of the Board of Trustees of the Trust (The
principal kinds of municipal notes are tax and revenue authorization notes,
tax anticipation notes, bond anticipation notes and revenue anticipation
notes. Notes sold in anticipation of collection of taxes, a bond sale or
receipt of other revenues are usually general obligations of the issuing
municipality or agency. The Fund's investments may be concentrated in
municipal notes of New York issuers.); and
(3) Municipal commercial paper that at the date of purchase is rated
Prime-1 or Prime-2 by Moody's, A-1+, A-1 or A-2 by Standard & Poor's or
F-1+, F-1 or F-2 by Fitch or, if not rated by any of these rating agencies,
is of comparable quality as determined by or on behalf of the Board of
Trustees of the Trust. Issues of municipal commercial paper typically
represent very short-term, unsecured, negotiable promissory notes. These
obligations are often issued to meet seasonal working capital needs of
municipalities or to provide interim construction financing and are paid
from general revenues of municipalities or are refinanced with long-term
debt. In most cases municipal commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or other institutions which may be
called upon in the event of default by the issuer of the commercial paper.
For a general discussion of Municipal Obligations and an explanation of the
ratings of Municipal Obligations by Moody's, Standard & Poor's and Fitch, see
Appendix A. For a comparison of yields on such Municipal Obligations and taxable
securities, see the Taxable Equivalent Yield Tables in Appendix B.
As a non-diversified investment company, the Trust is not subject to any
statutory restriction under the 1940 Act with respect to limiting the investment
of the Fund's assets in one or relatively few issuers. Since the Trust may
invest a relatively high percentage of the Fund's assets in the obligations of a
limited number of issuers, the value of shares of the Fund may be more
susceptible to any single economic, political or regulatory occurrence than the
value of shares of a diversified investment company would be. The Trust may also
invest 25% or more of the Fund's assets in obligations that are related in such
a way that an economic, business or political development or change affecting
one of the obligations would also affect the other obligations including, for
example, obligations the interest on which is paid from revenues of similar type
projects, or obligations the issuers of which are located in the same state.
VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS
Variable rate instruments that the Trust may purchase on behalf of the Fund
provide for a periodic adjustment in the interest rate paid on the instrument
and permit the holder to receive payment upon a specified number of days' notice
of the unpaid principal balance plus accrued interest either from the issuer or
by drawing on a bank letter of credit, a guarantee or an insurance policy issued
with respect to such instrument or by tendering or "putting" such instrument to
a third party.
Variable rate instruments in which the Fund's assets may be invested include
participation interests in Municipal Obligations owned by a bank, insurance
company or other financial institution or affiliated organization. A
participation interest gives the Fund an undivided interest in the Municipal
Obligation in the proportion that the Fund's participation bears to the total
principal amount of the Municipal Obligation and provides the demand or put
feature described below. Each participation interest is backed by an insurance
policy of an insurance company or by an irrevocable letter of credit or
guarantee of, or a right to put to, a bank that has been determined by or on
behalf of the Board of Trustees of the Trust to meet the prescribed quality
standards for the Fund. There is usually the right to sell the participation
interest back to the institution or draw on the letter of credit, guarantee or
insurance policy after notice (usually seven days), for all or any part of the
full principal amount of the Fund's participation in the Municipal Obligation,
plus accrued interest. If the notice period is more than seven days, the
Municipal Obligation is treated as an obligation that is not readily marketable.
In some cases, these rights may not be exercisable in the event of a default on
the underlying Municipal Obligations; in these cases the underlying Municipal
Obligations must meet the Fund's high credit standards at the time of purchase
of the participation interest. Although participation interests may be sold, the
Trust intends to hold them for the Fund until maturity, except under certain
specified circumstances. Purchase of a participation interest may involve the
risk that the Fund will not be deemed to be the owner of the underlying
Municipal Obligation for purposes of the ability to claim tax exemption of
interest paid thereon.
Because of the variable rate nature of the instruments, during periods when
prevailing interest rates decline the Fund's yield will decline and its
shareholders will forgo the opportunity for capital appreciation. On the other
hand, during periods when prevailing interest rates increase, the Fund's yield
will increase and its shareholders will have reduced risk of capital
depreciation.
In view of the possible "concentration" of the Fund in participation
interests in Municipal Obligations secured by bank letters of credit or
guarantees, an investment in the Fund should be made with an understanding of
the characteristics of the banking industry and the risks which such an
investment may entail. Banks are subject to extensive governmental regulations
which may limit both the amounts and types of loans and other financial
commitments which may be made and interest rates and fees which may be charged.
The profitability of this industry is largely dependent upon the availability
and cost of capital funds for the purpose of financing lending operations under
prevailing money market conditions. Also, general economic conditions play an
important part in the operations of this industry and exposure to credit losses
arising from possible financial difficulties of borrowers might affect a bank's
ability to meet its obligations under a letter of credit or guarantee.
For additional information concerning variable rate instruments and
participation interests, see "Investment Objective, Policies and Restrictions --
Variable Rate Instruments and Participation Interests" in the Statement of
Additional Information.
"WHEN-ISSUED" MUNICIPAL OBLIGATIONS
New issues of Municipal Obligations may be offered on a "when-issued" or
"forward delivery" basis. The payment obligation and the interest rate that will
be received on the Municipal Obligations offered on this basis are each fixed at
the time the Trust commits to the purchase for the Fund, although settlement,
i.e., delivery of and payment for the Municipal Obligations, takes place beyond
customary settlement time (but normally within 45 days of the commitment).
Between the time the Trust commits to purchase the "when-issued" or "forward
delivery" Municipal Obligation for the Fund and the time delivery and payment
are made, the "when-issued" or "forward delivery" Municipal Obligation is
treated as an asset of the Fund and the amount which the Fund is committed to
pay for that Municipal Obligation is treated as a liability of the Fund. No
interest on a "when-issued" or "forward delivery" Municipal Obligation is
accrued for the Fund until delivery occurs. Although the Trust only makes
commitments to purchase "when-issued" or "forward delivery" Municipal
Obligations for the Fund with the intention of actually acquiring them, the
Trust may sell these obligations before the settlement date if deemed advisable
by the Adviser. Purchasing Municipal Obligations on a "when- issued" or "forward
delivery" basis can involve a risk that the yields available in the market on
the settlement date may actually be higher (or lower) than those obtained in the
transaction itself and, as a result, the "when-issued" or "forward delivery"
Municipal Obligation may have a lesser (or greater) value at the time of
settlement than the Fund's payment obligation with respect to that Municipal
Obligation. Furthermore, if the Trust sells the "when-issued" or "forward
delivery" Municipal Obligation before the settlement date or if the Trust sells
other obligations from the Fund's portfolio in order to meet the payment
obligations, the Fund may realize a capital gain, which is not exempt from
federal, New York State or New York City income taxation.
For additional information concerning "when-issued" or "forward delivery"
Municipal Obligations, see "Investment Objective, Policies and Restrictions --
"When-Issued" Municipal Obligations" in the Statement of Additional Information.
STAND-BY COMMITMENTS
When the Trust purchases Municipal Obligations on behalf of the Fund it may
also acquire stand-by commitments from banks with respect to such Municipal
Obligations. The Trust also reserves the right, and may in the future, subject
to receipt of an exemptive order pursuant to the 1940 Act, acquire stand-by
commitments from broker-dealers on behalf of the Fund. There can be no assurance
that such an order will be granted. Under a stand-by commitment, a bank or
broker-dealer agrees to purchase at the Trust's option a specified Municipal
Obligation at a specified price. A stand-by commitment is the equivalent of a
"put" option acquired for the Fund with respect to a particular Municipal
Obligation held for it.
The Trust intends to acquire stand-by commitments on behalf of the Fund
solely to facilitate portfolio liquidity and does not intend to exercise its
rights thereunder for trading purposes. The purpose of this practice is to
permit the Fund to be fully invested in Municipal Obligations, and to the extent
possible New York Municipal Obligations, while preserving the necessary
liquidity to purchase Municipal Obligations on a "when-issued" basis, to meet
unusually large redemptions and to purchase at a later date Municipal
Obligations other than those subject to the stand-by commitment.
The stand-by commitments that the Trust may enter into on behalf of the Fund
are subject to certain risks, which include the ability of the issuer of the
commitment to pay for the Municipal Obligations at the time the commitment is
exercised, the fact that the commitment is not marketable by the Trust, and the
fact that the maturity of the underlying Municipal Obligation will generally be
different from that of the commitment.
For additional information concerning stand-by commitments, see "Investment
Objective, Policies and Restrictions -- Stand-by Commitments" in the Statement
of Additional Information.
RISK FACTORS AFFECTING INVESTMENTS IN NEW YORK MUNICIPAL OBLIGATIONS
The Trust intends to invest a high proportion of the Fund's assets in New
York Municipal Obligations. Payment of interest and preservation of principal is
dependent upon the continuing ability of New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk inherent in the Fund's
concentration in such obligations versus the safety that comes with a less
geographically concentrated investment portfolio and should compare the yield
available on a portfolio of New York issues with the yield of a more diversified
portfolio including out-of-state issues before making an investment decision.
The Adviser believes that by maintaining the Fund's investment portfolio in
liquid, short-term, high quality Municipal Obligations, including participation
interests and other variable rate instruments that have high quality credit
support from banks, insurance companies or other financial institutions, the
Fund is somewhat insulated from the credit risks that may exist for long-term
New York Municipal Obligations.
New York State and other issuers of New York Municipal Obligations have
recently experienced financial difficulties which have caused the credit
ratings of certain of their obligations to be downgraded by certain rating
agencies. There can be no assurance that credit ratings on obligations of New
York State and New York City and other New York Municipal Obligations will not
be downgraded further. See "Investment Objective, Policies and Restrictions --
Special Factors Affecting New York" in the Statement of Additional
Information.
--------------------
Subject to the fundamental policy described on page 6, the Trust is
authorized to invest on behalf of the Fund in taxable securities (such as U.S.
Government obligations or certificates of deposit of domestic banks). If the
Trust invests on behalf of the Fund in taxable securities, such securities will,
in the opinion of the Adviser, be of comparable quality and credit risk with the
Municipal Obligations described above. See the Statement of Additional
Information for a description, including specific rating criteria, of such
taxable securities. The Trust is also authorized on behalf of the Fund to enter
into repurchase agreements only with member banks of the Federal Reserve System
or "primary dealers" (as designated by the Federal Reserve Bank of New York).
Repurchase agreements are transactions by which the Trust purchases a security
on behalf of the Fund and simultaneously commits to resell that security at an
agreed-upon price on an agreed-upon date. As described in further detail in the
Statement of Additional Information, such transactions entail certain risks,
such as a default by the seller.
The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of its assets in a no-load, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund.
In such event, the Fund's Investment Advisory Contract would be terminated and
the administrative services fees paid by the Fund would be reduced. Such
investment would be made only if the Trustees of the Trust believe that the
aggregate per share expenses of the Fund and such other investment company will
be less than or approximately equal to the expenses which the Fund would incur
if the Trust were to continue to retain the services of an investment adviser
for the Fund and the assets of the Fund were to continue to be invested directly
in portfolio securities.
The investment policies of the Fund are described above. Except as otherwise
stated, these investment policies may be changed by the Board of Trustees of the
Trust without approval by the shareholders of the Fund. The Statement of
Additional Information includes a further discussion of investment policies and
a listing of the specific investment restrictions which govern the investment
policies of the Fund, including a restriction that not more than 10% of the
Fund's net assets may be invested in securities that are not readily marketable,
such as repurchase agreements maturing in more than seven days. Although the
Trust currently does not borrow on behalf of the Fund for the purpose of
leveraging, these restrictions permit the Trust to borrow money on behalf of the
Fund for certain other purposes in amounts up to 33 1/3% of the Fund's net
assets (although no securities will be purchased for the Fund at any time at
which borrowings exceed five percent of the Fund's total assets taken at market
value). These specific investment restrictions and the fundamental policy
described above may not be changed without the approval of Fund shareholders. If
a percentage restriction (other than a restriction as to borrowing) or a rating
restriction on investment or utilization of assets is adhered to at the time an
investment is made, or assets are so utilized, a later change in percentage
resulting from changes in the value of the Fund's portfolio securities or a
later change in the rating of a portfolio security are not considered a
violation of policy.
MANAGEMENT OF THE TRUST
The business and affairs ot the Fund are managed under the direction of
the Board of Trustees of the Trust. The Trustees are Frederick C. Chen, Alan
S. Parsow, Larry M. Robbins and Michael Seely. Additional information about
the Trustees, as well as the Trust's executive officers, may be found in the
Statement of Additional Information under the caption "Management of the Trust
- -- Trustees and Officers".
THE ADVISER
Republic National Bank of New York serves as investment adviser to the Fund.
The Adviser manages the investment and reinvestment of the assets of the Fund
and continuously reviews, supervises and administers the Fund's investments
pursuant to an Investment Advisory Contract (the "Investment Advisory
Contract"). Subject to such policies as the Board of Trustees may determine, the
Adviser places orders for the purchase and sale of the Fund's investments
directly with brokers or dealers selected by it in its discretion. The Adviser
does not place orders with the Distributor. For its services under the
Investment Advisory Contract, the Adviser receives from the Fund a fee, payable
monthly, at the annual rate of 0.15% of the Fund's average daily net assets.
Republic is a wholly-owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest commercial bank in the United States measured by deposits and the 17th
largest commercial bank measured by shareholder equity. Republic or an affiliate
of Republic serves as investment adviser to the other series of the Trust.
Republic currently provides investment advisory services for individuals,
trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Fund,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of obligations so purchased. Republic and its affiliates
deal, trade and invest for their own accounts in Municipal Obligations and are
dealers of various types of Municipal Obligations. Republic and its affiliates
may sell Municipal Obligations to, and purchase them from, other investment
companies sponsored by Signature. The Adviser will not invest any Fund assets in
any Municipal Obligation purchased from itself or any affiliate, although under
certain circumstances such obligations may be purchased from other members of an
underwriting syndicate in which Republic or an affiliate is a non-principal
member. This restriction should not limit the amount or type of Municipal
Obligations available to be purchased for the Fund. The Adviser has informed the
Trust that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Republic or in the possession of any affiliate of Republic.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Fund. If Republic were prohibited from acting as investment adviser to the
Fund, it is expected that the Board of Trustees would recommend to Fund
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action. If Republic were prohibited from acting as a
Shareholder Servicing Agent for the Fund, the Trust would seek alternative means
of providing such services.
THE DISTRIBUTOR AND SPONSOR
Signature acts as sponsor and distributor to the Fund under a Distribution
Contract. The Distributor may, out of its own resources, make payments to
broker-dealers for their services in distributing Fund shares. Signature and its
affiliates also serve as administrator and distributor of other investment
companies. Signature is a wholly-owned subsidiary of Signature Financial Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly (subject to a limit of 0.25% per
annum of the Fund's average daily net assets) for costs and expenses incurred by
the Distributor in connection with the distribution of Fund shares and for the
provision of certain shareholder services with respect to Fund shares. Payments
to the Distributor are for various types of activities, including: (1) payments
to broker-dealers who advise shareholders regarding the purchase, sale or
retention of Fund shares and who provide shareholders with personal services and
account maintenance services ("service fees"), (2) payments to employees of the
Distributor, and (3) printing and advertising expenses. Such payments by the
Distributor to broker-dealers may be in amounts up to 0.25% per annum of the
Fund's average daily net assets. It is currently intended that the aggregate
fees paid to the Distributor pursuant to the Plan and to Shareholder Servicing
Agents pursuant to the Administrative Services Plan will not exceed 0.25% per
annum of the Fund's average daily net assets. Salary expense of Signature
personnel who are responsible for marketing shares of the various portfolios of
the Trust may be allocated to such portfolios on the basis of average net
assets; travel expense is allocated to, or divided among, the particular
portfolios for which it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets) payable under
the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to the Fund which provides that the Trust may
obtain the services of an administrator, a transfer agent, a custodian and one
or more Shareholder Servicing Agents for the Fund, and may enter into agreements
providing for the payment of fees for such services.
ADMINISTRATOR
Pursuant to an Administrative Services Contract, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust and the Fund, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust; the payment of
the non-transaction based fees of the custodian; the preparation and filing of
all documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the Trust
and the Fund. Signature provides persons satisfactory to the Board of Trustees
of the Trust to serve as Trustees and officers of the Trust. Such officers, as
well as certain other employees and Trustees of the Trust, may be directors,
officers or employees of Signature or its affiliates. For these services and
facilities, Signature receives from the Fund fees payable monthly at an annual
rate equal to 0.15% of the first $100 million of the Fund's average daily net
assets; 0.12% of the next $100 million of such assets; 0.09% of the next $300
million of such assets; and 0.07% of such assets in excess of $500 million.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with Investors Bank &
Trust Company ("IBT"), pursuant to which IBT acts as transfer agent for the Fund
(the "Transfer Agent"). The Transfer Agent maintains an account for each
shareholder of the Fund (unless such account is maintained by the shareholder's
Shareholder Servicing Agent), performs other transfer agency functions and acts
as dividend disbursing agent for the Fund. Pursuant to a Custodian Agreement,
IBT also acts as the custodian of the Fund's assets (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Fund's investments,
maintaining books of original entry for portfolio and fund accounting and other
required books and accounts, and calculating the daily net asset value of shares
of the Fund. Securities held for the Fund may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depositary Trust Company.
The Custodian does not determine the investment policies of the Fund or decide
which securities will be purchased or sold for the Fund. Assets of the Fund may,
however, be invested in securities of the Custodian and the Trust may deal with
the Custodian as principal in securities transactions for the Fund. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent pursuant to which a
Shareholder Servicing Agent, as agent for its customers, among other things:
answers customer inquiries regarding account status and history, the manner in
which purchases and redemptions of shares of the Fund may be effected and
certain other matters pertaining to the Fund; assists shareholders in
designating and changing dividend options, account designations and addresses;
provides necessary personnel and facilities to establish and maintain
shareholder accounts and records; assists in processing purchase and redemption
transactions; arranges for the wiring of funds; transmits and receives funds in
connection with customer orders to purchase or redeem shares; verifies and
guarantees shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnishes (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) monthly and year-end statements and confirmations
of purchases and redemptions; transmits, on behalf of the Trust, proxy
statements, annual reports, updated prospectuses and other communications from
the Trust to the Fund's shareholders; receives, tabulates and transmits to the
Trust proxies executed by shareholders with respect to meetings of shareholders
of the Fund or the Trust; and provides such other related services as the Trust
or a shareholder may request. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed 0.25% per annum of the Fund's average daily net
assets. Republic may act as a Shareholder Servicing Agent.
The Trust understands that some Shareholder Servicing Agents also may impose
certain conditions on their customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by the Trust, such as requiring a
different minimum initial or subsequent investment, account 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 on a percentage of the assets
in the account or of the dividends paid on those assets). Each Shareholder
Servicing Agent has agreed to transmit to its customers who are shareholders of
the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
The Glass-Steagall Act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the Fund. The Trust engages banks as Shareholder
Servicing Agents on behalf of the Fund only to perform administrative and
shareholder servicing functions as described above. The Trust believes that the
Glass-Steagall Act should not preclude a bank from acting as a Shareholder
Servicing Agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain Fund shareholders and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the Fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The Trustees of the Trust do not expect that
shareholders of the Fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor or the Adviser. See "Management of the Trust --
Expenses and Expense Limits" in the Statement of Additional Information. Trust
expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the portfolios in the Trust in
relation to the net assets of each portfolio. For the period from November 17,
1994 (commencement of operations) to October 31, 1995, the Fund's operating
expenses equaled 0.41% of its average daily net assets.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on each
day on which the New York Stock Exchange is open for trading ("Fund Business
Day"). This determination is made once during each such day as of 12:00 noon,
New York time, by dividing the value of the Fund's net assets (i.e., the value
of its assets less its liabilities, including expenses payable or accrued) by
the number of shares of the Fund outstanding at the time the determination is
made. It is anticipated that the net asset value of each share of the Fund will
remain constant at $1.00 (although no assurance can be given that it will be so
constant on a continuing basis) and specific investment policies and procedures,
including the use of the amortized cost valuation method, are being employed to
accomplish this result. Income earned on the Fund's investments is accrued daily
and the Net Income, as defined under "Dividends and Distributions" on page 19,
is declared each Fund Business Day as a dividend.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor or is received by a Shareholder Servicing Agent or a securities
broker if it is transmitted to and accepted by the Distributor. Purchases are
therefore effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 12:00 noon, New York time,
on any Fund Business Day. Shares purchased earn dividends from and including the
day the purchase is effected. It is anticipated that the net asset value of
$1.00 per share of the Fund will remain constant, and although no assurance can
be given that it will be so constant on a continuing basis, specific investment
policies and procedures are being employed to accomplish this result.
The Trust intends the Fund to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets. Accordingly,
in order to make investments which will immediately generate income, the Trust
must have federal funds available for the Fund (i.e., monies credited by a
Federal Reserve Bank to the account of the Fund with the Fund's custodian bank).
Each Shareholder Servicing Agent and securities broker has agreed to provide
federal funds for each purchase at the time it transmits the order for such
purchase to the Distributor and the Distributor has agreed to provide the Fund
with federal funds for each purchase including those made directly through the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, the Distributor, his Shareholder Servicing Agent or
his securities broker, there may be a delay in transmitting and effecting the
purchase order since his check, bank draft, money order or similar negotiable
instrument will have to be converted into federal funds. If such a delay is
necessary, it is expected that in most cases it would not be longer than two
business days.
While there is no sales load on purchases of Fund shares, the Distributor
may receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor". Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
All purchase payments are invested in full and fractional shares of the
Fund. The Trust reserves the right to cease offering shares of the Fund for sale
at any time or to reject any order for the purchase of shares of the Fund.
An investor may purchase shares of the Fund through the Distributor directly
or by authorizing his Shareholder Servicing Agent or his securities broker to
purchase such shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Fund shares for shares of one or more other Republic Funds at net asset
value without a sales charge, if the sales charge of the Republic Fund being
exchanged into is less than or equal to the current sales charge of the Fund
(or, if his Fund shares were acquired by an exchange from another Republic Fund,
the current sales charge of that other Republic Fund). An exchange may result in
a change in the number of shares held, but, when no sales charge is imposed, not
in the value of such shares immediately after the exchange. Each exchange
involves the redemption of the Fund shares to be exchanged and the purchase of
the shares of the other Republic Fund.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Fund and consider the differences in investment objectives and
policies before making any exchange.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Fund shares directly through the
Distributor, the Trust, as the shareholder's agent, establishes an open account
to which all shares purchased are credited together with any dividends and
capital gains distributions which are paid in additional shares. See "Dividends
and Distributions". The minimum initial investment is $1,000 and the minimum
subsequent investment is $100. Initial and subsequent purchases may be made by
writing a check (in U.S. dollars) payable to The Republic Funds -- New York Tax
Free Money Market Fund and mailing it to:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds (New York Tax Free Money
Market Fund, account name, account #)
The wire order must specify the Fund, the account name, number, confirmation
number, address, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order.
Automatic Investment Plan. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. If an Automatic Investment Plan is selected,
subsequent investments will be automatic and will continue until such time as
the Trust and the investor's bank are notified to discontinue further
investments. Due to the varying procedure to prepare, process and forward the
bank withdrawal information to the Trust, there may be a delay between the time
of the bank withdrawal and the time the money reaches the Fund. The investment
in the Fund will be made at the net asset value per share determined on the day
that both the check and the bank withdrawal data are received in required form
by the Distributor. Further information about the plan may be obtained from IBT
at the telephone number listed on the back cover.
For further information on how to purchase shares of the Fund directly from
the Distributor, an investor should contact the Distributor (see back cover for
address and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares of the Fund are being offered to the public, to customers of a
Shareholder Servicing Agent and to customers of a securities broker that has
entered into a dealer agreement with the Distributor. Shareholder Servicing
Agents and securities brokers may offer services to their customers, including
specialized procedures for the purchase and redemption of Fund shares, such as
pre-authorized or automatic purchase and redemption programs and "sweep"
checking programs. Each Shareholder Servicing Agent and securities broker may
establish its own terms, conditions and charges, including limitations on the
amounts of transactions, with respect to such services. Charges for these
services may include fixed annual fees, account maintenance fees and minimum
account balance requirements. The effect of any such fees will be to reduce the
net return on the investment of customers of that Shareholder Servicing Agent or
securities broker. Conversely, certain Shareholder Servicing Agents may
(although they are not required by the Trust to do so) credit to the accounts of
their customers from whom they are already receiving other fees amounts not
exceeding such other fees or the fees received by the Shareholder Servicing
Agent from the Fund, which will have the effect of increasing the net return on
the investment of such customers of those Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase shares of the Fund, an investor should
contact his securities broker or his Shareholder Servicing Agent (see back cover
for address and phone number).
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value (normally $1.00 per share) next determined after
a redemption order in proper form is furnished by the shareholder to the
Transfer Agent, with respect to shares purchased directly through the
Distributor, or to his securities broker or his Shareholder Servicing Agent and
is transmitted by it to and is received by the Transfer Agent. Redemptions are
effected on the same day the redemption order is received by the Transfer Agent
provided such order is received prior to 12:00 noon, New York time, on any Fund
Business Day. Shares redeemed earn dividends up to and including the day prior
to the day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists. To be in a position to eliminate excessive expenses, the Trust
reserves the right to redeem upon not less than 30 days' notice all shares of
the Fund in an account which has a value below $50. However, a shareholder will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account.
Unless shares of the Fund have been purchased directly from the Distributor,
a shareholder may redeem shares of the Fund only by authorizing his securities
broker or his Shareholder Servicing Agent to redeem such shares on his behalf
(since the account and records of such a shareholder are established and
maintained by his securities broker or his Shareholder Servicing Agent). For
further information as to how to direct a securities broker or a Shareholder
Servicing Agent to redeem shares of the Fund, a shareholder should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Fund shares by wire
or by telephone if he has checked the appropriate box on the Purchase
Application or has filed a Telephone Authorization Form with the Trust. These
redemptions may be paid from the Fund by wire or by check. The Trust reserves
the right to refuse telephone wire redemptions and may limit the amount involved
or the number of telephone redemptions. The telephone redemption procedure may
be modified or discontinued at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. For instance, the following information must be verified by the
shareholder or broker at the time a request for a telephone redemption is
effected: (1) shareholder's account number; (2) shareholder's social security
number; and (3) name and account number of shareholder's designated securities
dealer or bank. If the Trust fails to follow these or other established
procedures, it may be liable for any losses due to unauthorized or fraudulent
instructions.
Check Redemption Service. Shareholders may redeem shares of the Fund by
means of a Check Redemption Service. If shares are held in book credit form and
the Check Redemption Service has been elected on the Purchase Application on
file with the Trust, redemptions of shares may be made by using redemption
checks provided by the Trust. There is no charge for this service. Checks must
be written for amounts of $250 or more, may be payable to anyone and negotiated
in the normal way. If more than one shareholder owns the shares, all must sign
the check unless an election has been made to require only one signature on
checks and that election has been filed with the Trust.
Shares represented by a redemption check continue to earn daily income until
the check clears the banking system. When honoring a redemption check, the Trust
causes the redemption of exactly enough full and fractional Fund shares from an
account to cover the amount of the check. The Check Redemption Services may be
terminated at any time by the Trust.
If the Check Redemption Service is requested for an account in the name of a
corporation or other institution, additional documents must be submitted with
the application, i.e., corporations (Certification of Corporate Resolution),
partnerships (Certification of Partnership) and trusts (Certification of
Trustees). In addition, since the share balance of each Fund account is changing
on a daily basis, the total value of a Fund account cannot be determined in
advance and a Fund account cannot be closed or entirely redeemed by check.
DIVIDENDS AND DISTRIBUTIONS
The Net Income of the Fund, as defined below, is determined each Fund
Business Day (and on such other days as the Trustees deem necessary in order to
comply with Rule 22c-1 under the 1940 Act). This determination is made once
during each such day as of 12:00 noon, New York time. All the Net Income of the
Fund so determined is declared in shares of the Fund as a dividend to
shareholders of record at the time of such determination. Shares begin accruing
dividends on the day they are purchased. Dividends are distributed monthly on
the last business day of each month. Unless a shareholder elects to receive
dividends in cash (subject to the policies of the shareholder's Shareholder
Servicing Agent or securities broker), dividends are distributed in the form of
additional shares of the Fund at the rate of one share (and fraction thereof) of
the Fund for each one dollar (and fraction thereof) of dividend income.
For this purpose the Net Income of the Fund (from the time of the
immediately preceding determination thereof) shall consist of (i) all income
accrued, less the amortization of any premium, on the assets of the Fund, less
(ii) all actual and accrued expenses determined in accordance with generally
accepted accounting principles. Interest income includes discount earned
(including both original issue and market discount) on discount paper accrued
ratably to the date of maturity, but does not include any net realized gains or
losses on the assets of the Fund. Obligations held in the Fund's portfolio are
valued at amortized cost, which the Trustees of the Trust have determined in
good faith constitutes fair value for the purposes of complying with the 1940
Act. This method provides certainty in valuation, but may result in periods
during which the stated value of an obligation held for the Fund is higher or
lower than the price the Fund would receive if the obligation were sold. This
valuation method will continue to be used until such time as the Trustees of the
Trust determine that it does not constitute fair value for such purposes.
Since the Net Income of the Fund is declared as a dividend each time the Net
Income of the Fund is determined, the net asset value per share of the Fund is
expected to remain at $1.00 per share immediately after each such determination
and dividend declaration. Any increase in the value of a shareholder's
investment in the Fund, representing the reinvestment of dividend income, is
reflected by an increase in the number of shares of the Fund in his account.
It is expected that the Fund will have a positive Net Income at the time of
each determination thereof. If for any reason the Net Income of the Fund
determined at any time is a negative amount, which could occur, for instance,
upon default by an issuer of an obligation held in the Fund's portfolio, the
negative amount with respect to each shareholder account would first be offset
from the dividends declared during the month with respect to each such account.
If and to the extent that such negative amount exceeds such declared dividends
at the end of the month, the number of outstanding Fund shares would be reduced
by treating each shareholder as having contributed to the capital of the Fund
that number of full and fractional shares in the account of such shareholder
which represents his proportion of the amount of such excess. Each shareholder
will be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund. Thus, the net asset value per share of the Fund will be
maintained at a constant $1.00.
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law and the possible applicability of a federal alternative
minimum tax to a portion of the distributions from the Fund.
FEDERAL INCOME TAXES
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
realized capital gains of the Fund are distributed to shareholders in accordance
with the timing requirements imposed by the Code, no federal (or New York State
or New York City) income or excise taxes will be paid by the Fund on amounts so
distributed.
After the end of each calendar year, each shareholder receives a statement
setting forth the federal, New York State and New York City personal income tax
status of all dividends and capital gains distributions, if any, made during
that calendar year.
In accordance with the Fund's investment objective, it is expected that most
of the Fund's net income will be attributable to interest from Municipal
Obligations and, as a result, most of the dividends to Fund shareholders will be
designated by the Trust as "exempt-interest dividends" under the Code, which may
be treated as items of interest excludible from a shareholder's gross income.
Since the preservation of capital and liquidity are important aspects of the
Fund's investment objective, the Trust may from time to time invest a portion of
the Fund's assets in short-term obligations the interest on which is not exempt
from federal income taxes. Moreover, dividends attributable to interest on
certain Municipal Obligations which may be purchased for the Fund may be treated
as a tax preference item for shareholders potentially subject to an alternative
minimum tax and all exempt- interest dividends may increase a corporate
shareholder's alternative minimum tax. Although it is not intended, it is
possible that the Fund may realize short-term or long-term capital gains or
losses from its portfolio transactions. Any distributions from net short-term
capital gains would be taxable to shareholders as ordinary income and any
distributions from net long-term capital gains would be taxable to shareholders
as long-term capital gains regardless of how long they have held their shares.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal, New York State and New York City income
tax purposes whether received in cash or reinvested in additional shares of the
Fund.
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry shares of the Fund is not deductible. Further, exempt-
interest dividends are taken into account in calculating the amount of social
security and railroad retirement benefits that may be subject to federal income
tax. Finally, entities or persons who may be "substantial users" (or persons
related to "substantial users") of facilities financed by industrial development
bonds should consult their tax advisors before purchasing shares of the Fund.
STATE AND LOCAL TAXES
The exemption for federal income tax purposes of dividends derived from
interest on Municipal Obligations does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
However, to the extent that dividends are derived from interest on New York
Municipal Obligations, the dividends will also be excluded from the gross income
of a New York individual resident shareholder for New York State and New York
City personal income tax purposes.
DIVIDENDS FROM THE FUND ARE NOT EXCLUDED IN DETERMINING NEW YORK STATE OR
NEW YORK CITY FRANCHISE TAXES ON CORPORATIONS AND FINANCIAL INSTITUTIONS.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has eight series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, pre-emptive, conversion
or similar rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. Each Shareholder Servicing Agent has
agreed to transmit all proxies and voting materials from the Trust to their
customers who are beneficial owners of the Fund and such Shareholder Servicing
Agents have agreed to vote as instructed by such customers. The Trust is not
required and has no current intention to hold annual meetings of shareholders
although the Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust it is necessary or desirable to submit
matters for a shareholder vote. Shareholders of each series generally vote
separately, for example, to approve investment advisory agreements or changes in
fundamental investment policies or restrictions, but shareholders of all series
may vote together to the extent required under the 1940 Act, such as in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders of the
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
PERFORMANCE INFORMATION
From time to time the Trust may provide annualized "yield", "effective
yield" and "tax equivalent yield" quotations for the Fund in advertisements,
shareholder reports or other communications to shareholders and prospective
investors. The methods used to calculate the Fund's yield, effective yield and
tax equivalent yield are mandated by the Securities and Exchange Commission. The
"yield" of the Fund refers to the income generated by an investment in the Fund
over a seven day period (which period will be stated in any such advertisement
or communication). This income is then "annualized". That is, the amount of
income generated by the investment during that seven day period is assumed to be
generated each week over a 365 day period and is shown as a percentage of the
investment. The "effective yield" is calculated similarly, but when annualized
the income earned by the investment during that seven day period 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 "tax
equivalent yield" refers to the yield that a fully taxable money market fund
would have to generate, given a stated aggregate state and local income tax
rate, in order to produce an after-tax yield equivalent to that of the Fund. The
use of a tax equivalent yield allows investors to compare the yield of the Fund,
all or a significant portion of which is exempt from federal, New York State and
New York City personal income taxes, with yields of funds which are not so tax
exempt.
Since these yield, effective yield and tax equivalent yield quotations are
based on historical earnings and since the Fund's yield, effective yield and tax
equivalent yield fluctuate from day to day, these quotations should not be
considered as an indication or representation of the Fund's yield, effective
yield or tax equivalent yield in the future. Any performance information should
be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such an advertisement
or communication, including the performance of unmanaged indices, the
performance of the Consumer Price Index (as a measure for inflation), and data
from Lipper Analytical Services, Inc., Bank Rate MonitorTM, IBC/Donoghue's Money
Fund Report and other industry publications.
Unlike some bank deposits or other investments which pay a fixed yield for a
stated period of time, the yield of the Fund varies based on the type, quality
and maturities of the obligations held for the Fund, fluctuations in short-term
interest rates, and changes in the expenses of the Fund. These factors and
possible differences in the methods used to calculate yields should be
considered when comparing the yield of the Fund to yields published for other
investment companies or other investment vehicles.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Conversely, the
Trust has been advised that certain Shareholder Servicing Agents may credit to
the accounts of their customers from whom they are already receiving other fees
amounts not exceeding such other fees or the fees received by the Shareholder
Servicing Agent from the Fund, which will have the effect of increasing the net
return on the investment of such customers of those Shareholder Servicing
Agents. Such customers may be able to obtain through their Shareholder Servicing
Agent or securities broker quotations reflecting such decreased or increased
return.
The yield, effective yield and tax equivalent yield of the Fund are not
fixed or guaranteed, and an investment in the Fund is not insured. The Trust's
Statement of Additional Information with respect to the Fund includes more
detailed information concerning the calculation of yield, effective yield and
tax equivalent yield quotations for the Fund.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 6 St. James
Avenue, Boston, Massachusetts 02116.
GENERAL AND ACCOUNT INFORMATION (800) 782-8183 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated January 26, 1996,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Adviser and Sponsor of the Fund,
(iii) portfolio transactions, (iv) the Fund's shares, including rights and
liabilities of shareholders, and (v) additional yield information, including the
method used to calculate the annualized yield, effective yield and tax
equivalent yield of the Fund.
<PAGE>
APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
There are four major varieties of state and municipal notes: Tax and
Revenue Anticipation Notes ("TRANs"); Tax Anticipation Notes ("TANs"); Revenue
Anticipation Notes ("RANs"); and Bond Anticipation Notes ("BANs").
TRANs, TANs and RANs are issued by states, municipalities and other
tax-exempt issuers to finance short-term cash needs or, occasionally, to finance
construction. Most TRANs, TANs and RANs are general obligations of the issuing
entity payable from taxes or designated revenues, respectively, expected to be
received within the related fiscal period.
BANs are issued with the expectation that principal and interest of the
maturing notes will be paid out of proceeds from notes or bonds to be issued
concurrently or at a later date. BANs are issued by both general obligation and
revenue bond issuers usually to finance such items as land acquisition, facility
acquisition and/or construction and capital improvement projects.
Municipal bonds are debt obligations of states, cities, counties,
municipalities and municipal agencies and authorities (all of which are
generally referred to as "municipalities") which generally have a maturity at
the time of issue of one year or more and which are issued to raise funds for
various public purposes such as construction of a wide range of public
facilities, to refund outstanding obligations and to obtain funds for
institutions and facilities.
The two principal classifications of municipal bonds are "general
obligation" and "revenue" bonds. General obligation bonds are secured by the
issuer's pledge of its full faith, credit and taxing power for the payment of
principal and interest. Issuers of general obligation bonds include states,
counties, cities, towns and other governmental units. The principal of, and
interest on, revenue bonds are payable from the income of specific projects or
authorities and generally are not supported by the issuer's general power to
levy taxes. In some cases, revenues derived from specific taxes are pledged to
support payments on a revenue bond.
In addition, certain kinds of industrial development bonds ("IDBs") are
issued by or on behalf of public authorities to provide funding for various
privately operated industrial facilities such as warehouse, office, plant and
store facilities, and environmental and pollution control facilities. Interest
on the IDBs is generally exempt, with certain exceptions, from federal income
tax pursuant to Section 103(a) of the Internal Revenue Code, provided the issuer
and corporate obligor thereof continue to meet certain conditions. IDBs are, in
most cases, revenue bonds and do not generally constitute the pledge of the
credit of the issuer of such bonds. The payment of the principal and interest on
IDBs usually depends solely on the ability of the user of the facilities
financed by the bonds or other guarantor to meet its financial obligations and,
in certain instances, the pledge of real and personal property as security for
payment. In the case of many IDBs, there is no established secondary market for
their purchase or sale and therefore they may not be readily marketable.
However, the IDBs or the participation interests in IDBs purchased by the Fund
will have liquidity because they generally will be supported by demand features
to "high quality" banks, insurance companies or other financial institutions
which may be exercised by the Fund. In some cases, these demand features may not
be exercisable in the event of a default on the underlying IDB. (See "Investment
Objective, Policies and Restrictions -- Variable Rate Instruments and
Participation Interests" in the Statement of Additional Information.)
<PAGE>
DESCRIPTION OF RATINGS*
The ratings of Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. represent their opinions as to the
quality of various debt obligations. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, Municipal
Obligations with the same maturity, coupon and rating may have different yields
while Municipal Obligations of the same maturity and coupon with different
ratings may have the same yield.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST LONG-TERM DEBT RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are 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.
Note: Those bonds in the Aa group which Moody's believes
possess the strongest investment attributes are
designated by the symbol Aa 1.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S TWO HIGHEST
RATINGS OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk, such
as long-term secular trends, may be less important over the short run. A
short-term rating may also be assigned on an issue having a demand feature. Such
ratings will be designated as "VMIG" or, if the demand feature is not rated, as
"NR". Short-term ratings on issues with demand features are differentiated by
the use of the "VMIG" symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on external
liquidity. Additionally, investors should be alert to the fact that the source
of payment may be limited to the external liquidity with no or limited legal
recourse to the issuer in the event the demand is not met. Symbols used are as
follows:
MIG 1/VMIG 1 -- Notes bearing this designation are of the best quality, with
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior short-term debt obligations not having an original
maturity in excess of one year.
- --------------
*As described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.
<PAGE>
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of senior short-term debt 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 alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
TWO HIGHEST LONG-TERM DEBT RATINGS:
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
Plus (+) or Minus (-): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- 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 -- Satisfactory capacity to pay principal and interest.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S DUAL RATINGS:
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For demand notes, the note rating symbols are
used with the commercial paper symbols (for example, "SP-1+/A-1+").
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S TWO HIGHEST BOND RATINGS:
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
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+".
Plus (+) or Minus (-): The AA rating may be modified by the addition of a
plus or minus sign to show relative standing within the AA rating category.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC'S
THREE HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- 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 for issues assigned "F-1+" and "F-1" ratings.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
THREE HIGHEST COMMERCIAL PAPER RATINGS:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating are
regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- 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 for issues assigned "F-1+" and "F-1" ratings.
<PAGE>
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
The tables below show the approximate taxable yields which are equivalent to
tax-exempt yields, for the ranges indicated, under (i) federal and New York
State personal income tax laws, and (ii) federal, New York State and New York
City personal income tax laws, in each case as they apply to the revised 1994
federal rates and the existing 1994 New York State rates. Such yields may differ
under the laws applicable to subsequent years if the effect of any such law is
to change any tax bracket or the amount of taxable income which is applicable to
a tax bracket. Separate calculations, showing the applicable taxable income
brackets, are provided for investors who file single returns and for those
investors who file joint returns.
<TABLE>
<CAPTION>
FEDERAL AND NEW YORK STATE TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------- INCOME -------------------------------------------------------------------------------
SINGLE JOINT TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over But Not Over Over But Not Over
$ 0-$ 38,000 20.16% 2.51% 3.13% 3.76% 4.38% 5.01% 5.64% 6.26% 6.89% 7.52% 8.14%
$ 0-$ 22,750 20.37% 2.51% 3.14% 3.77% 4.40% 5.02% 5.65% 6.28% 6.91% 7.53% 8.16%
$ 38,001-$ 91,850 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 22,751-$ 55,100 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 91,851-$140,000 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$ 55,501-$115,000 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$115,001-$250,000 $140,001-$250,000 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
$250,001 $250,001 44.19% 3.58% 4.48% 5.38% 6.27% 7.17% 8.06% 8.96% 9.85% 10.75% 11.65%
<FN>
- ----------
* Net amount subject to federal and New York State personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket. State tax rate based on the average state rate for the federal income tax
bracket and 1994 state tax rate.
</FN>
<CAPTION>
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------- INCOME -------------------------------------------------------------------------------
SINGLE JOINT TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over But Not Over Over But Not Over
$ 0-$ 38,000 23.14% 2.60% 3.25% 3.90% 4.55% 5.20% 5.85% 6.51% 7.16% 7.81% 8.46%
$ 0-$ 22,750 23.40% 2.61% 3.26% 3.92% 4.57% 5.22% 5.87% 6.53% 7.18% 7.83% 8.49%
$ 38,001-$ 91,850 36.64% 3.16% 3.93% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 22,751-$ 55,100 36.63% 3.16% 3.95% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 91,851-$140,000 39.30% 3.29% 4.12% 4.94% 5.77% 6.59% 7.41% 8.24% 9.06% 9.88% 10.71%
$ 55,101-$115,000 39.31% 3.30% 4.12% 4.94% 5.77% 6.59% 7.41% 8.24% 9.06% 9.89% 10.71%
$115,001-$250,000 $140,001-$250,000 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
$250,001 $250,001 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.41% 9.41% 10.35% 11.30% 12.24%
<FN>
- ----------
* Net amount subject to federal, New York State and New York City personal income tax after deductions and exemptions.
** Effective combined federal, state and city tax bracket. State and city tax rates based on the average rate for the federal tax
bracket and 1994 state tax rates, including surcharges.
</FN>
</TABLE>
While it is expected that most of the dividends paid to the shareholders of
the Fund will be exempt from federal, New York State and New York City personal
income taxes, portions of such dividends from time to time may be subject to
such taxes.
Note: The information in the tables is presented as of October 25, 1994.
<PAGE>
- -----
REPUBLIC
NEW YORK TAX FREE
MONEY MARKET
FUND
INVESTMENT ADVISER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
INDEPENDENT AUDITORS
KPMG Peat Marwick
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
SHAREHOLDER SERVICING AGENTS:
Republic National Bank of New York
Republic Bank For Savings
452 Fifth Avenue
New York, NY 10018
(800) 782-8183
FOR NON-REPUBLIC CLIENTS:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
-----
REPUBLIC
NEW YORK TAX FREE
MONEY MARKET
FUND
PROSPECTUS
January 26, 1996
<PAGE>
REPUBLIC NEW YORK TAX FREE BOND FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
- ------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic New York Tax Free Bond Fund (the "Fund") is a non-diversified
separate series (portfolio) of the Republic Funds (the "Trust"), an open-end,
management investment company which currently consists of six funds, each of
which has different and distinct investment objectives and policies. Shares of
the Fund are being offered by this Prospectus. Republic National Bank of New
York ("Republic" or the "Adviser") continuously manages the investment portfolio
of the Fund.
The investment objective of the Fund is to provide shareholders of the Fund
with monthly dividends exempt from regular federal, New York State and New York
City personal income taxes as well as to protect the value of its shareholders'
investment. The Trust seeks to achieve the investment objective of the Fund by
investing the assets of the Fund primarily in a non-diversified portfolio of
municipal bonds and notes and other debt instruments the interest on which is
exempt from regular federal, New York State and New York City personal income
taxes. There can be no assurance that the investment objective of the Fund will
be achieved.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Shares of the Fund are continuously offered for sale at net asset value with
no sales charge by Signature Broker-Dealer Services, Inc. ("Signature" or the
"Distributor") (i) directly to the public, (ii) to customers of a financial
institution, such as a federal or state-chartered bank, trust company or savings
and loan association that has entered into a shareholder servicing agreement
with the Trust (collectively, "Shareholder Servicing Agents"), and (iii) to
customers of a securities broker that has entered into a dealer agreement with
the Distributor.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM THE DISTRIBUTOR SHOULD
OBTAIN FROM HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER
WHICH SHARES OF THE FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund (see page 23) and is
hereby incorporated by reference into this Prospectus. An investor may obtain
a copy of this Statement of Additional Information without charge by
contacting the Distributor or his Shareholder Servicing Agent (see back cover
for addresses and phone numbers).
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic New York Tax Free Bond Fund (the "Fund") is a separate series
(portfolio) of the Republic Funds (the "Trust"), a Massachusetts business trust
organized on April 22, 1987, which currently consists of six series, each of
which has different and distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 6
The investment objective of the Fund is to provide shareholders of the
Fund with monthly dividends exempt from regular federal, New York State and New
York City personal income taxes as well as to protect the value of its
shareholders' investment. The Trust seeks to achieve the investment objective of
the Fund by investing the assets of the Fund primarily in a non-diversified
portfolio of municipal bonds and notes and other debt instruments the interest
on which is exempt from regular federal, New York State and New York City
personal income taxes. The potential risks of investing in New York Municipal
obligations are discussed in "Investment Objective and Policies -- Investment
Policies: Risk Factors Affecting Investments in New York Obligations". There can
be no assurance that the investment objective of the Fund will be achieved.
In seeking its investment objective, the Fund may invest in variable rate
instruments and "when-issued" municipal obligations. The potential risks of
investing in these derivative instruments are discussed in "Investment
Objectives and Policies -- Investment Policies: Variable Rate Instruments" and
"Investment Objectives and Policies -- Investment Policies: When Issued
Municipal Obligations".
MANAGEMENT OF THE TRUST PAGE 11
Republic National Bank of New York ("Republic" or the "Adviser") acts as
investment adviser to the Fund. For its services, the Adviser receives from the
Fund a fee at the annual rate of 0.25% of the Fund's average daily net assets.
Signature Broker-Dealer Services, Inc. ("Signature" or the "Sponsor") acts
as administrator and sponsor of the Fund. The Sponsor provides certain
management and administrative services to the Fund for which it receives from
the Fund a fee at the annual rate of up to 0.20% of the Fund's average daily net
assets.
The Trust has also retained Signature (the "Distributor") to distribute
shares of the Fund pursuant to a Distribution Plan pursuant to Rule 12b-1 under
the Investment Company Act of 1940, as amended (the "1940 Act"), under which the
Distributor is reimbursed from the Fund (in amounts up to 0.25% of the Fund's
average daily net assets) for marketing costs and payments to other
organizations for services rendered in distributing the Fund's shares. This fee
may not exceed 0.25% of the average daily net assets of the Fund and is expected
to be limited to an amount such that the aggregate fees paid to the Distributor
pursuant to the Distribution Plan and to the Shareholder Servicing Agents
pursuant to the Administrative Services Plan do not exceed 0.25% of such assets.
See "Management of the Trust".
PURCHASES AND REDEMPTIONS PAGES 15 AND 17
Shares of the Fund are continuously offered for sale by the Distributor at
net asset value with no sales charge (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with the Distributor. For investors who purchase
Fund shares directly from the Distributor, the minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The Trust offers to buy
back (redeem) shares of the Fund from its shareholders at any time at net asset
value. See "Purchase of Shares" and "Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 19
The Trust declares all of the Fund's net investment income daily as a
dividend to Fund shareholders and distributes all such dividends monthly. Any
net realized capital gains are distributed at least annually. See "Dividends and
Distributions".
<PAGE>
FEE TABLE
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of shares of the Fund, and the aggregate annual operating
expenses of the Fund, as a percentage of average net assets of the Fund, and
(ii) an example illustrating the dollar cost of such estimated expenses on a
$1,000 investment in the Fund.
<TABLE>
<CAPTION>
<S> <C>
Shareholder Transaction Expenses .............................. 0%
Annual Fund Operating Expenses
Investment Advisory Fee.................................... 0.25%
Distribution Fees (Rule 12b-1 fees) ....................... 0.15%
Other Expenses ........................................... 0.45%
----
-- Shareholder Servicing Fee .................... 0.10%
-- Administrative Services Fee ................... 0.20%
-- Other Operating Expenses ...................... 0.15%
Total Fund Operating Expenses ................................ 0.85%
====
<CAPTION>
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
<S> <C>
1 year ................................................... $ 9
3 years .................................................. $ 27
5 years .................................................. $ 47
10 years ................................................. $105
</TABLE>
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly. The information is based on the expenses the Fund
expects to incur for the current fiscal year.* The expense table shows the
expected investment advisory fee, distribution (Rule 12b-1) fee, administrative
services fee and shareholder servicing fee. For a more detailed discussion on
the costs and expenses of investing in the fund, see "Management of the Trust."
*Assuming average daily net assets of $10 million in the Fund.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of shares of the Fund.
The aggregate fees paid to the Shareholder Servicing Agent pursuant to the
Administrative Services Plan and to the Distributor pursuant to the Distribution
Plan may not exceed 0.25% of the average daily net assets of the Fund.
Some Shareholder Servicing Agents and securities brokers may impose certain
conditions on their customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging their customers a direct fee for their
services. The effect of any such fees will be to reduce the net return on the
investment of customers of that Shareholder Servicing Agent or securities
broker. Each Shareholder Servicing Agent and securities broker has agreed to
transmit to shareholders who are its customers appropriate written disclosure of
any transaction fees that it may charge them directly at least 30 days before
the imposition of any such charge.
More complete descriptions of the following expenses are set forth on the
following pages: (i) investment advisory fee -- page 11, (ii) distribution fee
- -- page 12, (iii) administrative services fee -- page 13, and (iv) shareholder
servicing agent fee -- page 13.
THE EXAMPLE SET FORTH ON PAGE 3 SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1995. The information shown in the following schedule has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the Fund's Annual Report dated October 31, 1995. The Annual
Report also includes management's discussion of Fund performance, and may be
obtained without charge upon request. This information should be read in
conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD:
REPUBLIC NEW YORK TAX FREE BOND FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
MAY 1, 1995
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1995
-----------------
Net asset value, beginning of period ......................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ...................................... 0.25
Net realized and unrealized gain on investments ............ 0.38
------
Total from investment operations ........................... 0.63
------
Less dividends:
From net investment income .... ............................ (0.25)
------
Net asset value, end of period .. ............................ $10.38
======
Total return ................................................. 6.39%(A)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ....................... $6,908
Ratio of expenses to average net assets* ................... 0.50%(B)
Ratio of net investment income to average net assets* ...... 4.91%(B)
Portfolio turnover rate ....... 130%
- -------------------------------------------------------------------------------
*Reflects a voluntary expense limitation and waiver of fees by affiliated
parties of the Fund. If this limitation and waiver had not been in effect, the
annualized ratios of expenses and net investment income to average net assets
for the period from May 1, 1995 (commencement of operations) to October 31,
1995 would have been 2.40% and 3.01%, respectively.
(A)Not Annualized.
(B)Annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to provide shareholders of the Fund
with monthly dividends exempt from regular federal, New York State and New York
City personal income taxes as well as to protect the value of its shareholders'
investment. There can be no assurance that the investment objective of the Fund
will be achieved. The investment objective of the Fund may be changed without
approval by the Fund's shareholders. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs.
INVESTMENT POLICIES
The Trust seeks to achieve the investment objective of the Fund by investing
the assets of the Fund primarily in municipal bonds and notes and other debt
obligations issued by or on behalf of the State of New York, other states,
territories and possessions of the United States, and their authorities,
agencies, instrumentalities and political subdivisions, the interest on which is
exempt from regular federal income taxes. (Such obligations, whether or not the
interest thereon is subject to the federal alternative minimum tax, are referred
to herein as "Municipal Obligations".) The Trust invests on behalf of the Fund
in certain Municipal Obligations of the State of New York and its authorities,
agencies, instrumentalities and political subdivisions, and of Puerto Rico,
other U.S. territories and their authorities, agencies, instrumentalities and
political subdivisions, the interest on which is exempt from regular federal,
New York State and New York City personal income taxes ("New York Municipal
Obligations"). In determining the tax status of interest on Municipal
Obligations and New York Municipal Obligations, the Adviser relies on opinions
of bond counsel who may be counsel to the issuer of those obligations.
Although under normal circumstances, the Trust attempts to invest 100%, and
does invest at least 65%, of the Fund's assets in New York Municipal
Obligations, market conditions may from time to time limit the availability of
such obligations. To the extent that acceptable New York Municipal Obligations
are not available for investment, the Trust may purchase on behalf of the Fund
Municipal Obligations issued by other states, their authorities, agencies,
instrumentalities and political subdivisions, the interest income on which is
exempt from regular federal income tax but is subject to New York State and New
York City personal income taxes. As a fundamental policy the Trust will invest
at least 80% of the Fund's net assets in tax exempt obligations. As a temporary
defensive measure, the Trust may invest up to 20% of the Fund's total assets in
obligations the interest income on which is subject to regular federal, New York
State and New York City personal income taxes or the federal alternative minimum
tax. Also, as a temporary defensive measure during times of adverse market
conditions, assets of the Fund may be held in cash or invested in the short-term
obligations described below, the interest income on which is taxable to
shareholders as ordinary income for federal and New York State and New York City
personal income tax purposes.
All of the investments of the Fund are made in:
(1) Municipal bonds that at the date of purchase are rated Aaa, Aa, A or
Baa by Moody's Investors Service, Inc. ("Moody's"), AAA, AA, A or BBB by
Standard & Poor's Corporation ("Standard & Poor's") or AAA, AA, A or BBB by
Fitch Investors Service, Inc. ("Fitch") or, if not rated by any of these
rating agencies, are of comparable quality as determined by the Adviser;
(2) Municipal notes that at the date of purchase are rated MIG 1/VMIG 1
or MIG 2/VMIG 2 by Moody's, SP-1+, SP-1 or SP-2 by Standard & Poor's or
F-1+, F-1 or F-2 by Fitch or, if not rated by any of these rating
agencies, are of comparable quality as determined by the Adviser;
(3) Obligations issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; and
(4) Commercial paper that at the date of purchase is rated Prime-1 or
Prime-2 by Moody's, A-1+, A-1 or A-2 by Standard & Poor's or F-1+, F-1
or F-2 by Fitch or, if not rated by any of these rating agencies, is of
comparable quality as determined by the Adviser, obligations (including
certificates of deposit, bankers' acceptances and repurchase agreements) of
banks with at least $1 billion of assets, and cash.
Municipal bonds rated Baa by Moody's or BBB by Standard & Poor's or Fitch
may have some speculative elements. In evaluating the creditworthiness of an
issue, whether rated or unrated, the Adviser takes into consideration, among
other factors, the issuer's financial resources, its sensitivity to economic
conditions and trends, the operating history of and the community support for
the facility financed by the issue, the quality of the issuer's management, and
legal and regulatory matters. For an explanation of the ratings of Municipal
Obligations by Moody's, Standard & Poor's and Fitch, see Appendix A. For a
comparison of yields on such Municipal Obligations and taxable securities, see
the Taxable Equivalent Yield Tables in Appendix B. For a general discussion of
Municipal Obligations and the risks associated with an investment therein, see
Appendix A to the Statement of Additional Information.
The Trust is authorized on behalf of the Fund to enter into repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York). Repurchase
agreements are transactions by which the Trust purchases a security on behalf of
the Fund and simultaneously commits to resell that security at an agreed-upon
price on an agreed-upon date. As described in further detail in the Statement of
Additional Information, such transactions entail certain risks, such as a
default by the seller.
The maximum maturity of any debt security held for the Fund is 35 years.
Although higher quality Municipal Obligations may produce lower yields, they
generally are easier to sell or trade than lower quality Municipal Obligations.
To protect the value of its shareholders' investment under adverse market
conditions, the Trust from time to time may deem it prudent to purchase higher
quality Municipal Obligations or taxable obligations for the Fund, with a
resultant decrease in yield or increase in the proportion of taxable income.
The net asset value of the Fund's shares changes as interest rates
fluctuate. When interest rates decline, the value of the Fund's portfolio can be
expected to rise. Conversely, when interest rates rise, the value of the Fund's
portfolio can be expected to decline. Such changes in the value of the Fund's
portfolio are reflected in the net asset value of shares of the Fund but do not
affect the income received by the Fund from its portfolio securities. Municipal
Obligations with longer maturities, such as those in which the Fund is invested,
generally produce higher yields and are subject to greater market fluctuation as
a result of changes in interest rates than such securities with shorter
maturities. Dividends distributed to shareholders rise or fall in direct
relation to the Fund's net income. Since available yields vary, no specific
level of income can be assured.
As a non-diversified investment company, the Trust is not subject to any
statutory restriction under the 1940 Act with respect to limiting the investment
of the Fund's assets in one or relatively few issuers. Since the Trust may
invest a relatively high percentage of the Fund's assets in the obligations of a
limited number of issuers, the value of shares of the Fund may be more
susceptible to any single economic, political or regulatory occurrence than the
value of shares of a diversified investment company would be.
The Trust may invest the assets of the Fund in a relatively high percentage
of Municipal Obligations to be paid from revenue streams of similar types of
projects. This may make the Fund more susceptible to any single economic,
political or regulatory occurrence, particularly since most or all such issuers
would likely be located in New York State. As the similarity in issuers
increases, the potential for fluctuation of the net asset value of the Fund's
shares also increases. The Trust may invest more than 25% of the assets of the
Fund in industrial revenue bonds (i.e., bonds issued by various state and local
agencies to finance various industrial projects). Certain investors in the Fund
may be required to pay a federal alternative minimum tax on Fund dividends
attributable to interest on certain industrial revenue bonds. The Trust also may
invest more than 25% of the assets of the Fund in revenue bonds issued for
housing, electric utilities and hospitals (subject to the restriction that it
may not invest more than 25% of the Fund's assets in any one such industry) at
times when the relative value of issues of such a type is considered by the
Adviser to be more favorable than that of other available types of issues.
Therefore, investors should also be aware of the risks which these investments
may entail.
Housing revenue bonds typically are issued by a state, county or local
housing authority and are secured only by the revenues of mortgages originated
by the authority using the proceeds of the bond issue. Because of the
impossibility of precisely predicting demand for mortgages from the proceeds of
such an issue, there is a risk that the proceeds of the issue will be in excess
of demand, which would result in early retirement of the bonds by the issuer.
Moreover, such housing revenue bonds depend for their repayment upon the cash
flow from the underlying mortgages, which cannot be precisely predicted when the
bonds are issued. Any difference in the actual cash flow from such mortgages
from the assumed cash flow could have an adverse impact upon the ability of the
issuer to make scheduled payments of principal and interest on the bonds, or
could result in early retirement of the bonds. Additionally, such bonds depend
in part for scheduled payments of principal and interest upon reserve funds
established from the proceeds of the bonds, assuming certain rates of return on
investment of such reserve funds. If the assumed rates of return are not
realized because of changes in interest rate levels or for other reasons, the
actual cash flow for scheduled payments of principal and interest on the bonds
may be adversely affected.
Electric utilities face problems in financing large and lengthy construction
programs, such as cost increases and delay occasioned by regulatory and
environmental considerations (particularly with respect to nuclear facilities),
difficulty in obtaining sufficient rate increases, the effect of energy
conservation and difficulty of the capital markets to absorb utility debt.
Hospital bond ratings are often based on feasibility studies containing
projections of expenses, revenues and occupancy levels. A hospital's gross
receipts and net income available to service its debt are influenced by demand
for hospital services, the ability of the hospital to provide the services
required, management capabilities, economic developments in the service area,
efforts by insurers and government agencies to limit rates and expenses,
competition, availability and expense of malpractice insurance, Medicaid and
Medicare funding levels, possible federal or state legislation limiting the
rates of increase of hospital charges, and weakened state finances which limit
and/or delay aid payments.
VARIABLE RATE INSTRUMENTS
Variable rate instruments that the Trust may purchase on behalf of the Fund
provide for a periodic adjustment in the interest rate paid on the instrument
and permit the holder to receive payment upon a specified number of days' notice
of the unpaid principal balance plus accrued interest either from the issuer or
by drawing on a bank letter of credit, a guarantee or an insurance policy issued
with respect to such instrument or by tendering or "putting" such instrument to
a third party.
Because of the variable rate nature of the instruments, during periods when
prevailing interest rates decline, the Fund's yield will decline and its
shareholders will forgo the opportunity for capital appreciation. On the other
hand, during periods when prevailing interest rates increase, the Fund's yield
will increase and its shareholders will have reduced risk of capital
depreciation. In certain cases, the interest rate index on which an instrument's
yield is based may not rise and fall to the same extent or as quickly as the
general market for Municipal Obligations. These instruments are considered
derivitives and the value of such instruments may be more volatile than other
floating rate Municipal Obligations.
For additional information concerning variable rate instruments, see
"Investment Objective, Policies and Restrictions -- Variable Rate Instruments"
in the Statement of Additional Information.
"WHEN-ISSUED" MUNICIPAL OBLIGATIONS
New issues of Municipal Obligations may be offered on a "when-issued" or
"forward delivery" basis. The payment obligation and the interest rate that will
be received on the Municipal Obligations offered on this basis are each fixed at
the time the Trust commits to the purchase for the Fund, although settlement,
i.e., delivery of and payment for the Municipal Obligations, takes place beyond
customary settlement time (but normally within 45 days of the commitment).
Between the time the Trust commits to purchase the "when-issued" or "forward
delivery" Municipal Obligation for the Fund and the time delivery and payment
are made, the "when-issued" or "forward delivery" Municipal Obligation is
treated as an asset of the Fund and the amount which the Fund is committed to
pay for that Municipal Obligation is treated as a liability of the Fund. No
interest on a "when-issued" or "forward delivery" Municipal Obligation is
accrued for the Fund until delivery occurs. Although the Trust only makes
commitments to purchase "when-issued" or "forward delivery" Municipal
Obligations for the Fund with the intention of actually acquiring them, the
Trust may sell these obligations before the settlement date if deemed advisable
by the Adviser. Purchasing Municipal Obligations on a "when-issued" or "forward
delivery" basis can involve a risk that the yields available in the market on
the settlement date may actually be higher (or lower) than those obtained in the
transaction itself and, as a result, the "when-issued" or "forward delivery"
Municipal Obligation may have a lesser (or greater) value at the time of
settlement than the Fund's payment obligation with respect to that Municipal
Obligation. Furthermore, if the Trust sells the "when-issued" or "forward
delivery" Municipal Obligation before the settlement date or if the Trust sells
other obligations from the Fund's portfolio in order to meet the payment
obligations, the Fund may realize a capital gain, which is not exempt from
federal, New York State or New York City income taxation.
For additional information concerning "when-issued" or "forward delivery"
Municipal Obligations, see "Investment Objective, Policies and Restrictions --
"When-Issued" Municipal Obligations" in the Statement of Additional Information.
PORTFOLIO MANAGEMENT
The Trust fully manages the Fund's portfolio by buying and selling
securities, as well as by holding selected securities to maturity. In managing
the Fund's portfolio, the Trust seeks to take advantage of market developments,
yield disparities and variations in the creditworthiness of issuers. For a
description of the strategies which are used in managing the Fund's portfolio,
which include adjusting the average maturity of the Fund's portfolio in
anticipation of a change in interest rates, see "Investment Objective, Policies
and Restrictions -- Portfolio Management" in the Statement of Additional
Information.
The Trust anticipates that the annual turnover rate of the Fund's assets
will be between 70% and 150% and generally will not exceed 300%. The Trust
engages in portfolio trading for the Fund if it believes a transaction net of
costs (including custodian charges) will help achieve the investment objective
of the Fund. Expenses to the Fund, including brokerage commissions, and the
realization of capital gains which are taxable to the Fund's shareholders tend
to increase as the portfolio turnover increases. For the period from May 1, 1995
(commencement of operations) to October 31, 1995, the portfolio turnover rate
was 130%.
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. For a further discussion of portfolio transactions, see "Investment
Objective, Policies and Restrictions -- Portfolio Transactions" in the
Statement of Additional Information.
RISK FACTORS AFFECTING INVESTMENTS IN NEW YORK MUNICIPAL OBLIGATIONS
The Trust intends to invest a high proportion of the Fund's assets in New
York Municipal Obligations. Payment of interest and preservation of principal is
dependent upon the continuing ability of New York issuers and/or obligors of
state, municipal and public authority debt obligations to meet their obligations
thereunder. Investors should consider the greater risk inherent in the Fund's
concentration in such obligations versus the safety that comes with a less
geographically concentrated investment portfolio and should compare the yield
available on a portfolio of New York issues with the yield of a more diversified
portfolio including out-of-state issues before making an investment decision.
The Adviser believes that by maintaining the Fund's investment portfolio in
liquid, shorter-term Municipal Obligations, the Fund is somewhat insulated from
the credit risks that may exist for long-term New York Municipal Obligations.
New York State and other issuers of New York Municipal Obligations have
recently experienced financial difficulties which have caused the credit
ratings of certain of their obligations to be downgraded by certain rating
agencies. There can be no assurance that credit ratings on obligations of New
York State and New York City and other New York Municipal Obligations will not
be downgraded further. See "Investment Objective, Policies and Restrictions --
Special Factors Affecting New York" in the Statement of Additional
Information.
--------------------
The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of its assets in a no-load, open-end management
investment company having the same investment objective and policies and
substantially the same investment restrictions as those applicable to the Fund.
In such event, the Fund's Investment Advisory Contract would be terminated and
the administrative services fees paid by the Fund would be reduced. Such
investment would be made only if the Trustees of the Trust believe that the
aggregate per share expenses of the Fund and such other investment company will
be less than or approximately equal to the expenses which the Fund would incur
if the Trust were to continue to retain the services of an investment adviser
for the Fund and the assets of the Fund were to continue to be invested directly
in portfolio securities.
The investment policies of the Fund are described above. Except as otherwise
stated, these investment policies may be changed by the Board of Trustees of the
Trust without approval by the shareholders of the Fund. The Statement of
Additional Information includes a further discussion of investment policies,
including the investment of the Fund's assets in participation interests and the
use of futures contracts to protect the Fund to some extent from fluctuations in
interest rates, and a listing of the specific investment restrictions which
govern the investment policies of the Fund, including a restriction that not
more than 10% of the Fund's net assets may be invested in securities that are
not readily marketable, such as repurchase agreements maturing in more than
seven days. Although the Trust currently does not borrow money on behalf of the
Fund for the purpose of leveraging, these restrictions permit the Trust to
borrow money on behalf of the Fund for certain other purposes in amounts up to
33 1/3% of the Fund's net assets (although no securities will be purchased for
the Fund at any time at which borrowings exceed five percent of the Fund's total
assets taken at market value). These specific investment restrictions and the
fundamental policy described above may not be changed without the approval of
Fund shareholders. If a percentage restriction (other than a restriction as to
borrowing) or a rating restriction on investment or utilization of assets is
adhered to at the time an investment is made, or assets are so utilized, a later
change in percentage resulting from changes in the value of the Fund's portfolio
securities or a later change in the rating of a portfolio security are not
considered a violation of policy.
MANAGEMENT OF THE TRUST
The business and affairs ot the Fund are managed under the direction of
the Board of Trustees of the Trust. The Trustees are Frederick C. Chen, Alan
S. Parsow, Larry M. Robbins and Michael Seely. Additional information about
the Trustees, as well as the Trust's executive officers, may be found in the
Statement of Additional Information under the caption "Management of the Trust
- -- Trustees and Officers".
THE ADVISER
Republic National Bank of New York serves as investment adviser to the Fund.
The Adviser manages the investment and reinvestment of the assets of the Fund
and continuously reviews, supervises and administers the Fund's investments
pursuant to an Investment Advisory Contract (the "Investment Advisory
Contract"). Subject to such policies as the Board of Trustees may determine, the
Adviser places orders for the purchase and sale of the Fund's investments
directly with brokers or dealers selected by it in its discretion. The Adviser
does not place orders with the Distributor. Ms Debra L. Crovicz, Vice President
of Republic, is the individual who is primarily responsible for the day-to-day
management of the Fund's portfolio. Prior to joining Republic, Ms Crovicz was a
senior portfolio manager at Citibank, N.A. where she managed approximately $1.5
billion in tax-exempt bond portfolios and was a portfolio manager and trader in
the Fixed Income Department of United States Trust Company of New York. For its
services under the Investment Advisory Contract, the Adviser receives from the
Fund a fee, payable monthly, at the annual rate of 0.25% of the Fund's average
daily net assets.
Republic is a wholly-owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest bank holding company in the United States measured by assets and the
17th largest commercial bank measured by shareholder equity. Republic or an
affiliate of Republic serves as investment adviser to the other series of the
Trust. Republic currently provides investment advisory services for individuals,
trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Fund,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of obligations so purchased. Republic and its affiliates
deal, trade and invest for their own accounts in Municipal Obligations and are
dealers of various types of Municipal Obligations. Republic and its affiliates
may sell Municipal Obligations to, and purchase them from, other investment
companies sponsored by Signature. The Adviser will not invest any Fund assets in
any Municipal Obligation purchased from itself or any affiliate, although under
certain circumstances such obligations may be purchased from other members of an
underwriting syndicate in which Republic or an affiliate is a non-principal
member. This restriction should not limit the amount or type of Municipal
Obligations available to be purchased for the Fund. The Adviser has informed the
Trust that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Republic or in the possession of any affiliate of Republic.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Fund. If Republic were prohibited from acting as investment adviser to the
Fund, it is expected that the Board of Trustees would recommend to Fund
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action. If Republic were prohibited from acting as a
Shareholder Servicing Agent for the Fund, the Trust would seek alternative means
of providing such services.
THE DISTRIBUTOR AND SPONSOR
Signature acts as sponsor and distributor to the Fund under a Distribution
Contract. The Distributor may, out of its own resources, make payments to
broker-dealers for their services in distributing Fund shares. Signature and its
affiliates also serve as administrator and distributor of other investment
companies. Signature is a wholly-owned subsidiary of Signature Financial Group,
Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Fund shares and for
the provision of certain shareholder services with respect to Fund shares. The
amount of this reimbursement may not exceed 0.25% of the average daily net
assets of the Fund. Payments to the Distributor are for various types of
activities, including: (1) payments to broker-dealers who advise shareholders
regarding the purchase, sale or retention of Fund shares and who provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. It is currently intended that the aggregate fees paid to
the Distributor pursuant to the Plan and to Shareholder Servicing Agents
pursuant to the Administrative Services Plan will not exceed 0.25% per annum of
the Fund's average daily net assets. Salary expense of Signature personnel who
are responsible for marketing shares of the various portfolios of the Trust may
be allocated to such portfolios on the basis of average net assets; travel
expense is allocated to, or divided among, the particular portfolios for which
it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets) payable under
the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to the Fund which provides that the Trust may
obtain the services of an administrator, a transfer agent, a custodian and one
or more Shareholder Servicing Agents for the Fund, and may enter into agreements
providing for the payment of fees for such services.
ADMINISTRATOR
Pursuant to an Administrative Services Contract, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust and the Fund, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust; the payment of
the non-transaction based fees of the custodian; the preparation and filing of
all documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the Trust
and the Fund. Signature provides persons satisfactory to the Board of Trustees
of the Trust to serve as Trustees and officers of the Trust. Such officers, as
well as certain other employees and Trustees of the Trust, may be directors,
officers or employees of Signature or its affiliates. For these services and
facilities, Signature receives from the Fund fees payable monthly at an annual
rate equal to 0.20% of the first $100 million of the Fund's average daily net
assets; 0.17% of the next $100 million of such assets; 0.13% of the next $300
million of such assets; and 0.10% of such assets in excess of $500 million.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with Investors Bank &
Trust Company ("IBT"), pursuant to which IBT acts as transfer agent for the Fund
(the "Transfer Agent"). The Transfer Agent maintains an account for each
shareholder of the Fund (unless such account is maintained by the shareholder's
Shareholder Servicing Agent), performs other transfer agency functions and acts
as dividend disbursing agent for the Fund. Pursuant to a Custodian Agreement,
IBT also acts as the custodian of the Fund's assets (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Fund's investments,
maintaining books of original entry for portfolio and fund accounting and other
required books and accounts, and calculating the daily net asset value of shares
of the Fund. Securities held for the Fund may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depositary Trust Company.
The Custodian does not determine the investment policies of the Fund or decide
which securities will be purchased or sold for the Fund. Assets of the Fund may,
however, be invested in securities of the Custodian and the Trust may deal with
the Custodian as principal in securities transactions for the Fund. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent pursuant to which a
Shareholder Servicing Agent, as agent for its customers, among other things:
answers customer inquiries regarding account status and history, the manner in
which purchases and redemptions of shares of the Fund may be effected and
certain other matters pertaining to the Fund; assists shareholders in
designating and changing dividend options, account designations and addresses;
provides necessary personnel and facilities to establish and maintain
shareholder accounts and records; assists in processing purchase and redemption
transactions; arranges for the wiring of funds; transmits and receives funds in
connection with customer orders to purchase or redeem shares; verifies and
guarantees shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnishes (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) monthly and year-end statements and confirmations
of purchases and redemptions; transmits, on behalf of the Trust, proxy
statements, annual reports, updated prospectuses and other communications from
the Trust to the Fund's shareholders; receives, tabulates and transmits to the
Trust proxies executed by shareholders with respect to meetings of shareholders
of the Fund or the Trust; and provides such other related services as the Trust
or a shareholder may request. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed 0.25% per annum of the Fund's average daily net
assets. Republic may act as a Shareholder Servicing Agent.
The Trust understands that some Shareholder Servicing Agents also may impose
certain conditions on their customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by the Trust, such as requiring a
different minimum initial or subsequent investment, account 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 on a percentage of the assets
in the account or of the dividends paid on those assets). Each Shareholder
Servicing Agent has agreed to transmit to its customers who are shareholders of
the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees. Conversely, the Trust understands that
certain Shareholder Servicing Agents may credit to the accounts of their
customers from whom they are already receiving other fees amounts not exceeding
such other fees or the fees received by the Shareholder Servicing Agent from the
Fund with respect to those accounts.
The glass-steagall act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the fund. The trust engages banks as shareholder
servicing agents on behalf of the fund only to perform administrative and
shareholder servicing functions as described above. The trust believes that the
glass-steagall act should not preclude a bank from acting as a shareholder
servicing agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain fund shareholders and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The trustees of the trust do not expect that
shareholders of the fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor or the Adviser. See "Management of the Trust --
Expenses and Expense Limits" in the Statement of Additional Information. Trust
expenses directly attributable to the Fund are charged to the Fund; other
expenses are allocated proportionately among all the portfolios in the Trust in
relation to the net assets of each portfolio. For the period from May 1, 1995
(commencement of operations) through October 31, 1995, the Fund's operating
expenses equaled 0.50% of its average daily net assets.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on each
day on which the New York Stock Exchange is open for trading ("Fund Business
Day"). This determination is made once during each such day as of 4:00 p.m., New
York time, by dividing the value of the Fund's net assets (i.e., the value of
its assets less its liabilities, including expenses payable or accrued) by the
number of shares of the Fund outstanding at the time the determination is made.
Values of assets in the Fund's portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor or is received by a Shareholder Servicing Agent or a securities
broker if it is transmitted to and accepted by the Distributor. Purchases are
therefore effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 4:00 p.m., New York time,
on any Fund Business Day.
The Trust intends the Fund to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets. Accordingly,
in order to make investments which will immediately generate income, the Trust
must have federal funds available for the Fund (i.e., monies credited by a
Federal Reserve Bank to the account of the Fund with the Fund's custodian bank).
Each Shareholder Servicing Agent and securities broker has agreed to provide
federal funds for each purchase at the time it transmits the order for such
purchase to the Distributor and the Distributor has agreed to provide the Fund
with federal funds for each purchase including those made directly through the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, the Distributor, his Shareholder Servicing Agent or
his securities broker, there may be a delay in transmitting and effecting the
purchase order since his check, bank draft, money order or similar negotiable
instrument will have to be converted into federal funds. If such a delay is
necessary, it is expected that in most cases it would not be longer than two
business days.
While there is no sales load on purchases of Fund shares, the Distributor
may receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor". Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
All purchase payments are invested in full and fractional shares of the
Fund. The Trust reserves the right to cease offering shares of the Fund for sale
at any time or to reject any order for the purchase of shares of the Fund.
An investor may purchase shares of the Fund through the Distributor directly
or by authorizing his Shareholder Servicing Agent or his securities broker to
purchase such shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Fund shares for shares of one or more other Republic Funds at net asset
value without a sales charge, if the sales charge of the Republic Fund being
exchanged into is less than or equal to the current sales charge of the Fund
(or, if his Fund shares were acquired by an exchange from another Republic Fund,
the current sales charge of that other Republic Fund). An exchange may result in
a change in the number of shares held, but, when no sales charge is imposed, not
in the value of such shares immediately after the exchange. Each exchange
involves the redemption of the Fund shares to be exchanged and the purchase of
the shares of the other Republic Fund.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges may be legally made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Fund and consider the differences in investment objectives and
policies before making any exchange.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Fund shares directly through the
Distributor, the Trust, as the shareholder's agent, establishes an open account
to which all shares purchased are credited together with any dividends and
capital gains distributions which are paid in additional shares. See "Dividends
and Distributions". The minimum initial investment is $1,000 and the minimum
subsequent investment is $100. Initial and subsequent purchases may be made by
writing a check (in U.S. dollars) payable to the Republic Funds -- New York Tax
Free Bond Fund and mailing it to:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds (New York Tax Free Bond
Fund, account name, account #)
The wire order must specify the Fund, the account name, number, confirmation
number, address, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order.
Automatic Investment Plan. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. If an Automatic Investment Plan is selected,
subsequent investments will be automatic and will continue until such time as
the Trust and the investor's bank are notified to discontinue further
investments. Due to the varying procedure to prepare, process and forward the
bank withdrawal information to the Trust, there may be a delay between the time
of the bank withdrawal and the time the money reaches the Fund. The investment
in the Fund will be made at the net asset value per share determined on the day
that both the check and the bank withdrawal data are received in required form
by the Distributor. Further information about the plan may be obtained from IBT
at the telephone number listed on the back cover.
For further information on how to purchase shares of the Fund directly from
the Distributor, an investor should contact the Distributor (see back cover for
address and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shares of the Fund are being offered to the public, to customers of a
Shareholder Servicing Agent and to customers of a securities broker that has
entered into a dealer agreement with the Distributor. Shareholder Servicing
Agents and securities brokers may offer services to their customers, including
specialized procedures for the purchase and redemption of Fund shares, such as
pre-authorized or automatic purchase and redemption programs. Each Shareholder
Servicing Agent and securities broker may establish its own terms, conditions
and charges, including limitations on the amounts of transactions, with respect
to such services. Charges for these services may include fixed annual fees,
account maintenance fees and minimum account balance requirements. The effect of
any such fees will be to reduce the net return on the investment of customers of
that Shareholder Servicing Agent or securities broker. Conversely, certain
Shareholder Servicing Agents may (although they are not required by the Trust to
do so) credit to the accounts of their customers from whom they are already
receiving other fees amounts not exceeding such other fees or the fees received
by the Shareholder Servicing Agent from the Fund, which will have the effect of
increasing the net return on the investment of such customers of those
Shareholder Servicing Agents.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase shares of the Fund, an investor should
contact his securities broker or his Shareholder Servicing Agent (see back cover
for address and phone number).
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is furnished by the shareholder to the Transfer Agent, with respect
to shares purchased directly through the Distributor, or to his securities
broker or his Shareholder Servicing Agent and is transmitted by it to and is
received by the Transfer Agent. Redemptions are effected on the same day the
redemption order is received by the Transfer Agent provided such order is
received prior to 4:00 p.m., New York time, on any Fund Business Day. Shares
redeemed earn dividends up to and including the day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists. To be in a position to eliminate excessive expenses, the Trust
reserves the right to redeem upon not less than 30 days' notice all shares of
the Fund in an account which has a value below $50. However, a shareholder will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account.
Unless shares of the Fund have been purchased directly from the Distributor,
a shareholder may redeem shares of the Fund only by authorizing his securities
broker or his Shareholder Servicing Agent to redeem such shares on his behalf
(since the account and records of such a shareholder are established and
maintained by his securities broker or his Shareholder Servicing Agent). For
further information as to how to direct a securities broker or a Shareholder
Servicing Agent to redeem shares of the Fund, a shareholder should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Fund shares by wire
or by telephone if he has checked the appropriate box on the Purchase
Application or has filed a Telephone Authorization Form with the Trust. These
redemptions may be paid from the Fund by wire or by check. The Trust reserves
the right to refuse telephone wire redemptions and may limit the amount involved
or the number of telephone redemptions. The telephone redemption procedure may
be modified or discontinued at any time by the Trust. Instructions for wire
redemptions are set forth in the Purchase Application. The Trust employs
reasonable procedures to confirm that instructions communicated by telephone are
genuine. For instance, the following information must be verified by the
shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
DIVIDENDS AND DISTRIBUTIONS The Trust declares all of the Fund's net
investment income daily as a dividend to Fund shareholders. Dividends
substantially equal to all of the Fund's net investment income earned during the
month are distributed in that month to Fund shareholders of record. The Fund's
net investment income consists of the interest income it earns, less expenses.
In computing interest income, premiums are not amortized nor are discounts
accrued on long-term debt securities in the Fund's portfolio, except as required
for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of mutual funds.
Unless a shareholder elects to receive dividends in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent or securities broker),
dividends are distributed in the form of additional shares of the Fund
(purchased at their net asset value without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law and the possible applicability of a federal alternative
minimum tax to a portion of the distributions from the Fund.
FEDERAL INCOME TAXES
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
realized capital gains of the Fund are distributed to shareholders in accordance
with the timing requirements imposed by the Code, no federal (or New York State
or New York City) income or excise taxes will be paid by the Fund on amounts so
distributed.
After the end of each calendar year, each shareholder receives a statement
setting forth the federal, New York State and New York City personal income tax
status of all dividends and capital gains distributions, if any, made during
that calendar year.
In accordance with the Fund's investment objective, it is expected that most
of the Fund's net income will be attributable to interest from Municipal
Obligations and, as a result, most of the dividends to Fund shareholders will be
designated by the Trust as "exempt-interest dividends" under the Code, which may
be treated as items of interest excludible from a shareholder's gross income for
purposes of the regular federal income tax. Since the preservation of capital
and liquidity are important aspects of the Fund's investment objective, the
Trust may from time to time invest a portion of the Fund's assets in obligations
the interest on which is not exempt from regular federal income taxes. Moreover,
dividends attributable to interest on certain Municipal Obligations which may be
purchased for the Fund may be treated as a tax preference item for shareholders
potentially subject to an alternative minimum tax and all exempt-interest
dividends may increase a corporate shareholder's alternative minimum tax or
environmental tax. Although it is not intended, it is possible that the Fund may
realize short-term or long-term capital gains or losses from its portfolio
transactions. Any distributions from net short-term capital gains would be
taxable to shareholders as ordinary income and any distributions from net
long-term capital gains would be taxable to shareholders as long-term capital
gains regardless of how long they have held their shares.
Any short-term capital loss realized upon the redemption of shares within
six months from the date of their purchase will be disallowed to the extent of
any exempt-interest dividends received during such period. In addition, any
short-term capital loss realized upon the redemption of shares within six months
from the date of their purchase will be treated as long-term capital loss
(rather than short-term) to the extent of the long-term capital gain or
undistributed capital gain allocable to the redeemed shares.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal, New York State and New York City income
tax purposes whether received in cash or reinvested in additional shares of the
Fund.
Dividends and distributions declared by the Fund in October, November or
December to shareholders of record in such a month and paid during the following
January are treated as if received by shareholders on December 31 in the year
declared.
Shareholders redeeming shares after tax-exempt income has been accrued but
not declared as a dividend should know that the portion of redemption proceeds
representing such income may be subject to taxation as a capital gain even
though it would have been tax-exempt had it been declared as a dividend prior to
redemption. Redemption of shares of the Fund can be effected with the least
adverse tax consequences immediately after the first business day of any month
(the time at which the dividend representing substantially all the income
accrued for the previous month is declared).
The Code provides that interest on indebtedness incurred, or continued, to
purchase or carry shares of the Fund is not deductible. Further, exempt-interest
dividends are taken into account in calculating the amount of social security
and railroad retirement benefits that may be subject to federal income tax.
Finally, entities or persons who may be "substantial users" (or persons related
to "substantial users") of facilities financed by industrial development or
private activity bonds should consult their tax advisors before purchasing
shares of the Fund.
STATE AND LOCAL TAXES
The exemption for federal income tax purposes of dividends derived from
interest on Municipal Obligations does not necessarily result in an exemption
under the income or other tax laws of any state or local taxing authority.
However, to the extent that dividends are derived from interest on New York
Municipal Obligations, the dividends will also be excluded from the gross income
of a New York individual resident shareholder for New York State and New York
City personal income tax purposes.
DIVIDENDS FROM THE FUND ARE NOT EXCLUDED IN DETERMINING NEW YORK STATE OR
NEW YORK CITY FRANCHISE TAXES ON CORPORATIONS AND FINANCIAL INSTITUTIONS.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional Shares of Beneficial Interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has ten series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, pre-emptive, conversion
or similar rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. Each Shareholder Servicing Agent has
agreed to transmit all proxies and voting materials from the Trust to their
customers who are beneficial owners of the Fund and such Shareholder Servicing
Agents have agreed to vote as instructed by such customers. The Trust is not
required and has no current intention to hold annual meetings of shareholders
although the Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust it is necessary or desirable to submit
matters for a shareholder vote. Shareholders of each series generally vote
separately, for example, to approve investment advisory agreements or changes in
fundamental investment policies or restrictions, but shareholders of all series
may vote together to the extent required under the 1940 Act, such as in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders of the
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
PERFORMANCE INFORMATION
From time to time the Trust may provide "total return" and annualized
"yield" and "tax equivalent yield" quotations for the Fund in advertisements,
shareholder reports or other communications to shareholders and prospective
investors. The methods used to calculate the Fund's total return, yield and tax
equivalent yield are mandated by the Securities and Exchange Commission.
Quotations of "total return" are expressed in terms of the average annual
compounded rate of return of a hypothetical investment in the Fund over periods
of 1, 5 and 10 years. All total return figures reflect the deduction of a
proportional share of Fund expenses on an annual basis, and assume that all
dividends and distributions are reinvested when paid.
The "yield" of the Fund refers to the income generated by an investment in
the Fund over the 30 day (or one month) period ended on the date of the most
recent balance sheet of the Fund included in the Trust's registration statement
with respect to the Fund. The "tax equivalent yield" refers to the yield that a
fully taxable bond fund would have to generate, given a stated aggregate state
and local income tax rate, in order to produce an after-tax yield equivalent to
that of the Fund. The use of a tax equivalent yield allows investors to compare
the yield of the Fund, all or a significant portion of which is exempt from
regular federal, New York State and New York City personal income taxes, with
yields of funds which are not so tax exempt.
Since these total return, yield and tax equivalent yield quotations are
based on historical earnings and since the Fund's total return, yield and tax
equivalent yield fluctuate from day to day, these quotations should not be
considered as an indication or representation of the Fund's total return, yield
or tax equivalent yield in the future. Any performance information should be
considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such an advertisement
or communication, including the performance of unmanaged indices, the
performance of the Consumer Price Index (as a measure for inflation), and data
from Lipper Analytical Services, Inc. and other industry publications.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Conversely, the
Trust has been advised that certain Shareholder Servicing Agents may credit to
the accounts of their customers from whom they are already receiving other fees
amounts not exceeding such other fees or the fees received by the Shareholder
Servicing Agent from the Fund, which will have the effect of increasing the net
return on the investment of such customers of those Shareholder Servicing
Agents. Such customers may be able to obtain through their Shareholder Servicing
Agent or securities broker quotations reflecting such decreased or increased
return. The Trust's Statement of Additional Information with respect to the Fund
includes more detailed information concerning the calculation of total return,
yield, effective yield and tax equivalent yield quotations for the Fund.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 6 St. James
Avenue, Boston, Massachusetts 02116.
GENERAL AND ACCOUNT INFORMATION (800) 782-8183 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated January 26, 1996,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Adviser and Sponsor of the Fund,
(iii) portfolio transactions, (iv) the Fund's shares, including rights and
liabilities of shareholders, and (v) additional yield information, including the
method used to calculate the total return, annualized yield and tax equivalent
yield of the Fund.
<PAGE>
APPENDIX A
DESCRIPTION OF RATINGS*
The ratings of Moody's Investors Service, Inc., Standard & Poor's
Corporation and Fitch Investors Service, Inc. represent their opinions as to the
quality of various debt obligations. It should be emphasized, however, that
ratings are not absolute standards of quality. Consequently, Municipal
Obligations with the same maturity, coupon and rating may have different yields
while Municipal Obligations of the same maturity and coupon with different
ratings may have the same yield.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S LONG-TERM DEBT RATINGS:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and generally are referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what generally are 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 which are rated A 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 which are rated Baa are considered as 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.
Note: Those bonds in the Aa, A and Baa groups which Moody's believes
possess the strongest investment attributes are designated by the
symbol Aa 1, A 1 and Baa 1, respectively.
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
Moody's ratings for state and municipal short-term obligations will be
designated Moody's Investment Grade ("MIG"). Such ratings recognize the
differences between short-term credit risk and long-term risk. Factors affecting
the liquidity of the borrower and short-term cyclical elements are critical in
short-term ratings, while other factors of major importance in bond risk, such
as long-term secular trends, may be less important over the short run. A
short-term rating may also be assigned on an issue having a demand feature. Such
ratings will be designated as "VMIG" or, if the demand feature is not rated, as
"NR". Short-term ratings on issues with demand features are differentiated by
the use of the "VMIG" symbol to reflect such characteristics as payment upon
periodic demand rather than fixed maturity dates and payment relying on external
liquidity. Additionally, investors should be alert to the fact that the source
of payment may be limited to the external liquidity with no or limited legal
recourse to the issuer in the event the demand is not met. Symbols used are as
follows:
MIG 1/VMIG 1 -- Notes bearing this designation are of the best quality, with
strong protection from established cash flows, superior liquidity support or
demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2 -- Notes bearing this designation are of high quality, with
margins of protection ample although not so large as in the preceding group.
- --------------
*As described by the rating agencies. Ratings are generally given to securities
at the time of issuance. While the rating agencies may from time to time revise
such ratings, they undertake no obligation to do so.
<PAGE>
DESCRIPTION OF MOODY'S INVESTORS SERVICE, INC.'S
TWO HIGHEST COMMERCIAL PAPER RATINGS:
Moody's commercial paper ratings are opinions of the ability of issuers to
repay punctually senior short-term debt obligations not having an original
maturity in excess of one year.
Issuers rated PRIME-1 (or related supporting institutions) have a superior
capacity for repayment of senior short-term debt obligations. Prime-1 repayment
capacity will normally be evidenced by the following characteristics: (1)
leading market positions in well established industries; (2) high rates of
return on funds employed; (3) conservative capitalization structures with
moderate reliance on debt and ample asset protection; (4) broad margins in
earnings coverage of fixed financial charges and high internal cash generation;
and (5) well established access to a range of financial markets and assured
sources of alternate liquidity.
Issuers rated PRIME-2 (or related supporting institutions) have a strong
capacity for repayment of senior short-term debt 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 alternate liquidity is maintained.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S LONG-TERM DEBT RATINGS:
AAA -- Debt rated AAA has the highest rating assigned by Standard & Poor's.
Capacity to pay interest and repay principal is extremely strong.
AA -- Debt rated AA has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A -- Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debts in higher rated categories.
BBB -- Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they 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
debts in this category than for debts in higher rated categories.
Plus (+) or Minus (-): The AA to BBB ratings may be modified by the
addition of a plus or minus sign to show relative standing within the rating
category.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S
TWO HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
A Standard & Poor's note rating reflects the liquidity concerns and market
access risks unique to notes. Notes due in three years or less will likely
receive a note rating. Notes maturing beyond three years will most likely
receive a long-term debt rating. The following criteria will be used in making
that assessment:
-- Amortization schedule (the larger the final maturity relative to other
maturities the more likely it will be treated as a note).
-- Source of payment (the more dependent the issue is on the market for its
refinancing, the more likely it will be treated as a note).
Note rating symbols are as follows:
SP-1 -- 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 -- Satisfactory capacity to pay principal and interest.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S COMMERCIAL PAPER RATINGS:
A Standard & Poor's commercial paper rating is a current assessment of the
likelihood of timely payment of debt having an original maturity of no more than
365 days.
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are delineated with the
numbers 1, 2 and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is either overwhelming or very strong. Those issues determined to
possess overwhelming safety characteristics are denoted with a plus (+) sign
designation.
A-2 -- Capacity for timely payment on issues with this designation is
strong. However, the relative degree of safety is not as high as for issues
designated A-1.
DESCRIPTION OF STANDARD & POOR'S CORPORATION'S DUAL RATINGS:
Standard & Poor's assigns "dual" ratings to all long-term debt issues that
have as part of their provisions a demand or double feature.
The first rating addresses the likelihood of repayment of principal and
interest as due, and the second rating addresses only the demand feature. The
long-term debt rating symbols are used for bonds to denote the long-term
maturity and the commercial paper rating symbols are used to denote the put
option (for example, "AAA/A-1+"). For demand notes, the note rating symbols
are used with the commercial paper symbols (for example, "SP-1+/A-1+").
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S BOND RATINGS:
The rating takes into consideration special features of the issue, its
relationship to other obligations of the issuer, the current and prospective
financial condition and operating performance of the issuer and any guarantor,
as well as the economic and political environment that might affect the issuer's
future financial strength and credit quality.
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+".
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 satisfactory 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 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.
Plus (+) or Minus (-): The AA to BBB ratings may be modified by the
addition of a plus or minus sign to show relative standing within the rating
category.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC'S
THREE HIGHEST RATINGS OF STATE AND MUNICIPAL NOTES:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- 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 for issues assigned "F-1+" and "F-1" ratings.
DESCRIPTION OF FITCH INVESTORS SERVICE, INC.'S
THREE HIGHEST COMMERCIAL PAPER RATINGS:
The short-term rating places greater emphasis than a long-term rating on the
existence of liquidity necessary to meet the issuer's obligations in a timely
manner.
F-1+ -- Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for timely payment.
F-1 -- Very Strong Credit Quality. Issues assigned this rating reflect an
assurance of timely payment only slightly less in degree than issues rated
"F-1+".
F-2 -- 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 for issues assigned "F-1+" and "F-1" ratings.
<PAGE>
APPENDIX B
TAXABLE EQUIVALENT YIELD TABLES
The tables below show the approximate taxable bond yields which are
equivalent to tax-exempt bond yields, for the ranges indicated, under (i)
federal and New York State personal income tax laws, and (ii) federal, New
York State and New York City personal income tax laws, in each case as they
apply to the revised 1994 federal rates and the existing 1994 New York State
rates. Such yields may differ under the laws applicable to subsequent years if
the effect of any such law is to change any tax bracket or the amount of
taxable income which is applicable to a tax bracket. Separate calculations,
showing the applicable taxable income brackets, are provided for investors who
file single returns and for those investors who file joint returns.
<TABLE>
<CAPTION>
FEDERAL AND NEW YORK STATE TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------- INCOME -------------------------------------------------------------------------------
SINGLE JOINT TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over But Not Over Over But Not Over
$ 0-$ 38,000 20.16% 2.51% 3.13% 3.76% 4.38% 5.01% 5.64% 6.26% 6.89% 7.52% 8.14%
$ 0-$ 22,750 20.37% 2.51% 3.14% 3.77% 4.40% 5.02% 5.65% 6.28% 6.91% 7.53% 8.16%
$ 38,001-$ 91,850 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 22,751-$ 55,100 33.47% 3.01% 3.76% 4.51% 5.26% 6.01% 6.76% 7.52% 8.27% 9.02% 9.77%
$ 91,851-$140,000 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$ 55,501-$115,000 36.24% 3.14% 3.92% 4.71% 5.49% 6.27% 7.06% 7.84% 8.63% 9.41% 10.19%
$115,001-$250,000 $140,001-$250,000 40.86% 3.38% 4.23% 5.07% 5.92% 6.76% 7.61% 8.45% 9.30% 10.15% 10.99%
$250,001 $250,001 44.19% 3.58% 4.48% 5.38% 6.27% 7.17% 8.06% 8.96% 9.85% 10.75% 11.65%
<FN>
- ----------
* Net amount subject to federal and New York State personal income tax after deductions and exemptions.
** Effective combined federal and state tax bracket. State tax rate based on the average state rate for the federal income tax
bracket and 1994 state tax rate.
</FN>
<CAPTION>
FEDERAL, NEW YORK STATE AND NEW YORK CITY TABLE
- ---------------------------------------------------------------------------------------------------------------------------------
TAXABLE INCOME* TAX-EXEMPT YIELD
- -------------------------------------- INCOME -------------------------------------------------------------------------------
SINGLE JOINT TAX 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% 6.00% 6.50%
RETURN RETURN BRACKET** EQUIVALENT TAXABLE YIELD
- ---------------------------------------------------------------------------------------------------------------------------------
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Over But Not Over Over But Not Over
$ 0-$ 38,000 23.14% 2.60% 3.25% 3.90% 4.55% 5.20% 5.85% 6.51% 7.16% 7.81% 8.46%
$ 0-$ 22,750 23.40% 2.61% 3.26% 3.92% 4.57% 5.22% 5.87% 6.53% 7.18% 7.83% 8.49%
$ 38,001-$ 91,850 36.64% 3.16% 3.93% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 22,751-$ 55,100 36.63% 3.16% 3.95% 4.73% 5.52% 6.31% 7.10% 7.89% 8.68% 9.47% 10.26%
$ 91,851-$140,000 39.30% 3.29% 4.12% 4.94% 5.77% 6.59% 7.41% 8.24% 9.06% 9.88% 10.71%
$ 55,101-$115,000 39.31% 3.30% 4.12% 4.94% 5.77% 6.59% 7.41% 8.24% 9.06% 9.89% 10.71%
$115,001-$250,000 $140,001-$250,000 43.71% 3.55% 4.44% 5.33% 6.22% 7.11% 7.99% 8.88% 9.77% 10.66% 11.55%
$250,001 $250,001 46.88% 3.77% 4.71% 5.65% 6.59% 7.53% 8.41% 9.41% 10.35% 11.30% 12.24%
<FN>
- ----------
* Net amount subject to federal, New York State and New York City personal income tax after deductions and exemptions.
** Effective combined federal, state and city tax bracket. State and city tax rates based on the average rate for the federal tax
bracket and 1994 state tax rates, including surcharges.
</FN>
</TABLE>
While it is expected that most of the dividends paid to the shareholders
of the Fund will be exempt from federal, New York State and New York City
personal income taxes, portions of such dividends from time to time may be
subject to such taxes.
Note: The information in the tables is presented as of October 20, 1994.
<PAGE>
- ------
REPUBLIC
NEW YORK
TAX FREE BOND
FUND
INVESTMENT ADVISER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
INDEPENDENT AUDITORS
KPMG Peat Marwick
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
SHAREHOLDER SERVICING AGENTS:
Republic National Bank of New York
Republic Bank For Savings
452 Fifth Avenue
New York, NY 10018
(800) 782-8183
FOR NON-REPUBLIC CLIENTS:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
- ------
REPUBLIC
NEW YORK
TAX FREE BOND
FUND
PROSPECTUS
January 26, 1996
<PAGE>
REPUBLIC EQUITY FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
- ------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic Equity Fund (the "Fund") is a diversified separate series
(portfolio) of the Republic Funds (the "Trust"), an open-end, management
investment company which currently consists of six funds, each of which has
different and distinct investment objectives and policies. Shares of the Fund
are being offered by this Prospectus. Republic National Bank of New York
("Republic" or the "Manager") is the investment manager of the Fund. Lord,
Abbett & Co. ("Lord Abbett" or the "Sub-Adviser") continuously manages the
investment portfolio of the Fund.
The investment objective of the Fund is long-term growth of capital and
income without excessive fluctuations in market value. The Fund seeks its
objective by investing in securities selling at reasonable prices in relation to
value. The Fund will normally invest in common stocks of large, seasoned
companies in sound financial condition which are expected to show above-average
price appreciation. There can be no assurance that the investment objective of
the Fund will be achieved.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD,
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
Shares of the Fund are continuously offered for sale at net asset value with
no sales charge by Signature Broker-Dealer Services, Inc. ("Signature" or the
"Distributor" or the "Sponsor") (i) directly to the public, (ii) to customers of
a financial institution, such as a federal or state-chartered bank, trust
company or savings and loan association that has entered into a shareholder
servicing agreement with the Trust (collectively, "Shareholder Servicing
Agents"), and (iii) to customers of a securities broker that has entered into a
dealer agreement with the Distributor.
AN INVESTOR WHO IS NOT PURCHASING DIRECTLY FROM THE DISTRIBUTOR SHOULD
OBTAIN FROM HIS SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT, AND SHOULD
READ IN CONJUNCTION WITH THIS PROSPECTUS, THE MATERIALS PROVIDED BY THE
SECURITIES BROKER OR SHAREHOLDER SERVICING AGENT DESCRIBING THE PROCEDURES UNDER
WHICH SHARES OF THE FUND MAY BE PURCHASED AND REDEEMED THROUGH SUCH SECURITIES
BROKER OR SHAREHOLDER SERVICING AGENT.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor ought to know before investing. The Trust has
filed with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund, which is hereby
incorporated by reference into this Prospectus. An investor may obtain a copy
of this Statement of Additional Information without charge by contacting the
Distributor or his Shareholder Servicing Agent (see back cover for addresses and
phone numbers).
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic Equity Fund (the "Fund") is a separate series (portfolio) of the
Republic Funds (the "Trust"), a Massachusetts business trust organized on April
22, 1987, which currently consists of six funds, each of which has different and
distinct investment objectives and policies.
INVESTMENT OBJECTIVE, RISKS AND POLICIES PAGE 5
The investment objective of the Fund is long-term growth of capital and
income without excessive fluctuations in market value. The Fund seeks its
objective by investing in securities selling at reasonable prices in relation to
value. The Fund will normally invest in common stocks of large, seasoned
companies in sound financial condition which are expected to show above-average
price appreciation. There can be no assurance that the investment objective of
the Fund will be achieved.
MANAGEMENT OF THE TRUST PAGE 8
Republic acts as investment manager to the Fund pursuant to an Investment
Management Agreement with the Trust. For its services, the Manager is paid a fee
by the Fund, computed daily and based on the Fund's average daily net assets,
equal on an annual basis to 0.175% of net assets. Lord Abbett continuously
manages the investment portfolio of the Fund pursuant to a Sub-Advisory
Agreement with the Manager. For its services, the Sub-Adviser is paid a fee by
the Fund, computed daily and based on the Fund's average daily net assets, equal
on an annual basis to 0.325% of net assets up to $50 million, 0.25% of net
assets over $50 million and up to $100 million, 0.20% of net assets over $100
million and up to $200 million, and 0.15% of net assets over $200 million. See
"Management of the Trust."
Signature acts as administrator and sponsor of the Fund. Signature provides
certain management and administrative services to the Fund for which it receives
from the Fund a fee at the annual rate of up to 0.20% of the Fund's average
daily net assets.
The Trust also has retained Signature to distribute shares of the Fund
pursuant to a Distribution Plan pursuant to Rule 12b-1 under the Investment
Company Act of 1940, as amended (the "1940 Act"), under which the Distributor is
reimbursed from the Fund for marketing costs and payments to other organizations
for services rendered in distributing the Fund's shares. This fee may not exceed
0.25% of the average daily net assets of the Fund and is expected to be limited
to an amount such that the aggregate fees paid to the Distributor pursuant to
the Distribution Plan and to the Shareholder Servicing Agents pursuant to the
Administrative Services Plan do not exceed 0.25% of such assets. See "Management
of the Trust."
PURCHASES AND REDEMPTIONS PAGES 12 AND 15
Shares of the Fund are continuously offered for sale by the Distributor at
net asset value with no sales charge (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with the Distributor. For investors who purchase
Fund shares directly from the Distributor, the minimum initial investment is
$1,000 and the minimum subsequent investment is $100. The Trust offers to buy
back (redeem) shares of the Fund from its shareholders at any time at net asset
value. See "Purchase of Shares" and "Redemption of Shares."
DIVIDENDS AND DISTRIBUTIONS PAGE 16
The Trust intends to distribute all the Fund's net investment income as a
dividend to Fund shareholders quarterly and net realized capital gains, if
any, annually. See "Dividends and Distributions."
<PAGE>
FEE TABLE
The following table provides (i) a summary of estimated expenses relating to
purchases and sales of shares of the Fund, and the aggregate annual operating
expenses of the Fund, as a percentage of average daily net assets of the Fund,
and (ii) an example illustrating the dollar cost of such estimated expenses on a
$1,000 investment in the Fund.
Shareholder Transaction Expenses .......................... 0%
Annual Fund Operating Expenses
Investment Management Fee after waiver* ............... 0.10%
Investment Subadvisory Fee ............................ 0.32%
Distribution Fees (Rule 12b-1 fees) ................... 0.15%
Other Expenses after waiver** ......................... 0.73%
------
-- Shareholder Servicing Fee ................... 0.10%
-- Administrative Services Fee after waiver** ... 0.10%
-- Other Operating Expenses ..................... 0.53%
Total Fund Operating Expenses after fee waivers*** ........ 1.30%
=====
- ------------
* Investment Management Fee is shown net of waiver. Without such waiver, such
fee in the aggregate would be equal on an annual basis to 0.175% of the
Fund's average net assets.
** Other Expenses and the Administrative Services Fee are shown net of expected
fee waiver for the current fiscal year. Without such waiver, the
Administrative Services Fee and Other Expenses would be equal on an annual
basis to 0.20% and 0.83%, respectively, of the Fund's average net assets.
*** Total Fund Operating Expenses are shown net of fee waivers. Without such fee
waivers, the Total Fund Operating Expenses would be equal on an annual basis
to 1.475% of the Fund's average net assets. There can be no assurance that
expenses will be reimbursed or waived in the future.
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
1 year ............................................... $ 13
3 years .............................................. $ 41
5 years .............................................. $ 71
10 years ............................................. $157
The purpose of the expense table provided above is to assist investors in
understanding the various costs and expenses that a shareholder will bear
directly or indirectly. The information is based on the expenses the Fund
expects to incur for the current fiscal year.* The expense table shows the
expected investment management fee, investment subadvisory fee, distribution
(Rule 12b-1) fee, administrative services fee and shareholder servicing fee.
For a more detailed discussion on the costs and expenses of investing in the
Fund, see "Management of the Trust."
*ASSUMING AVERAGE DAILY NET ASSETS OF $30 MILLION IN THE FUND.
The fees paid from the Fund to each Shareholder Servicing Agent are
determined by a formula based upon the number of accounts serviced by such
Shareholder Servicing Agent during the period for which payment is being made,
the level of activity in such accounts during such period, and the expenses
incurred by such Shareholder Servicing Agent. Similarly, the fee from the Fund
to the Distributor is in anticipation of, or as reimbursement for, expenses
incurred by the Distributor in connection with the sale of shares of the Fund.
The aggregate fees paid to the Distributor pursuant to the Distribution Plan and
to the Shareholder Servicing Agent pursuant to the Administrative Services Plan
may not exceed 0.25% of the average daily net assets of the Fund.
Some Shareholder Servicing Agents and securities brokers may impose certain
conditions on their customers, subject to the terms of this Prospectus, in
addition to or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging their customers a direct fee for their
services. The effect of any such fees will be to reduce the net return on the
investment of customers of that Shareholder Servicing Agent or securities
broker. Each Shareholder Servicing Agent and securities broker has agreed to
transmit to shareholders who are its customers appropriate written disclosure of
any transaction fees that it may charge them directly at least 30 days before
the imposition of any such charge.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
PAST OR FUTURE EXPENSES OF THE FUND; ACTUAL EXPENSES MAY BE GREATER OR LESS
THAN THOSE SHOWN.
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1995. The information shown in the following schedule has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the Fund's Annual Report dated October 31, 1995. The Annual
Report also includes management's discussion of Fund performance, and may be
obtained without charge upon request. This information should be read in
conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD:
REPUBLIC EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
AUGUST 1, 1995
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1995
-----------------
Net asset value, beginning of period ...................... $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.04
Net realized and unrealized gain on investments ......... 0.24
------
Total from investment operations ...................... 0.28
------
Less dividends:
From net investment income .............................. (0.04)
------
Total from dividends .................................. (0.04)
------
Net asset value, end of period ............................ $10.24
======
Total return .............................................. 2.75%(a)
Ratios/supplemental data:
Net assets, end of period (in 000's) .................... $22,092
Ratio of expenses to average net assets (b) ............. 1.47%(c)
Ratio of net investment income to average net assets (b) 1.59%(c)
Portfolio turnover rate ................................. 2%
- -------------------------------------------------------------------------------
(a) Not annualized.
(b) Reflects a voluntary expense limitation and waivers of fees by affiliated
parties of the Fund. If this limitation and waivers had not been in effect,
the annualized ratios of expenses and net investment income to average net
assets for the period from August 1, 1995 (commencement of operations) to
October 31, 1995 would have been 2.44% and 0.62%, respectively.
(c) Annualized.
INVESTMENT OBJECTIVE, RISKS AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of capital
and income without excessive fluctuations in market value. The Fund seeks its
objective by investing in securities selling at reasonable prices in relation to
value. The Fund will normally invest in common stocks of large, seasoned
companies in sound financial condition which are expected to show above-average
price appreciation. There can be no assurance that the investment objective of
the Fund will be achieved. The investment objective of the Fund may be changed
without approval by the Fund's shareholders. If there is a change in the
investment objective of the Fund, shareholders should consider whether the Fund
remains an appropriate investment in light of their then-current financial
position and needs. Shareholders of the Fund shall receive 30 days' prior
written notice of any change in the investment objective of the Fund.
INVESTMENT POLICIES
The Sub-Adviser believes that long-term investors purchase and redeem shares
to meet their own financial requirements rather than to take advantage of price
fluctuations. If so, their needs will be best served by an investment whose
growth is characterized by low fluctuations in market value. For this reason,
the Fund attempts to maintain its investments in securities which are selling at
reasonable prices in relation to value and, thus, is willing to forgo some
opportunities for gains when, in the Sub-Adviser's judgment, they carry
excessive risk. The Sub-Adviser attempts to anticipate major changes in the
economy and to select stocks that it believes will benefit most from these
changes.
The Fund will normally invest at least 65% of its total assets in equity
securities (consisting of common stocks, preferred stocks, securities
convertible into common stocks, warrants and rights) of large, seasoned
companies in sound financial condition which are expected to show above-average
price appreciation. Although the prices of common stocks fluctuate and their
dividends vary, historically, common stocks have appreciated in value and their
dividends have increased when the companies they represent have prospered and
grown. The Sub-Adviser will balance the opportunity for profit against the risk
of loss. In the past, very few industries have continuously provided the best
investment opportunities. The Sub-Adviser believes it is important to take a
flexible approach and adjust the Fund's portfolio to reflect changes in the
opportunities for sound investments relative to the risks assumed. The Fund
therefore will sell securities the Sub-Adviser judges to be overpriced and
reinvest the proceeds in other securities the Sub-Adviser believes to offer
better values.
The Fund may (a) write covered call options traded on a national securities
exchange with respect to securities in its portfolio, (b) invest up to 10% of
its net assets (at the time of investment) in debt and equity securities which
are traded in developed foreign countries and (c) invest up to 35% in bonds and
other debt securities, including lower rated, high-yield bonds, commonly
referred to as "junk bonds." The Fund does not intend to write covered call
options with respect to securities with an aggregate market value of more than
10% of its total assets at the time an option is written. The Fund will not
invest more than 5% of its net assets (at the time of investment) in lower rated
(BB/Ba or lower), high yield bonds. The Fund may retain any bond whose rating
drops below investment grade if it is in the best interest of the Fund's
shareholders. Securities rated BB/Ba by a nationally recognized statistical
rating organization are considered to have speculative characteristics.
The Fund may lend its portfolio securities. These loans may not exceed 30%
of the value of the Fund's total assets.
The Fund will not purchase securities for trading purposes. Pending
investment in equity and debt and also for temporary defensive purposes, the
Fund may invest without limit in short-term debt and other high-quality,
fixed-income securities. The Fund may invest up to 15% of its net assets in
illiquid securities.
ADDITIONAL RISK FACTORS AND POLICIES
FOREIGN SECURITIES
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or foreign withholding and other taxation, limitation on the
removal of cash or other assets of the Fund, political or financial instability,
or diplomatic and other developments which could affect such investments.
Further, economics of particular countries or areas of the world may differ
favorably or unfavorably from the economy of the United States. Changes in
foreign exchange rates will affect the value of securities denominated or quoted
in currencies other than the U.S. dollar. Foreign securities often trade with
less frequency and volume than domestic securities and therefore may exhibit
greater price volatility. Additional costs associated with an investment in
foreign securities may include higher custodial fees than apply to domestic
custodial arrangements, and transaction costs of foreign currency conversions.
CONVERTIBLE SECURITIES
Although the Fund's equity investments consist primarily of common and
preferred stocks, the Fund may buy securities convertible into common stock if,
for example, the Sub-Adviser believes that a company's convertible securities
are undervalued in the market. Convertible securities eligible for purchase by
the Fund consist of convertible bonds, convertible preferred stocks, warrants
and rights. See "Additional Risk Factors and Policies -- Warrants" below and the
Statement of Additional Information for a discussion of these instruments.
ILLIQUID INVESTMENTS
The Fund may invest up to 15% of its net assets in securities that are
illiquid by virtue of the absence of a readily available market, or because of
legal of contractual restrictions on resale, excluding securities eligible for
resale to qualified institutional buyers pursuant to Rule 144A under the
Securities Act of 1933, as described below. There may be delays in selling these
securities and sales may be made at less favorable prices.
The Sub-Adviser may determine that a particular Rule 144A security is liquid
and thus not subject to the Fund's limits on investment in illiquid securities,
pursuant to guidelines adopted by the Board of Trustees. Factors that the
Sub-Adviser must consider in determining whether a particular Rule 144A security
is liquid include the frequency of trades and quotes for the security, the
number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Fund's
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
WARRANTS
The Fund may invest up to 10% of its net assets in warrants, except that
this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of the
corporation issuing them.
LOANS OF PORTFOLIO SECURITIES
The Fund may lend its securities to qualified brokers, dealers, banks and
other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Fund will not lend its portfolio securities to the
extent that greater than 30% of its total assets, at fair market value, would be
committed to loans at that time.
COVERED CALL OPTIONS
The Fund may write covered call options (which are considered derivitives)
which are traded on a national securities exchange with respect to securities in
the portfolio in an attempt to increase its income and to provide greater
flexibility in the disposition of its portfolio securities. A "call option" is a
contract sold for a price (the "premium") giving its holder the right to buy a
specific number of shares of stock at a specific price prior to a specified
date. A "covered call option" is a call option issued on securities already
owned by the writer of the call option for delivery to the holder upon the
exercise of the option. During the period of the option, the option writer
forgoes the opportunity to profit from any increase in the market price of the
underlying security above the exercise price of the option (to the extent that
the increase exceeds the net premium). The Fund also may enter into "closing
purchase transactions" in order to terminate its obligation to deliver the
underlying security (this may result in a short-term gain or loss). A closing
purchase transaction is the purchase of a call option (at a cost which may be
more or less than the premium received for writing the original call option) on
the same security, with the same exercise price and call period as the option
previously written. If the Fund is unable to enter into a closing purchase
transaction, it may be required to hold a security that it might otherwise have
sold to protect against depreciation. The Fund does not intend to write covered
call options with respect to securities with an aggregate market value of more
than 10% of its total assets at the time an option is written. This percentage
limitation will not be increased without prior disclosure in the current
Prospectus.
PORTFOLIO TURNOVER
The Sub-Adviser will manage the Fund generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Fund will not
trade for short-term profits, but when circumstances warrant, investments may
be sold without regard to the length of time held. It is expected that the
annual turnover rate for the Fund will not exceed 100%. For the period from
August 1, 1995 (commencement of operations) to October 31, 1995, the portfolio
turnover rate was 2%.
--------------------
The Trust may, in the future, seek to achieve the Fund's investment
objective by investing all of its investable assets in a no-load, open-end
management investment company having substantially the same investment objective
as the Fund. In such event, the Fund's Investment Management Contract would be
terminated. Such investment would be made only if the Trustees of the Trust
believe that the aggregate per share expenses of the Fund and such other
investment company will be less than or approximately equal to the expenses
which the Fund would incur if the Trust were to continue to retain the services
of an investment adviser for the Fund and the assets of the Fund were to
continue to be invested directly in portfolio securities.
MANAGEMENT OF THE TRUST
The business and affairs of the Fund are managed under the direction of
the Board of Trustees of the Trust. The Trustees are Frederick C. Chen, Alan
S. Parsow, Larry M. Robbins and Michael Seely. Additional information about
the Trustees, as well as the Trust's executive officers, may be found in the
Statement of Additional Information under the caption "Management of the Trust
- -- Trustees and Officers."
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Fund pursuant to an Investment Management
Contract with the Trust. For its services, the Manager is paid a fee by the
Fund, computed daily and based on the Fund's average daily net assets, equal on
an annual basis to 0.175% of net assets.
Republic is a wholly-owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest bank holding company in the United States measured by assets and the
17th largest commercial bank measured by shareholder equity. Republic or an
affiliate of Republic serves as investment adviser to the other series of the
Trust. Republic currently provides investment advisory services for individuals,
trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the Fund,
including outstanding loans to such issuers which may be repaid in whole or in
part with the proceeds of obligations so purchased. Republic has informed the
Trust that, in making its investment decisions, it does not obtain or use
material inside information in the possession of any division or department of
Republic or in the possession of any affiliate of Republic.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Fund will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Fund. If Republic were prohibited from acting as investment manager to the
Fund, it is expected that the Board of Trustees would recommend to Fund
shareholders approval of a new investment advisory agreement with another
qualified investment adviser selected by the Board or that the Board would
recommend other appropriate action. If Republic were prohibited from acting as a
Shareholder Servicing Agent for the Fund, the Trust would seek alternative means
of providing such services.
SUB-ADVISER
Lord Abbett continuously manages the investment portfolio of the Fund,
subject to the supervision and direction of the Manager, pursuant to a
Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser is
paid a fee by the Fund, computed daily and based on the Fund's average daily net
assets, equal on an annual basis to 0.325% of net assets up to $50 million,
0.25% of net assets over $50 million up to $100 million, 0.20% of net assets
over $100 million up to $200 million, and 0.15% of net assets over $200 million.
It is the responsibility of the Sub-Adviser not only to make investment
decisions for the Fund, but also to place purchase and sale orders for the
portfolio transactions of the Fund. See "Portfolio Turnover."
The primary consideration in placing portfolio security transactions with
broker-dealers for execution is to obtain, and maintain the availability of,
execution at the most favorable prices and in the most effective manner
possible. The Fund may pay brokerage commissions on portfolio security
transactions to affiliated broker-dealers. For a further discussion of portfolio
transactions, see "Investment Objective, Policies Risks, and Restrictions --
Fund Transactions" in the Statement of Additional Information.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. and such other policies as the Trustees of the Trust
may determine, and subject to seeking the most favorable price and execution
available, the Sub-Adviser may consider sales of shares of the Fund or other
funds managed by the Sub-Adviser as a factor in the selection of broker-dealers
to execute portfolio transactions for the Fund.
Lord Abbett has been an investment manager for over 65 years and currently
manages approximately $18 billion in a family of mutual funds and other advisory
accounts. Lord Abbett is located at The General Motors Building, 767 Fifth
Avenue, New York, New York 10153-0203. Mr. John J. Walsh, a partner of Lord
Abbett, serves as the Fund's portfolio manager and manages other mutual fund and
private account portfolios. Mr. Walsh has been with Lord Abbett since 1960.
DISTRIBUTOR AND SPONSOR
Signature, whose address is 6 St. James Avenue, Boston, Massachusetts 02116,
acts as sponsor and distributor to the Fund under a Distribution Contract. The
Distributor may, out of its own resources, make payments to broker-dealers for
their services in distributing Fund shares. Signature and its affiliates also
serve as administrator and distributor of other investment companies. Signature
is a wholly-owned subsidiary of Signature Financial Group, Inc.
Pursuant to a Distribution Plan adopted by the Trust (the "Plan"), the
Distributor is reimbursed from the Fund monthly for costs and expenses incurred
by the Distributor in connection with the distribution of Fund shares and for
the provision of certain shareholder services with respect to Fund shares. The
amount of this reimbursement may not exceed 0.25% of the average daily net
assets of the Fund. Payments to the Distributor are for various types of
activities, including: (1) payments to broker-dealers who advise shareholders
regarding the purchase, sale or retention of Fund shares and who provide
shareholders with personal services and account maintenance services ("service
fees"), (2) payments to employees of the Distributor, and (3) printing and
advertising expenses. It is currently intended that the aggregate fees paid to
the Distributor pursuant to the Plan and to Shareholder Servicing Agents
pursuant to the Administrative Services Plan will not exceed 0.25% per annum of
the Fund's average daily net assets. Salary expense of Signature personnel who
are responsible for marketing shares of the various portfolios of the Trust may
be allocated to such portfolios on the basis of average net assets; travel
expense is allocated to, or divided among, the particular portfolios for which
it is incurred.
Any payment by the Distributor or reimbursement of the Distributor from the
Fund made pursuant to the Plan is contingent upon the Board of Trustees'
approval. The Fund is not liable for distribution and shareholder servicing
expenditures made by the Distributor in any given year in excess of the maximum
amount (0.25% per annum of the Fund's average daily net assets) payable under
the Plan in that year.
ADMINISTRATIVE SERVICES PLAN
The Trust has adopted an Administrative Services Plan (the "Administrative
Services Plan") with respect to the Fund which provides that the Trust may
obtain the services of an administrator, a transfer agent, a custodian and one
or more Shareholder Servicing Agents for the Fund, and may enter into agreements
providing for the payment of fees for such services.
ADMINISTRATOR
Pursuant to an Administrative Services Contract, Signature provides the
Trust with general office facilities and supervises the overall administration
of the Trust and the Fund, including, among other responsibilities, the
negotiation of contracts and fees with, and the monitoring of performance and
billings of, the independent contractors and agents of the Trust; the payment of
the non-transaction based fees of the custodian; the preparation and filing of
all documents required for compliance by the Trust with applicable laws and
regulations; and arranging for the maintenance of books and records of the Trust
and the Fund. Signature provides persons satisfactory to the Board of Trustees
of the Trust to serve as Trustees and officers of the Trust. Such officers, as
well as certain other employees and Trustees of the Trust, may be directors,
officers or employees of Signature or its affiliates. For these services and
facilities, Signature receives from the Fund fees payable monthly at an annual
rate equal to 0.20% of the first $100 million of the Fund's average daily net
assets; 0.17% of the next $100 million of such assets; 0.13% of the next $300
million of such assets; and 0.10% of such assets in excess of $500 million.
TRANSFER AGENT AND CUSTODIAN
The Trust has entered into a Transfer Agency Agreement with Investors Bank &
Trust Company ("IBT"), pursuant to which IBT acts as transfer agent for the Fund
(the "Transfer Agent"). The Transfer Agent maintains an account for each
shareholder of the Fund (unless such account is maintained by the shareholder's
Shareholder Servicing Agent), performs other transfer agency functions and acts
as dividend disbursing agent for the Fund. Pursuant to a Custodian Agreement,
IBT also acts as the custodian of the Fund's assets (the "Custodian"). The
Custodian's responsibilities include safeguarding and controlling the Fund's
cash and securities, handling the receipt and delivery of securities,
determining income and collecting interest on the Fund's investments,
maintaining books of original entry for portfolio and fund accounting and other
required books and accounts, and calculating the daily net asset value of shares
of the Fund. Securities held for the Fund may be deposited into the Federal
Reserve-Treasury Department Book Entry System or the Depositary Trust Company.
The Custodian does not determine the investment policies of the Fund or decide
which securities will be purchased or sold for the Fund. Assets of the Fund may,
however, be invested in securities of the Custodian, and the Trust may deal with
the Custodian as principal in securities transactions for the Fund. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust.
SHAREHOLDER SERVICING AGENTS
The Trust has entered into a shareholder servicing agreement (a "Servicing
Agreement") with each Shareholder Servicing Agent pursuant to which a
Shareholder Servicing Agent, as agent for its customers, among other things:
answers customer inquiries regarding account status and history, the manner in
which purchases and redemptions of shares of the Fund may be effected and
certain other matters pertaining to the Fund; assists shareholders in
designating and changing dividend options, account designations and addresses;
provides necessary personnel and facilities to establish and maintain
shareholder accounts and records; assists in processing purchase and redemption
transactions; arranges for the wiring of funds; transmits and receives funds in
connection with customer orders to purchase or redeem shares; verifies and
guarantees shareholder signatures in connection with redemption orders and
transfers and changes in shareholder-designated accounts; furnishes (either
separately or on an integrated basis with other reports sent to a shareholder by
a Shareholder Servicing Agent) monthly and year-end statements and confirmations
of purchases and redemptions; transmits, on behalf of the Trust, proxy
statements, annual reports, updated prospectuses and other communications from
the Trust to the Fund's shareholders; receives, tabulates and transmits to the
Trust proxies executed by shareholders with respect to meetings of shareholders
of the Fund or the Trust; and provides such other related services as the Trust
or a shareholder may request. For these services, each Shareholder Servicing
Agent receives a fee from the Fund, which may be paid periodically, determined
by a formula based upon the number of accounts serviced by such Shareholder
Servicing Agent during the period for which payment is being made, the level of
activity in accounts serviced by such Shareholder Servicing Agent during such
period, and the expenses incurred by such Shareholder Servicing Agent. It is
currently intended that the aggregate fees paid to the Distributor pursuant to
the Plan and to Shareholder Servicing Agents pursuant to the Administrative
Services Plan will not exceed 0.25% per annum of the Fund's average daily net
assets. Republic may act as a Shareholder Servicing Agent.
The Trust understands that some Shareholder Servicing Agents also may impose
certain conditions on their customers, subject to the terms of this Prospectus,
in addition to or different from those imposed by the Trust, such as requiring a
different minimum initial or subsequent investment, account 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 on a percentage of the assets
in the account or of the dividends paid on those assets). Each Shareholder
Servicing Agent has agreed to transmit to its customers who are shareholders of
the Fund appropriate prior written disclosure of any fees that it may charge
them directly and to provide written notice at least 30 days prior to the
imposition of any transaction fees.
The glass-steagall act prohibits certain financial institutions from
engaging in the business of underwriting securities of open-end investment
companies, such as shares of the fund. The trust engages banks as shareholder
servicing agents on behalf of the fund only to perform administrative and
shareholder servicing functions as described above. The trust believes that the
glass-steagall act should not preclude a bank from acting as a shareholder
servicing agent. There is presently no controlling precedent regarding the
performance of shareholder servicing activities by banks. Future changes in
either federal statutes or regulations relating to the permissible activities of
banks, as well as future judicial or administrative decisions and
interpretations of present and future statutes and regulations, could prevent a
bank from continuing to perform all or part of its servicing activities. If a
bank were prohibited from so acting, its shareholder customers would be
permitted to remain fund shareholders, and alternative means for continuing the
servicing of such shareholders would be sought. In such event, changes in the
operation of the fund might occur and a shareholder serviced by such bank might
no longer be able to avail himself of any automatic investment or other services
then being provided by such bank. The trustees of the trust do not expect that
shareholders of the fund would suffer any adverse financial consequences as a
result of these occurrences.
OTHER EXPENSES
The Fund bears all costs of its operations other than expenses specifically
assumed by the Distributor, Manager or the Sub-Adviser. See "Management of the
Trust -- Expenses and Expense Limits" in the Statement of Additional
Information. Trust expenses directly attributable to the Fund are charged to the
Fund; other expenses are allocated proportionately among all the portfolios in
the Trust in relation to the net assets of each portfolio. For the period from
August 1, 1995 (commencement of operations) through October 31, 1995, the Fund's
operating expenses equaled 1.47% of its average daily net assets.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on each
day on which the New York Stock Exchange is open for trading ("Fund Business
Day"). This determination is made once during each Fund Business Day as of 4:00
p.m., New York time, by dividing the value of the Fund's net assets (i.e., the
value of its assets less its liabilities, including expenses payable or accrued)
by the number of shares of the Fund outstanding at the time the determination is
made. Values of assets in the Fund's portfolio are determined on the basis of
their market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor or is received by a Shareholder Servicing Agent or a securities
broker if it is transmitted to and accepted by the Distributor. Purchases are
therefore effected on the same day the purchase order is received by the
Distributor provided such order is received prior to 4:00 p.m., New York time,
on any Fund Business Day.
The Trust intends the Fund to be as fully invested at all times as is
reasonably practicable in order to enhance the yield on its assets. Accordingly,
in order to make investments which will immediately generate income, the Trust
must have federal funds available for the Fund (i.e., monies credited by a
Federal Reserve Bank to the account of the Fund with the Fund's custodian bank).
Each Shareholder Servicing Agent and securities broker has agreed to provide
federal funds for each purchase at the time it transmits the order for such
purchase to the Distributor, and the Distributor has agreed to provide the Fund
with federal funds for each purchase, including those made directly through the
Distributor. Therefore, each shareholder and prospective investor should be
aware that if he does not have sufficient funds on deposit with, or otherwise
immediately available to, the Distributor, his Shareholder Servicing Agent or
his securities broker, there may be a delay in transmitting and effecting the
purchase order since his check, bank draft, money order or similar negotiable
instrument will have to be converted into federal funds. If such a delay is
necessary, it is expected that in most cases it would not be longer than two
business days.
While there is no sales load on purchases of Fund shares, the Distributor
may receive fees from the Fund. See "Management of the Trust -- Distributor and
Sponsor." Other funds which have investment objectives similar to those of the
Fund but which do not pay some or all of such fees from their assets may offer a
higher yield.
All purchase payments are invested in full and fractional shares of the
Fund. The Trust reserves the right to cease offering shares of the Fund for sale
at any time or to reject any order for the purchase of shares of the Fund.
An investor may purchase shares of the Fund through the Distributor directly
or by authorizing his Shareholder Servicing Agent or his securities broker to
purchase such shares on his behalf through the Distributor.
Exchange Privilege. By contacting the Transfer Agent or his Shareholder
Servicing Agent or his securities broker, a shareholder may exchange some or all
of his Fund shares for shares of one or more other Republic Funds at net asset
value without a sales charge. An exchange may result in a change in the number
of shares held, but not in the value of such shares immediately after the
exchange. Each exchange involves the redemption of the Fund shares to be
exchanged and the purchase of the shares of the other Republic Fund which may
produce a gain or loss for tax purposes.
The exchange privilege (or any aspect of it) may be changed or discontinued
upon 60 days' written notice to shareholders and is available only to
shareholders in states in which such exchanges legally may be made. A
shareholder considering an exchange should obtain and read the prospectus of the
other Republic Fund and consider the differences in investment objectives and
policies before making any exchange.
DIRECTLY THROUGH THE DISTRIBUTOR
For each shareholder who purchases Fund shares directly through the
Distributor, the Trust, as the shareholder's agent, establishes an open account
to which all shares purchased are credited together with any dividends and
capital gains distributions which are paid in additional shares. See "Dividends
and Distributions." The minimum initial investment is $1,000, except the minimum
initial investment for an Individual Retirement Account is $250. The minimum
subsequent investment is $100. Initial and subsequent purchases may be made by
writing a check (in U.S. dollars) payable to the Republic Funds -- Equity Fund
and mailing it to:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
In the case of an initial purchase, the check must be accompanied by a
completed Purchase Application.
In the case of subsequent purchases, a shareholder may transmit purchase
payments by wire directly to the Fund's custodian bank at the following address:
Investors Bank & Trust Company
Boston, Massachusetts
Attn: Transfer Agent
ABA # 011001438
Acct. # 5999-99451
For further credit to the Republic Funds (Equity Fund, account name,
account #)
The wire order must specify the Fund, the account name, number, confirmation
number, address, amount to be wired, name of the wiring bank and name and
telephone number of the person to be contacted in connection with the order.
Automatic Investment Plan. The Trust offers a plan for regularly investing
specified dollar amounts ($25.00 minimum in monthly, quarterly, semi-annual or
annual intervals) in the Fund. If an Automatic Investment Plan is selected,
subsequent investments will be automatic and will continue until such time as
the Trust and the investor's bank are notified in writing to discontinue further
investments. Due to the varying procedure to prepare, process and forward the
bank withdrawal information to the Trust, there may be a delay between the time
of the bank withdrawal and the time the money reaches the Fund. The investment
in the Fund will be made at the net asset value per share determined on the Fund
Business Day that both the check and the bank withdrawal data are received in
required form by the Transfer Agent. Further information about the plan may be
obtained from IBT at the telephone number listed on the back cover.
For further information on how to purchase shares of the Fund directly from
the Distributor, an investor should contact the Distributor (see back cover for
address and phone number).
THROUGH A SHAREHOLDER SERVICING AGENT OR A SECURITIES BROKER
Shareholder Servicing Agents and securities brokers may offer services to
their customers, including specialized procedures for the purchase and
redemption of Fund shares, such as pre-authorized or automatic purchase and
redemption programs. Each Shareholder Servicing Agent and securities broker may
establish its own terms, conditions and charges, including limitations on the
amounts of transactions, with respect to such services. Charges for these
services may include fixed annual fees, account maintenance fees and minimum
account balance requirements. The effect of any such fees will be to reduce the
net return on the investment of customers of that Shareholder Servicing Agent or
securities broker.
Shareholder Servicing Agents and securities brokers may transmit purchase
payments on behalf of their customers by wire directly to the Fund's custodian
bank by following the procedures described above.
For further information on how to direct a securities broker or a
Shareholder Servicing Agent to purchase shares of the Fund, an investor should
contact his securities broker or his Shareholder Servicing Agent (see back cover
for address and phone number).
RETIREMENT PLANS
Shares of the Fund are offered in connection with tax-deferred retirement
plans. Application forms and further information about these plans, including
applicable fees, are available from the Trust or the Sponsor upon request.
Recently enacted federal tax legislation has substantially affected the tax
treatment of contributions to certain retirement plans. Before investing in the
Fund through one or more of these plans, an investor should consult his or her
tax adviser.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be used as a funding medium for an IRA. An Internal
Revenue Service-approved IRA plan may be available from an investor's
Shareholder Servicing Agent. In any event, such a plan is available from the
Sponsor naming IBT, as custodian. The minimum initial investment for an IRA is
$250; the minimum subsequent investment is $100. IRAs are available to
individuals who receive compensation or earned income and their spouses whether
or not they are active participants in a tax-qualified or Government-approved
retirement plan. An IRA contribution by an individual who participates, or whose
spouse participates, in a tax-qualified or Government-approved retirement plan
may not be deductible depending upon the individual's income. Individuals also
may establish an IRA to receive a "rollover" contribution of distributions from
another IRA or a qualified plan. Tax advice should be obtained before planning a
rollover.
DEFINED CONTRIBUTION PLANS
Investors who are self-employed may purchase shares of the Fund for
retirement plans for self-employed persons which are known as Defined
Contribution Plans (formerly Keogh or H.R. 10 Plans). Republic offers a
prototype plan for Money Purchase and Profit Sharing Plans.
SECTION 457 PLAN, 401(K) PLAN, 403(B) PLAN
The Fund may be used as a vehicle for certain deferred compensation plans
provided for by Section 457 of the Code with respect to service for state
governments, local governments, rural electric cooperatives and political
subdivisions, agencies, instrumentalities and certain affiliates of such
entities. The Fund may also be used as a vehicle for both 401(k) plans and 403
(b) plans.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is furnished by the shareholder to the Transfer Agent, with respect
to shares purchased directly through the Distributor, or to his securities
broker or his Shareholder Servicing Agent and is transmitted by it to and is
received by the Transfer Agent. Redemptions are effected on the same day the
redemption order is received by the Transfer Agent provided such order is
received prior to 4:00 p.m., New York time, on any Fund Business Day. Shares
redeemed earn dividends up to and including the Fund Business Day prior to the
day the redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the next Fund Business Day on which the redemption is effected, but in
any event within seven days. The right of any shareholder to receive payment
with respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists. To be in a position to eliminate excessive expenses, the Trust
reserves the right to redeem upon not less than 30 days' notice all shares of
the Fund in an account which has a value below $50. However, a shareholder will
be allowed to make additional investments prior to the date fixed for redemption
to avoid liquidation of the account.
Unless shares of the Fund have been purchased directly from the Distributor,
a shareholder may redeem shares of the Fund only by authorizing his securities
broker or his Shareholder Servicing Agent to redeem such shares on his behalf
(since the account and records of such a shareholder are established and
maintained by his securities broker or his Shareholder Servicing Agent). For
further information as to how to direct a securities broker or a Shareholder
Servicing Agent to redeem shares of the Fund, a shareholder should contact his
securities broker or his Shareholder Servicing Agent (see back cover for address
and phone number).
REDEMPTION OF SHARES PURCHASED DIRECTLY THROUGH THE DISTRIBUTOR
Redemption by Letter. Redemptions may be made by letter to the Transfer
Agent specifying the dollar amount or number of shares to be redeemed, account
number and the Fund. The letter must be signed in exactly the same way the
account is registered (if there is more than one owner of the shares all must
sign). In connection with a written redemption request, all signatures of all
registered owners or authorized parties must be guaranteed by an Eligible
Guarantor Institution, which includes a domestic bank, broker, dealer, credit
union, national securities exchange, registered securities association, clearing
agency or savings association. The Fund's transfer agent, however, may reject
redemption instructions if the guarantor is neither a member or not a
participant in a signature guarantee program (currently known as "STAMP",
"SEMP", or "NYSE MPS"). Corporations, partnerships, trusts or other legal
entities may be required to submit additional documentation.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
The Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537 MFD23
Boston, Massachusetts 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days or more.
Unless other instructions are given in proper form, a check for the proceeds of
a redemption will be sent to the shareholder's address of record.
Redemption by Wire or Telephone. An investor may redeem Fund shares by wire
or by telephone if he has checked the appropriate box on the Purchase
Application or has filed a Telephone Authorization Form with the Trust. These
redemptions may be paid from the Fund by wire or by check. The Trust reserves
the right to refuse telephone and wire redemptions and may limit the amount
involved or the number of telephone redemptions. The telephone redemption
procedure may be modified or discontinued at any time by the Trust. Instructions
for wire redemptions are set forth in the Purchase Application. The Trust
employs reasonable procedures to confirm that instructions communicated by
telephone are genuine. For instance, the following information must be verified
by the shareholder or securities broker at the time a request for a telephone
redemption is effected: (1) shareholder's account number; (2) shareholder's
social security number; and (3) name and account number of shareholder's
designated securities dealer or bank. If the Trust fails to follow these or
other established procedures, it may be liable for any losses due to
unauthorized or fraudulent instructions.
DIVIDENDS AND DISTRIBUTIONS
Dividends substantially equal to all of the Fund's net investment income
earned are distributed quarterly to Fund shareholders of record. Generally, the
Fund's net investment income consists of the interest and dividend income it
earns, less expenses. In computing interest income, premiums are not amortized,
nor are discounts accrued on long-term debt securities in the Fund's portfolio,
except as required for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of mutual funds.
Unless a shareholder elects to receive dividends in cash (subject to the
policies of the shareholder's Shareholder Servicing Agent or securities broker),
dividends are distributed in the form of additional shares of the Fund
(purchased at their net asset value without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of dividends and distributions from the Fund
under applicable state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
net realized capital gains of the Fund are distributed to shareholders in
accordance with the timing requirements imposed by the Code, generally no
federal income or excise taxes will be paid by the Fund on amounts so
distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, but not long-term capital gain distributions, as ordinary income.
Dividends paid to corporate shareholders, to the extent such dividends are
attributable to dividends received from U.S. corporations, may qualify for the
dividends-received deduction. However, the alternative minimum tax applicable to
corporations may reduce the value of the dividends-received deduction.
Distributions designated by the Fund as capital gain dividends are taxable to
shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders and such distributions are
not eligible for the dividends-received deduction. Certain dividends declared in
October, November, or December of a calendar year to shareholders of record on a
date in such a month are taxable to shareholders (who otherwise are subject to
tax on dividends) as though received on December 31 of that year if paid to
shareholders during January of the following calendar year.
Tax Withholding. Income received by the Fund from sources within foreign
countries may be subject to withholding and other income or similar taxes
imposed by such countries.
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the Fund with the shareholder's correct taxpayer identification number ("TIN")
or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest and dividend
income to the Internal Revenue Service and to respond to notices to that effect,
or (3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against the shareholder's federal income
tax liability. Dividends from the Fund attributable to the Fund's net investment
income and short-term capital gains generally will be subject to U.S.
withholding tax when paid to shareholders treated under U.S. tax law as
nonresident alien individuals or foreign corporations, estates, partnerships or
trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to taxes, see "Taxation" in the
Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has six series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, pre-emptive, conversion
or similar rights. Shares when issued are fully paid and non-assessable, except
as set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. Each Shareholder Servicing Agent has
agreed to transmit all proxies and voting materials from the Trust to their
customers who are beneficial owners of the Fund and such Shareholder Servicing
Agents have agreed to vote as instructed by such customers. The Trust is not
required and has no current intention to hold annual meetings of shareholders
although the Trust will hold special meetings of Fund shareholders when in the
judgment of the Trustees of the Trust it is necessary or desirable to submit
matters for a shareholder vote. Shareholders of each series generally vote
separately, for example, to approve investment advisory agreements or changes in
fundamental investment policies or restrictions, but shareholders of all series
may vote together to the extent required under the 1940 Act, such as in the
election or selection of Trustees, principal underwriters and accountants for
the Trust.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust have the right to remove one or more Trustees without
a meeting by a declaration in writing by a specified number of shareholders,
however, the Trustees will call such a meeting upon the written request of
shareholders holding at least 10% of the Trust's outstanding shares. Upon
liquidation or dissolution of the Fund, shareholders of the Fund would be
entitled to share pro rata in the net assets of the Fund available for
distribution to shareholders.
The Trust's Declaration of Trust provides that, at any meeting of
shareholders of the Fund or the Trust, a Shareholder Servicing Agent may vote
any shares as to which such Shareholder Servicing Agent is the agent of record
and which are otherwise not represented in person or by proxy at the meeting,
proportionately in accordance with the votes cast by holders of all shares
otherwise represented at the meeting in person or by proxy as to which such
Shareholder Servicing Agent is the agent of record. Any shares so voted by a
Shareholder Servicing Agent will be deemed represented at the meeting for
purposes of quorum requirements.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included
in advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the net income generated by an investment in the Fund over a stated
30-day period. This income is then annualized -- i.e., the amount of income
generated by the investment during the 30-day period is assumed to be generated
each 30-day period for twelve periods and is shown as a percentage of the
investment. The income earned on the investment is also assumed to be reinvested
at the end of the sixth 30-day period.
Since these total return and yield quotations are based on historical
earnings and since the Fund's total return and yield fluctuate from day to day,
these quotations should not be considered as an indication or representation of
the Fund's total return or yield in the future. Any performance information
should be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such advertisements,
including the performance of unmanaged indices, the performance of the Consumer
Price Index (as a measure for inflation), and data from Lipper Analytical
Services, Inc. and other industry publications.
A Shareholder Servicing Agent or a securities broker may charge its
customers direct fees in connection with an investment in the Fund, which will
have the effect of reducing the net return on the investment of customers of
that Shareholder Servicing Agent or that securities broker. Such customers may
be able to obtain through their Shareholder Servicing Agent or securities broker
quotations reflecting such decreased return.
SHAREHOLDER INQUIRIES
All shareholder inquiries should be directed to the Trust, 6 St. James
Avenue, Boston, Massachusetts 02116.
GENERAL AND ACCOUNT INFORMATION (800) 782-8183 (TOLL FREE)
--------------------
The Trust's Statement of Additional Information, dated January 26, 1996,
with respect to the Fund contains more detailed information about the Fund,
including information related to (i) the Fund's investment restrictions, (ii)
the Trustees and officers of the Trust and the Manager, Sub-Adviser and Sponsor
of the Fund, (iii) portfolio transactions, (iv) the Fund's shares, including
rights and liabilities of shareholders, and (v) additional yield information,
including the method used to calculate the total return and yield of the Fund.
<PAGE>
- ------
REPUBLIC
EQUITY
FUND
INVESTMENT MANAGER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
SUB-ADVISER
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
(617) 423-0800
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
INDEPENDENT AUDITORS
KPMG Peat Marwick
99 High Street
Boston, MA 02110
LEGAL COUNSEL
Dechert Price & Rhoads
1500 K Street, N.W.
Washington, D.C. 20005
SHAREHOLDER SERVICING AGENTS:
Republic National Bank of New York
Republic Bank For Savings
452 Fifth Avenue
New York, NY 10018
(800) 782-8183
FOR NON-REPUBLIC CLIENTS:
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
(800) 782-8183
- ------
REPUBLIC
EQUITY
FUND
PROSPECTUS
January 26, 1996
<PAGE>
REPUBLIC FIXED INCOME FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
- ------------------------------------------------------------------------------
ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic Fixed Income Fund (the "Fund") is a diversified separate series
of Republic Funds (the "Trust"), an open-end, management investment company
which currently consists of six funds, each of which has different and distinct
investment objectives and policies. Shares of the Fund are being offered by this
Prospectus. Shares of the Fund are offered only to clients of Republic National
Bank of New York ("Republic" or the "Manager") and its affiliates for which
Republic or its affiliate exercises investment discretion. Shares are offered at
net asset value with no sales charge by Signature Broker-Dealer Services, Inc.
("SBDS" or the "Distributor" or the "Sponsor").
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST SEEKS
TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE FUND'S
INVESTABLE ASSETS ("ASSETS") IN THE FIXED INCOME PORTFOLIO (THE "PORTFOLIO"),
WHICH HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE INVESTMENT EXPERIENCE
OF THE FUND WILL CORRESPOND DIRECTLY WITH THE INVESTMENT EXPERIENCE OF THE
PORTFOLIO. THE PORTFOLIO IS A DIVERSIFIED SERIES OF THE REPUBLIC PORTFOLIOS,
WHICH IS AN OPEN-END MANAGEMENT INVESTMENT COMPANY. SEE "SPECIAL INFORMATION
CONCERNING THE TWO-TIER FUND STRUCTURE".
Republic is the investment manager of the Portfolio. Miller Anderson &
Sherrerd ("MAS" or the "Sub-Adviser") continuously manages the investments of
the Portfolio.
The investment objective of the Fund is to seek to realize above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, through investment primarily in a diversified portfolio of U.S.
Government securities, corporate bonds, mortgage-backed securities and other
fixed-income securities. The Portfolio's average weighted maturity will
ordinarily exceed five years.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. The Trust has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund and is hereby
incorporated by reference into this Prospectus. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund at
the address and telephone number printed above.
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic Fixed Income Fund (the "Fund") is a separate series of Republic
Funds (the "Trust"), a Massachusetts business trust organized on April 22, 1987,
which currently consists of six funds, each of which has different and distinct
investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 4
The investment objective of the Fund is to seek to realize above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, through investment primarily in a diversified portfolio of U.S.
Government securities, corporate bonds, mortgage-backed securities and other
fixed-income securities. The Trust seeks to achieve the investment objective of
the Fund by investing all of the Fund's Assets in the Fixed Income Portfolio
(the "Portfolio"), which has the same investment objective as the Fund. The
Portfolio is a series of the Republic Portfolios (the "Portfolio Trust"), a
master trust fund established under the laws of the State of New York and
organized on November 1, 1994. The Portfolio's average weighted maturity will
ordinarily exceed five years. There can be no assurance that the investment
objective of the Fund or the Portfolio will be achieved.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST PAGE 17
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. The Manager is not paid
a fee by the Portfolio for its services.
MAS continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal on an annual basis to 0.375% on net assets up to
$50 million, 0.25% on net assets over $50 million and up to $95 million,
$300,000 on net assets over $95 million and up to $150 million, 0.20% on net
assets over $150 million and up to $250 million, and 0.15% on net assets over
$250 million. See "Management of the Trust and the Portfolio Trust."
SBDS acts as sponsor and as administrator (the "Administrator of the Fund")
of the Fund and distributor of shares of the Fund. For its services to the Fund,
the Administrator receives from the Fund a fee payable monthly equal on an
annual basis to 0.05% of the Fund's average daily net assets up to $100 million.
Signature Financial Group (Cayman) Limited ("Signature (Cayman)") acts as
administrator (the "Administrator of the Portfolio") of the Portfolio. For its
services to the Portfolio, the Administrator receives from the Portfolio a fee
payable monthly equal on an annual basis to 0.05% of the average daily net
assets of the Portfolio.
PURCHASES AND REDEMPTIONS PAGE 21
Shares of the Fund are offered at the next determined net asset value with
no sales charge and may be purchased through the Distributor. Shares of the Fund
are offered only to clients of Republic and its affiliates for which Republic or
its affiliate exercises investment discretion. The minimum initial investment in
the Fund is $10,000, and the minimum subsequent investment is $2,500. The Fund
may accept initial and subsequent investments of lesser amounts in its
discretion. No minimum is imposed on reinvested dividends. Shares may be
redeemed without cost at the net asset value per share of the Fund next
determined after receipt of the redemption request. See "Purchase of Shares" and
"Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 22
The Trust declares all of the Fund's net investment income daily as a
dividend to Fund shareholders and distributes all such dividends monthly. Any
net realized capital gains are distributed at least annually. All Fund
distributions will be invested in additional Fund shares, unless the
shareholder instructs the Fund otherwise. See "Dividends and Distributions."
<PAGE>
FEE TABLE
The following table summarizes an investor's maximum transaction costs from
investing in the Fund and the estimated aggregate annual operating expenses of
the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's last completed fiscal period. The fiscal year ends of
the Fund and the Portfolio are both October 31. The example illustrates the
dollar cost of such estimated expenses on a $1,000 investment in the Fund. THE
TRUSTEES OF THE TRUST BELIEVE THAT THE AGGREGATE PER SHARE EXPENSES OF THE FUND
AND THE PORTFOLIO WILL BE LESS THAN OR APPROXIMATELY EQUAL TO THE EXPENSES WHICH
THE FUND WOULD INCUR IF THE TRUST RETAINED THE SERVICES OF AN INVESTMENT ADVISER
ON BEHALF OF THE FUND AND THE ASSETS OF THE FUND WERE INVESTED DIRECTLY IN THE
TYPE OF SECURITIES BEING HELD BY THE PORTFOLIO.
Shareholder Transaction Expenses ............................. None
Annual Fund Operating Expenses
Investment Management Fee ................................ 0%
Investment Subadvisory Fee ............................... 0.33%
Other Expenses .......................................... 0.50%
------
-- Administrative Services Fee ....................... 0.10%
-- Other Operating Expenses .......................... 0.40%
Total Operating Expenses ..................................... 0.83%
=====
EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
1 year ................................................. $ 8
3 years ................................................. $ 26
5 years ................................................. $ 46
10 years ................................................. $103
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal year.* For a more detailed discussion on the costs and expenses
of investing in the Fund, see "Management of the Trust and the Portfolio Trust."
- ------------
*Assuming average daily net assets of $50 million in the Fund and $75 million
in the Portfolio for the current fiscal year.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1995. The information shown in the following schedule has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the fund's Annual Report dated October 31, 1995. The Annual
Report also includes management's discussion of fund performance, and may be
obtained without charge upon request. This information should be read in
conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD:
REPUBLIC FIXED INCOME FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
JANUARY 9, 1995
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1995
----------------
Net asset value, beginning of period ........................ $10.00
------
INCOME FROM INVESTMENT OPERATIONS:
Net investment income ................................... 0.46
Net realized and unrealized gain from Portfolio ......... 0.96
------
Total increase from investment operations ............... 1.42
------
LESS DIVIDENDS:
From net investment income .............................. (0.46)
------
Net asset value, end of period .......................... $10.96
======
TOTAL RETURN ................................................. 14.37%(a)
RATIOS AND SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ..................... $26,128
Ratio of expenses to average net assets (b) .............. 0.91%(c)
Ratio of net investment income to average net assets (b) . 5.63%(c)
- --------------------------------------------------------------------------------
(a) Not annualized.
(b) Reflects a voluntary expense limitation and waiver of fees by affiliated
parties of the Fund. If this limitation and waiver had not been in effect,
the annualized ratios of expenses and net investment income to average net
assets for the period from January 9, 1995 (commencement of operations) to
October 31, 1995 would have been 1.72% and 4.82%, respectively.
(c) Annualized.
<PAGE>
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek to realize above-average
total return over a market cycle of three to five years, consistent with
reasonable risk, through investment in a diversified portfolio of U.S.
Government securities, corporate bonds (including bonds rated below investment
grade commonly referred to as "junk bonds"), foreign fixed income securities,
mortgage-backed securities of domestic issuers and other fixed-income
securities. The Portfolio's average weighted maturity will ordinarily exceed
five years. The investment objective of the Portfolio is the same as the
investment objective of the Fund.
There can be no assurance that the investment objective of the Fund will be
achieved. The investment objective of each of the Fund and the Portfolio may be
changed without investor approval. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs. Shareholders of the Fund shall receive 30 days' prior written notice of
any change in the investment objective of the Fund or the Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio will normally invest at least 65% of its total assets in fixed
income securities. The Portfolio may invest in the following securities, which
may be issued by domestic or foreign entities and denominated in U.S. dollars or
foreign currencies: securities issued, sponsored or guaranteed by the U.S.
government, its agencies or instrumentalities (U.S. Government securities);
corporate debt securities; corporate commercial paper; mortgage pass-throughs,
mortgage-backed bonds, collateralized mortgage obligations ("CMOs"), other
asset-backed securities; variable and floating rate debt securities; obligations
of foreign governments or their subdivisions, agencies and instrumentalities;
obligations of international agencies or supranational entities; and foreign
currency exchange-related securities.
The Sub-Adviser will seek to achieve the Portfolio's objective by investing
at least 80% of the Portfolio's assets in investment grade debt or fixed income
securities. Investment grade debt securities are those rated by one or more
nationally recognized statistical rating organizations ("NRSROs") within one of
the four highest quality grades at the time of purchase (e.g., AAA, AA, A or BBB
by Standard & Poor's Corporation ("S&P") or Fitch Investors Service, Inc.
("Fitch") or Aaa, Aa, A or Baa by Moody's Investors Service, Inc. ("Moody's")),
or in the case of unrated securities, determined by the Sub-Adviser to be of
comparable quality. Securities rated by a NRSRO in the fourth highest rating
category have speculative characteristics and are subject to greater credit and
market risks than higher-rated bonds. See the Appendix to this Prospectus for a
description of the ratings assigned by Moody's, S&P, and Fitch.
Up to 20% of the Portfolio's assets may be invested in preferred stock,
convertible securities, and in fixed income securities that at the time of
purchase are rated Ba or B by Moody's or BB or B by S&P or rated comparably by
another NRSRO (or, if unrated, are deemed by the Sub-Adviser to be of comparable
quality). Securities rated below "investment grade," i.e., rated below Baa by
Moody's or BBB by S&P, are described as "speculative" by both Moody's and S&P.
Such securities are sometimes referred to as "junk bonds," and may be subject to
greater market fluctuations, less liquidity and greater risk. For a complete
discussion of the special risks associated with investments in lower rated
securities, see "Additional Risk Factors and Policies: High Yield/High Risk
Securities."
From time to time, the Sub-Adviser may invest more than 50% of the
Portfolio's assets in mortgage-backed securities including mortgage pass-through
securities and CMOs, that carry a guarantee from a U.S. government agency or a
private issuer of the timely payment of principal and interest. For a
description of the risks associated with mortgage-backed securities, see
"Additional Risk Factors and Policies: Mortgage Related Securities." When
investing in mortgage-backed securities, it is expected that the Portfolio's
primary emphasis will be in mortgage-backed securities issued by governmental
and government-related organizations such as the Government National Mortgage
Association ("GNMA"), the Federal National Mortgage Association ("FNMA") and the
Federal Home Loan Mortgage Association ("FHLMC"). However, the Portfolio may
invest without limit in mortgage-backed securities of private issuers when the
Sub-Adviser determines that the quality of the investment, the quality of the
issuer, and market conditions warrant such investments. It is currently not
anticipated that greater than 25% of Portfolio assets will be invested in
mortgage pools comprised of private organizations. Mortgage-backed securities
issued by private issuers will be rated investment grade by Moody's or S&P or,
if unrated, deemed by the Sub-Adviser to be of comparable quality.
There are two methods of trading mortgage-backed securities. A specific pool
transaction is a trade in which the pool number of the security to be delivered
on the settlement date is known at the time the trade is made. This is in
contrast with the typical mortgage transaction, called a TBA (to be announced)
transaction, in which the type of mortgage securities to be delivered is
specified at the time of trade but the actual pool numbers of the securities
that will be delivered are not known at the time of the trade. For example, in a
TBA transaction an investor could purchase $1 million 30-year FNMA 9's and
receive up to three pools on the settlement date. The pool numbers of the pools
to be delivered at settlement will be announced shortly before settlement takes
place. The terms of the TBA trade may be made more specific if desired. For
example, an investor may request pools with particular characteristics, such as
those that were issued prior to January 1, 1990. The most detailed specification
of the trade is to request that the pool number be known prior to purchase. In
this case the investor has entered into a specific pool transaction. Generally,
agency pass-through mortgage-backed securities are traded on a TBA basis. The
specific pool numbers of the securities purchased do not have to be determined
at the time of the trade.
A mortgage-backed bond is a collateralized debt security issued by a thrift
or financial institution. The bondholder has a first priority perfected security
interest in collateral consisting usually of agency mortgage pass-through
securities, although other assets including U.S. Treasury securities (including
zero coupon Treasury bonds), agency securities, cash equivalent securities,
whole loans and corporate bonds may qualify. The amount of collateral must be
continuously maintained at levels from 115% to 150% of the principal amount of
the bonds issued, depending on the specific issue structure and collateral type.
For a complete discussion of mortgage-backed securities, see "Additional Risk
Factors and Policies: Mortgage-Related Securities."
A portion of the Portfolio's assets may be invested in bonds and other fixed
income securities denominated in foreign currencies if, in the opinion of the
Sub-Adviser, the combination of current yield and currency value offer
attractive expected returns. These holdings may be in as few as one foreign
currency bond market (such as the United Kingdom gilt market), or may be spread
across several foreign bond markets; however, the Portfolio does not intend to
invest in the securities of Eastern European countries. When the total return
opportunities in a foreign bond market appear attractive in local currency
terms, but where, in the Sub-Adviser's judgment, unacceptable currency risk
exists, currency futures, forwards and options and swaps may be used to hedge
the currency risk. See "Additional Risk Factors and Policies:
Foreign Securities."
The Portfolio may also invest in the following instruments on a temporary
basis when economic or market conditions are such that the Sub-Adviser deems a
temporary defensive position to be appropriate: time deposits, certificates of
deposit and bankers' acceptances issued by a commercial bank or savings and loan
association; obligations of U.S. banks, foreign branches of U.S. banks
(Eurodollars) and U.S. branches of foreign banks (Yankee dollars); commercial
paper rated at the time of purchase by one or more NRSRO in one of the two
highest categories or, if not rated, issued by a corporation having an
outstanding unsecured debt issue rated high-grade by a NRSRO; short-term
corporate obligations rated high-grade by a NRSRO; U.S. Government obligations;
Government agency securities issued or guaranteed by U.S. Government sponsored
instrumentalities and federal agencies; and repurchase agreements collateralized
by the securities listed above. The Portfolio may also purchase securities on a
when-issued basis, lend its securities to brokers, dealers, and other financial
institutions to earn income and borrow money for temporary or emergency
purposes.
ADDITIONAL RISK FACTORS AND POLICIES
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There are a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effects of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to significant losses. In
contrast, the Portfolio may use derivatives to enhance return when the
Sub-Adviser believes the investment will assist the Portfolio in achieving its
investment objective, and for hedging purposes. A description of the derivatives
that the Portfolio may use and some of their associated risks follows.
OPTIONS AND FUTURES TRANSACTIONS
The Portfolio may use financial futures contracts, options on futures
contracts and options (collectively, "futures and options"). In addition, the
Portfolio may invest in foreign currency futures contracts and options on
foreign currencies and foreign currency futures. Futures contracts provide for
the sale by one party and purchase by another party of a specified amount of a
specific security at a specified future time and price. An option is a legal
contract that gives the holder the right to buy or sell a specified amount of
the underlying security or futures contract at a fixed or determinable price
upon the exercise of the option. A call option conveys the right to buy and a
put option conveys the right to sell a specified quantity of the underlying
security.
The Portfolio will not enter into futures contracts to the extent that its
outstanding obligations to purchase securities under these contracts in
combination with its outstanding obligations with respect to options
transactions would exceed 35% of its total assets. The Portfolio will use
financial futures contracts and related options only for "bona fide hedging"
purposes, as such term is defined in applicable regulations of the Commodity
Futures Trading Commission, or, with respect to positions in financial futures
and related options that do not qualify as "bona fide hedging" positions, will
enter such non-hedging positions only to the extent that assets committed to
initial margin deposits on such instruments, plus premiums paid for open futures
options positions, less the amount by which any such positions are
"in-the-money," do not exceed 5% of the Portfolio's net assets. The Portfolio
will segregate assets or "cover" its positions consistent with requirements
under the Investment Company Act of 1940, as amended ("1940 Act").
There are several risks associated with the use of futures and options for
hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in the portfolio and the hedging vehicle so that the portfolio return
might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Portfolio seeks to
close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Portfolio from liquidating an
unfavorable position and the Portfolio would remain obligated to meet margin
requirements until the position is closed.
FOREIGN SECURITIES
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, other taxes imposed by the foreign
country on the Fund's earnings, assets, or transactions, limitation on the
removal of cash or other assets of the Portfolio, political or financial
instability, or diplomatic and other developments which could affect such
investments. Further, economies of particular countries or areas of the world
may differ favorably or unfavorably from the economy of the United States.
Changes in foreign exchange rates will affect the value of securities
denominated or quoted in currencies other than the U.S. dollar. Foreign
securities often trade with less frequency and volume than domestic securities
and therefore may exhibit greater price volatility. Additional costs associated
with an investment in foreign securities may include higher custodial fees than
apply to domestic custodial arrangements, and transaction costs of foreign
currency conversions.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes. The Portfolio has no
specific limitation on the percentage of assets it may commit to forward
contracts, subject to its stated investment objective and policies, except that
the Portfolio will not enter into a forward contract if the amount of assets set
aside to cover the contract would impede portfolio management.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date which is individually negotiated and
privately traded by currency traders and their customers. A forward contract may
be used, for example, when the Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Portfolio may also purchase and write
put and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
The Portfolio may also combine forward contracts with investments in
securities denominated in other currencies in order to achieve desired credit
and currency exposures. Such combinations are generally referred to as synthetic
securities. For example, in lieu of purchasing a foreign bond, the Portfolio may
purchase a U.S. dollar-denominated security and at the same time enter into a
forward contract to exchange U.S. dollars for the contract's underlying currency
at a future date. By matching the amount of U.S. dollars to be exchanged with
the anticipated value of the U.S. dollar-denominated security, the Portfolio may
be able to lock in the foreign currency value of the security and adopt a
synthetic investment position reflecting the credit quality of the U.S.
dollar-denominated security.
There is a risk in adopting a synthetic investment position to the extent
that the value of a security denominated in U.S. dollars or other foreign
currency is not exactly matched with the Portfolio's obligation under the
forward contract. On the date of maturity the Portfolio may be exposed to some
risk of loss from fluctuations in that currency. Although the Sub-Adviser will
attempt to hold such mismatching to a minimum, there can be no assurance that
the Sub-Adviser will be able to do so. When the Portfolio enters into a forward
contract for purposes of creating a synthetic security, it will generally be
required to hold high-grade, liquid securities or cash in a segregated account
with a daily value at least equal to its obligation under the forward contract.
HIGH YIELD/HIGH RISK SECURITIES
Securities rated lower than Baa by Moody's or lower than BBB by S&P are
sometimes referred to as "high yield" or "junk" bonds. In addition, securities
rated Baa (Moody's) and BBB (S&P) are considered to have some speculative
characteristics.
Investing in high yield securities involves special risks in addition to the
risks associated with investments in higher rated debt securities. High yield
securities may be regarded as predominately speculative with respect to the
issuer's continuing ability to meet principal and interest payments. Analysis of
the creditworthiness of issuers of high yield securities may be more complex
than for issuers of higher quality debt securities, and the ability of the
Portfolio to achieve its investment objective may, to the extent of its
investments in high yield securities, be more dependent upon such
creditworthiness analysis than would be the case if the Portfolio were investing
in higher quality securities.
High yield securities may be more susceptible to real or perceived adverse
economic and competitive industry conditions than higher grade securities. The
prices of high yield securities have been found to be less sensitive to interest
rate changes than more highly rated investments, but more sensitive to adverse
economic downturns or individual corporate developments. A projection of an
economic downturn or of a period of rising interest rates, for example, could
cause a decline in high yield security prices because the advent of a recession
could lessen the ability of a highly leveraged company to make principal and
interest payments on its debt securities. If the issuer of high yield securities
defaults, the Portfolio may incur additional expenses to seek recovery. In the
case of high yield securities structured as zero coupon or payment-in-kind
securities, the market prices of such securities are affected to a greater
extent by interest rate changes and, therefore, tend to be more volatile than
securities which pay interest periodically and in cash.
The secondary markets on which high yield securities are traded may be less
liquid than the market for higher grade securities. Less liquidity in the
secondary trading markets could adversely affect and cause large fluctuations in
the daily net asset value of the Portfolio. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of high yield securities, especially in a thinly traded
market.
The use of credit ratings as the sole method of evaluating high yield
securities can involve certain risks. For example, credit ratings evaluate the
safety of principal and interest payments, not the market value risk of high
yield securities. Also, credit rating agencies may fail to change credit ratings
in a timely fashion to reflect events since the security was last rated. The
Sub-Adviser does not rely solely on credit ratings when selecting securities for
the Portfolio, and develops its own independent analysis of issuer credit
quality. If a credit rating agency changes the rating of a security held by the
Portfolio, the Portfolio may retain the security if the Sub-Adviser deems it in
the best interest of investors.
ZERO COUPON OBLIGATIONS
The Portfolio may invest in zero coupon obligations, which are fixed-income
securities that do not make regular interest payments. Instead, zero coupon
obligations are sold at substantial discounts from their face value. The
Portfolio accrues income on these investments for tax and accounting purposes,
which is distributable to shareholders and which, because no cash is received at
the time of accrual, may require the liquidation of other portfolio securities
to satisfy the Portfolio's distribution obligations, in which case the Portfolio
will forego the purchase of additional income-producing assets with these funds.
The difference between a zero coupon obligation's issue or purchase price and
its face value represents the imputed interest an investor will earn if the
obligation is held until maturity. Zero coupon obligations may offer investors
the opportunity to earn higher yields that those available on ordinary
interest-paying obligations of similar credit quality and maturity. However,
zero coupon obligation prices may also exhibit greater price volatility than
ordinary fixed-income securities because of the manner in which their principal
and interest are returned to the investor.
MORTGAGE-RELATED SECURITIES
Mortgage-Backed Securities. The Portfolio may invest in mortgage-backed
certificates and other securities representing ownership interests in mortgage
pools, including CMOs. Interest and principal payments on the mortgages
underlying mortgage-backed securities are passed through to the holders of the
mortgage-backed securities. Mortgage-backed securities currently offer yields
higher than those available from many other types of fixed-income securities,
but because of their prepayment aspects, their price volatility and yield
characteristics will change based on changes in prepayment rates. Generally,
prepayment rates increase if interest rates fall and decrease if interest rates
rise. For many types of mortgage-backed securities, this can result in
unfavorable changes in price and yield characteristics in response to changes in
interest rates and other market conditions. For example, as a result of their
prepayment aspects, the Portfolio's mortgage-backed securities may have less
potential for capital appreciation during periods of declining interest rates
than other fixed income securities of comparable maturities, although such
obligations may have a comparable risk of decline in market value during periods
of rising interest rates.
Mortgage-backed securities have yield and maturity characteristics that are
dependent on the mortgages underlying them. Thus, unlike traditional debt
securities, which may pay a fixed rate of interest until maturity when the
entire principal amount comes due, payments on these securities include both
interest and a partial payment of principal. In addition to scheduled loan
amortization, payments of principal may result from the voluntary prepayment,
refinancing or foreclosure of the underlying mortgage loans. Such prepayments
may significantly shorten the effective durations of mortgage-backed securities,
especially during periods of declining interest rates. Similarly, during periods
of rising interest rates, a reduction in the rate of prepayments may
significantly lengthen the effective durations of such securities.
Investment in mortgage-backed securities poses several risks, including
prepayment, market, and credit risk. Prepayment risk reflects the risk that
borrowers may prepay their mortgages faster than expected, thereby affecting the
investment's average life and perhaps its yield. Whether or not a mortgage loan
is prepaid is almost entirely controlled by the borrower. Borrowers are most
likely to exercise prepayment options at the time when it is least advantageous
to investors, generally prepaying mortgages as interest rates fall, and slowing
payments as interest rates rise. Besides the effect of prevailing interest
rates, the rate of prepayment and refinancing of mortgages may also be affected
by home value appreciation, ease of the refinancing process and local economic
conditions.
Market risk reflects the risk that the price of the security may fluctuate
over time. The price of mortgage-backed securities may be particularly sensitive
to prevailing interest rates, the length of time the security is expected to be
outstanding, and the liquidity of the issue. In a period of unstable interest
rates, there may be decreased demand for certain types of mortgage-backed
securities, and a fund invested in such securities wishing to sell them may find
it difficult to find a buyer, which may in turn decrease the price at which they
may be sold.
Credit risk reflects the risk that the Portfolio may not receive all or part
of its principal because the issuer or credit enhancer has defaulted on its
obligations. Obligations issued by U.S. government-related entities are
guaranteed as to the payment of principal and interest, but are not backed by
the full faith and credit of the U.S. government. The performance of private
label mortgage-backed securities, issued by private institutions, is based on
the financial health of those institutions.
For further information, see the Statement of Additional Information.
Stripped Mortgage-Backed Securities. The Portfolio may invest in Stripped
Mortgage-Backed Securities ("SMBS") which are derivative multi-class mortgage
securities. SMBS may be issued by agencies or instrumentalities of the U.S.
Government and private originators of, or investors in, mortgage loans,
including savings and loan associations, mortgage banks, commercial banks,
investment banks and special purpose entities of the foregoing. The Portfolio's
investments in SMBS will be limited to 10% of net assets.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. One type of SMBS will have one class receiving some of the interest and
most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In some cases,
one class will receive all of the interest (the interest-only or IO class),
while the other class will receive all of the principal (the principal-only or
PO class). The yield to maturity on an IO class is extremely sensitive to the
rate of principal payments (including prepayments) on the related underlying
mortgage assets, and a rapid rate of principal payments may have a material
adverse effect on yield to maturity. If the underlying mortgage assets
experience greater than anticipated prepayments of principal, the Portfolio may
fail to fully recoup its initial investment in these securities, even if the
security is in one of the highest rating categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, certain of these securities may be deemed
illiquid and subject to the Portfolio's limitations on investment in illiquid
securities. For further information on these securities, see the Statement of
Additional Information.
Other Asset-Backed Securities. The Portfolio may invest in securities
representing interests in other types of financial assets, such as automobile-
finance receivables or credit-card receivables. Such securities are subject to
many of the same risks as are mortgage-backed securities, including prepayment
risks and risks of foreclosure. They may or may not be secured by the
receivables themselves or may be unsecured obligations of their issuers. For
further information on these securities, see the Statement of Additional
Information.
REPURCHASE AGREEMENTS
The Portfolio may invest in repurchase agreements collateralized by U.S.
Government securities, certificates of deposit and certain bankers' acceptances.
Repurchase agreements are transactions by which the Portfolio purchases a
security and simultaneously commits to resell that security to the seller (a
bank or securities dealer) at an agreed upon price on an agreed upon date
(usually within seven days of purchase). The resale price reflects the purchase
price plus an agreed upon market rate of interest which is unrelated to the
coupon rate or date of maturity of the purchased security. The Sub- Adviser will
continually monitor the value of the underlying securities to ensure that their
value, including accrued interest, always equals or exceeds the repurchase
price. Repurchase agreements are considered to be loans collateralized by the
underlying security under the 1940 Act, and therefore will be fully
collateralized.
The use of repurchase agreements involves certain risks. For example, if the
seller of the agreements defaults on its obligation to repurchase the underlying
securities at a time when the value of these securities has declined, the
Portfolio may incur a loss upon disposition of them. If the seller of the
agreement becomes insolvent and subject to liquidation or reorganization under
the Bankruptcy Code or other laws, a bankruptcy court may determine that the
underlying securities are collateral not within the control of the Portfolio and
therefore subject to sale by the trustee in bankruptcy. Finally, it is possible
that the Portfolio may not be able to substantiate its interest in the
underlying securities. While the Portfolio Trust's management acknowledges these
risks, it is expected that they can be controlled through stringent security
selection criteria and careful monitoring procedures.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that are
illiquid by virtue of the absence of a readily available market, or because of
legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities (i) eligible for resale to qualified institutional
buyers pursuant to Rule 144A under the Securities Act of 1933 or (ii) commercial
paper issued pursuant to Section 4(2) under the Securities Act of 1933 that are
determined to be liquid in accordance with guidelines established by the
Portfolio Trust's Board of Trustees. There may be delays in selling these
securities and sales may be made at less favorable prices. The Portfolio has a
separate policy that no more than 10% of its net assets may be invested in
securities which are restricted as to resale, including Rule 144A and Section
4(2) securities.
The Sub-Adviser may determine that a particular Rule 144A security is liquid
and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
BRADY BONDS
A portion of the Portfolio's assets may be invested in certain debt
obligations customarily referred to as Brady Bonds, which are created through
the exchange of existing commercial bank loans to foreign entities for new
obligations in connection with debt restructuring under a plan introduced by
former Treasury Secretary Nicholas F. Brady (the "Brady Plan"). Brady Bonds have
been issued only recently and, accordingly, do not have a long payment history.
They may be collateralized or uncollateralized and issued in various currencies
(although most are dollar-denominated) and are actively traded in the
over-the-counter secondary market. For further information on these securities,
see the Statement of Additional Information.
FLOATING AND VARIABLE RATE OBLIGATIONS
Certain obligations that the Portfolio may purchase may have a floating or
variable rate of interest, i.e., the rate of interest varies with changes in
specified market rates or indices, such as the prime rates, and at specified
intervals. Certain floating or variable rate obligations that may be purchased
by the Portfolio may carry a demand feature that would permit the holder to
tender them back to the issuer of the underlying instrument, or to a third
party, at par value prior to maturity. The demand features of certain floating
or variable rate obligations may permit the holder to tender the obligations to
foreign banks, in which case the ability to receive payment under the demand
feature will be subject to certain risks, as described under "Foreign
Securities," above.
INVERSE FLOATING RATE OBLIGATIONS
The Portfolio may invest in inverse floating rate obligations ("inverse
floaters"). Inverse floaters have coupon rates that vary inversely at a multiple
of a designated floating rate, such as LIBOR (London Inter-Bank Offered Rate).
Any rise in the reference rate of an inverse floater (as a consequence of an
increase in interest rates) causes a drop in the coupon rate while any drop in
the reference rate of an inverse floater causes an increase in the coupon rate.
In addition, like most other fixed-income securities, the value of inverse
floaters will generally decrease as interest rates increase. Inverse floaters
may exhibit substantially greater price volatility than fixed rate obligations
having similar credit quality, redemption provisions and maturity, and inverse
floater CMOs exhibit greater price volatility than the majority of mortgage
pass-through securities or CMOs. In addition, some inverse floater CMOs exhibit
extreme sensitivity to changes in prepayments. As a result, the yield to
maturity of an inverse floater CMO is sensitive not only to changes in interest
rates, but also to changes in prepayment rates on the related underlying
mortgage assets.
BANKING INDUSTRY AND SAVINGS AND LOAN INDUSTRY OBLIGATIONS
As a temporary defensive measure, the Portfolio may invest in certificates
of deposit, time deposits, bankers' acceptances, and other short-term debt
obligations issued by commercial banks and savings and loan associations
("S&Ls"). Certificates of deposit are receipts from a bank or S&L for funds
deposited for a specified period of time at a specified rate of return. Time
deposits in banks or S&Ls are generally similar to certificates of deposit but
are uncertificated. Bankers' acceptances are time drafts drawn on commercial
banks by borrowers, usually in connection with international commercial
transactions. The Portfolio may not invest in time deposits maturing in more
than seven days. The Portfolio will limit its investment in time deposits
maturing from two business days through seven calendar days to 15% of its total
assets.
The Portfolio will not invest in any obligation of a commercial bank unless
(i) the bank has total assets of at least $1 billion, or the equivalent in other
currencies or, in the case of domestic banks which do not have total assets of
at least $1 billion, the aggregate investment made in any one such bank is
limited to $100,000 and the principal amount of such investment is insured in
full by the Federal Deposit Insurance Corporation (the "FDIC"), (ii) in the case
of U.S. banks, it is a member of the FDIC and (iii) in the case of foreign
branches of U.S. banks, the security is deemed by the Sub- Adviser to be of an
investment quality comparable with other debt securities which may be purchased
by the Portfolio.
The Portfolio may also invest in obligations of U.S. banks, foreign branches
of U.S. banks (Eurodollars) and U.S. branches of foreign banks (Yankee dollars)
as a temporary defensive measure. Euro and Yankee dollar investments will
involve some of the same risks as investing in foreign securities, as described
above and in the Statement of Additional Information.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its securities to qualified brokers, dealers, banks
and other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Portfolio will not lend its portfolio securities to
the extent that greater than one-third of its total assets, at fair market
value, would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or firm-
commitment basis, in which a security's price and yield are fixed on the date of
the commitment but payment and delivery are scheduled for a future date. On the
settlement date, the market value of the security may be higher or lower than
its purchase or sale price under the agreement. If the other party to a
when-issued or firm-commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid, high-grade debt securities equal (on a daily marked-
to-market basis) to the amount of its commitment to purchase the securities on a
when-issued basis.
SWAPS, CAPS, FLOORS AND COLLARS
The Portfolio may enter into swap contracts and other similar instruments in
accordance with its policies. A swap is an agreement to exchange the return
generated by one instrument for the return generated by another instrument. The
payment streams are calculated by reference to a specified index and agreed upon
notional amount. The term specified index includes currencies, fixed interest
rates, prices and total return on interest rate indices, fixed-income indices,
stock indices and commodity indices (as well as amounts derived from arithmetic
operations on these indices). For example, the Portfolio may agree to swap the
return generated by a fixed-income index for the return generated by a second
fixed-income index. The currency swaps in which the Portfolio may enter will
generally involve an agreement to pay interest streams calculated by reference
to interest income linked to a specified index in one currency in exchange for a
specified index in another currency. Such swaps may involve initial and final
exchanges that correspond to the agreed upon notional amount.
The swaps in which the Portfolio may engage also include rate caps, floors
and collars under which one party pays a single or periodic fixed amount(s) (or
premium) and the other party pays periodic amounts based on the movement of a
specified index.
The Portfolio will usually enter into swaps on a net basis, i.e., the two
return streams are netted out in a cash settlement on the payment date or dates
specified in the instrument, with the Portfolio receiving or paying, as the case
may be, only the net amount of the two returns. The Portfolio's obligations
under a swap agreement will be accrued daily (offset against any amounts owing
to the Portfolio) and any accrued but unpaid net amounts owed to a swap
counterparty will be covered by the maintenance of a segregated account
consisting of cash, U.S. Government securities, or high-grade debt obligations,
to avoid any potential leveraging. The Portfolio will not enter into any swap
agreement unless the unsecured commercial paper, senior debt or the
claims-paying ability of the counterparty is rated AA or A-1 or better by S&P or
Aa or P-1 or better by Moody's, rated comparably by another NRSRO or determined
by the Sub-Adviser to be of comparable quality.
Interest rate swaps do not involve the delivery of securities, other
underlying assets or principal. Accordingly, the risk of loss with respect to
interest rate swaps is limited to the net amount of interest payments that the
Portfolio is contractually obligated to make. If the other party to an interest
rate swap defaults, the Portfolio's risk of loss consists of the net amount of
interest payments that the Portfolio is contractually entitled to receive. In
contrast, currency swaps usually involve the delivery of the entire principal
value of one designated currency in exchange for the other designated currency.
Therefore, the entire principal value of a currency swap is subject to the risk
that the other party to the swap will default on its contractual delivery
obligations. If there is a default by the counterparty, the Portfolio may have
contractual remedies pursuant to the agreements related to the transaction. The
swap market has grown substantially in recent years with a large number of banks
and investment banking firms acting both as principals and as agents utilizing
standardized swap documentation. As a result, the swap market has become
relatively liquid. Caps, floors and collars are more recent innovations for
which standardized documentation has not yet been fully developed and,
accordingly, they are less liquid than swaps.
The use of swaps is a highly specialized activity which involves investment
techniques and risks different from those associated with ordinary portfolio
securities transactions. If the Sub-Adviser is incorrect in its forecasts of
market values, interest rates and currency exchange rates, the investment
performance of the Portfolio would be less favorable than it would have been if
this investment technique were not used.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. The Portfolio's annual
turnover rate may exceed 100% due to changes in portfolio duration, yield curve
strategy or commitments to forward delivery mortgage-backed securities. However,
it is expected that the annual turnover rate for the Portfolio will not exceed
250%. For the period from January 9, 1995 (commencement of operations) to
October 31, 1995, the portfolio turnover rate was 100%.
INVESTMENT RESTRICTIONS
Each of the Portfolio and the Fund has adopted certain investment
restrictions designed to reduce exposure to specific situations (except that
none of these investment restrictions shall prevent the Fund from investing all
of its Assets in a registered investment company with substantially the same
investment objective). Some of these investment restrictions are:
(1) with respect to 75% of its assets, the Portfolio (Fund) will not purchase
securities of any issuer if, as a result, more than 5% of the Portfolio's
(Fund's) total assets taken at market value would be invested in the
securities of any single issuer, except that this restriction does not
apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(2) with respect to 75% of its assets, the Portfolio (Fund) will not purchase
a security if, as a result, the Portfolio (Fund) would hold more than 10%
of the outstanding voting securities of any issuer;
(3) the Portfolio (Fund) will not invest more than 5% of its total assets in
the securities of issuers (other than securities issued or guaranteed by
U.S. or foreign governments or political subdivisions thereof) which have
(with predecessors) a record of less than three years of continuous
operation;
(4) the Portfolio (Fund) will not acquire any securities of companies within
one industry, except for mortgage-backed securities, if, as a result of
such acquisition, more than 25% of the value of the Portfolio's (Fund's)
total assets would be invested in securities of companies within such
industry; provided, however, that there shall be no limitation on the
purchase of obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, or instruments issued by U.S. banks when
the Portfolio (Fund) adopts a temporary defensive position;
(5) the Portfolio (Fund) will not make loans except (i) by purchasing debt
securities in accordance with its investment objective and policies, or
entering into repurchase agreements and (ii) by lending its portfolio
securities;
(6) the Portfolio (Fund) will not borrow money (including through reverse
repurchase agreements or forward dollar roll transactions involving
mortgage-backed securities or similar investment techniques entered into
for leveraging purposes), except for temporary or emergency purposes up
to 10% of its net assets; provided, however, that the Portfolio (Fund)
may not purchase any security while outstanding borrowings exceed 5% of
net assets;
(7) the Portfolio (Fund) will not invest its assets in securities of any
investment company, except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may otherwise be
permitted by the 1940 Act; provided, however, that the Portfolio shall
not invest in the shares of any open-end investment company unless (1)
the Portfolio's Sub-Adviser waives any investment advisory fees with
respect to such assets and (2) the Portfolio pays no sales charge in
connection with the investment.
Limitations (1), (2), (4) and (5) and certain other limitations described in the
Statement of Additional Information are fundamental and may be changed only with
the approval of the holders of a "majority of the outstanding voting securities"
(as defined in the 1940 Act) of the Portfolio or the Fund, as the case may be.
The other investment restrictions described here and in the Statement of
Additional Information are not fundamental policies meaning that the Board of
Trustees of the Portfolio Trust may change them without investor approval. If a
percentage limitation on investment or utilization of assets as set forth above
is adhered to at the time an investment is made, a later change in percentage
resulting from changes in the value or total cost of the Portfolio's assets will
not be considered a violation of the restriction, and the sale of securities
will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (617) 423-0800. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund shall receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result of
certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the
actions of such large investors may have a material affect on smaller investors.
For example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust -- Trustees and Officers".
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust, up to and including creating a separate Board of Trustees. See
"Management of the Trust and the Portfolio Trust" in the Statement of Additional
Information for more information about the Trustees and the executive officers
of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolio pursuant to an Investment
Management Contract with the Portfolio Trust. The Manager is not paid a fee by
the Portfolio for its services.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest commercial bank in the United States measured by deposits and the 17th
largest commercial bank measured by shareholder equity. Republic currently
provides investment advisory services for approximately $1.1 billion of assets
for individuals, trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Portfolio will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Portfolio. If Republic were prohibited from acting as investment manager to
the Portfolio, it is expected that the Trust's Board of Trustees would recommend
to Fund shareholders approval of a new investment advisory agreement with
another qualified investment adviser selected by the Board or that the Board
would recommend other appropriate action.
SUB-ADVISER
MAS continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal to 0.375% of net assets up to $50 million, 0.25%
of net assets over $50 million up to $95 million, $300,000 of net assets over
$95 million up to $150 million, 0.20% of net assets over $150 million up to $250
million, and 0.15% of net assets over $250 million. It is the responsibility of
the Sub-Adviser not only to make investment decisions for the Portfolio, but
also to place purchase and sale orders for the portfolio transactions of the
Portfolio. See "Portfolio Transactions."
MAS, whose address is One Tower Bridge, West Conshohocken, Pennsylvania
19428, is a Pennsylvania limited partnership founded in 1969. MAS provides
investment services to employee benefit plans, endowment funds, foundations and
other institutional investors. As of September 30, 1995, MAS had in
excess of $34.4 billion in assets under management.
On January 3, 1996, Morgan Stanley Group Inc. acquired MAS in a
transaction in which Morgan Stanley Asset Management Holdings Inc., an
indirect wholly owned subsidiary of Morgan Stanley Group Inc., became the sole
general partner of MAS. Morgan Stanley Asset Management Holdings Inc. and two
other wholly owned subsidiaries of Morgan Stanley Group Inc. became the
limited partners of MAS. Morgan Stanley Group Inc. and various of its directly
or indirectly owned subsidiaries are engaged in a wide range of financial
services.
Kenneth B. Dunn, whose business experience for the past five years is
provided below, is the individual portfolio manager responsible for management
of the Portfolio.
Partner, MAS, since prior to 1991. Portfolio Manager, MAS Fixed Income
and MAS Domestic Fixed Income Portfolios since 1987; MAS Fixed Income
II Portfolio since 1990; MAS Mortgage-Backed Securities and Special
Purpose Fixed Income Portfolios since 1992; and, MAS Municipal and PA
Municipal Portfolios since 1994.
DISTRIBUTOR AND SPONSOR
SBDS whose address is 6 St. James Avenue, Boston, Massachusetts 02116, acts
as sponsor and principal underwriter and distributor of the Fund's shares
pursuant to a Distribution Contract with the Trust.
ADMINISTRATOR
Pursuant to Administrative Services Agreements, SBDS and Signature (Cayman)
provide each of the Fund and the Portfolio, respectively, with general office
facilities, and supervise the overall administration of the Fund and the
Portfolio including, among other responsibilities, the preparation and filing of
all documents required for compliance by the Fund and the Portfolio with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund and the Portfolio. For its services to the Fund, SBDS
receives from the Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.05% of the Fund's average daily net assets
up to $100 million. The Administrator receives no compensation from the Fund
with respect to the Fund's assets over $100 million. The administrative services
fees of the Fund are subject to an annual minimum fee. See the Statement of
Additional Information. For its services to the Portfolio, Signature (Cayman)
receives from the Portfolio fees payable monthly equal on an annual basis (for
the Portfolio's then-current fiscal year) to 0.05% of the Portfolio's average
daily net assets.
SBDS and Signature (Cayman) provide persons satisfactory to the respective
Boards of Trustees to serve as officers of the Trust and the Portfolio Trust.
Such officers, as well as certain other employees of the Trust and of the
Portfolio Trust, may be directors, officers or employees of SBDS, Signature
(Cayman) or their affiliates.
SBDS, Signature (Cayman) and their affiliates also serve as administrator
and distributor of other investment companies. SBDS and Signature (Cayman) are
wholly owned subsidiaries of Signature Financial Group, Inc.
FUND ACCOUNTING AGENT
Pursuant to respective fund accounting agreements, Signature Financial
Services, Inc. ("Signature") serves as fund accounting agent to each of the Fund
and the Portfolio. For its services to the Fund, Signature receives from the
Fund fees payable monthly equal on an annual basis to $12,000. For its services
to the Portfolio, Signature receives fees payable monthly equal on an annual
basis to $40,000.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer Agency
Agreement with Investors Bank & Trust Company ("IBT") pursuant to which IBT acts
as transfer agent (the "Transfer Agent") for the Fund and the Portfolio. The
Transfer Agent maintains an account for each shareholder of the Fund and
investor in the Portfolio, performs other transfer agency functions and acts as
dividend disbursing agent for the Fund. Pursuant to respective Custodian
Agreements, IBT also acts as the custodian (the "Custodian") of the assets of
the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement provides
that the Custodian may use the services of sub-custodians with respect to the
Portfolio. The Custodian's responsibilities include safeguarding and controlling
the Fund's cash and the Portfolio's cash and securities, and handling the
receipt and delivery of securities, determining income and collecting interest
on the Portfolio's investments, maintaining books of original entry for
portfolio accounting and other required books and accounts, and calculating the
daily net asset value of the Portfolio. Securities held for the Portfolio may be
deposited into the Federal Reserve- Treasury Department Book Entry System or the
Depositary Trust Company. The Custodian does not determine the investment
policies of the Fund or the Portfolio or decide which securities will be
purchased or sold for the Portfolio. Assets of the Portfolio may, however, be
invested in securities of the Custodian and the Portfolio Trust may deal with
the Custodian as principal in securities transactions for the Portfolio. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust or the Portfolio Trust.
PORTFOLIO TRANSACTIONS
To the extent consistent with applicable legal requirements, the Sub-
Adviser may place orders for the purchase and sale of portfolio investments for
the Portfolio with Republic New York Securities Corporation, subject to
obtaining best price and execution for a particular transaction. See the
Statement of Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined on each day on
which the New York Stock Exchange is open for regular trading ("Fund Business
Day"). This determination is made once during each such day as of 4:00 p.m., New
York time, by dividing the value of the Fund's net assets (i.e., the value of
its investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of shares of the Fund outstanding at
the time the determination is made.
The value of the Fund's investment in the Portfolio is also determined once
daily at 4:00 p.m., New York time, on each day the New York Stock Exchange is
open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the Portfolio is
made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor. Purchases are therefore effected on the same day the purchase order
is received by the Distributor provided such order is received prior to 4:00
p.m., New York time, on any Fund Business Day.
The minimum initial investment is $10,000 and the minimum subsequent
investment is $2,500. The Fund may accept initial and subsequent investments of
lesser amounts, in its discretion. No minimum is imposed on reinvested
dividends. All purchase payments are invested in full and fractional shares of
the Fund. The Trust reserves the right to cease offering shares of the Fund for
sale at any time.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is received by the Transfer Agent. Redemptions are effected on the
same day the redemption order is received by the Transfer Agent provided such
order is received prior to 4:00 p.m., New York time, on any Fund Business Day.
Shares redeemed earn dividends up to and including the day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists.
Redemptions may be made by letter to the Transfer Agent specifying the
dollar amount or number of shares to be redeemed, account number and the Fund.
The letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares all must sign) and all signatures
must be guaranteed by a commercial bank which is a member of the FDIC, a trust
company, a member firm of a domestic stock exchange or a foreign branch of any
of the foregoing (a signature guarantee by a savings bank or a notary public is
not acceptable). Further documentation, such as copies of corporate resolutions
and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537, MFD23
Boston, MA 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the shareholder's address of record.
DIVIDENDS AND DISTRIBUTIONS
The Trust declares all of the Funds's net investment income daily as a
dividend to Fund Shareholders. Dividends substantially equal to all of the
Fund's net investment income earned during the month are distributed in that
month to Fund shareholders of record. Generally, the Fund's net investment
income consists of the interest and dividend income it earns, less expenses. In
computing interest income, premiums are not amortized nor are discounts accrued
on long-term debt securities in the Portfolio, except as required for federal
income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash, dividends are
distributed in the form of additional shares of the Fund (purchased at their net
asset value without a sales charge).
Certain mortgage-backed securities may provide for periodic or unscheduled
payments of principal and interest as the mortgages underlying the securities
are paid or prepaid. However, such principal payments (not otherwise
characterized as ordinary discount income or bond premium expense) will not
normally be considered as income to the Portfolio and therefore will not be
distributed as dividends to Fund shareholders. Rather, these payments on
mortgage-backed securities generally will be reinvested by the Portfolio in
accordance with its investment objective and policies.
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
net realized capital gains of the Fund are distributed to shareholders in
accordance with the timing requirements imposed by the Code, generally no
federal income or excise taxes will be paid by the Fund on amounts so
distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who otherwise are
subject to tax on dividends) as though received on December 31 of that year if
paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid by its shareholders, but will not be able to
claim a credit or deduction for the foreign taxes treated as having been paid by
them.
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the Fund with the shareholder's correct taxpayer identification number ("TIN")
or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest and dividend
income to the Internal Revenue Service and to respond to notices to that effect,
or (3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against the shareholder's federal income
tax liability. Dividends from the Fund attributable to the Fund's net investment
income and short-term capital gains generally will be subject to U.S.
withholding tax when paid to shareholders treated under U.S. tax law as
nonresident alien individuals or foreign corporations, estates, partnerships or
trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in the
Fund, see the Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has ten series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders of the
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws of
the State of New York. The Portfolio is a separate series of the Portfolio
Trust, which currently has one other series. The Portfolio Trust's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the investment of all of
the Assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m., New
York time on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m., New York time on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included
in advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund.
Since these total return and yield quotations are based on historical
earnings and since the Fund's total return and yield fluctuate from day to day,
these quotations should not be considered as an indication or representation of
the Fund's total return or yield in the future. Any performance information
should be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such advertisements,
including the performance of unmanaged indices, the performance of the Consumer
Price Index (as a measure for inflation), and data from Lipper Analytical
Services, Inc. and other industry publications.
<PAGE>
APPENDIX
The characteristics of corporate debt obligations rated by Moody's are
generally as follows:
Aaa -- Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to as
"gilt edge". Interest payments are protected by a large or by an exceptionally
stable margin and principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most unlikely to impair
the fundamentally strong position of such issues.
Aa -- Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally known as
high grade bonds. They are rated lower than the best bonds because margins of
protection may not be as large as in Aaa securities, or fluctuation of
protective elements may be of greater amplitude or there may be other elements
present which make the long-term risks appear somewhat larger than in Aaa
securities.
A -- Bonds which are rated A 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 which are rated Baa are considered as 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 -- Bonds which are rated Ba are judged to have speculative elements. The
future of such bonds cannot be considered as well assured.
B -- Bonds which are rated B generally lack characteristics of a desirable
investment.
Caa -- Bonds rated Caa are of poor standing. Such issues may be in default
or there may be present elements of danger with respect to principal or
interest.
Ca -- Bonds rated Ca are speculative to a high degree.
C -- Bonds rated C are the lowest rated class of bonds and are regarded as
having extremely poor prospects.
The characteristics of corporate debt obligations rated by S&P are generally
as follows:
AAA -- This is the highest rating assigned by S&P to a debt obligation and
indicates an extremely strong capacity to pay principal and interest.
AA -- Bonds rated AA also qualify as high quality debt obligations. Capacity
to pay principal and interest is very strong, and in the majority of instances
they differ from AAA issues only in small degree.
A -- Debt rated A has a strong capacity to pay interest and repay principal
although it is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debts in higher rated categories.
BBB -- Debt rated BBB is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits 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 -- Debt rated BB is predominantly speculative with respect to capacity to
pay interest and repay principal in accordance with terms of the obligation. BB
indicates the lowest degree of speculation; CC indicates the highest degree of
speculation.
BB, B, CCC AND CC -- Debt in these ratings is predominantly speculative with
respect to capacity to pay interest and repay principal in accordance with terms
of the obligation. BB indicates the lowest degree of speculation and CC the
highest.
A bond rating is not a recommendation to purchase, sell or hold a security,
inasmuch as it does not comment as to market price or suitability for a
particular investor.
The ratings are based on current information furnished by the issuer or
obtained by the rating services from other sources which they consider reliable.
The ratings may be changed, suspended or withdrawn as a result of changes in or
unavailability of, such information, or for other reasons.
The characteristics of corporate debt obligations rated by Fitch are
generally as follows:
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 "- +".
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 satisfactory 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 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.
BB -- Bonds are considered speculative. The obligor's ability to pay
interest and repay principal may be affected over time by adverse economic
changes. However, business and financial alternatives can be identified which
could assist the obligor in satisfying its debt service requirements.
B -- Bonds are considered highly speculative. While bonds in this class are
currently meeting debt service requirements, the probability of continued timely
payments of principal and interest reflects the obligor's limited margin of
safety and the need for reasonable business and economic activity throughout the
life of the issue.
CCC -- Bonds have certain identifiable characteristics which, if not
remedied, may lead to default. The ability to meet obligations requires an
advantageous business and economic environment.
CC -- Bonds are minimally protected. Default in payment of interest and/or
principal seems probable over time.
C -- Bonds are in imminent default in payment of interest or principal.
DDD, DD AND D-- Bonds are in default on interest and/or principal payments.
Such bonds are extremely speculative and should be valued on the basis of their
ultimate recovery value in liquidation or reorganization of the obligor. DDD
represents the highest potential for recovery on these bonds, and D represents
the lowest potential for recovery.
Plus (+) or Minus (-): Plus and minus signs are used with a rating symbol to
indicate the relative position of a credit within the rating category. Plus and
minus signs, however, are not used in the DDD, DD, or D categories.
RATINGS OF COMMERCIAL PAPER
Commercial paper rated A-1 by S&P has the following characteristics:
liquidity ratios are adequate to meet cash requirements; the issuer's long-term
debt is rated A or better; the issuer has access to at least two additional
channels of borrowing; and basic earnings and cash flow have an upward trend
with allowances made for unusual circumstances. Typically, the issuer's industry
is well established and the issuer has a strong position within the industry.
Commercial paper rated Prime-1 by Moody's is the highest commercial paper
assigned by Moody's. Among the factors considered by Moody's in assigning
ratings are the following: (1) evaluation of the management of the issuer; (2)
economic evaluation of the issuer's industry or industries and an appraisal of
speculative-type risks which may be inherent in certain areas; (3) evaluation of
the issuer's products in relation to competition and consumer acceptance; (4)
liquidity; (5) amount and quality of long-term debt; (6) trend of earnings over
a period of ten years; (7) financial strength of a parent company and the
relationships which exist with the issuer; and (8) recognition by the management
of obligations which may be present or may arise as a result of public interest
questions and preparations to meet such obligations. Relative strength or
weakness of the above factors determine how the issuer's commercial paper is
rated with various categories.
<PAGE>
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REPUBLIC
FIXED INCOME
FUND
INVESTMENT MANAGER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
SUB-ADVISER
Miller Anderson & Sherrerd
One Tower Bridge
West Conshohocken, PA 19428
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
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REPUBLIC
FIXED INCOME
FUND
PROSPECTUS
January 26, 1996
<PAGE>
REPUBLIC INTERNATIONAL EQUITY FUND
SIX ST. JAMES AVENUE, BOSTON, MASSACHUSETTS 02116
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ACCOUNT AND GENERAL INFORMATION: (800) 782-8183 (TOLL FREE)
Republic International Equity Fund (the "Fund") is a diversified separate
series of Republic Funds (the "Trust"), an open-end, diversified management
investment company which currently consists of six funds, each of which has
different and distinct investment objectives and policies. Shares of the Fund
are being offered by this Prospectus. Shares of the Fund are offered only to
clients of Republic National Bank of New York ("Republic" or the "Manager") and
its affiliates for which Republic or its affiliate exercises investment
discretion. Shares are offered at net asset value with no sales charge by
Signature Broker-Dealer Services, Inc. ("SBDS" or the "Distributor" or the
"Sponsor").
UNLIKE OTHER OPEN-END MANAGEMENT INVESTMENT COMPANIES (MUTUAL FUNDS) WHICH
DIRECTLY ACQUIRE AND MANAGE THEIR OWN PORTFOLIO OF SECURITIES, THE TRUST SEEKS
TO ACHIEVE THE INVESTMENT OBJECTIVE OF THE FUND BY INVESTING ALL OF THE FUND'S
INVESTABLE ASSETS ("ASSETS") IN THE INTERNATIONAL EQUITY PORTFOLIO (THE
"PORTFOLIO"), WHICH HAS THE SAME INVESTMENT OBJECTIVE AS THE FUND. THE
INVESTMENT EXPERIENCE OF THE FUND WILL CORRESPOND DIRECTLY WITH THE INVESTMENT
EXPERIENCE OF THE PORTFOLIO. THE PORTFOLIO IS A DIVERSIFIED SERIES OF THE
REPUBLIC PORTFOLIOS, WHICH IS AN OPEN-END MANAGEMENT INVESTMENT COMPANY. SEE
"SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE".
Republic is the investment manager of the Portfolio. Capital Guardian Trust
Company ("CGTC" or the "Sub-Adviser") continuously manages the investments of
the Portfolio.
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
principal investments of the Portfolio will be in equity securities of companies
in developed nations, including Europe, Canada, Australia and the Far East. The
Portfolio may also invest in emerging market equity securities.
AN INVESTMENT IN THE FUND IS NEITHER INSURED NOR GUARANTEED BY THE U.S.
GOVERNMENT. SHARES OF THE FUND ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY, REPUBLIC OR ANY OTHER BANK, AND THE SHARES ARE NOT FEDERALLY
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD
OR ANY OTHER AGENCY. AN INVESTMENT IN THE FUND IS SUBJECT TO INVESTMENT RISKS,
INCLUDING POSSIBLE LOSS OF THE PRINCIPAL AMOUNT INVESTED.
This Prospectus sets forth concisely the information concerning the Fund
that a prospective investor should know before investing. The Trust has filed
with the Securities and Exchange Commission a Statement of Additional
Information, dated January 26, 1996, with respect to the Fund, containing
additional and more detailed information about the Fund and is hereby
incorporated by reference into this Prospectus. An investor may obtain a copy of
the Statement of Additional Information without charge by contacting the Fund at
the address and telephone number printed above.
--------------------
Investors should read this Prospectus and retain it for future reference.
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS JANUARY 26, 1996
<PAGE>
HIGHLIGHTS
THE FUND PAGE 1
Republic International Equity Fund (the "Fund") is a separate series of
Republic Funds (the "Trust"), a Massachusetts business trust organized on April
22, 1987, which currently consists of six funds, each of which has different and
distinct investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES PAGE 4
The investment objective of the Fund is to seek long-term growth of
capital and future income through investment primarily in securities of non-U.S.
issuers (including American Deopistary Receipts ("ADRs") and U.S. registered
securities) and securities whose principal markets are outside of the United
States. The Trust seeks to achieve the investment objective of the Fund by
investing all of the Fund's Assets in the International Equity Portfolio (the
"Portfolio"), which has the same investment objective as the Fund. The Portfolio
is a series of the Republic Portfolios (the "Portfolio Trust"), a master trust
fund established under the laws of the State of New York and organized on
November 1, 1994. There can be no assurance that the investment objective of the
Fund or the Portfolio will be achieved.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST PAGE 12
Republic acts as investment manager to the Portfolio pursuant to an
Investment Management Contract with the Portfolio Trust. The Manager is not paid
a fee by the Portfolio for its services.
Capital Guardian Trust Company ("CGTC" or the "Sub-Adviser") continuously
manages the investment portfolio of the Portfolio pursuant to a Sub-Advisory
Agreement with the Manager. For its services, the Sub-Adviser is paid a fee by
the Portfolio, computed daily and based on the Portfolio's average daily net
assets, equal on an annual basis to 0.70% of net assets up to $25 million, 0.55%
of net assets over $25 million and up to $50 million, 0.425% of net assets over
$50 million and up to $250 million, and 0.375% of net assets over $250 million.
See "Management of the Trust and the Portfolio Trust".
SBDS acts as sponsor and as administrator (the "Administrator of the Fund")
of the Fund and distributor of shares of the Fund. For its services to the Fund,
the Administrator of the Fund receives from the Fund a fee payable monthly equal
on an annual basis to 0.05% of the Fund's average daily net assets up to $100
million. Signature Financial Group (Cayman) Limited ("Signature (Cayman)") acts
as administrator (the "Administrator of the Portfolio") of the Portfolio. For
its services to the Portfolio, the Administrator receives from the Portfolio a
fee payable monthly equal on an annual basis to 0.05% of the average daily net
assets of the Portfolio.
PURCHASES AND REDEMPTIONS PAGES 15 AND 16
Shares of the Fund are offered at the next determined net asset value with
no sales charge and may be purchased through the Distributor. Shares of the Fund
are offered only to clients of Republic and its affiliates for which Republic or
its affiliate exercises investment discretion. The minimum initial investment in
the Fund is $10,000, and the minimum subsequent investment is $2,500. The Fund
may accept initial and subsequent investments of lesser amounts in its
discretion. No minimum is imposed on reinvested dividends. Shares may be
redeemed without cost at the net asset value per share of the Fund next
determined after receipt of the redemption request. See "Purchase of Shares" and
"Redemption of Shares".
DIVIDENDS AND DISTRIBUTIONS PAGE 16
The Trust declares and distributes all of the Fund's net investment income
as a dividend to Fund shareholders semi-annually. Any net realized capital
gains are distributed at least annually. All Fund distributions will be
invested in additional Fund shares, unless the shareholder instructs the Fund
otherwise. See "Dividends and Distributions."
<PAGE>
FEE TABLE
The following table summarizes an investor's maximum transaction costs from
investing in the Fund and the estimated aggregate annual operating expenses of
the Fund and the Portfolio as a percentage of the average daily net assets of
the Fund during the Fund's last completed fiscal period. The fiscal year ends of
the Fund and the Portfolio are both October 31. The example illustrates the
dollar cost of such estimated expenses on a $1,000 investment in the Fund. The
Trustees of the Trust believe that the aggregate per share expenses of the Fund
and the Portfolio will be less than or approximately equal to the expenses which
the Fund would incur if the Trust retained the services of an investment adviser
on behalf of the Fund and the Assets of the Fund were invested directly in the
type of securities being held by the Portfolio.
Shareholder Transaction Expenses .............................. None
Annual Fund Operating Expenses
Investment Management Fee ................................. 0%
Investment Subadvisory Fee ................................ 0.52%
Other Expenses ........................................... 0.69%
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-- Administrative Services Fee ...................... 0.10%
-- Other Operating Expenses ......................... 0.59%
Total Operating Expenses ..................................... 1.21%
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EXAMPLE
A shareholder of the Fund would pay the following expenses on a $1,000
investment in the Fund, assuming (1) 5% annual return and (2) redemption at the
end of:
1 year ................................................... $ 12
3 years ................................................... $ 38
5 years ................................................... $ 67
10 years ................................................... $147
The purpose of the expense table provided above is to assist investors in
understanding the expenses of investing in the Fund and an investor's share of
the aggregate operating expenses of the Fund and the Portfolio. The information
is based on the expenses the Fund and the Portfolio expect to incur for the
current fiscal year.* For a more detailed discussion on the costs and expenses
of investing in the Fund, see "Management of the Trust and the Portfolio Trust."
- ----------
*Assuming average daily net assets of $75 million in the Fund and $100 million
in the Portfolio for the current fiscal year.
THE EXAMPLE SET FORTH ABOVE SHOULD NOT BE CONSIDERED A REPRESENTATION OF
FUTURE AGGREGATE EXPENSES OF THE FUND AND THE PORTFOLIO, AND ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN.
<PAGE>
FINANCIAL HIGHLIGHTS
The financial data shown below is to assist investors in evaluating the
performance of the Fund since commencement of operations through October 31,
1995. The information shown in the following schedule has been audited by Ernst
& Young LLP, independent auditors, whose report on the Fund's financial
statements is incorporated by reference into the Statement of Additional
Information from the Fund's Annual Report dated October 31, 1995. The Annual
Report also includes management's discussion of fund performance, and may be
obtained without charge upon request. This information should be read in
conjunction with the financial statements.
SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE INDICATED PERIOD:
REPUBLIC INTERNATIONAL EQUITY FUND
FINANCIAL HIGHLIGHTS
FOR THE PERIOD
JANUARY 9, 1995
(COMMENCEMENT
OF OPERATIONS) TO
OCTOBER 31, 1995
-----------------
Net asset value, beginning of period ....................... $ 10.00
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INCOME FROM INVESTMENT OPERATIONS:
Net investment income .................................. 0.08
Net realized and unrealized gain from Portfolio ........ 0.75
-------
Total increase from investment operations .............. 0.83
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LESS DIVIDENDS:
From net investment income ............................. (0.03)
-------
Total dividends ........................................ (0.03)
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NET ASSET VALUE, END OF PERIOD ............................. $ 10.80
=======
TOTAL RETURN ............................................... 8.31%(a)
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period (in 000's) ................... $34,244
Ratio of expenses to average net assets (b) ............ 1.14%(c)
Ratio of net investment income to average net assets (b) 1.26%(c)
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(a) Not annualized.
(b) Reflects a voluntary expense limitation and waiver of fees by affiliated
parties of the Fund. If this limitation and waiver had not been in effect,
the annualized ratios of expenses and net investment income to average net
assets for the period from January 9, 1995 (commencement of operations) to
October 31, 1995 would have been 2.12% and 0.28%, respectively.
(c) Annualized.
INVESTMENT OBJECTIVE AND POLICIES
INVESTMENT OBJECTIVE
The investment objective of the Fund is to seek long-term growth of capital
and future income through investment primarily in securities of non-U.S. issuers
(including American Depositary Receipts ("ADRs") and U.S. registered securities)
and securities whose principal markets are outside of the United States. The
investment objective of the Portfolio is the same as the investment objective of
the Fund.
There can be no assurance that the investment objective of the Fund will be
achieved. The investment objective of each of the Fund and the Portfolio may be
changed without investor approval. If there is a change in the investment
objective of the Fund, shareholders should consider whether the Fund remains an
appropriate investment in light of their then-current financial position and
needs. Shareholders of the Fund shall receive 30 days' prior written notice of
any change in the investment objective of the Fund or the Portfolio.
Since the investment characteristics of the Fund will correspond to those of
the Portfolio, the following is a discussion of the various investment policies
of the Portfolio.
INVESTMENT POLICIES
The Portfolio will normally invest at least 80% of its total assets in
foreign equity securities, consisting of common stock, preferred stock, and
securities convertible into common stock ("convertible securities"). The
principal investments of the Portfolio will be in equity securities of companies
in developed nations, including Europe, Canada, Australia and the Far East,
although the Portfolio may invest up to 20% of its assets in equity securities
of companies in emerging markets. See "Additional Risk Factors and Policies:
Foreign Securities -- Emerging Markets." It is the current intention of the
Portfolio to invest primarily in companies with a large market capitalization.
The Portfolio intends to have at least three different countries represented in
its portfolio.
Under exceptional conditions abroad or when, in the opinion of the
Sub-Adviser, economic or market conditions warrant, the Portfolio may
temporarily invest part or all of its assets in fixed income securities
denominated in foreign currencies, obligations of domestic or foreign
governments and their political subdivisions ("Government Securities"), and
nonconvertible preferred stock, or hold its assets in cash or equivalents. Debt
securities purchased by the Portfolio will be limited to those rated, at the
time of investment, in the four highest rating categories by a nationally
recognized statistical rating organization ("NRSRO") or, if unrated, determined
by the Sub-Adviser to be of comparable quality. Securities rated by a NRSRO in
the fourth highest rating category are considered to have some speculative
characteristics. When the total return opportunities in a foreign bond market
appear attractive in local currency terms, but, in the Sub-Adviser's judgment,
unacceptable currency risk exists, currency futures, forwards and options may be
used to hedge the currency risk. See "Additional Risk Factors and Policies:
Forward Foreign Currency Contracts and Options on Foreign Currencies."
As described under "Management of the Trust and the Portfolio Trust--Sub
Adviser," CGTC, the Portfolio's Sub-Adviser, uses a system of multiple portfolio
managers pursuant to which the Portfolio is divided into segments which are
assigned to individual portfolio managers. Within investment guidelines, each
portfolio manager makes individual decisions as to company, country, industry,
timing and percentage based on extensive field research and direct company
contact.
Because of the risks associated with common stocks and other equity
investments, the Portfolio is intended to be a long-term investment vehicle and
is not designed to provide investors with a means of speculating on short-term
stock market movements. The Sub-Adviser seeks to reduce these risks by
diversifying the portfolio as well as by monitoring broad economic trends and
corporate and legislative developments.
ADDITIONAL RISK FACTORS AND POLICIES
FOREIGN SECURITIES
Investing in securities issued by companies whose principal business
activities are outside the United States may involve significant risks not
present in domestic investments. For example, there is generally less publicly
available information about foreign companies, particularly those not subject to
the disclosure and reporting requirements of the U.S. securities laws. Foreign
issuers are generally not bound by uniform accounting, auditing, and financial
reporting requirements and standards of practice comparable to those applicable
to domestic issuers. Investments in foreign securities also involve the risk of
possible adverse changes in investment or exchange control regulations,
expropriation or confiscatory taxation, limitation on the removal of cash or
other assets of the Portfolio, political or financial instability, or diplomatic
and other developments which could affect such investments. Further, economies
of particular countries or areas of the world may differ favorably or
unfavorably from the economy of the United States. Changes in foreign exchange
rates will affect the value of securities denominated or quoted in currencies
other than the U.S. dollar. Foreign securities often trade with less frequency
and volume than domestic securities and therefore may exhibit greater price
volatility. Additional costs associated with an investment in foreign securities
may include higher custodial fees than apply to domestic custodial arrangements,
and transaction costs of foreign currency conversions.
Emerging Markets. Investing in emerging market countries presents greater
risk than investing in foreign issuers in general. A number of emerging markets
restrict foreign investment in stocks. Repatriation of investment income,
capital, and the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines against
the U.S. dollar in recent years, and devaluation may occur subsequent to
investments in these currencies by the Portfolio. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries. Many of the emerging securities markets are relatively small, have
low trading volumes, suffer periods of relative illiquidity, and are
characterized by significant price volatility. There is the risk that a future
economic or political crisis could lead to price controls, forced mergers of
companies, expropriation or confiscatory taxation, seizure, nationalization, or
creation of government monopolies, any of which could have a detrimental effect
on the Portfolio's investments.
Investing in formerly communist East European countries involves the
additional risk that the government or other executive or legislative bodies may
decide not to continue to support the economic reform programs implemented since
the fall of communism and could follow radically different political and/or
economic policies to the detriment of investors, including non-market oriented
policies such as the support of certain industries at the expense of other
sectors or a return to a completely centrally planned economy. The Portfolio
does not currently intend to invest a significant portion of its assets in
formerly communist East European countries.
As used in this Prospectus, "emerging markets" include any country which in
the opinion of the Sub-Adviser is generally considered to be an emerging or
developing country by the International Bank for Reconstruction and Development
(the World Bank) and the International Monetary Fund. Currently, these countries
generally include every country in the world except Australia, Austria, Belgium,
Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Italy, Japan,
Netherlands, New Zealand, Norway, Singapore, Spain, Sweden, Switzerland, United
Kingdom and United States.
A company in an emerging market is one that: (i) is domiciled and has its
principal place of business in an emerging market or (ii) (alone or on a
consolidated basis) derives or expects to derive a substantial portion of its
total revenue from either goods produced, sales made or services performed in
emerging markets. The Portfolio may invest up to 20% of its assets in the equity
securities of companies based in emerging markets.
Sovereign and Supranational Debt Obligations. Debt instruments issued or
guaranteed by foreign governments, agencies, and supranational organizations
("sovereign debt obligations"), especially sovereign debt obligations of
developing countries, may involve a high degree of risk, and may be in default
or present the risk of default. The issuer of the obligation or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal and interest when due, and may require renegotiation or
rescheduling of debt payments. In addition, prospects for repayment of principal
and interest may depend on political as well as economic factors.
DEPOSITARY RECEIPTS
The Portfolio may invest in American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs"), and
International Depositary Receipts ("IDRs"), or other similar securities
convertible into securities of foreign issuers. ADRs (sponsored or unsponsored)
are receipts typically issued by a U.S. bank or trust company evidencing the
deposit with such bank or company of a security of a foreign issuer, and are
publicly traded on exchanges or over-the-counter in the United States. In
sponsored programs, an issuer has made arrangements to have its securities trade
in the form of ADRs. In unsponsored programs, the issuer may not be directly
involved in the creation of the program. Although regulatory requirements with
respect to sponsored and unsponsored programs are generally similar, in some
cases it may be easier to obtain financial information from an issuer that has
participated in the creation of a sponsored program.
EDRs, which are sometimes referred to as Continental Depositary Receipts,
are receipts issued in Europe typically by foreign bank and trust companies that
evidence ownership of either foreign or domestic underlying securities. IDRs are
receipts typically issued by a European bank or trust company evidencing
ownership of the underlying foreign securities. GDRs are receipts issued by
either a U.S. or non-U.S. banking institution evidencing ownership of the
underlying foreign securities.
DERIVATIVES
The Portfolio may invest in various instruments that are commonly known as
derivatives. Generally, a derivative is a financial arrangement the value of
which is based on, or "derived" from, a traditional security, asset, or market
index. A mutual fund, of course, derives its value from the value of the
investments it holds and so might even be called a "derivative." Some
"derivatives" such as mortgage-related and other asset-backed securities are in
many respects like any other investment, although they may be more volatile or
less liquid than more traditional debt securities. There are, in fact, many
different types of derivatives and many different ways to use them. There are a
range of risks associated with those uses. Futures and options are commonly used
for traditional hedging purposes to attempt to protect a fund from exposure to
changing interest rates, securities prices, or currency exchange rates and for
cash management purposes as a low cost method of gaining exposure to a
particular securities market without investing directly in those securities.
However, some derivatives are used for leverage, which tends to magnify the
effects of an instrument's price changes as market conditions change. Leverage
involves the use of a small amount of money to control a large amount of
financial assets, and can in some circumstances, lead to significant losses. In
contrast, the Portfolio may use derivatives to enhance return when the
Sub-Adviser believes the investment will assist the Portfolio in achieving its
investment objective, and for hedging purposes. A description of the derivatives
that the Portfolio may use and some of their associated risks follows.
FORWARD FOREIGN CURRENCY CONTRACTS AND OPTIONS ON FOREIGN CURRENCIES
Forward foreign currency exchange contracts ("forward contracts") are
intended to minimize the risk of loss to the Portfolio from adverse changes in
the relationship between the U.S. dollar and foreign currencies. The Portfolio
may not enter into such contracts for speculative purposes, and will commit no
more than 100% of the value of its assets to forward contracts entered into for
hedging purposes.
A forward contract is an obligation to purchase or sell a specific currency
for an agreed price at a future date which is individually negotiated and
privately traded by currency traders and their customers. A forward contract may
be used, for example, when the Portfolio enters into a contract for the purchase
or sale of a security denominated in a foreign currency in order to "lock in"
the U.S. dollar price of the security. The Portfolio may also purchase and write
put and call options on foreign currencies for the purpose of protecting against
declines in the dollar value of foreign portfolio securities and against
increases in the U.S. dollar cost of foreign securities to be acquired.
OPTIONS AND FUTURES TRANSACTIONS
For hedging purposes only, the Portfolio may invest in foreign currency
futures contracts and options on foreign currencies and foreign currency futures
contracts. Futures contracts provide for the sale by one party and purchase by
another party of a specified amount of a specific security, at a specified
future time and price. An option is a legal contract that gives the holder the
right to buy or sell a specified amount of the underlying security or futures
contract at a fixed or determinable price upon the exercise of the option. A
call option conveys the right to buy and a put option conveys the right to sell
a specified quantity of the underlying security. The Portfolio will segregate
assets or "cover" its positions consistent with requirements under the
Investment Company Act of 1940, as amended ("1940 Act").
There are several risks associated with the use of futures and options for
hedging purposes. There can be no guarantee that there will be a correlation
between price movements in the hedging vehicle and in the portfolio securities
being hedged. An incorrect correlation could result in a loss on both the hedged
securities in the Portfolio and the hedging vehicle so that the portfolio return
might have been greater had hedging not been attempted. There can be no
assurance that a liquid market will exist at a time when the Portfolio seeks to
close out a futures contract or a futures option position. Most futures
exchanges and boards of trade limit the amount of fluctuation permitted in
futures contract prices during a single day; once the daily limit has been
reached on a particular contract, no trades may be made that day at a price
beyond that limit. In addition, certain of these instruments are relatively new
and without a significant trading history. As a result, there is no assurance
that an active secondary market will develop or continue to exist. Lack of a
liquid market for any reason may prevent the Portfolio from liquidating an
unfavorable position and the Portfolio would remain obligated to meet margin
requirements until the position is closed.
CONVERTIBLE SECURITIES
Although the Portfolio's equity investments consist primarily of common and
preferred stocks, the Portfolio may buy securities convertible into common stock
if, for example, the Sub-Adviser believes that a company's convertible
securities are undervalued in the market. Convertible securities eligible for
purchase by the Portfolio consist of convertible bonds, convertible preferred
stocks, warrants and rights. See "Additional Risk Factors and Policies --
Warrants" below and the Statement of Additional Information for a discussion of
these instruments.
ILLIQUID INVESTMENTS
The Portfolio may invest up to 15% of its net assets in securities that are
illiquid by virtue of the absence of a readily available market, or because of
legal or contractual restrictions on resale. This policy does not limit the
acquisition of securities eligible for resale to qualified institutional buyers
pursuant to Rule 144A under the Securities Act of 1933, as described below. The
Portfolio may not invest more than 10% of its assets in restricted securities
(including Rule 144A securities). There may be delays in selling these
securities and sales may be made at less favorable prices.
The Sub-Adviser may determine that a particular Rule 144A security is liquid
and thus not subject to the Portfolio's limits on investment in illiquid
securities, pursuant to guidelines adopted by the Board of Trustees. Factors
that the Sub-Adviser must consider in determining whether a particular Rule 144A
security is liquid include the frequency of trades and quotes for the security,
the number of dealers willing to purchase or sell the security and the number of
other potential purchasers, dealer undertakings to make a market in the
security, and the nature of the security and the nature of the market for the
security (i.e., the time needed to dispose of the security, the method of
soliciting offers and the mechanics of transfer). Investing in Rule 144A
securities could have the effect of increasing the level of the Portfolio's
illiquidity to the extent that qualified institutions might become, for a time,
uninterested in purchasing these securities.
WARRANTS
The Portfolio may invest up to 10% of its net assets in warrants, except
that this limitation does not apply to warrants acquired in units or attached to
securities. A warrant is an instrument issued by a corporation which gives the
holder the right to subscribe to a specific amount of the corporation's capital
stock at a set price for a specified period of time. Warrants do not represent
ownership of the securities, but only the right to buy the securities. The
prices of warrants do not necessarily move parallel to the prices of underlying
securities. Warrants may be considered speculative in that they have no voting
rights, pay no dividends, and have no rights with respect to the assets of a
corporation issuing them. Warrant positions will not be used to increase the
leverage of the Portfolio. Consequently, warrant positions are generally
accompanied by cash positions equivalent to the required exercise amount.
LOANS OF PORTFOLIO SECURITIES
The Portfolio may lend its securities to qualified brokers, dealers, banks
and other financial institutions for the purpose of realizing additional income.
Loans of securities will be collateralized by cash, letters of credit, or
securities issued or guaranteed by the U.S. Government or its agencies. The
collateral will equal at least 100% of the current market value of the loaned
securities. In addition, the Portfolio will not lend its portfolio securities to
the extent that greater than one-third of its total assets, at fair market
value, would be committed to loans at that time.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Portfolio may purchase and sell securities on a when-issued or
firm-commitment basis, in which a security's price and yield are fixed on the
date of the commitment but payment and delivery are scheduled for a future date.
On the settlement date, the market value of the security may be higher or lower
than its purchase or sale price under the agreement. If the other party to a
when-issued or firm-commitment transaction fails to deliver or pay for the
security, the Portfolio could miss a favorable price or yield opportunity or
suffer a loss. The Portfolio will not earn interest on securities until the
settlement date. The Portfolio will maintain in a segregated account with the
custodian cash or liquid, high-grade debt securities equal (on a daily
marked-to-market basis) to the amount of its commitment to purchase the
securities on a when-issued basis.
PORTFOLIO TURNOVER
The Sub-Adviser manages the Portfolio generally without regard to
restrictions on portfolio turnover, except those imposed by provisions of the
federal tax laws regarding short-term trading. In general, the Portfolio will
not trade for short-term profits, but when circumstances warrant, investments
may be sold without regard to the length of time held. For the period from
January 9, 1995 (commencement of operations) to October 31, 1995, the portfolio
turnover rate for the Portfolio was 3%. Although this figure is reflective of
the Portfolio's initial period of operations, it is expected that in subsequent
years the annual turnover rate for the Portfolio will not exceed 40% .
INVESTMENT RESTRICTIONS
Each of the Portfolio and the Fund has adopted certain investment
restrictions designed to reduce exposure to specific situations (except that
none of these investment restrictions shall prevent the Fund from investing all
of its assets in a registered investment company with substantially the same
investment objective). Some of these investment restrictions are:
(1) with respect to 75% of its assets, the Portfolio (Fund) will not
purchase securities of any issuer if, as a result, more than 5% of the
Portfolio's (Fund's) total assets taken at market value would be
invested in the securities of any single issuer;
(2) with respect to 75% of its assets, the Portfolio (Fund) will not
purchase a security if, as a result, the Portfolio (Fund) would hold
more than 10% of the outstanding voting securities of any issuer;
(3) the Portfolio (Fund) will not invest more than 5% of its total assets in
the securities of issuers (other than securities issued or guaranteed by
U.S. or foreign governments or political subdivisions thereof) which
have (with predecessors) a record of less than three years of continuous
operation;
(4) the Portfolio (Fund) will not acquire any securities of companies within
one industry, if, as a result of such acquisition, more than 25% of the
value of the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided, however, that
there shall be no limitation on the purchase of obligations issued or
guaranteed by the U.S. Government, its agencies or instrumentalities,
when the Portfolio (Fund) adopts a temporary defensive position;
(5) the Portfolio (Fund) will not make loans except for the lending of
portfolio securities pursuant to guidelines established by its Board of
Trustees and except as otherwise in accordance with its investment
objective and policies;
(6) the Portfolio (Fund) will not borrow money except for temporary or
emergency purposes up to 10% of its net assets; provided, however, that
the Portfolio (Fund) may not purchase any security while outstanding
borrowings exceed 5% of net assets;
(7) the Portfolio (Fund) will not purchase warrants, valued at the lower of
cost or market, in excess of 10% of the Portfolio's (Fund's) net assets.
Included within that amount, but not to exceed 2% of the Portfolio's
(Fund's) net assets, are warrants whose underlying securities are not
traded on principal domestic or foreign exchanges. Warrants acquired by
the Portfolio (Fund) in units or attached to securities are not subject
to these restrictions;
(8) the Portfolio (Fund) will not issue senior securities, except as
permitted under the 1940 Act; and
(9) the Portfolio (Fund) will not invest its assets in securities of any
investment company, except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may otherwise be
permitted by the 1940 Act; provided, however, that the Portfolio shall
not invest in the shares of any open-end investment company unless (1)
the Portfolio's Sub-Adviser waives any investment advisory fees with
respect to such assets and (2) the Portfolio pays no sales charge in
connection with the investment.
Limitations (1), (2), (4), (5) and (8), and certain other limitations described
in the Statement of Additional Information are fundamental and may be changed
only with the approval of the holders of a "majority of the outstanding voting
securities" (as defined in the 1940 Act) of the Portfolio or the Fund, as the
case may be. The other investment restrictions described here and in the
Statement of Additional Information are not fundamental policies meaning that
the Board of Trustees of the Portfolio Trust may change them without investor
approval. If a percentage limitation on investment or utilization of assets as
set forth above is adhered to at the time an investment is made, a later change
in percentage resulting from changes in the value or total cost of the
Portfolio's assets will not be considered a violation of the restriction, and
the sale of securities will not be required.
SPECIAL INFORMATION CONCERNING THE TWO-TIER FUND STRUCTURE
The Trust, which is an open-end investment company, seeks to achieve the
investment objective of the Fund by investing all of the Fund's Assets in the
Portfolio, a series of a separate open-end investment company with the same
investment objective as the Fund. Other mutual funds or institutional investors
may invest in the Portfolio on the same terms and conditions as the Fund.
However, these other investors may have different sales commissions and other
operating expenses which may generate different aggregate performance results.
Information concerning other investors in the Portfolio is available by calling
the Sponsor at (617) 423-0800. The two-tier investment fund structure has been
developed relatively recently, so shareholders should carefully consider this
investment approach.
The investment objective of the Fund may be changed without the approval of
the shareholders of the Fund and the investment objective of the Portfolio may
be changed without the approval of the investors in the Portfolio. Shareholders
of the Fund will receive 30 days prior written notice of any change in the
investment objective of the Fund or the Portfolio. For a description of the
investment objective, policies and restrictions of the Portfolio, see
"Investment Objective and Policies" above.
Except as permitted by the Securities and Exchange Commission, whenever the
Trust is requested to vote on a matter pertaining to the Portfolio, the Trust
will hold a meeting of the shareholders of the Fund and, at the meeting of
investors in the Portfolio, the Trust will cast all of its votes in the same
proportion as the votes of the Fund's shareholders even if all Fund shareholders
did not vote. Even if the Trust votes all its shares at the Portfolio meeting,
other investors with a greater pro rata ownership in the Portfolio could have
effective voting control of the operations of the Portfolio.
The Trust may withdraw the Fund's investment in the Portfolio as a result of
certain changes in the Portfolio's investment objective, policies or
restrictions or if the Board of Trustees of the Trust determines that it is
otherwise in the best interests of the Fund to do so. Upon any such withdrawal,
the Board of Trustees of the Trust would consider what action might be taken,
including the investment of all of the Assets of the Fund in another pooled
investment entity or the retaining of an investment adviser to manage the Fund's
Assets in accordance with the investment policies described above with respect
to the Portfolio. In the event the Trustees of the Trust were unable to
accomplish either, the Trustees will determine the best course of action.
As with traditionally structured funds which have large investors, the
actions of such large investors may have a material affect on smaller investors.
For example, if a large investor withdraws from the Portfolio, a small remaining
fund may experience higher pro rata operating expenses, thereby producing lower
returns. Additionally, the Portfolio may become less diverse, resulting in
increased portfolio risk.
For descriptions of the management and expenses of the Portfolio, see
"Management of the Trust and the Portfolio Trust" below and in the Statement of
Additional Information.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
The business and affairs of the Trust and the Portfolio Trust are managed
under the direction of their respective Boards of Trustees. The Trustees of each
of the Trust and the Portfolio Trust are Frederick C. Chen, Alan S. Parsow,
Larry M. Robbins and Michael Seely. Additional information about the Trustees,
as well as the executive officers of the Trust and the Portfolio Trust, may be
found in the Statement of Additional Information under the caption "Management
of the Trust and the Portfolio Trust -- Trustees and Officers".
A majority of the disinterested Trustees have adopted written procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same individuals are Trustees of the Trust and of the
Portfolio Trust, up to and including creating a separate Board of Trustees. See
"Management of the Trust and the Portfolio Trust" in the Statement of Additional
Information for more information about the Trustees and the executive officers
of the Trust and the Portfolio Trust.
INVESTMENT MANAGER
Republic, whose address is 452 Fifth Avenue, New York, New York 10018,
serves as investment manager to the Portfolio pursuant to an Investment
Management Contract with the Portfolio Trust. The Manager is not paid a fee by
the Portfolio for its services.
Republic is a wholly owned subsidiary of Republic New York Corporation, a
registered bank holding company. As of December 31, 1994, Republic was the 18th
largest commercial bank in the United States measured by deposits and the 17th
largest commercial bank measured by shareholder equity. Republic currently
provides investment advisory services for approximately $1.1 billion of assets
for individuals, trusts, estates and institutions.
Republic and its affiliates may have deposit, loan and other commercial
banking relationships with the issuers of obligations purchased for the
Portfolio, including outstanding loans to such issuers which may be repaid in
whole or in part with the proceeds of obligations so purchased.
Based upon the advice of counsel, Republic believes that the performance of
investment advisory and other services for the Portfolio will not violate the
Glass-Steagall Act or other applicable banking laws or regulations. However,
future statutory or regulatory changes, as well as future judicial or
administrative decisions and interpretations of present and future statutes and
regulations, could prevent Republic from continuing to perform such services for
the Portfolio. If Republic were prohibited from acting as investment manager to
the Portfolio, it is expected that the Trust's Board of Trustees would recommend
to Fund shareholders approval of a new investment advisory agreement with
another qualified investment adviser selected by the Board or that the Board
would recommend other appropriate action.
SUB-ADVISER
CGTC continuously manages the investment portfolio of the Portfolio pursuant
to a Sub-Advisory Agreement with the Manager. For its services, the Sub-Adviser
is paid a fee by the Portfolio, computed daily and based on the Portfolio's
average daily net assets, equal to 0.70% of net assets up to $25 million, 0.55%
of net assets over $25 million up to $50 million, 0.425% of net assets over $50
million up to $250 million, and 0.375% of net assets over $250 million. It is
the responsibility of the Sub-Adviser not only to make investment decisions for
the Portfolio, but also to place purchase and sale orders for the portfolio
transactions of the Portfolio. See "Portfolio Transactions."
CGTC, which was founded in 1968, is a wholly owned subsidiary of The Capital
Group Companies, Inc., both of which are located at 333 South Hope Street, Los
Angeles, California 90071. As of December 31, 1995 CGTC managed in excess of $47
billion of assets primarily for large institutional clients. CGTC's research
activities are conducted by affiliated companies with offices in Los Angeles,
San Francisco, New York, Washington, D.C., Atlanta, London, Geneva, Singapore,
Hong Kong and Tokyo.
Capital Research and Management Company ("CRMC"), another wholly owned
subsidiary of The Capital Group Companies, Inc., provides investment advisory
services to the following mutual funds, which are know collectively as the
American Funds Group: AMCAP Fund, American Balanced Fund, American High Income
Municipal Bond Fund, American High Income Trust, American Mutual Fund, The Bond
Fund of America, The Cash Management Trust of America, Capital Income Builder,
Inc., Capital World Bond Fund, EuroPacific Growth Fund, Fundamental Investors,
The Growth Fund of America, Income Fund of America, Intermediate Bond Fund of
America, The Investment Company of America, Limited Term Tax-Exempt Bond Fund of
America, The New Economy Fund, New Perspective Fund, Smallcap World Fund, The
Tax-Exempt Bond Fund of America, The American Funds Tax-Exempt Series I, The
American Funds Tax-Exempt Series II, The Tax-Exempt Money Fund of America, The
American Funds Income Series, The U.S. Treasury Money Fund of America,
Washington Mutual Investors Fund, and Capital World Growth and Income Fund. CRMC
also provides investment advisory services to: American Variable Insurance
Series and Anchor Pathway Fund, which are used exclusively as underlying
investment vehicles for variable insurance contracts and policies, and to
Endowments, Inc. and Bond Portfolio for Endowments, Inc., whose shares may be
owned only by tax-exempt organizations. Capital International, Inc., an indirect
wholly owned subsidiary of The Capital Group Companies, Inc., provides
investment advisory services to Emerging Markets Growth Fund, Inc., which is a
closed-end investment companies.
The following persons are primarily responsible for portfolio management of
the Portfolio: David Fisher, Vice Chairman of CGTC, has had 30 years experience
as an investment professional (26 years with CGTC or its affiliates); Harmut
Giesecke, Senior Vice President and Director of Capital International, Inc., has
had 24 years experience as an investment professional (23 years with CGTC or its
affiliates); Nancy Kyle, Senior Vice President of CGTC, has had 22 years
experience as an investment professional (5 years with CGTC or its affiliates;
from 1980 to 1990, Ms. Kyle was managing director of J. P. Morgan Investment
Management, Inc.); John McIlwraith, Senior Vice President of CGTC, has had 26
years experience as an investment professional (12 years with CGTC or its
affiliates); Robert Ronus, President of CGTC, has had 27 years experience as an
investment professional (23 years with CGTC or its affiliates); and Nilly
Sikorsky, Director of The Capital Group, Inc., has had 33 years experience as an
investment professional, all of which was with CGTC or its affiliates.
DISTRIBUTOR AND SPONSOR
SBDS, whose address is 6 St. James Avenue, Boston, Massachusetts 02116, acts
as sponsor and principal underwriter and distributor of the Fund's shares
pursuant to a Distribution Contract with the Trust.
ADMINISTRATOR
Pursuant to an Administrative Services Agreement, SBDS and Signature
(Cayman) provide each of the Fund and the Portfolio, respectively, with general
office facilities and supervise the overall administration of the Fund and the
Portfolio including, among other responsibilities, the preparation and filing of
all documents required for compliance by the Fund and the Portfolio with
applicable laws and regulations and arranging for the maintenance of books and
records of the Fund and the Portfolio. For its services to the Fund, SBDS
receives from the Fund fees payable monthly equal on an annual basis (for the
Fund's then-current fiscal year) to 0.05% of the Fund's average daily net assets
up to $100 million. The Administrator of the Fund receives no compensation from
the Fund with respect to the Fund's assets over $100 million. The administrative
services fees of the Fund are subject to an annual minimum fee. See the
Statement of Additional Information. For its services to the Portfolio,
Signature (Cayman) receives from the Portfolio fees payable monthly equal on an
annual basis (for the Portfolio's then-current fiscal year) to 0.05% of the
Portfolio's average daily net assets.
SBDS and Signature (Cayman) provide persons satisfactory to the respective
Boards of Trustees to serve as officers of the Trust and the Portfolio Trust.
Such officers, as well as certain other employees of the Trust and of the
Portfolio Trust, may be directors, officers or employees of SBDS, Signature
(Cayman) or their affiliates.
SBDS, Signature (Cayman) and their affiliates also serve as administrator
and distributor of other investment companies. SBDS and Signature (Cayman) are
wholly owned subsidiaries of Signature Financial Group, Inc.
FUND ACCOUNTING AGENT
Pursuant to respective fund accounting agreements, Signature Financial
Services, Inc. ("Signature") services as fund accounting agent to each of the
Fund and the Portfolio. For its services to the Fund, Signature receives from
the Fund fees payable monthly equal on an annual basis to $12,000. For its
services to the Portfolio, Signature receives fees payable monthly equal on an
annual basis to $50,000.
TRANSFER AGENT AND CUSTODIAN
Each of the Trust and the Portfolio Trust has entered into a Transfer Agency
Agreement with Investors Bank & Trust Company ("IBT") pursuant to which IBT acts
as transfer agent (the "Transfer Agent") for the Fund and the Portfolio. The
Transfer Agent maintains an account for each shareholder of the Fund and
investor in the Portfolio, performs other transfer agency functions and acts as
dividend disbursing agent for the Fund. Pursuant to respective Custodian
Agreements, IBT also acts as the custodian (the "Custodian") of the assets of
the Fund and the Portfolio. The Portfolio Trust's Custodian Agreement provides
that the Custodian may use the services of sub-custodians with respect to the
Portfolio. The Custodian's responsibilities include safeguarding and controlling
the Fund's cash and the Portfolio's cash and securities, and handling the
receipt and delivery of securities, determining income and collecting interest
on the Portfolio's investments, maintaining books of original entry for
portfolio accounting and other required books and accounts, and calculating the
daily net asset value of the Portfolio. Securities held for the Portfolio may be
deposited into the Federal Reserve-Treasury Department Book Entry System or the
Depositary Trust Company. The Custodian does not determine the investment
policies of the Fund or the Portfolio or decide which securities will be
purchased or sold for the Portfolio. Assets of the Portfolio may, however, be
invested in securities of the Custodian and the Portfolio Trust may deal with
the Custodian as principal in securities transactions for the Portfolio. For its
services, IBT receives such compensation as may from time to time be agreed upon
by it and the Trust or the Portfolio Trust.
PORTFOLIO TRANSACTIONS
To the extent consistent with applicable legal requirements, the Sub-Adviser
may place orders for the purchase and sale of portfolio investments for the
Portfolio with Republic New York Securities Corporation, subject to obtaining
best price and execution for a particular transaction. See the Statement of
Additional Information.
DETERMINATION OF NET ASSET VALUE
The net asset value of the shares of the Fund is determined on each day on
which the New York Stock Exchange is open for regular trading ("Fund Business
Day"). This determination is made once during each such day as of 4:00 p.m., New
York time, by dividing the value of the Fund's net assets (i.e., the value of
its investment in the Portfolio and other assets less its liabilities, including
expenses payable or accrued) by the number of shares of the Fund outstanding at
the time the determination is made.
The value of the Fund's investment in the Portfolio is also determined once
daily at 4:00 p.m., New York time, on each day the New York Stock Exchange is
open for regular trading ("Portfolio Business Day").
The determination of the value of the Fund's investment in the Portfolio is
made by subtracting from the value of the total assets of the Portfolio the
amount of the Portfolio's liabilities and multiplying the difference by the
percentage, effective for that day, which represents the Fund's share of the
aggregate beneficial interests in the Portfolio.
Values of assets held by the Portfolio are determined on the basis of their
market or other fair value, as described in the Statement of Additional
Information.
PURCHASE OF SHARES
Shares of the Fund may be purchased without a sales load at their net asset
value next determined after an order is transmitted to and accepted by the
Distributor. Purchases are therefore effected on the same day the purchase order
is received by the Distributor provided such order is received prior to 4:00
p.m., New York time, on any Fund Business Day.
The minimum initial investment is $10,000 and the minimum subsequent
investment is $2,500. The Fund may accept initial and subsequent investments of
lesser amounts, in its discretion. No minimum is imposed on reinvested
dividends. All purchase payments are invested in full and fractional shares of
the Fund. The Trust reserves the right to cease offering shares of the Fund for
sale at any time.
REDEMPTION OF SHARES
A shareholder may redeem all or any portion of the shares in his account at
any time at the net asset value next determined after a redemption order in
proper form is received by the Transfer Agent. Redemptions are effected on the
same day the redemption order is received by the Transfer Agent provided such
order is received prior to 4:00 p.m., New York time, on any Fund Business Day.
Shares redeemed earn dividends up to and including the day prior to the day the
redemption is effected.
The proceeds of a redemption are normally paid from the Fund in federal
funds on the Fund Business Day on which the redemption is effected, but in any
event within seven days. The right of any shareholder to receive payment with
respect to any redemption may be suspended or the payment of the redemption
proceeds postponed during any period in which the New York Stock Exchange is
closed (other than weekends or holidays) or trading on such Exchange is
restricted or, to the extent otherwise permitted by the 1940 Act, if an
emergency exists.
Redemptions may be made by letter to the Transfer Agent specifying the
dollar amount or number of shares to be redeemed, account number and the Fund.
The letter must be signed in exactly the same way the account is registered (if
there is more than one owner of the shares all must sign) and all signatures
must be guaranteed by a commercial bank which is a member of the FDIC, a trust
company, a member firm of a domestic stock exchange or a foreign branch of any
of the foregoing (a signature guarantee by a savings bank or a notary public is
not acceptable). Further documentation, such as copies of corporate resolutions
and instruments of authority, may be requested from corporations,
administrators, executors, personal representatives, trustees or custodians to
evidence the authority of the person or entity making the redemption request.
An investor may redeem shares in any amount by written request mailed to the
Transfer Agent at the following address:
Republic Funds
c/o Investors Bank & Trust Company
P.O. Box 1537, MFD23
Boston, MA 02205-1537
Checks for redemption proceeds normally will be mailed within seven days,
but will not be mailed until all checks in payment for the purchase of the
shares to be redeemed have been cleared, which may take up to 15 days. Unless
other instructions are given in proper form, a check for the proceeds of a
redemption will be sent to the shareholder's address of record.
DIVIDENDS AND DISTRIBUTIONS
Dividends substantially equal to all of the Fund's net investment income
earned are distributed to Fund shareholders of record semi-annually. Generally,
the Fund's net investment income consists of the interest and dividend income it
earns, less expenses. In computing interest income, premiums are not amortized
nor are discounts accrued on long-term debt securities in the Portfolio, except
as required for federal income tax purposes.
The Fund's net realized short-term and long-term capital gains, if any, are
distributed to shareholders annually. Additional distributions are also made to
the Fund's shareholders to the extent necessary to avoid application of the 4%
non-deductible federal excise tax on certain undistributed income and net
capital gains of regulated investment companies.
Unless a shareholder elects to receive dividends in cash, dividends are
distributed in the form of additional shares of the Fund (purchased at their net
asset value without a sales charge).
TAX MATTERS
This discussion is intended for general information only. An investor should
consult with his own tax advisor as to the tax consequences of an investment in
the Fund, including the status of distributions from the Fund under applicable
state or local law.
Each year, the Trust intends to qualify the Fund and elect that the Fund be
treated as a separate "regulated investment company" under Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"). To so qualify, the Fund
must meet certain income, distribution and diversification requirements.
Provided such requirements are met and all investment company taxable income and
net realized capital gains of the Fund are distributed to shareholders in
accordance with the timing requirements imposed by the Code, generally no
federal income or excise taxes will be paid by the Fund on amounts so
distributed.
Dividends and capital gains distributions, if any, paid to shareholders are
treated in the same manner for federal income tax purposes whether received in
cash or reinvested in additional shares of the Fund. Shareholders must treat
dividends, other than long-term capital gain dividends, as ordinary income.
Dividends designated by the Fund as long-term capital gain dividends are taxable
to shareholders as long-term capital gain regardless of the length of time the
shares of the Fund have been held by the shareholders. Certain dividends
declared in October, November, or December of a calendar year to shareholders of
record on a date in such a month are taxable to shareholders (who otherwise are
subject to tax on dividends) as though received on December 31 of that year if
paid to shareholders during January of the following calendar year.
Foreign Tax Withholding. Income received by the Portfolio from sources
within foreign countries may be subject to withholding and other income or
similar taxes imposed by such countries. If more than 50% of the value of the
Portfolio's total assets at the close of its taxable year consists of securities
of foreign corporations, the Fund will be eligible and intends to elect to treat
its share of any non-U.S. income and similar taxes it pays (or which are paid by
the Portfolio) as though the taxes were paid by the Fund's shareholders.
Pursuant to this election, a shareholder will be required to include in gross
income (in addition to taxable dividends actually received) his pro rata share
of the foreign taxes paid by the Fund or Portfolio, and will be entitled either
to deduct (as an itemized deduction) his pro rata share of foreign income and
similar taxes in computing his taxable income or to use it as a foreign tax
credit against his U.S. federal income tax liability, subject to limitations. No
deduction for foreign taxes may be claimed by a shareholder who does not itemize
deductions, but such a shareholder may be eligible to claim the foreign tax
credit. Shareholders will be notified within 60 days after the close of the
Fund's taxable year whether the foreign taxes paid by the Fund or Portfolio will
be treated as paid by the Fund's shareholders for that year. Furthermore,
foreign shareholders may be subject to U.S. tax at the rate of 30% (or lower
treaty rate) of the income resulting from the Fund's election to treat any
foreign taxes paid by it as paid its shareholders, but will not be able to claim
a credit or deduction for the foreign taxes treated as having been paid by them.
The Fund generally will be required to withhold federal income tax at a rate
of 31% ("backup withholding") from dividends paid, capital gain distributions,
and redemption proceeds to shareholders if (1) the shareholder fails to furnish
the Fund with the shareholder's correct taxpayer identification number ("TIN")
or social security number and to make such certifications as the Fund may
require, (2) the Internal Revenue Service notifies the shareholder or the Fund
that the shareholder has failed to report properly certain interest and dividend
income to the Internal Revenue Service and to respond to notices to that effect,
or (3) when required to do so, the shareholder fails to certify that he is not
subject to backup withholding. Backup withholding is not an additional tax and
any amounts withheld may be credited against the shareholder's federal income
tax liability. Dividends from the Fund attributable to the Fund's net investment
income and short-term capital gains generally will be subject to U.S.
withholding tax when paid to shareholders treated under U.S. tax law as
nonresident alien individuals or foreign corporations, estates, partnerships or
trusts.
The Trust is organized as a Massachusetts business trust and, under current
law, is not liable for any income or franchise tax in the Commonwealth of
Massachusetts as long as each series of the Trust (including the Fund) qualifies
as a "regulated investment company" under the Code.
For additional information relating to the tax aspects of investing in the
Fund and for information about the tax aspects of the Portfolio, see the
Statement of Additional Information.
DESCRIPTION OF SHARES, VOTING RIGHTS AND LIABILITIES
The Trust's Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares of beneficial interest (par value $0.001
per share) and to divide or combine the shares into a greater or lesser number
of shares without thereby changing the proportionate beneficial interests in the
Trust. The shares of each series participate equally in the earnings, dividends
and assets of the particular series. Currently, the Trust has ten series of
shares, each of which constitutes a separately managed fund. The Trust reserves
the right to create additional series of shares.
Each share of the Fund represents an equal proportionate interest in the
Fund with each other share. Shares have no preference, preemptive, conversion or
similar rights. Shares when issued are fully paid and non-assessable, except as
set forth below. Shareholders are entitled to one vote for each share held on
matters on which they are entitled to vote. The Trust is not required and has no
current intention to hold annual meetings of shareholders although the Trust
will hold special meetings of Fund shareholders when in the judgment of the
Trustees of the Trust it is necessary or desirable to submit matters for a
shareholder vote. Shareholders of each series generally vote separately, for
example, to approve investment advisory agreements or changes in fundamental
investment policies or restrictions, but shareholders of all series may vote
together to the extent required under the 1940 Act, such as in the election or
selection of Trustees, principal underwriters and accountants for the Trust.
Under certain circumstances the shareholders of one or more series could control
the outcome of these votes.
The series of the Portfolio Trust will vote separately or together in the
same manner as the series of the Trust. Under certain circumstances, the
investors in one or more series of the Portfolio Trust could control the outcome
of these votes.
Shareholders of the Fund have under certain circumstances (e.g., upon
application and submission of certain specified documents to the Trustees by a
specified number of shareholders) the right to communicate with other
shareholders of the Trust in connection with requesting a meeting of
shareholders of the Trust for the purpose of removing one or more Trustees.
Shareholders of the Trust also have the right to remove one or more Trustees
without a meeting by a declaration in writing by a specified number of
shareholders. Upon liquidation or dissolution of the Fund, shareholders of the
Fund would be entitled to share pro rata in the net assets of the Fund available
for distribution to shareholders.
The Trust is an entity of the type commonly known as a "Massachusetts
business trust". Under Massachusetts law, shareholders of such a business trust
may, under certain circumstances, be held personally liable as partners for its
obligations. However, the risk of a shareholder incurring financial loss on
account of shareholder liability is limited to circumstances in which both
inadequate insurance existed and the Trust itself was unable to meet its
obligations.
The Portfolio Trust is organized as a master trust fund under the laws of
the State of New York. The Portfolio is a separate series of the Portfolio
Trust, which currently has one other series. The Portfolio Trust's Declaration
of Trust provides that the Fund and other entities investing in the Portfolio
(e.g., other investment companies, insurance company separate accounts and
common and commingled trust funds) are each liable for all obligations of the
Portfolio. However, the risk of the Fund incurring financial loss on account of
such liability is limited to circumstances in which both inadequate insurance
existed and the Portfolio itself was unable to meet its obligations.
Accordingly, the Trustees of the Trust believe that neither the Fund nor its
shareholders will be adversely affected by reason of the investment of all of
the Assets of the Fund in the Portfolio.
Each investor in the Portfolio, including the Fund, may add to or reduce its
investment in the Portfolio on each Portfolio Business Day. At 4:00 p.m., New
York time on each Portfolio Business Day, the value of each investor's
beneficial interest in the Portfolio is determined by multiplying the net asset
value of the Portfolio by the percentage, effective for that day, which
represents that investor's share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be effected on that day,
are then effected. The investor's percentage of the aggregate beneficial
interests in the Portfolio is then recomputed as the percentage equal to the
fraction (i) the numerator of which is the value of such investor's investment
in the Portfolio as of 4:00 p.m., New York time on such day plus or minus, as
the case may be, the amount of any additions to or withdrawals from the
investor's investment in the Portfolio effected on such day, and (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of
4:00 p.m., New York time on such day plus or minus, as the case may be, the
amount of the net additions to or withdrawals from the aggregate investments in
the Portfolio by all investors in the Portfolio. The percentage so determined is
then applied to determine the value of the investor's interest in the Portfolio
as of 4:00 p.m., New York time on the following Portfolio Business Day.
PERFORMANCE INFORMATION
Yield and total return data for the Fund may from time to time be included
in advertisements about the Trust. "Total return" is expressed in terms of the
average annual compounded rate of return of a hypothetical investment in the
Fund over periods of 1, 5 and 10 years. All total return figures reflect the
deduction of a proportional share of Fund expenses on an annual basis, and
assume that all dividends and distributions are reinvested when paid. "Yield"
refers to the income generated by an investment in the Fund over the 30-day (or
one month) period ended on the date of the most recent balance sheet of the Fund
included in the Trust's registration statement with respect to the Fund.
Since these total return and yield quotations are based on historical
earnings and since the Fund's total return and yield fluctuate from day to day,
these quotations should not be considered as an indication or representation of
the Fund's total return or yield in the future. Any performance information
should be considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund's portfolio and the market conditions
during the time period indicated, and should not be considered to be
representative of what may be achieved in the future. From time to time the
Trust may also use comparative performance information in such advertisements,
including the performance of unmanaged indices, the performance of the Consumer
Price Index (as a measure for inflation), and data from Lipper Analytical
Services, Inc. and other industry publications.
<PAGE>
- -----
REPUBLIC
INTERNATIONAL EQUITY
FUND
INVESTMENT MANAGER
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
SUB-ADVISER
Capital Guardian Trust Company
333 South Hope Street
Los Angeles, CA 90071
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
Signature Broker-Dealer Services, Inc.
6 St. James Avenue
Boston, MA 02116
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company
89 South Street
Boston, MA 02111
- -----
REPUBLIC
INTERNATIONAL EQUITY
FUND
PROSPECTUS
January 26, 1996
<PAGE>
FT4126E
REPUBLIC U.S.
GOVERNMENT MONEY MARKET FUND
6 St. James Avenue
Boston, Massachusetts 02116
General
and (800) 782-8183 (Toll Free)
Account Information
Republic National Bank of New York - Investment Adviser
("Republic" or the "Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator, Distributor and Sponsor
("Signature" or the "Distributor")
STATEMENT OF ADDITIONAL INFORMATION
Republic U.S. Government Money Market Fund (the "Fund") is a separate
series (portfolio) of the Republic Funds (the "Trust"), an open-end diversified
management investment company which currently consists of six separate
portfolios, each of which has different and distinct investment objectives and
policies. The Fund is described in this Statement of Additional Information.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income as is consistent with
the preservation of capital. The Trust seeks to achieve the investment objective
of the Fund by investing the assets of the Fund in debt obligations issued or
guaranteed by the United States, its agencies or instrumentalities, and
commitments to purchase such obligations ("U.S. Government-backed obligations").
The Fund may invest in U.S. Government-backed obligations subject to repurchase
agreements with recognized securities dealers and banks. There can be no
assurance that the investment objective of the Fund will be achieved.
Shares of the Fund are continuously offered for sale by the Distributor
at net asset value (normally $1.00 per share) with no sales charge (i) directly
to the public, (ii) to customers of a financial institution, such as a federal
or state-chartered bank, trust company or savings and loan association that has
entered into a shareholder servicing agreement with the Trust (collectively,
"Shareholder Servicing Agents"), and (iii) to customers of a securities broker
that has entered into a dealer agreement with the Distributor.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED JANUARY 26, 1996 (THE "PROSPECTUS"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The
<PAGE>
Prospectus and Statement of Additional Information may be obtained
without charge by writing or calling the Trust at the address and telephone
number printed above.
January 26, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies and Restrictions . . . . . . . . 1
Portfolio Transactions . . . . . . . . . . . . . . . . .1
Investment Restrictions . . . . . . . . . . . . . . . .2
Percentage and Rating Restrictions . . . . . . . . . . .5
Performance Information . . . . . . . . . . . . . . . . . . . . 5
Management of the Trust . . . . . . . . . . . . . . . . . . . . 6
Trustees and Officers . . . . . . . . . . . . . . . . 6
Investment Adviser . . . . . . . . . . . . . . . . . . 9
Administrator, Distributor and Sponsor . . . . . . . . 10
Shareholder Servicing Agents, Transfer Agent and
Custodian . . . . . . . . . . . . . . . . . . . . . . 11
Expenses and Expense Limits . . . . . . . . . . . . . 11
Determination of Net Asset Value . . . . . . . . . . . . . . .12
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
Other Information . . . . . . . . . . . . . . . . . . . . . . .14
Capitalization . . . . . . . . . . . . . . . . . . . . 14
Voting Rights . . . . . . . . . . . . . . . . . . . . 15
Independent Auditors . . . . . . . . . . . . . . . . . 15
Counsel . . . . . . . . . . . . . . . . . . . . . . . 15
Registration Statement . . . . . . . . . . . . . . . . 16
Financial Statements . . . . . . . . . . . . . . . . . 16
i
<PAGE>
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Trust by
which shares of the Fund are offered. Unless the context otherwise requires,
terms defined in the Prospectus have the same meaning in this Statement of
Additional Information as in the Prospectus.
ii
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective and Policies" in the Prospectus.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income as is consistent with
the preservation of capital. The Trust seeks to achieve the investment objective
of the Fund by investing the assets of the Fund in U.S. Government-backed
obligations which have, or are deemed to have, remaining maturities not
exceeding 397 days, and in repurchase agreements collateralized by U.S.
Government-backed obligations.
The investment objective of the Fund and related policies and
activities are not fundamental and may be changed by the Board of Trustees of
the Trust without the approval of Fund shareholders.
PORTFOLIO TRANSACTIONS. Purchases and sales of securities will usually
be principal transactions. Portfolio securities normally will be purchased or
sold from or to issuers directly or from or to dealers serving as market makers
for the securities at a net price. Generally, money market securities are traded
on a net basis and do not involve brokerage commissions. The cost of executing
portfolio securities transactions for the Fund primarily consists of dealer
spreads and underwriting commissions. Under the 1940 Act, persons affiliated
with the Fund or the Sponsor are prohibited from dealing with the Fund as a
principal in the purchase and sale of securities unless a permissive order
allowing such transactions is obtained from the Securities and Exchange
Commission.
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities for the Fund, except
that portfolio transactions for the Fund will not be executed through the
Sponsor and the Fund will not deal with the Sponsor as agent or principal.
Subject to policies established by the Trust's Board of Trustees, the Adviser is
primarily responsible for portfolio decisions and the placing of portfolio
transactions. Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of Fund shareholders rather than by any formula. In
placing orders for the Fund, the primary consideration is prompt execution of
orders in an effective manner at the most favorable price, although the Fund
does not necessarily pay the lowest spread or commission available. Other
factors taken into consideration are the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities. The policy of the Fund of
investing
- 1 -
<PAGE>
in securities with short maturities will result in high portfolio
turnover, generally exceeding 100% per year.
The Adviser may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These services,
which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The management fee
paid by the Fund is not reduced because the Adviser and its affiliates receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Adviser may cause the Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the Act) to the Adviser an amount of
commission for effecting a securities transaction for the Fund in excess of the
commission which another broker-dealer would have charged for effecting that
transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees may
determine, and subject to seeking the most favorable price and execution
available, the Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought for certain clients even though it could have
been sold for other clients at the same time, and a particular security may be
sold for certain clients even though it could have been bought for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. In some
instances, one client may sell a particular security to another client. Two or
more clients may simultaneously purchase or sell the same security, in which
event each day's transactions in that security are, insofar as practicable,
averaged as to price and allocated between such clients in a manner which in the
Adviser's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. In addition, when purchases or sales of the same
- 2 -
<PAGE>
security for the Fund and for other clients of the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantage available to large denomination purchases or sales.
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients in terms of the
price paid or received or of the size of the position obtainable.
INVESTMENT RESTRICTIONS. The Trust has adopted the following investment
restrictions with respect to the Fund which may not be changed without approval
by holders of a "majority of the outstanding shares" of the Fund, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund present at a
meeting, if the holders of more than 50% of the outstanding "voting securities"
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities" of the Fund. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money, except that as a temporary measure for
extraordinary or emergency purposes, the Fund may borrow from
banks in an amount not to exceed 1/3 of the value of the net
assets of the Fund including the amount borrowed (moreover, the
Trust (on behalf of the Fund) may not purchase any securities at
any time at which borrowings exceed 5% of the total assets of
the Fund) taken in each case at market value;
(2) purchase any security or evidence of interest therein on margin,
except that the Trust may obtain such short-term credit for the
Fund as may be necessary for the clearance of purchases and
sales of securities;
(3) underwrite securities issued by other persons, except insofar as
the Trust may technically be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in selling
a portfolio security for the Fund;
(4) make loans to other persons except (a) through the lending of
securities held by the Fund, but not in excess of 1/3 of the
Fund's net assets taken at market value, (b) through the use of
fixed time deposits or repurchase agreements or the purchase of
short term obligations, (c) by purchasing all or a portion of an
issue of debt securities of types commonly distributed privately
to financial institutions; for purposes of this Investment
Restriction (4) the purchase of short-term commercial paper or a
portion of an issue of debt
- 3 -
<PAGE>
securities which are part of an issue to the public shall not be
considered the making of a loan;
(5) purchase or sell real estate (including limited partnership
interests but excluding securities secured by real estate or
interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts in the ordinary course of
business (the Trust reserves the freedom of action to hold and
to sell for the Fund real estate acquired as a result of its
ownership of securities);
(6) concentrate its investments in any particular industry (except
for obligations of the U.S. Government and domestic banks), but
if it is deemed appropriate for the achievement of the Fund's
investment objective, up to 25% of the assets of the Fund (taken
at market value at the time of each investment) may be invested
in any one industry;
(7) issue any senior security (as that term is defined in the 1940
Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, except as
appropriate to evidence a debt incurred without violating
Investment Restriction (1) above;
(8) pledge, mortgage or hypothecate for any purpose in excess of 10%
of the net assets of the Fund (taken at market value);
(9) sell any security which it does not own unless by virtue of its
ownership of other securities it has at the time of sale a right
to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold; and
provided, that if such right is conditional the sale is made
upon the same conditions;
(10) invest for the purpose of exercising control or management;
(11)purchase securities issued by any registered investment
company, except by purchase in the open market where no
commission or profit to a sponsor or dealer results from such
purchase other than the customary broker's commission and except
when such purchase, though not made in the open market, is part
of a plan of merger or consolidation; provided, however, that
the Trust (on behalf of the Fund) will not purchase the
securities of any registered investment company if such purchase
at the time thereof would cause more than 10% of the total
assets of the
- 4 -
<PAGE>
Fund(taken at the greater of cost or market value) to be invested
in the securities of such issuers or would cause more than 3% of
the outstanding voting securities of any such issuer to be held
by the Fund; and provided, further, that the Fund shall not
purchase securities issued by any open-end investment company
(for purposes of this clause (11), securities of foreign banks
shall be treated as investment company securities except that
debt securities and nonvoting preferred stock of foreign banks
are not subject to the 10% limitation described herein). (The
Trust, on behalf of the Fund, has no current intention of
investing in the obligations of foreign banks.);
(12)taken together with any investments described in clause (15)
below, invest more than 10% of the net assets of the Fund in
securities that are not readily marketable, including debt
securities for which there is no established market and fixed
time deposits and repurchase agreements maturing in more than
seven days;
(13)purchase or retain any securities issued by an issuer any of
whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer or director of
the Adviser, if after the purchase of the securities of such
issuer by the Trust, on behalf of the Fund, one or more of such
persons owns beneficially more than 1/2 of 1% of the shares or
securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or
securities together own beneficially more than 5% of such shares
or securities, or both, all taken at market value;
(14)write, purchase or sell any put or call option or any
combination thereof;
(15)taken together with any investments described in clause (12)
above, invest in securities which are subject to legal or
contractual restrictions on resale (other than fixed time
deposits and repurchase agreements maturing in not more than
seven days) if, as a result thereof, more than 10% of the net
assets of the Fund, (taken at market value) would be so invested
(including fixed time deposits and repurchase agreements
maturing in more than seven days);
(16)purchase securities of any issuer if such purchase at the time
thereof would cause more than 10% of the voting securities of
such issuer to be held for the Fund; or
(17)make short sales of securities or maintain a short position,
unless at all times when a short position is open the Fund owns
an equal amount of such securities or securities convertible
into or exchangeable, without payment of any further
consideration, for securities of the same issue as, and equal in
amount to, the securities sold short,
- 5 -
<PAGE>
and unless not more than 10% of the net assets of the Fund
(taken at market value) is held as collateral for such sales at
any one time.
NON-FUNDAMENTAL STATE AND FEDERAL RESTRICTIONS. In order to comply with
certain state and federal statutes and regulatory policies, the Fund will not as
a matter of operating policy:
(i) invest more than 15% of the net assets of the Fund (taken at the
greater of cost or market value) in securities that are issued
by issuers which (including the period of operation of any
predecessor company or unconditional guarantor of such issuer)
have been in operation less than three years (including
predecessors) or in securities that are restricted as to resale
by the 1933 Act (including Rule 144A securities).
PERCENTAGE AND RATING RESTRICTIONS. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or a later change in the rating of
a security held by the Fund is not considered a violation of policy, however the
Adviser will consider such change in its determination of whether to hold the
security. To the extent the ratings given by Moody's Investors Service, Inc. or
Standard & Poor's Corporation may change as a result of changes in such
organizations or their rating systems, the Adviser will attempt to use
comparable ratings as standards for investments in accordance with the
investment policies set forth in the Prospectus.
PERFORMANCE INFORMATION
Any current "yield" quotation of the Fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act
consists of an annualized historical yield, carried at least to the nearest
hundredth of one percent, based on a specific seven calendar day period and is
calculated by dividing the net change in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period and multiplying the quotient by 365/7. For this
purpose the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any "effective yield" quotation of the Fund so used is calculated by compounding
the current yield quotation for such period by multiplying such quotation by
7/365, adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result.
- 6 -
<PAGE>
The annualized yield of the Fund for the seven-day period ended
September 30, 1995 was 5.30%. The effective compound annualized yield of the
Fund for such period was 5.45%.
Performance information for the Fund may be compared, in reports and
promotional literature, to: (i) unmanaged indices so that investors may compare
the Fund's results with those of a group of unmanaged securities widely regarded
by investors as representative of the securities markets in general, (ii) other
groups of mutual funds tracked by Lipper Analytical Services, a widely used
independent research firm which ranks mutual funds by overall performance,
investment objectives, and assets, or tracked by other services, companies
(including IBC/Donoghue's Money Fund Reports), publications, or persons who rank
mutual funds on overall performance or other criteria; and (iii) the Consumer
Price Index (measure for inflation) to assess the real rate of return from an
investment of dividends but generally do not reflect deductions for
administrative and management costs and expenses.
Performance information for the Fund reflects only the performance of a
hypothetical investment in the Fund during the particular time period on which
the calculations are based. Performance information should be considered in
light of the Fund's investment objective and policies, characteristics and
quality of the portfolios and the market conditions during the given time
period, and should not be considered as a representation of future results.
Investors who purchase and redeem shares of the Fund through a
Shareholder Servicing Agent may be charged one or more of the following types of
fees as agreed upon by the Shareholder Servicing Agent and the investor, with
respect to the customer services provided by the Shareholder Servicing Agent:
account 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 dividends paid on
those assets). Such fees will have the effect of reducing the yield and
effective yield of the Fund for those investors.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. The address of each, unless otherwise indicated, is 6 St. James
Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
- 7 -
<PAGE>
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant .
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman and Chief Executive Officer, Signature Financial Group, Inc.
("SFG"); Chairman and Chief Executive Officer, Signature (since April,
1989).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, Signature (since October, 1992); law student,
Boston University School of Law (prior to May, 1992).
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, Signature (since February, 1991)
.
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary,
Signature (since April, 1989).
- 8 -
<PAGE>
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, Signature (since April,
1989).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992) .
Messrs. Coolidge, Elder, Lelko, Lenz and Saldana and Mss. Gibson,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which Signature or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Trust
Name of Compensation Part of Fund Benefits Upon Paid to
TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
The compensation table above reflects the fees received by the Trustees
from the Trust for the year ended September 30, 1995. The Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust will receive an
annual retainer of $3,600 and a fee of $1,0001 for each meeting of the Board of
Trustees or committee thereof attended.
As of January 19, 1996, the Trustees and officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund. As of the same
date, the following shareholders of record owned %5 or more of the outstanding
shares of the Fund (the Trust has no knowledge of the beneficial ownership of
such shares): Republic National Bank of New York, 10 East 40th Street, New York,
New York, 10016 - 66.9%; Kinco & Co. c/o Securities Services, One Hanson Place,
Brooklyn, New York, 11243 - 10.6%.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, Republic is responsible
for the investment management of the Fund's assets, including the responsibility
for making investment decisions and placing orders for the purchase and sale of
securities for the Fund directly with the issuers or with brokers or dealers
selected by Republic in its discretion, not including the Distributor. See
"Portfolio Transactions". Republic also furnishes to the Board of Trustees,
which has overall responsibility for the business and affairs of the Trust,
periodic reports on the investment performance of the Fund.
Republic is a wholly-owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Fund.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
- ----------------
1As of November 1, 1995, Trustee fee for each meeting of the Board of
Trustees or committee thereof attended increased from $600 to $1,000.
- 9 -
<PAGE>
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Fund are not
exclusive under the terms of the Investment Advisory Contract. Republic is free
to and does render investment advisory services to others.
The Investment Advisory Contract will remain in effect until October
14, 1996, and will continue in effect thereafter from year to year with respect
to the Fund, provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract may be terminated with respect to the Fund without penalty by
either party on 60 days' written notice and will terminate automatically if
assigned. The Contract provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence or of reckless disregard of its or their obligations and duties under
the Contract.
For the year ended September 30, 1993, of which Hirsch was investment
adviser until August 30, 1993, and Republic Asset Management Corporation was
investment adviser from September 1, 1993 through September 30, 1993 the fee
received was $4,970 net of fee waivers and reimbursements. For the year ended
September 30, 1994, Republic Asset Management Corporation received fees of
$30,201 net of fee waivers and reimbursement. For the year ended September 30,
1995, Republic (formerly Republic Asset Management Corporation) received fees of
$221,919, of which $110,959 was waived.
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
The Distribution Plan adopted by the Trust (the "Plan") provides that
it may not be amended to increase materially the costs which the Fund may bear
pursuant to the Plan without
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<PAGE>
approval by Fund shareholders and that other material amendments of the Plan
must be approved by the Board of Trustees, and by the Trustees who are neither
"interested persons" (as defined in the 1940 Act) of the Trust nor have any
direct or indirect financial interest in the operation of the Plan or in any
related agreement ("Qualified Trustees"), by vote cast in person at a meeting
called for the purpose of considering such amendments. The selection and
nomination of the Trustees of the Trust has been committed to the discretion of
the Trustees who are not "interested persons" of the Trust. The Plan has been
approved, and is subject to annual approval, by the Board of Trustees and by the
Qualified Trustees, by vote cast in person at a meeting called for the purpose
of voting on the Plan. In adopting the Plan, the Trustees considered alternative
methods to distribute shares of the Fund and to reduce the Fund's per share
expense ratio and concluded that there was a reasonable likelihood that the Plan
will benefit the Fund and its shareholders. The Plan is terminable with respect
to the Fund at any time by a vote of a majority of the Qualified Trustees or by
vote of the holders of a majority of the shares of the Fund.
During the fiscal year ended September 30, 1995, the Fund spent a total
of $198,745 on the following pursuant to the Plan: advertising, $0; printing and
mailing of prospectuses and annual reports to other than current shareholders,
$98,839; compensation to underwriters, $0; compensation to broker-dealers,
$99,906; compensation to sales personnel, $0; interest, carrying or other
financing charges, $0; and other marketing expenses, $0. Total expenditures
pursuant to the Plan as a percentage of average daily net assets during the same
period were 0.18%.
The Administrative Services Contract is terminable with respect to the
Fund without penalty at any time by vote of a majority of the Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the Administrative Services Contract, upon not more than
60 days' written notice to the Sponsor or by vote of the holders of a majority
of the shares of the Fund or upon 15 days' notice by the Sponsor. The
Administrative Services Contract will terminate automatically in the event of
its assignment. The Administrative Services Contract also provides that neither
the Administrator nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administrative Services Contract.
For the fiscal year ended September 30, 1993, Signature was paid an
administrative services fee of $79,856 before the fee waiver of $74,886. For the
fiscal year ended
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<PAGE>
September 30, 1994, Signature waived administrative services fees of $180,875
and reimbursed expenses of $54,090. For the fiscal year ended September 30,
1995, Signature was paid administrative services fees of $221,919 of which
$104,924 was waived.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Administrative Services Plan continues in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Administrative Services Plan or in any agreement related to
such Plan ("Qualified Trustees"). The Administrative Services Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or by a
majority vote of Fund shareholders. The Administrative Services Plan may not be
amended to increase materially the amount of permitted expense thereunder
without the approval of a majority of Fund shareholders and may not be
materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees.
The Board of Trustees of the Trust has also approved a Custodian
Agreement and a Transfer Agency Agreement between the Trust and Investors Bank &
Trust Company ("IBT") pursuant to which IBT will provide custodial, fund
accounting, transfer agency, dividend disbursing and shareholder servicing
services to the Trust and the Fund. The principal business address of IBT is 24
Federal Street, Boston, Massachusetts 02110.
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents, see "Management of the
Trust-Shareholder Servicing Agents" in the Prospectus.
EXPENSES AND EXPENSE LIMITS
Certain of the states in which shares of the Fund are expected to be
qualified for sale impose limitations on the expenses of the Fund. If, in any
fiscal year, the total expenses of the Fund (excluding taxes, interest, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative fees) exceed the expense limitations applicable to the Fund
imposed by the securities regulations of any state, the Distributor and the
Adviser each will reimburse the Fund for 50% of the excess. The effective
limitation on an annual basis with respect to the Fund is expected to be 2.5% on
the first $30 million of the Fund's net assets, 2.0% on the next $70 million of
such assets, and 1.5% on any excess above $100 million.
Except for the expenses paid by the Adviser and the
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Distributor, the Fund bears all costs of its operations. Trust expenses directly
related to the Fund are charged to the Fund; other expenses are allocated
proportionally among all the portfolios of the Trust in relation to the net
asset value of the portfolios.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange is open for trading. As of the
date of this Statement of Additional Information, the New York Stock Exchange is
open every weekday except for the days on which the following holidays are
observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
As discussed under the caption "Dividends and Distributions" in the
Prospectus, the Trust uses the amortized cost method to determine the value of
the Fund's portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing an obligation at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund's dollar-weighted average portfolio maturity of
90 days or less must be maintained, and only securities having remaining
maturities of 397 days or less which are determined by the Trust's Board of
Trustees to be of high quality with minimal credit risks may be purchased.
Pursuant to Rule 2a-7, the Board has established procedures designed to
stabilize, to the extent reasonably possible, the price per share of the Fund,
as computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the net asset
value of the Fund calculated by using available market quotations deviates from
the $1.00 per share valuation based on amortized cost. The extent of any
deviation is examined by the Board of Trustees. If such deviation exceeds
$0.003, the Board promptly considers what action, if any, will be initiated. In
the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
the Board will take such corrective action as it regards as necessary and
appropriate, which may
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<PAGE>
include selling portfolio instruments prior to maturity to realize capital gains
or losses or to shorten average portfolio maturity, withholding dividends or
establishing a net asset value per share by using available market quotations.
TAXATION
Each year, the Trust intends to qualify the Fund and elect that the
Fund be treated as a separate "regulated investment company" under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). To so qualify,
the Fund must distribute to shareholders at least 90% of its investment company
taxable income (which includes, among other items, interest, dividends and the
excess of net short-term capital gains over net long-term capital losses) and
must meet certain diversification of assets, source of income, and other
requirements of the Code. By so doing, the Fund will not be subject to federal
income tax on that portion of its net investment income and net realized capital
gains (the excess of any net long-term capital gains over net short-term capital
losses), if any, distributed to shareholders. If the Fund does not meet all of
these Code requirements, it will be taxed as an ordinary corporation.
Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
prevent imposition of the excise tax, the Fund must distribute for each calendar
year an amount equal to the sum of (1) at least 98% of its ordinary income
(excluding any capital gains or losses) for the calendar year, (2) at least 98%
of the excess of its capital gains over capital losses for the 12-month period
ending October 31 of the calendar year, and (3) all such ordinary income and
capital gains for previous years that were not distributed during such years. A
distribution will be treated as paid during the calendar year if it is declared
by the Fund in October, November or December of that year with a record date in
such month and paid by the Fund during January of the following year. Such
distributions will be taxable to shareholders in the calendar year in which the
distributions are declared, rather than the calendar year in which the
distributions are received.
Distributions of investment company taxable income generally are
taxable to shareholders as ordinary income. It is not expected that such
distributions will be eligible for the dividends-received deduction for
corporations. Distributions of net capital gains, if any, are taxable to
shareholders as long-term capital gains, regardless of the length of time the
Fund shares have been held by a shareholder. Long-term capital gains, including
distributions of net capital gains, are currently subject to a maximum federal
tax rate of 28% which is less than the maximum rate imposed on other types of
taxable income. All distributions are taxable to the shareholder whether
reinvested in additional shares or received in cash. Shareholders receiving
distributions in the form of additional shares will have a cost basis for
federal income tax purposes in each share received equal to the net asset value
of a share of
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<PAGE>
the Fund on the reinvestment date. Shareholders will be notified annually as to
the federal tax status of distributions.
Upon disposition (by redemption, repurchase, sale or exchange) of Fund
shares, a shareholder may realize a taxable gain or loss depending upon his
basis in his shares. Realization of such a gain or loss is considered unlikely
because of the Fund's policy to attempt to maintain a $1.00 per share net asset
value. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands. Such gain or loss will generally
be long-term or short-term depending upon the shareholder's holding period for
the shares. However, a loss realized by a shareholder on the disposition of Fund
shares with respect to which long-term capital gain dividends have been received
will, to the extent of such long-term capital gain dividends, be treated as
long-term capital loss if such shares have been held by the shareholder for six
months or less. Further, a loss realized on a disposition will be disallowed to
the extent the shares disposed of are replaced (whether by reinvestment of
distributions or otherwise) within a period of 61 days beginning 30 days before
and ending 30 days after the shares are disposed of. In such a case, the basis
of the shares acquired will be adjusted to reflect the disallowed loss.
The Trust will be required to report to the Internal Revenue Service
(the "IRS") all distributions by the Fund except in the case of certain exempt
shareholders. All such distributions generally will be subject to withholding of
federal income tax at a rate of 31% ("backup withholding") in the case of
nonexempt shareholders if (1) the shareholder fails to furnish the Fund with and
to certify the shareholder's correct taxpayer identification number or social
security number, (2) the IRS notifies the Fund that the shareholder has failed
to report properly certain interest and dividend income to the IRS and to
respond to notices to that effect, or (3) when required to do so, the
shareholder fails to certify that he is not subject to backup withholding. If
the withholding provisions are applicable, any such distributions whether
reinvested in additional shares or taken in cash, will be reduced by the amounts
required to be withheld. Any amounts withheld may be credited against the
shareholder's federal income tax liability. Investors may wish to consult their
tax advisors about the applicability of the backup withholding provisions.
The Trust is organized as a Massachusetts business trust and, under
current law, is not liable for any income or franchise tax in the Commonwealth
of Massachusetts as long as each series of the Trust (including the Fund)
qualifies as a regulated investment company under the Code.
The foregoing discussion relates only to federal income tax law as
applicable to U.S. persons (I.E., U.S. citizens and residents and U.S. domestic
corporations, partnerships, trusts and estates). Distributions by the Fund also
may be subject to state and local taxes, and their treatment under state and
local
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<PAGE>
income tax laws may differ from the federal income tax treatment. Shareholders
should consult their tax advisors with respect to particular questions of
federal, state and local taxation. Shareholders who are not U.S. persons should
consult their tax advisors regarding U.S. and foreign tax consequences of
ownership of shares of the Fund including the likelihood that distributions to
them would be subject to withholding of U.S. tax at a rate of 30% (or at a lower
rate under a tax treaty).
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust". The capitalization of the Trust consists solely of an unlimited
number of shares of beneficial interest with a par value of $0.001 each. The
Board of Trustees may establish additional series (with different investment
objectives and fundamental policies) at any time in the future. Establishment
and offering of additional series will not alter the rights of the Fund's
shareholders. When issued, shares are fully paid, nonassessable, redeemable and
freely transferable. Shares do not have preemptive rights or subscription
rights. In liquidation of the Fund, each shareholder is entitled to receive his
pro rata share of the net assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
As of January 27, 1995, the following persons owned of
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<PAGE>
record or beneficially 5% or more of the Fund's shares (percentage is
percentage of outstanding shares of the Fund owned by the shareholder): Kinco &
Co., c/o Securities Services, One Hanson Place - Lower Level, Brooklyn, NY
11243, 54.8%; Republic National Bank of New York, 176 Broadway, Mezzanine Level,
New York, NY 10038, 38.5%. Kinco & Co. may be deemed to control the Fund by
virtue of its ownership of 54.8% of the outstanding voting securities of the
Fund. As of the same date, the officers and Trustees of the Trust, as a group,
owned less than 1% of the outstanding shares of the Fund.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young LLP , 200
Clarendon Street, Boston, Massachusetts 02116, served as independent auditors of
the Funds of the Trust.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and ]regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus 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
which was filed as an
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<PAGE>
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
FINANCIAL STATEMENTS
The Fund's audited financial statements dated September 30, 1995 are
hereby incorporated herein by reference from the Annual Report of the Fund dated
September 30, 1995 as filed with the Securities and Exchange Commission pursuant
to Rule 30b2-1 under the 1940 Act. A copy of such report will be provided
without charge to each person receiving this Statement of Additional
Information.
FT4126E
<PAGE>
FT4063F
REPUBLIC NEW YORK
TAX FREE MONEY MARKET FUND
6 St. James Avenue
Boston, Massachusetts 02116
General
and (800) 782-8183 (Toll Free)
Account Information
Republic National Bank of New York - Investment Adviser
("Republic" or the "Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator, Distributor and Sponsor
("Signature" or the "Distributor")
STATEMENT OF ADDITIONAL INFORMATION
Republic New York Tax Free Money Market Fund (the "Fund") is a separate
series (portfolio) of the Republic Funds (the "Trust"), an open-end, management
investment company which currently consists of six portfolios, each of which has
different and distinct investment objectives and policies. The Fund is described
in this Statement of Additional Information.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income exempt from federal,
New York State and New York City personal income taxes as is consistent with the
preservation of capital. The Trust seeks to achieve the investment objective of
the Fund by investing the assets of the Fund primarily in a non-diversified
portfolio of short-term, high quality, tax-exempt money market instruments with
maturities of 397 days or less, including obligations of the State of New York
and its political subdivisions, and in participation interests issued by banks
or other financial institutions with respect to such obligations. There can be
no assurance that the investment objective of the Fund will be achieved.
Shares of the Fund are continuously offered for sale by the Distributor
at net asset value (normally $1.00 per share) with no sales charge (i) directly
to the public, (ii) to customers of a financial institution, such as a federal
or state-chartered bank, trust company or savings and loan association that has
entered into a shareholder servicing agreement with the Trust (collectively,
"Shareholder Servicing Agents"), and (iii) to customers of a securities broker
that has entered into a dealer agreement with the Distributor.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED
<PAGE>
JANUARY 26, 1996 (THE "PROSPECTUS"). This Statement of Additional Information
contains additional and more detailed information than that set forth in the
Prospectus and should be read in conjunction with the Prospectus. The Prospectus
and Statement of Additional Information may be obtained without charge by
writing or calling the Trust at the address and telephone number printed above.
January 26, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies and Restrictions . . . . . . . . 1
Variable Rate Instruments and Participation Interests . . 1
"When-Issued" Municipal Obligations . . . . . . . . . . . 2
Stand-by Commitments . . . . . . . . . . . . . . . . . . . 3
Taxable Securities . . . . . . . . . . . . . . . . . . . . 3
Repurchase Agreements . . . . . . . . . . . . . . . . . . 3
Portfolio Transactions . . . . . . . . . . . . . . . . . . 4
Special Factors Affecting New York . . . . . . . . . . . . 5
Investment Restrictions . . . . . . . . . . . . . . . . . 6
State and Federal Restrictions . . . . . . . . . . . . . 8
Percentage and Rating Restrictions . . . . . . . . . . . . 9
Performance Information . . . . . . . . . . . . . . . . . . . . 10
Management of the Trust . . . . . . . . . . . . . . . . . . . . 11
Trustees and Officers . . . . . . . . . . . . . . . . . .11
Investment Adviser . . . . . . . . . . . . . . . . . . . .13
Administrator, Distributor and Sponsor . . . . . . . . . .14
Shareholder Servicing Agents, Transfer Agent and
Custodian . . . . . . . . . . . . . . . . . . . 15
Expenses and Expense Limits . . . . . . . . . . . . . . .16
Determination of Net Asset Value . . . . . . . . . . . . . . . 16
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Federal Income Tax . . . . . . . . . . . . . . . . . . . .17
Alternative Minimum Tax . . . . . . . . . . . . . . . . .19
<PAGE>
Other Information . . . . . . . . . . . . . . . . . . . . . . . 19
Capitalization . . . . . . . . . . . . . . . . . . . . . .19
Voting Rights . . . . . . . . . . . . . . . . . . . . . .20
Independent Auditors . . . . . . . . . . . . . . . . . . .20
Counsel . . . . . . . . . . . . . . . . . . . . . . . . .20
Registration Statement . . . . . . . . . . . . . . . . . .20
Financial Statements . . . . . . . . . . . . . . . . . . .21
Appendix - Additional Information Concerning New York
Municipal Obligations . . . . . . . . . . . . . . . . . . A-1
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Trust by
which shares of the Fund are offered. Unless the context otherwise requires,
terms defined in the Prospectus have the same meaning in this Statement of
Additional Information as in the Prospectus.
i
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective and Policies" in the Prospectus.
The investment objective of the Fund is to provide shareholders of the
Fund with liquidity and as high a level of current income exempt from Federal,
New York State and New York City personal income taxes as is consistent with the
preservation of capital.
As a non-diversified investment company, the Trust is not subject to
any statutory restrictions under the Investment Company Act of 1940 (the "1940
Act") with respect to limiting the investment of the Fund's assets in one or
relatively few issuers. This concentration may present greater risks than in the
case of a diversified company. However, the Trust intends to qualify the Fund as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). In order so to qualify under current law, at
the close of each quarter of the Fund's taxable year, at least 50% of the Fund's
total assets must be represented by cash, U.S. Government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and not more than 10%
of the outstanding voting securities of such issuer. In addition, and again
under current law, at the close of each quarter of its taxable year, not more
than 25% of the Fund's total assets may be invested in securities of one issuer
(or two or more issuers which are controlled by the Fund and which are
determined to be engaged in the same or similar trades or businesses or related
businesses) other than U.S. Government securities.
VARIABLE RATE INSTRUMENTS AND PARTICIPATION INTERESTS. The variable
rate instruments in which the Fund's assets may be invested are payable upon a
specified period of notice which may range from one day up to one year. The
terms of the instruments provide that interest rates are adjustable at intervals
ranging from daily to up to one year and the adjustments are based upon an
appropriate interest rate adjustment index as provided in the respective
instruments. The Trust decides which variable rate instruments it will purchase
on behalf of the Fund in accordance with procedures prescribed by its Board of
Trustees to minimize credit risks. An unrated variable rate instrument may be
determined to meet the Fund's high quality criteria if it is backed by a letter
of credit or guarantee or a right to tender or put the instrument to a third
party or is insured by an insurer that meets the high quality criteria for the
Fund discussed above or on the basis of a credit evaluation of the underlying
obligor. If the credit of the obligor is of "high quality", no credit support
from a bank or other financial institution is necessary. Each unrated variable
rate instrument is evaluated on a quarterly basis to determine that it continues
to meet the Fund's high
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<PAGE>
quality criteria. If an instrument is ever deemed to be of less than high
quality, the Trust either will sell it in the market or exercise the liquidity
feature described below.
Although the rate of the underlying Municipal Obligations may be fixed,
the terms of the participation interest may result in the Fund receiving a
variable rate on its investment. The bank to which a participation interest may
be "put" for the Fund, as well as the bank which issues an irrevocable letter of
credit or guarantee, may be the bank issuing the participation interest, a bank
issuing a confirming letter of credit to that of the issuing bank, or a bank
serving as agent of the issuing bank with respect to the possible repurchase of
the participation interest. The Trust intends to exercise the liquidity feature
on behalf of the Fund only (1) upon a default under terms of the bond documents,
(2) as needed to provide liquidity to the Fund in order to make redemptions of
Fund shares, or (3) to maintain a high quality investment portfolio. Issuers of
participation interests retain a service and letter of credit fee and a fee for
providing the liquidity feature, in an amount equal to the excess of the
interest paid on the instruments over the negotiated yield at which the
participations were purchased on behalf of the Fund. The total fees generally
range from 5% to 15% of the applicable prime rate or other interest rate index.
With respect to insurance, the Trust attempts to have the issuer of the
participation interest bear the cost of the insurance, although the Trust
retains the option to purchase insurance if necessary, in which case the cost of
insurance will be an expense of the Fund. The Adviser has been instructed by the
Trust's Board of Trustees to monitor continually the pricing, quality and
liquidity of the variable rate instruments held for the Fund, including the
participation interests, on the basis of published financial information and
reports of the rating agencies and other bank analytical services to which the
Adviser may subscribe.
While the value of the underlying variable rate instruments may change
with changes in interest rates generally, the variable rate nature of the
underlying variable rate instruments should minimize changes in value of the
instruments. Accordingly, as interest rates decrease or increase, the potential
for capital appreciation and the risk of potential capital depreciation is less
than would be the case with a portfolio of fixed income securities. The
portfolio may contain variable rate instruments on which stated minimum or
maximum rates, or maximum rates set by state law, limit the degree to which
interest on such variable rate instruments may fluctuate; to the extent it does,
increases or decreases in value may be somewhat greater than would be the case
without such limits. Because the adjustment of interest rates on the variable
rate instruments is made in relation to movements of various interest rate
adjustment indices, the variable rate instruments are not comparable to
long-term fixed rate securities. Accordingly, interest rates on the variable
rate instruments may be higher or lower than current market rates
- 2 -
<PAGE>
for fixed rate obligations of comparable quality with similar maturities.
"WHEN-ISSUED" MUNICIPAL OBLIGATIONS. Municipal Obligations purchased on
a "when-issued" or "forward delivery" basis and the securities held in the
Fund's portfolio are subject to changes in value (both generally changing in the
same way, that is, both experiencing appreciation when interest rates decline
and depreciation when interest rates rise) based upon the public's perception of
the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. A separate account of the Fund consisting of cash, cash
equivalents or high quality debt securities equal to the amount of the
"when-issued" or "forward delivery" commitments is established at the Fund's
custodian bank. For the purpose of determining the adequacy of the securities in
the account, the deposited securities are valued at market value. If the market
value of such securities declines, additional cash or high quality debt
securities are placed in the account daily so that the value of the account
equals the amount of the Fund's commitments. On the settlement date of the
"when-issued" or "forward delivery" securities, the Fund's obligations are met
from then-available cash flow, sale of securities held in the separate account,
sale of other securities or, although not normally expected, from sale of the
"when-issued" or "forward delivery" securities themselves (which may have a
value greater or lesser than the Fund's payment obligations).
STAND-BY COMMITMENTS. The amount payable to the Fund upon the exercise
of a stand-by commitment normally is (1) the acquisition cost of the Municipal
Obligation (excluding any accrued interest paid on the acquisition), less any
amortized market premium or plus any amortized market or original issue discount
during the period the Fund owned the security, plus (2) all interest accrued on
the security since the last interest payment date during the period the security
was owned by the Fund. Absent unusual circumstances relating to a change in
market value, the underlying Municipal Obligation is valued at amortized cost.
Accordingly, the amount payable by a bank or dealer during the time a stand-by
commitment is exercisable would be substantially the same as the market value of
the underlying Municipal Obligation. Stand-by commitments are valued at zero for
purposes of computing the net asset value per share of the Fund.
TAXABLE SECURITIES. Although the Trust attempts to invest 100% of the
Fund's net assets in Municipal Obligations, the Trust may invest up to 20% of
the Fund's net assets in securities of the kind described below, the interest
income on which is subject to federal income tax, under any one or more of the
following circumstances: (a) pending investment of proceeds of sales of Fund
shares or of portfolio securities; (b) pending settlement of purchases of
portfolio securities; and (c) to maintain liquidity for the purpose of meeting
anticipated redemptions. In addition,
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<PAGE>
the Trust may temporarily invest more than 20% of the Fund's assets in such
taxable securities when, in the opinion of the Adviser, it is advisable to do so
because of adverse market conditions affecting the market for Municipal
Obligations. The kinds of taxable securities in which the Fund's assets may be
invested are limited to the following short-term, fixed income securities
(maturing in 397 days or less from the time of purchase): (1) obligations of the
U.S. Government or its agencies, instrumentalities or authorities; (2)
commercial paper rated Prime-1 or Prime-2 by Moody's Investors Service, Inc.
("Moody's"), A-1+, A-1 or A-2 by Standard & Poor's Corporation ("Standard &
Poor's") or F-1+, F-1 or F-2 by Fitch Investors Service, Inc. ("Fitch"); (3)
certificates of deposit of domestic banks with assets of $1 billion or more; and
(4) repurchase agreements with respect to Municipal Obligations or other
securities which the Fund is permitted to own. The Fund's assets may also be
invested in Municipal Obligations which are subject to an alternative minimum
tax.
REPURCHASE AGREEMENTS. The Trust may invest the Fund's assets in
instruments subject to repurchase agreements only with member banks of the
Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York) in U.S. Government securities. Under the terms of a
typical repurchase agreement, an underlying debt instrument would be acquired
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase the instrument at a fixed price and time,
thereby determining the yield during the Fund's holding period. This results in
a fixed rate of return insulated from market fluctuations during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements may be deemed to be loans under
the 1940 Act. All repurchase agreements entered into on behalf of the Fund are
fully collateralized at all times during the period of the agreement in that the
value of the underlying security is at least equal to the amount of the loan,
including the accrued interest thereon, and the Trust or its custodian bank has
possession of the collateral, which the Trust's Board of Trustees believes gives
the Fund a valid, perfected security interest in the collateral. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been definitively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. In the event of
default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs in connection
with the disposition of the collateral. The Trust's Board of Trustees believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. Repurchase agreements give rise to income which does not qualify as
tax-exempt income when
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<PAGE>
distributed to Fund shareholders. The Trust will not invest on behalf of the
Fund in a repurchase agreement maturing in more than seven days if any such
investment together with illiquid securities held for the Fund exceed 10% of the
Fund's net assets.
PORTFOLIO TRANSACTIONS. Municipal Obligations and other debt securities
are traded principally in the over-the-counter market on a net basis through
dealers acting for their own account and not as brokers. The cost of executing
portfolio securities transactions for the Fund primarily consists of dealer
spreads and underwriting commissions or concessions. Under the 1940 Act, persons
affiliated with the Fund or the Distributor are prohibited from dealing with the
Fund as a principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Securities and Exchange
Commission.
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities for the Fund. Subject
to policies established by the Trust's Board of Trustees, the Adviser is
primarily responsible for portfolio decisions and the placing of portfolio
transactions. Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of Fund shareholders rather than by any formula. In
placing orders for the Fund, the primary consideration is prompt execution of
orders in an effective manner at the most favorable price, although the Fund
does not necessarily pay the lowest spread or commission available. Other
factors taken into consideration are the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities.
The Adviser may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These services,
which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The management fee
paid from the Fund is not reduced because the Adviser and its affiliates receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Adviser may cause the Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in
- 5 -
<PAGE>
the Act) to the Adviser an amount of commission for effecting a securities
transaction for the Fund in excess of the commission which another broker-dealer
would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees may
determine, and subject to seeking the most favorable price and execution
available, the Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought for certain clients even though it could have
been sold for other clients at the same time, and a particular security may be
sold for certain clients even though it could have been bought for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. In some
instances, one client may sell a particular security to another client. Two or
more clients may simultaneously purchase or sell the same security, in which
event each day's transactions in that security are, insofar as practicable,
averaged as to price and allocated between such clients in a manner which in the
Adviser's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. In addition, when purchases or sales of the same
security for the Fund and for other clients of the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantage available to large denomination purchases or sales.
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients in terms of the
price paid or received or of the size of the position obtainable.
SPECIAL FACTORS AFFECTING NEW YORK. The fiscal stability of New York is
related, at least in part, to the fiscal stability of its localities and
authorities. Various State agencies, authorities and localities have issued
large amounts of bonds and notes either guaranteed or supported by the State
through lease-purchase arrangements, other contractual arrangements or moral
obligation provisions. While debt service is normally paid out of revenues
generated by projects of such State agencies, authorities and localities, the
State has had to provide special assistance in recent years, in some cases of a
recurring nature, to enable such agencies, authorities and localities to meet
their financial obligations and, in some cases, to prevent or cure defaults. To
the extent State agencies and local governments require State assistance to meet
their financial obligations, the
- 6 -
<PAGE>
ability of the State to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.
For further information concerning New York Municipal Obligations, see
the Appendix to this Statement of Additional Information. The summary set forth
above and in the Appendix is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from statements of issuers of New York
Municipal Obligations and does not purport to be complete.
INVESTMENT RESTRICTIONS. The Trust has adopted the following investment
restrictions with respect to the Fund which may not be changed without approval
by holders of a "majority of the outstanding shares" of the Fund, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund present at a
meeting, if the holders of more than 50% of the outstanding "voting securities"
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities" of the Fund. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money or pledge, mortgage or hypothecate assets of
the Fund, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the
value of the net assets of the Fund, including the amount borrowed, and
may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed
only from banks and only to accommodate requests for the redemption of
shares of the Fund while effecting an orderly liquidation of portfolio
securities); for additional related restrictions, see clause (i) under
the caption "State and Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on
margin, except that the Trust may obtain such short-term credit for the
Fund as may be necessary for the clearance of purchases and sales of
securities;
(3) underwrite securities issued by other persons, except
insofar as the Trust may technically be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in selling a
portfolio security for the Fund;
(4) make loans to other persons except (a) through the lending
of securities held by the Fund, but not in excess of
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<PAGE>
1/3 of the Fund's net assets taken at market value, (b) through the use
of fixed time deposits or repurchase agreements or the purchase of
short-term obligations, (c) by purchasing all or a portion of an issue
of debt securities of types commonly distributed privately to financial
institutions; for purposes of this Investment Restriction (4) the
purchase of short-term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan;
(5) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real estate
or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts in the ordinary course of business
(the Trust reserves the freedom of action to hold and to sell for the
Fund real estate acquired as a result of its ownership of securities);
(6) concentrate its investments in any particular industry,
but if it is deemed appropriate for the achievement of the Fund's
investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry, except that the Trust may invest all or substantially all of
the Fund's assets in another registered investment company having the
same investment objective and policies and substantially the same
investment restrictions as those with respect to the Fund;
(7) issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, except as
appropriate to evidence a debt incurred without violating Investment
Restriction (1) above;
(8) write, purchase or sell any put or call option or any
combination thereof;
(9) invest in securities which are subject to legal or
contractual restrictions on resale (other than fixed time deposits and
repurchase agreements maturing in not more than seven days) if, as a
result thereof, more than 10% of the net assets of the Fund would be so
invested (including fixed time deposits and repurchase agreements
maturing in more than seven days); provided, however, that this
Investment Restriction shall not apply to (a) any security if the
holder thereof is permitted to receive payment upon a specified number
of days' notice of the unpaid principal balance plus accrued interest
either from the issuer or by drawing on a bank letter of credit, a
guarantee or an insurance policy issued with respect to such security
or by tendering or "putting" such security to a third party, or (b) the
investment by the Trust of all or substantially all of the Fund's
assets in another registered investment
- 8 -
<PAGE>
company having the same investment objective and policies and
substantially the same investment restrictions as those with respect to
the Fund;
(10) make short sales of securities or maintain a short
position, unless at all times when a short position is open the Fund
owns an equal amount of such securities or securities convertible into
or exchangeable, without payment of any further consideration, for
securities of the same issue as, and equal in amount to, the securities
sold short, and unless not more than 10% of the net assets of the Fund
(taken at market value) is held as collateral for such sales at any one
time (it is the present intention of management to make such sales only
for the purpose of deferring realization of gain or loss for federal
income tax purposes).
For purposes of the investment restrictions described above and the state and
federal restrictions described below, 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. If, however, the
creating government or some other entity, such as an insurance company or other
corporate obligor, guarantees a security or a bank issues a letter of credit,
such a guarantee or letter of credit may, in accordance with applicable rules of
the Securities and Exchange Commission, be considered a separate security and
treated as an issue of such government, other entity or bank.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies, the Trust on behalf of the Fund does not, as
a matter of operating policy: (i) borrow money for any purpose in excess of 10%
of the Fund's total assets (taken at cost) (moreover, the Trust will not
purchase any securities for the Fund's portfolio at any time at which borrowings
exceed 5% of the Fund's total assets (taken at market value)), (ii) pledge,
mortgage or hypothecate for any purpose in excess of 10% of the Fund's net
assets (taken at market value), (iii) sell any security which it does not own
unless by virtue of its ownership of other securities it has at the time of sale
a right to obtain securities, without payment of further consideration,
equivalent in kind and amount to the securities sold and provided that if such
right is conditional the sale is made upon the same conditions, (iv) invest for
the purpose of exercising control or management, (v) purchase securities issued
by any registered investment company except by purchase in the open market where
no commission or profit to a sponsor or dealer results from such purchase other
than the customary broker's commission, or except when such purchase, though not
made in the open market, is part of a plan of merger or consolidation, provided,
however, that the Trust will not purchase the securities of any registered
investment company for the Fund if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at the greater of cost
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<PAGE>
or market value) to be invested in the securities of such issuers or would cause
more than 3% of the outstanding voting securities of any such issuer to be held
for the Fund; and provided, further, that the Trust shall not purchase
securities issued by any open-end investment company, (vi) invest more than 10%
of the Fund's net assets in securities that are not readily marketable,
including fixed time deposits and repurchase agreements maturing in more than
seven days, (vii) purchase securities of any issuer if such purchase at the time
thereof would cause the Fund to hold more than 10% of any class of securities of
such issuer, for which purposes all indebtedness of an issuer shall be deemed a
single class and all preferred stock of an issuer shall be deemed a single
class, (viii) invest more than 5% of the Fund's assets in companies which,
including predecessors, have a record of less than three years' continuous
operation, or (ix) purchase or retain in the Fund's portfolio any securities
issued by an issuer any of whose officers, directors, trustees or security
holders is an officer or Trustee of the Trust, or is an officer or director of
the Adviser, if after the purchase of the securities of such issuer for the Fund
one or more of such persons owns beneficially more than 1/2 of 1% of the shares
or securities, or both, all taken at market value, of such issuer, and such
persons owning more than 1/2 of 1% of such shares or securities together own
beneficially more than 5% of such shares or securities, or both, all taken at
market value. These policies are not fundamental and may be changed by the Trust
on behalf of the Fund without shareholder approval in response to changes in the
various state and federal requirements.
For purposes of the investment restrictions described above, the issuer
of a tax-exempt security is deemed to be the entity (public or private)
ultimately responsible for the payment of principal of and interest on the
security. If, however, the creating government or some other entity, such as an
insurance company or other corporate obligor, guarantees a security or a bank
issues a letter of credit, such a guarantee or letter of credit may, in
accordance with applicable rules of the Securities and Exchange Commission, be
considered a separate security and treated as an issue of such government, other
entity or bank.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or a later change in the rating of
a security held by the Fund is not considered a violation of policy, however the
Adviser will consider such change in its determination of whether to hold the
security.
Subsequent to its purchase by the Trust on behalf of the Fund, a rated
Municipal Obligation may cease to be rated or its rating may be reduced below
the minimum required for purchase for the Fund. Neither event requires sale of
such Municipal
- 10 -
<PAGE>
Obligation by the Trust (other than variable rate instruments which must be sold
if they are not "high quality"), but the Adviser considers such event in
determining whether the Trust should continue to hold the Municipal Obligation
on behalf of the Fund. To the extent that the ratings given to the Municipal
Obligations or other securities held by the Trust on behalf of the Fund are
altered due to changes in either the Moody's, Standard & Poor's or Fitch's
ratings systems (see "Description of Ratings" in Appendix A to the Prospectus
for an explanation of Standard & Poor's, Moody's and Fitch ratings), the Adviser
will adopt such changed ratings as standards for its future investments in
accordance with the investment policies contained in the Prospectus. Certain
Municipal Obligations issued by instrumentalities of the U.S. Government are not
backed by the full faith and credit of the U.S. Treasury but only by the
creditworthiness of the instrumentality. The Trust's Board of Trustees has
determined that any Municipal Obligation that depends directly, or indirectly
through a government insurance program or other guarantee, on the full faith and
credit of the U.S. Government is considered to have a rating in the highest
category. Where necessary to ensure that the Municipal Obligations are of "high
quality" (I.E., within the two highest ratings assigned by any major rating
service), or where the obligations are not freely transferable, the Trust
requires that the obligation to pay the principal and accrued interest be backed
by an unconditional irrevocable bank letter of credit, a guarantee, insurance or
other comparable undertaking of an approved financial institution.
PERFORMANCE INFORMATION
Any current "yield" quotation of the Fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act
consists of an annualized historical yield, carried at least to the nearest
hundredth of one percent, based on a specific seven calendar day period and is
calculated by dividing the net change in the value of an account having a
balance of one share at the beginning of the period by the value of the account
at the beginning of the period and multiplying the quotient by 365/7. For this
purpose the net change in account value would reflect the value of additional
shares purchased with dividends declared on the original share and dividends
declared on both the original share and any such additional shares, but would
not reflect any realized gains or losses from the sale of securities or any
unrealized appreciation or depreciation on portfolio securities. In addition,
any "effective yield" quotation of the Fund so used is calculated by compounding
the current yield quotation for such period by multiplying such quotation by
7/365, adding 1 to the product, raising the sum to a power equal to 365/7, and
subtracting 1 from the result. For the 30-day period ended October 31, 1995, the
yield of the Fund was [ ]%.
Any "tax equivalent yield" quotation for the Fund is
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<PAGE>
calculated as follows: if the entire current yield quotation for such period is
tax-exempt, the tax equivalent yield will be the current yield quotation divided
by 1 minus a stated income tax rate or rates. If a portion of the current yield
quotation is not tax-exempt, the tax equivalent yield will be the sum of (a)
that portion of the yield which is tax-exempt divided by 1 minus a stated income
tax rate or rates, and (b) the portion of the yield which is not tax-exempt. For
the 30-day period ended October 31, 1995, the tax equivalent yield of the Fund
was [ ]%.
A "total rate of return" quotation for the Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the net asset value on the first day of such
period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result. The total return of the Fund for the period November 17, 1995
(commencement of operations) to October 31, 1995 was 3.31%.
Any "tax equivalent total rate of return" quotation for the Fund is
calculated as follows: if the entire current total rate of return quotation for
such period is tax-exempt, the tax equivalent total rate of return will be the
current total rate of return quotation divided by 1 minus a stated income tax
rate or rates. If a portion of the current total rate of return quotation is not
tax-exempt, the tax equivalent total rate of return will be the sum of (a) that
portion of the total rate of return which is tax-exempt divided by 1 minus a
stated income tax rate or rates, and (b) the portion of the total rate of return
which is not tax-exempt. The tax equivalent total rate of return of the Fund for
the period ended October 31, 1995 was []%.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. The address of each, unless otherwise indicated, is 6 St. James
Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
126 Butternut Hollow Road, Greenwich, Connecticut 06830 -
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<PAGE>
Management Consultant.
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman and Chief Executive Officer, Signature Financial Group, Inc.
("SFG"); Chairman and Chief Executive Officer, Signature (since April,
1989).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, Signature (since October, 1992); law student,
Boston University School of Law (prior to May, 1992).
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, Signature (since February, 1991)
.
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary,
Signature (since April, 1989).
- 13 -
<PAGE>
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, Signature (since April,
1989).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992) .
Messrs. Coolidge, Elder, Lelko,, Lenz and Saldana and Mss. Gibson,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which Signature or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Trust
Name of Compensation Part of Fund Benefits Upon Paid to
TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
<PAGE>
The compensation table above reflects the fees received by the Trustees
from the Trust for the period from November 17, 1995 (commencement of
operations) to October 31, 1995. The Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust will receive an annual retainer of
$3,600 and a fee of $1,0001 for each meeting of the Board of Trustees or
committee thereof attended.
As of January 19, 1996, the Trustees and officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund. As of the same
date, the following shareholders of record owned 5% or more of the outstanding
shares of the Fund (the Trust has no knowledge of the beneficial ownership of
such shares): Republic National Bank of New York, 10 East 40th Street, New York,
New York, 10016 - 61.1%; Kinco & Co. c/o Securities Services, One Hanson Place,
Brooklyn, New York, 11243 - 17.1%; Republic Bank of Savings, 10 East 40th
Street, New York, New York, 10016 - 15.3%.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, Republic is responsible
for the investment management of the Fund's assets, including the responsibility
for making investment decisions and placing orders for the purchase and sale of
securities for the Fund directly with the issuers or with brokers or dealers
selected by Republic in its discretion, not including the Distributor. See
"Portfolio Transactions". Republic also furnishes to the Board of Trustees,
which has overall responsibility for the business and affairs of the Trust,
periodic reports on the investment performance of the Fund.
Republic is a wholly-owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Fund.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller o
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1As of November 1, 1995, Trustee fee for each meeting of the Board of
Trustees or committee thereof attended increased from $600 to $1,000.
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the Currency relating to fiduciary powers of national banks. These regulations
provide, in general, that assets managed by a national bank as fiduciary shall
not be invested in stock or obligations of, or property acquired from, the bank,
its affiliates or their directors, officers or employees or other persons with
substantial connections with the bank. The regulations further provide that
fiduciary assets shall not be sold or transferred, by loan or otherwise, to the
bank or persons connected with the bank as described above. Republic, in
accordance with federal banking laws, may not purchase for its own account
securities of any investment company the investment adviser of which it
controls, extend credit to any such investment company, or accept the securities
of any such investment company as collateral for a loan to purchase such
securities. Moreover, Republic, its officers and employees do not express any
opinion with respect to the advisability of any purchase of such securities.
The investment advisory services of Republic to the Fund are not
exclusive under the terms of the Investment Advisory Contract. Republic is free
to and does render investment advisory services to others.
The Investment Advisory Contract will remain in effect until September
.., 1996, and will continue in effect thereafter from year to year with respect
to the Fund, provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract may be terminated with respect to the Fund without penalty by
either party on 60 days' written notice and will terminate automatically if
assigned. The Contract provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence or of reckless disregard of its or their obligations and duties under
the Contract.
For the period November 17, 1995 (commencement of operations) to
October 31, 1995, investment advisory fees aggregated $77,177, of which the
entire amount was waived.
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
The Distribution Plan adopted by the Trust (the "Plan") provides that
it may not be amended to increase materially the costs which the Fund may bear
pursuant to the Plan without approval by Fund shareholders and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial
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interest in the operation of the Plan or in any related agreement
("Qualified Trustees"), by vote cast in person at a meeting called for the
purpose of considering such amendments. The selection and nomination of the
Trustees of the Trust has been committed to the discretion of the Trustees who
are not "interested persons" of the Trust. The Plan has been approved, and is
subject to annual approval, by the Board of Trustees and by the Qualified
Trustees, by vote cast in person at a meeting called for the purpose of voting
on the Plan. In adopting the Plan, the Trustees considered alternative methods
to distribute shares of the Fund and to reduce the Fund's per share expense
ratio and concluded that there was a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan is terminable with respect to
the Fund at any time by a vote of a majority of the Qualified Trustees or by
vote of the holders of a majority of the shares of the Fund.
During the period from November 17, 1995 (commencement of operations)
to October 31, 1995, the Fund spent a total of $48,825, on the following
pursuant to the Plan: advertising, $0; printing and mailing of prospectuses and
annual reports to other than current shareholders, $48,550; compensation to
underwriters, $0; compensation to broker-dealers, $0; compensation to sales
personnel, $0; interest, carrying or other financing charges, $0; and other
marketing expenses, $275. Total expenditures pursuant to the Plan as a
percentage of average daily net assets during the same period were 0.10%.
The Administrative Services Contract is terminable with respect to the
Fund without penalty at any time by vote of a majority of the Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the Administrative Services Contract, upon not more than
60 days' written notice to the Sponsor or by vote of the holders of a majority
of the shares of the Fund or upon 15 days' notice by the Sponsor. The
Administrative Services Contract will terminate automatically in the event of
its assignment. The Administrative Services Contract also provides that neither
the Administrator nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of its or their duties or by reason of reckless disregard of its or
their obligations and duties under the Administrative Services Contract.
For the period from November 17, 1995 (commencement of operations) to
October 31, 1995, Signature was paid an administration fees of $77,177, of which
$46,053 was waived.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Administrative Services Plan continues in effect indefinitely if
such continuance is specifically approved at
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least annually by a vote of both a majority of the Trustees and a majority of
the Trustees who are not "interested persons" of the Fund and who have no direct
or indirect financial interest in the operation of the Administrative Services
Plan or in any agreement related to such Plan ("Qualified Trustees"). The
Administrative Services Plan may be terminated at any time by a vote of a
majority of the Qualified Trustees or by a majority vote of Fund shareholders.
The Administrative Services Plan may not be amended to increase materially the
amount of permitted expense thereunder without the approval of a majority of
Fund shareholders and may not be materially amended in any case without a vote
of the majority of both the Trustees and the Qualified Trustees.
The Board of Trustees of the Trust has also approved a Custodian
Agreement and a Transfer Agency Agreement between the Trust and Investors Bank &
Trust Company ("IBT") pursuant to which IBT will provide custodial, fund
accounting, transfer agency, dividend disbursing and shareholder servicing
services to the Trust and the Fund. The principal business address of IBT is 24
Federal Street, Boston, Massachusetts 02110.
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents, see "Management of the Trust -
Shareholder Servicing Agents" in the Prospectus.
EXPENSES AND EXPENSE LIMITS
Certain of the states in which shares of the Fund are expected to be
qualified for sale impose limitations on the expenses of the Fund. If, in any
fiscal year, the total expenses of the Fund (excluding taxes, interest, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative fees) exceed the expense limitations applicable to the Fund
imposed by the securities regulations of any state, the Distributor and the
Adviser each will reimburse the Fund for 50% of the excess. The effective
limitation on an annual basis with respect to the Fund is expected to be 2.5% on
the first $30 million of the Fund's net assets, 2.0% on the next $70 million of
such assets, and 1.5% on any excess above $100 million.
Except for the expenses paid by the Adviser and the Distributor, the
Fund bears all costs of its operations. Trust expenses directly related to the
Fund are charged to the Fund; other expenses are allocated proportionally among
all the portfolios of the Trust in relation to the net asset value of the
portfolios.
DETERMINATION OF NET ASSET VALUE
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The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange is open for trading. As of the
date of this Statement of Additional Information, the New York Stock Exchange is
open every weekday except for the days on which the following holidays are
observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
As discussed under the caption "Dividends and Distributions" in the
Prospectus, the Trust uses the amortized cost method to determine the value of
the Fund's portfolio securities pursuant to Rule 2a-7 under the 1940 Act. The
amortized cost method involves valuing an obligation at its cost and amortizing
any discount or premium over the period until maturity, regardless of the impact
of fluctuating interest rates on the market value of the security. During these
periods the yield to a shareholder may differ somewhat from that which could be
obtained from a similar fund which utilizes a method of valuation based upon
market prices. Thus, during periods of declining interest rates, if the use of
the amortized cost method resulted in a lower value of the Fund's portfolio on a
particular day, a prospective investor in the Fund would be able to obtain a
somewhat higher yield than would result from an investment in a fund utilizing
solely market values, and existing Fund shareholders would receive
correspondingly less income. The converse would apply during periods of rising
interest rates.
Rule 2a-7 provides that in order to value its portfolio using the
amortized cost method, the Fund's dollar-weighted average portfolio maturity of
90 days or less must be maintained, and only securities having remaining
maturities of 397 days or less which are determined by the Trust's Board of
Trustees to be of high quality with minimal credit risks may be purchased.
Pursuant to Rule 2a-7, the Board has established procedures designed to
stabilize, to the extent reasonably possible, the price per share of the Fund,
as computed for the purpose of sales and redemptions, at $1.00. Such procedures
include review of the Fund's portfolio holdings by the Board of Trustees, at
such intervals as it may deem appropriate, to determine whether the net asset
value of the Fund calculated by using available market quotations deviates from
the $1.00 per share valuation based on amortized cost. The extent of any
deviation is examined by the Board of Trustees. If such deviation exceeds
$0.003, the Board promptly considers what action, if any, will be initiated. In
the event the Board determines that a deviation exists which may result in
material dilution or other unfair results to investors or existing shareholders,
the Board will take such corrective action as it regards as necessary and
appropriate, which may include selling portfolio instruments prior to maturity
to realize capital gains or losses or to shorten average portfolio maturity,
withholding dividends or establishing a net asset value per share by using
available market quotations.
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TAXATION
FEDERAL INCOME TAX
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code (the "Code"). By so
qualifying, the Fund will be exempt from federal income taxes to the extent that
it distributes substantially all of its net investment income and net realized
capital gains to shareholders.
It is intended that the Fund's assets will be sufficiently invested in
municipal securities to qualify to pay "exempt-interest dividends" (as defined
in the Code) to shareholders. The Fund's dividends payable from net tax-exempt
interest earned from municipal securities will qualify as exempt-interest
dividends if, at the close of each quarter of its taxable year, at least 50% of
the value of its total assets consists of securities the interest on which is
exempt from the regular federal income tax under Code section 103.
Exempt-interest dividends distributed to shareholders are not included in
shareholders' gross income for regular federal income tax purposes.
The Fund will determine periodically which distributions will be
designated as exempt-interest dividends. If the Fund earns income which is not
eligible to be so designated, the Fund, nonetheless, intends to distribute such
income. Such distributions will be subject to federal, state, and local state
taxes, as applicable, in the hands of shareholders.
Distributions of net investment income received by the Fund from
investment in taxable debt securities, or ordinary income realized upon the
disposition of market discount bonds (including tax-exempt market discount
bonds), and of any net realized short-term capital gains will be taxable to
shareholders as ordinary income. Because the Fund's investment income is derived
from interest rather than dividends, no portion of such distributions is
expected to be eligible for the dividends-received deduction available to
corporations.
Under the Code, any distribution designated as being made from the
Fund's net realized long-term capital gains is taxable to shareholders as
long-term capital gains, regardless of the length of time shares are held.
Distributions by the Fund other than exempt-interest dividends and
redemption proceeds may be subject to backup withholding at the rate of 31%.
Backup withholding generally applies to shareholders who have failed to properly
certify their taxpayer identification numbers, who fail to provide other
required tax-related certifications, and with respect to whom the Fund has
received certain notifications from the Internal Revenue Service requiring or
permitting the Fund to apply backup
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withholding is not an additional tax and amounts so withheld generally may be
applied by affected shareholders as a credit against their federal income tax
liability.
Interest on certain types of private activity bonds is not exempt from
federal income tax when received by "substantial users" or persons related to
substantial users as defined in the Code. The term "substantial user" includes
any "nonexempt person" who regularly uses in trade or business part of a
facility financed from the proceeds of private activity bonds. The Fund may
invest periodically in private activity bonds and, therefore, may not be
appropriate investments for entities that are substantial users of facilities
financed by private activity bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he/she or his/her immediate family (spouse, brothers,
sisters, and lineal descendants) owns indirectly in aggregate more than 50% in
the equity value of the substantial user.
Opinions relating to the tax status of interest derived from individual
municipal securities are rendered by bond counsel to the issuer. Although the
Fund's advisor attempts to determine that any security it contemplates
purchasing on behalf of the Fund is issued with an opinion indicating that
interest payments will be federal and (as applicable) state tax-exempt, neither
the advisor nor the Fund's counsel makes any review of proceedings relating to
the issuance of municipal securities or the bases of such opinions.
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the federal income tax exemption for
interest on municipal securities, and similar proposals may be introduced in the
future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be adversely affected. Under these
circumstances, Fund management would re-evaluate the Fund's investment
objectives and policies and would consider either changes in the structure of
the Fund and the Trust or their dissolution.
ALTERNATIVE MINIMUM TAX
While the interest on bonds issued to finance essential state and local
government operations is generally tax-exempt, interest on certain nonessential
or private activity securities issued after August 7, 1986, while exempt from
the regular federal income tax, constitutes a tax-preference item for taxpayers
in determining alternative minimum tax liability under the Code and income tax
provisions of several states. The interest on private activity securities could
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation.
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All distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to or increase their liability
under, the alternative minimum tax and environmental tax because these
distributions are included in the corporation's adjusted current earnings.
The Fund will inform shareholders annually as to the dollar amount of
distributions derived from interest payments on private activity securities.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders; no attempt has been made
to discuss individual tax consequences. A prospective investor should consult
his or her tax advisor or state or local tax authorities to determine whether
the Fund is a suitable investment based on his or her tax situation.
SPECIAL TAX CONSIDERATIONS
Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by New York residents from interest on qualifying
New York bonds generally are exempt from New York State and New York City
personal income taxes, but not corporate franchise taxes. Dividends and
distributions derived from taxable income and capital gains are not exempt from
New York State and New York City taxes. Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares of the Fund is not
deductible for New York State or New York City personal income tax purposes.
Gain on the sale of redemption of Fund shares generally is subject to New York
State and New York City personal income tax.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of
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the Fund, each shareholder is entitled to receive his pro rata share of the net
assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young LLP, 200
Clarendon Street, Boston, Massachusetts 02116, served as independent auditors of
the Funds of the Trust.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
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This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus 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
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Fund's current audited financial statements dated October 31, 1995
are hereby incorporated herein by reference from the Annual Report of the Fund
dated October 31, 1995 as filed with the Securities and Exchange Commission
pursuant to Rule 30b2-1 under the 1940 Act. A copy of such report will be
provided without charge to each person receiving this Statement of Additional
Information.
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APPENDIX
ADDITIONAL INFORMATION CONCERNING
NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations . It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 23, 1995.
GENERAL
New York (the "State") is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. The
State has a declining proportion of its work force engaged in manufacturing and
an increasing proportion engaged in service industries. This transition reflects
a national trend.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than that
of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an 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. New York City (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.
Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghampton -- original site of
the International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City houses the home
offices of three major radio and television broadcasting networks, most of the
national magazines and
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a substantial portion of the nation's book publishers. The City also retains
leadership in the design and manufacture of men's and women's apparel.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities , but also by entities, such as the Federal government, that
are not under the control of the State. The State Financial Plan is 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, the extent of corporate and governmental restructuring, Federal
financial and monetary policies, the availability of credit, the level of
interest rates, and the condition of the world economy,
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<PAGE>
which would have an adverse effect on the State. There can be no assurance that
the State economy will not experience results in the current fiscal year that
are worse than predicted, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
The national economy began to expand in 1991, although the growth rate
for the first two years of the expansion was modest by historical standards. The
State economy remained in recession until 1993, when employment growth resumed.
Since November 1992, the State has added approximately 185,000 jobs. Employment
growth has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, and defense industries. Personal
income increased substantially in 1992 and 1993, aided significantly by large
bonus payments in banking and financial industries.
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board shifted to a policy of monetary tightening
by raising interest rates throughout the year. As a result, the national
economic growth is expected to weaken, but not turn negative, during the course
of 1995 before beginning to rebound by the end of the year. This dynamic is
often described as a "soft landing." The overall rate of growth of the national
economy during calendar year 1995 will be slightly below the "consensus" of a
widely followed survey of national economic forecasters. Growth in the real
gross domestic product during 1995 is projected to be moderate (3.0 percent),
with declines in defense spending and net exports more than offset by increases
in consumption and investment. Continuing efforts by business and government to
reduce costs are expected to exert a drag on economic growth. Inflation, as
measured by the Consumer Price Index, is projected to remain about 3 percent due
to moderate wage growth and foreign competition. Personal income and wages are
projected to increase by about 6 percent or more.
The State economy had a mixed performance during 1994. The moderate
employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. New York's economy is expected to continue to expand modestly
during 1995, but there will be a pronounced slow-down during the course of the
year. Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the same
as 1994. Both personal income and wages are expected to record moderate gains in
1995. Bonus payments in the securities industry are expected to increase from
last year's depressed level. Personal income rose 4.0 percent in 1994.
The State has for many years had a very high State and local tax burden
relative to other States. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, may have
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
To stimulate the State's economic growth, the State has developed
programs, including the provision of direct financial assistance, designed to
assist businesses to expand existing operations located within the State and to
attract
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new businesses to the State. Local industrial development agencies raised an
aggregate of approximately $7.8 billion in separate tax-exempt bond issues
through December 31, 1993. There are currently over 100 county, city, town and
village agencies. In addition, the New York State Urban Development Corporation
is empowered to issue, subject to certain State constitutional restrictions and
to approval by the Public Authorities Control Board, bonds and notes on behalf
of private corporations for economic development projects. The State has also
taken advantage of changes in Federal bank regulations to establish a free
international banking zone in the City.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to 40
"economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the Executive Budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1995, and ends on
March 31, 1996, is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. 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 1995-96 fiscal year was formulated on June 20, 1995, and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor. The State Financial Plan will be updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (I.E., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and
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revenues, would be out of balance by almost $4.7 billion, as a result of the
projected structural deficit resulting from the ongoing disparity between
sluggish growth in receipts, the effect of prior-year tax changes, and the rapid
acceleration of spending growth; the impact of unfunded 1994-95 initiatives,
primarily for local aid programs; and the use of one-time solutions, primarily
surplus funds from the prior year, to fund recurring spending in the 1994-95
budget. The Governor proposed additional tax cuts, to spur economic growth and
provide relief for low- and middle-income tax payers, which were larger than
those ultimately adopted, and which added $240 million to the then projected
imbalance or budget gap, bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State work force, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
The Executive Budget indicates that for years State revenues have grown
at a slower rate than State spending, producing an increasing structural
deficit, and that as the Executive Budget is enacted, the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts will
eliminate potential imbalances in future fiscal years. The Governor's
recommended multi-year personal income tax cuts are designed to reduce the yield
on that tax by about one-third by 1998, and could require significant additional
spending cuts in those years, increased economic growth to provide additional
revenues, additional revenue measures, or a combination of those factors.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan
are the General Fund, the Special Revenue Funds, the Capital Projects Funds, and
the Debt Service Funds.
GENERAL FUND RECEIPTS
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.
In the State's 1995-96 fiscal year, the General Fund is expected to account for
approximately 49 percent of total governmental-funded disbursements and 71
percent of total State-funded disbursements. General Fund moneys are also
transferred to other
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funds, primarily to support certain capital projects and debt service on
long-term bonds, where these costs are not funded from other sources.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$33.110 billion, a reduction of $48 million from the total receipts in the 1994-
95 fiscal year. Tax receipts are projected at $29.793 billion for the 1995-96
fiscal year. Although growth in the base for tax receipts is expected to
accelerate during the 1995-96 fiscal year, tax receipts are expected to fall by
3.5 percent, principally due to the combined effect of implementing during the
1995-96 fiscal year (1) a portion of the tax reductions originally enacted in
1987 and deferred each year since 1990, (2) additional tax cuts to prevent tax
increases also originally enacted in 1987 from taking effect and (3) the
proposed employer day care credit ($5 million), together with the incremental
cost of the tax reductions enacted in 1994 (more than $500 million), which
effectively negate the effect of projected growth in the recurring revenue base.
In addition, certain nonrecurring revenues in the 1994-95 receipts base,
including the 1993-94 surplus of $1.026 billion, additional earmarking to
dedicated funds (more than $210 million) and other miscellaneous one-time
receipts (more than $100 million) are not available in the 1995-96 fiscal year,
thereby reducing potential year-over-year growth by another 4 percentage points.
The projected yield of personal income tax in the 1995-96 fiscal year
of $17.285 billion is a decrease of $305 million from reported collections in
the State's 1994-95 fiscal year. The decrease reflects both the effects of the
tax reductions and the fact that reported collections in the preceding year were
affected by net refund reserve transactions that buoyed collections in that year
by $862 million that will be unavailable in the current year. Without these
changes, the yield of the tax would have grown by more than $1.0 billion (6
percent), reflecting liability growth for the 1995 tax year projected at
approximately the same rate. The income base for the tax is projected to rise
approximately 5 percent for the 1995 tax year. Personal income tax receipts
showed a sharp increase in 1994-95 and are expected to decline in 1995-96.
Personal income tax reductions recommended in the Executive Budget are projected
to produce taxpayer savings of $720 million in calendar year 1995 reflecting the
scheduled implementation of the 1987 tax reductions. The tax reductions
recommended by the Governor are part of a multi-year program designed to reduce
the yield of the income tax by about one-third by 1998.
Receipts in user taxes and fees in the State's 1995-96 fiscal year are
expected to total $6.697 billion, an increase of $73 million from reported 1994-
95 results. Growth in user taxes and fees is expected to slow to about 1 percent
in 1995-96, reflecting nearly $70 million of additional tax relief in this
category in the coming year resulting from tax reductions enacted in 1994, the
absence of extraordinary audit collections received in 1994-95, and a slowdown
in the underlying growth rate of sales and use tax collections, offset by a
projected improvement of $41 million as a result of recommended legislation to
enhance sales tax collection procedures. Business tax receipts are projected at
$4.709 billion, a decline of $360 million from reported 1994-95 results. The
decline in the 1995-96 fiscal year largely reflecting the effect of tax
reductions enacted in 1994.
Total receipts from other taxes in the State's 1995-96 fiscal year are
projected at $1.102 billion, $6 million less than in the preceding year. The
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estimates reflect 1994 and 1995 legislation reducing the burden of the real
property gains tax and the estate tax as well as diversion of a portion of the
real estate transfer tax proceeds to the Environmental Protection Fund.
Miscellaneous receipts in the State's 1995-96 fiscal year are expected to total
$1.596 billion, an increase of $335 million above the amount received in the
prior State fiscal year. Growth in overall collections from miscellaneous
receipts in the coming fiscal year is expected to result largely from several
discrete actions involving settlement of environmental litigation, the
recommended merger of public authorities, and transactions with the Power
Authority, which together account for over $200 million of projected
miscellaneous receipts anticipated in 1995-96. Transfers from other funds
continue at prior year levels, with the addition of the transfer of $220 million
in excess funds from the Metropolitan Mass Transportation Operating Assistance
Fund.
GENERAL FUND DISBURSEMENTS
General Fund disbursements are projected to total $33.055 billion in
1995-96, a decrease of $344 million from the total amount disbursed in the prior
fiscal year. This decline reflects a broad agenda of cost containment actions,
more than offsetting modest increases for fixed costs, such as pensions, debt
service on bonds sold during the current year and capital projects under
construction.
Disbursements from grants to local governments are projected to total
$22.910 billion in the 1995-96 State Financial Plan, a decrease of $392 million
from 1994-95 levels. Although spending in this category is reduced, direct
payments to local governments, including school aid and revenue sharing are
maintained largely at last year's levels. This category of the State Financial
Plan includes $10.823 billion in aid for elementary, secondary, and higher
education. Costs for social services, such as Medicaid, income maintenance and
child support services account for $8.706 billion. Remaining disbursements
primarily support community-based mental hygiene programs, community and public
health programs, local transportation programs, and revenue sharing.
Significant decreases from the prior year result largely from cost
containment initiatives in Medicaid and other social welfare programs. Payments
for Medicaid from the General Fund are projected to be $506 million lower than
in 1994-95. $128 Million in operating aid to the New York City Transit Authority
will be eliminated, matching the reduction in New York City support of the
Authority.
Spending for State operations is projected at $6.020 billion, a
decrease of $288 million. Recommendations in the Executive Budget reduce the
work force by approximately 3,200 positions (most of which reduce disbursements
in this category).
Spending for general State charges is projected at $2.080 billion in
the 1995-96 State Financial Plan, and are virtually unchanged from the 1994-95
level. The budgeted amount for general State charges assumes the use of $110
million from a special reserve for pension supplementation, established in 1970
and funded through State and local employer contributions in the early 1970's,
to offset the State's pension contribution. The Comptroller, as sole trustee of
the Common Retirement Fund and administrative head of the Retirement System, is
in
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the process of reviewing the legislation that directs the use of these reserves
to determine whether or not to commence legal proceedings to prevent such
proposed use in the enacted 1995-96 State budget as a violation of the State
Constitution, and there is a substantial likelihood that he will do so. The
Executive considers the proposed use of these reserves to be a credit for
prior-year supplementation payments and, therefore, in compliance with the State
Constitution.
Debt service in the General Fund for 1995-96 reflects only the $9
million interest cost of the State's commercial paper program. No cost is
included for a TRAN borrowing, since none is expected to be undertaken. General
Fund debt service on short-term obligations of the State reflects the
elimination of the State's spring borrowing. Transfers in support of debt
service are projected to total $1.583 billion, and increase of $157 million.
This increase is heightened by the use of one-time reimbursements from other
funds in the 1994-95 fiscal year. Transfers in support of capital projects are
projected to total $375 million, an increase of $169 million, which reflects
significant investments in both new and ongoing capital programs. All other
transfers are projected to total $78 million, an increase of $9 million from
1994-95 levels.
The 1995-96 opening fund balance of $158 million includes $157 million
which is reserved in the Tax Stabilization Reserve Fund, as well as $1 million
which is reserved in the Contingency Reserve Fund. The Contingency Reserve Fund
was established in 1993-94 to set aside moneys to address adverse judgments or
settlements resulting from litigation against the State. The closing fund
balance in the General Fund of $213 million reflects a balance of $172 million
in the Tax Stabilization Reserve Fund, following an additional payment of $15
million during the year, and a balance of $41 million in the Contingency Reserve
Fund.
The 1995-96 Financial Plan includes over $600 million in non-recurring
resources. These actions include items discussed above, as well as retroactive
Federal reimbursements and some non-recurring social welfare cost containment
actions. The Budget Division believes that recommendations included in the
Executive Budget will provide fully annualized savings in 1996-97 that more than
offset the non-recurring resources used in 1995-96.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes. For
1995-96, the State Financial Plan projects disbursements of $26.002 billion from
these funds, an increase of $1.641 billion over 1994-95 levels. Disbursements
from Federal funds, primarily the Federal share of Medicaid and other social
services programs, are projected to total $19.209 billion in the 1995-96 fiscal
year. Remaining projected spending of $6.793 billion primarily reflects aid to
SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation Authority
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.
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CAPITAL PROJECTS FUNDS
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major state capital
facilities and for capital assistance grants to certain local government or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1995-96 are projected
at $4.160 billion, an increase of $541 million over prior-year levels. Spending
for capital projects will be financed through a combination of sources: Federal
grants, public authority bond proceeds, general obligation bond proceeds, and
current revenues. Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be available from the proceeds
of general obligation bonds.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.
Disbursements are estimated at $2.506 billion in the 1995-96 fiscal year, an
increase of $303 million from 1994-95. The transfer from the General Fund of
$1.583 billion is expected to finance 63 percent of these payments. The
remaining payments are expected to be financed by pledged revenues, including
$1.794 billion in taxes, $228 million in dedicated fees, and $2.200 billion in
patient revenues, including transfers of Federal reimbursements. After
impoundment for debt service, as required, $3.481 billion is expected to be
transferred to the General Fund and other funds in support of State operations.
The largest transfer - $1.761 billion - is made to the Special Revenue Fund
type, in support of operations of the mental hygiene agencies. Another $1.341
billion in excess sales taxes is expected to be transferred to the General Fund,
following payment of projected debt service on bonds of LGAC.
The increase in debt service costs recommended in the Executive Budget
primarily reflects prior capital commitments financed by bonds issued by the
State and State-supported debt issued by its public authorities, and the
completion of the LGAC program. The increase has been moderated by the
reductions to bond-financed capital spending as discussed above, and reflects
debt issuances in 1994-95 and 1995-96 which are lower than they would have been,
absent the Governor's review of capital spending.
CASH FLOW
For the second time in many years, the State will meet its cash flow
needs without relying on a spring borrowing. However, this achievement is
predicated on two actions: the issuance of all remaining LGAC bonds authorized
in the 1990 statute; and the passage of proposed legislation permitting the
State to use, for cash flow purposes only, balances in the Lottery Fund.
Temporary transfers will be returned within five months so that all available
Lottery moneys as well as advances of additional aid can be paid to school
districts in September.
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The lingering impact of the 1994-95 receipts shortfall -- as well as
the impact of the potential $5 billion 1995-96 imbalance on cash operations --
exerts substantial pressures on the State's cash balance position in the first
three months of the fiscal year. These pressures are expected to abate later in
the 1995-96 fiscal year, as cash outlays decline from previous levels consistent
with cost-savings initiatives proposed in the Executive Budget.
PRIOR FISCAL YEARS
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. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year.
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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 1994-95 budget contained a significant investment in efforts to
spur economic growth. The budget included provisions to reduce the level of
business taxation in New York, with cuts in the corporate tax surcharge, the
alternative minimum tax imposed on business and the petroleum business tax,
repeal of the State's hotel occupancy tax, and reductions in the real property
gains tax to stimulate construction and facilitate the real estate industry's
access to capital. Complementing the elimination of the hotel tax was a $10
million investment of State funds in the "I Love New York" program designed to
spur tourism activity throughout the State.
To help strengthen the State's economic recovery, the 1994-95 budget
also included more than $200 million in additional funding for economic
development programs. Special emphasis was placed on programs intended to enable
New York State to: (i) invest in high technology industries; (ii) expand access
to foreign markets; (iii) strengthen assistance to small businesses,
particularly those owned by women and minorities; (iv) retain and attract new
manufacturing jobs; (v) help companies and communities impacted by continued
cutbacks in Federal defense spending and ongoing corporate downsizings; and (vi)
bolster the tourism industry. In addition, the budget included increased levels
of support for programs to rebuild and maintain State infrastructure, and
provisions to create 21 new economic development zones.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
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Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
nonessential capital projects. These actions, together with $71 million in other
measures comprised the Governor's $259 million gap-closing plan, submitted to
the Legislature in connection with the 1995-96 Executive Budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund. The State's 1992-93 fiscal year was characterized by performance
that was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic
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performance, particularly at year end, combined with a tax-induced acceleration
of income into 1992, was the primary cause of the General Fund surplus. Personal
income tax collections were more than $700 million higher than originally
projected (before reflecting the tax refund reserve account transaction),
primarily in the withholding and estimated payment components of the tax. There
were, however, large and mainly offsetting variances in other categories of
receipts.
CERTAIN LITIGATION
Certain litigation pending against New York or its officers or
employees could have a substantial or long-term adverse effect on New York
finances. Among the more significant of these cases are those that involve: (i)
the validity of agreements and treaties by which various Indian tribes
transferred to New York title to certain land in New York; (ii) certain aspects
of New York's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services, and the eligibility for
and nature of home care services; (iii) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of the laws of 1992, which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers and which require health maintenance organizations to remit
to the State a surcharge of up to 9%; (iv) an action against the State of New
York and New York City officials alleging that the present level of shelter
allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (v) challenges to the practice of
reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (vi) alleged responsibility of New York
officials to assist in remedying racial segregation in the City of Yonkers;
(vii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991; and (viii) a
claim that the State's Department of Environmental Conservation prevented the
completion of a cogeneration facility by the projected date by failing to
provide data in a timely manner and that the plaintiff thereby suffered damages.
In addition, aspects of petroleum business taxes are the subject of
administrative claims and litigation.
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THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
The 1996-1999 Financial Plan reflects a program of proposed actions by
the City to close the gaps between projected revenues and expenditures of $888
million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999 fiscal years,
respectively. These actions, a substantial number of which are not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
The Office of the State Deputy Comptroller for the City of New York
(the "OSDC") and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal-monitoring functions over the City,
and upon the occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to a City operating
budget deficit of more than $100 million, the Control Board is required by law
to reimpose a Control Period. Currently, the City and its Covered Organizations
(I.E., those which receive or may receive monies from the City directly,
indirectly or contingently) operate under a four-year financial plan which the
City prepares annually and periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial
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plan, as modified, by the City and its Covered Organizations. OSDC staff reports
issued during the mid-1980's noted that the City's budgets benefitted from a
rapid rise in the City's economy, which boosted the City's collection of
property, business and income taxes. These resources were used to increase the
City's work force and the scope of discretionary and mandated City services.
Subsequent OSDC staff reports examined the 1987 stock market crash and the
1989-92 recession, which affected the New York City region more severely than
the nation, and attributed an erosion of City revenues and increasing strain on
City expenditures to that recession. According to a recent OSDC staff report,
the City's economy is now slowly recovering, but the scope of that recovery is
uncertain and unlikely, in the foreseeable future, to match the expansion of the
mid-1980's. Also, staff reports of OSDC and the Control Board have indicated
that the City's recent balanced budgets have been accomplished, in part, through
the use of non-recurring resources, tax increases and additional State
assistance; that the City has not yet brought its long-term expenditures in line
with recurring revenues; and that the City is therefore likely to continue to
face future projected budget gaps requiring the City to increase revenues and/or
reduce expenditures. According to the most recent staff reports of OSDC and the
Control Board, 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.
The City requires significant amounts of financing for seasonal and
capital purposes. The City issued $1.75 billion of notes for seasonal financing
purposes during its fiscal year ending June 30, 1994. The City's capital
financing program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit, schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter..
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State other than New York City was approximately $17.7 billion.
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. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective
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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.
AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion
. Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the bulk
of the appropriated moneys from the State,
oversees the operation of the City's bus and subway system by its
affiliates, the New York City Transit Authority and Manhattan and Bronx Surface
Transit Operating Authority (collectively, the "TA").
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The MTA has depended and will continue to depend upon Federal, state and local
government support to operate the transit system because fare revenues are
insufficient.
Over the past several years, 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 served by
the MTA and a special one-quarter of one percent regional sales and use tax)
that provide additional revenues for mass transit purposes, including assistance
to the MTA. In addition, a one-quarter of one percent regional mortgages
recording tax paid on certain mortgages creates an additional source of
recurring revenues for the MTA. Further, in 1993, the State dedicated a portion
of the State petroleum business tax to assist the MTA. For the 1995-96 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.
There can be no assurance that all the necessary governmental actions
for the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power
A-17
<PAGE>
of the MTA to issue certain bonds expected to be supported by the appropriation
of State petroleum business taxes is currently the subject of a court challenge.
If the Capital Program is delayed or reduced, 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.
A-18
FT4063F
<PAGE>
FT4113C
REPUBLIC NEW YORK
TAX FREE BOND FUND
6 St. James Avenue
Boston, Massachusetts 02116
General
and (800) 782-8183 (Toll Free)
Account Information
Republic National Bank of New York - Investment Adviser
("Republic" or the "Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator, Distributor and Sponsor
("Signature" or the "Distributor")
STATEMENT OF ADDITIONAL INFORMATION
Republic New York Tax Free Bond Fund (the "Fund") is a separate series
(portfolio) of the Republic Funds (the "Trust"), an open-end, management
investment company which currently consists of six portfolios, each of which has
different and distinct investment objectives and policies. The Fund is described
in this Statement of Additional Information.
The investment objective of the Fund is to provide shareholders of the
Fund with monthly dividends exempt from regular federal, New York State and New
York City personal income taxes as well as to protect the value of its
shareholders' investment. The Trust seeks to achieve the investment objective of
the Fund by investing the assets of the Fund primarily in a non-diversified
portfolio of municipal bonds and notes and other debt instruments the interest
on which is exempt from regular federal, New York State and New York City
personal income taxes. There can be no assurance that the investment objective
of the Fund will be achieved.
Shares of the Fund are continuously offered for sale by the Distributor
at net asset value with no sales charge (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with the Distributor.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED JANUARY 26, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Trust at the address and
telephone number printed above.
January 26, 1996
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies and Restrictions . . . . . . . . 1
"When-Issued" Municipal Obligations . . . . . . . . . . . 1
Variable Rate Instruments . . . . . . . . . . . . . . . . 2
Repurchase Agreements . . . . . . . . . . . . . . . . . . 2
Participation Interests . . . . . . . . . . . . . . . . . 3
Futures Contracts . . . . . . . . . . . . . . . . . . . . 3
Portfolio Management . . . . . . . . . . . . . . . . . . . 7
Portfolio Transactions . . . . . . . . . . . . . . . . . . 8
Special Factors Affecting New York . . . . . . . . . . . . 9
Investment Restrictions . . . . . . . . . . . . . . . . . 10
State and Federal Restrictions . . . . . . . . . . . . . 12
Percentage and Rating Restrictions . . . . . . . . . . . . 13
Performance Information . . . . . . . . . . . . . . . . . . . . 14
Management of the Trust . . . . . . . . . . . . . . . . . . . . 15
Trustees and Officers . . . . . . . . . . . . . . . . . . 15
Investment Adviser . . . . . . . . . . . . . . . . . . . . 17
Administrator, Distributor and Sponsor . . . . . . . . . . 18
Shareholder Servicing Agents, Transfer Agent and
Custodian . . . . . . . . . . . . . . . . . . . .19
Expenses and Expense Limits . . . . . . . . . . . . . . . 19
Determination of Net Asset Value . . . . . . . . . . . . . . . 20
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Federal Income Tax . . . . . . . . . . . . . . . . . . . . 20
Alternative Minimum Tax . . . . . . . . . . . . . . . . . 23
Special Tax Considerations . . . . . . . . . . . . . . . . 23
Other Information . . . . . . . . . . . . . . . . . . . . . . . 24
Capitalization . . . . . . . . . . . . . . . . . . . . . . 24
Voting Rights . . . . . . . . . . . . . . . . . . . . . . 24
Independent Auditors . . . . . . . . . . . . . . . . . . . 24
Counsel . . . . . . . . . . . . . . . . . . . . . . . . . 25
Registration Statement . . . . . . . . . . . . . . . . . . 25
Financial Statements . . . . . . . . . . . . . . . . . . . 25
Appendix A - Description of Municipal Obligations . . . . . . . A-1
Appendix B - Additional Information Concerning New York
Municipal Obligations . . . . . . . . . . . . . . . . . . B-1
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Trust by
which shares of the Fund are offered. Unless the context otherwise requires,
terms defined in the Prospectus have the same meaning in this Statement of
Additional Information as in the Prospectus.
A-1
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective and Policies" in the Prospectus.
The investment objective of the Fund is to provide shareholders of the
Fund with monthly dividends exempt from regular federal, New York State and New
York City personal income taxes as well as to protect the value of its
shareholders' investment.
As a non-diversified investment company, the Trust is not subject to
any statutory restrictions under the Investment Company Act of 1940 (the "1940
Act") with respect to limiting the investment of the Fund's assets in one or
relatively few issuers. This concentration may present greater risks than in the
case of a diversified company. However, the Trust intends to qualify the Fund as
a "regulated investment company" under Subchapter M of the Internal Revenue Code
of 1986, as amended (the "Code"). In order so to qualify under current law, at
the close of each quarter of the Fund's taxable year, at least 50% of the Fund's
total assets must be represented by cash, U.S. Government securities, investment
company securities and other securities limited in respect of any one issuer to
not more than 5% in value of the total assets of the Fund and not more than 10%
of the outstanding voting securities of such issuer. In addition, and again
under current law, at the close of each quarter of its taxable year, not more
than 25% of the Fund's total assets may be invested in securities of one issuer
(or two or more issuers which are controlled by the Fund and which are
determined to be engaged in the same or similar trades or businesses or related
businesses) other than U.S. Government securities.
"WHEN-ISSUED" MUNICIPAL OBLIGATIONS. Municipal Obligations purchased on
a "when-issued" or "forward delivery" basis and the securities held in the
Fund's portfolio are subject to changes in value (both generally changing in the
same way, that is, both experiencing appreciation when interest rates decline
and depreciation when interest rates rise) based upon the public's perception of
the creditworthiness of the issuer and changes, real or anticipated, in the
level of interest rates. In order to invest the Fund's assets immediately, while
awaiting delivery of securities purchased on a "when-issued" or "forward
delivery" basis, short-term obligations that offer same day settlement and
earnings normally are purchased. Although short-term investments normally are in
tax-exempt securities, short-term taxable securities may be purchased if
suitable short-term tax-exempt securities are not available. A separate account
of the Fund consisting of cash, cash equivalents or high quality debt securities
equal to the amount of the "when-issued" or "forward delivery" commitments is
established at the Fund's custodian bank. For the purpose of determining the
adequacy of the securities in the account, the deposited securities are valued
at market value. If the market value of such securities declines, additional
cash or high quality debt securities are placed in the account daily so that the
value of the account equals the amount of the Fund's commitments. On the
settlement date of the "when-issued" or "forward delivery" securities, the
Fund's obligations are met from then-available cash flow, sale of securities
held in the separate account, sale of other securities or, although not normally
expected, from sale of the "when-issued" or "forward delivery" securities
themselves (which may have a value greater or lesser than the Fund's payment
obligations).
- 1 -
<PAGE>
VARIABLE RATE INSTRUMENTS. Investments in floating or variable rate
securities normally involve industrial development or revenue bonds which
provide that the rate of interest is set as a specific percentage of a
designated base rate, such as rates on Treasury bonds or bills or the prime rate
at a major commercial bank, and that a bondholder can demand payment of the
obligations on short notice at par plus accrued interest. While there is usually
no established secondary market for issues of this type of security, the dealer
that sells an issue of such securities frequently also offers to repurchase such
securities at any time, at a repurchase price which varies and may be more or
less than the amount the bondholder paid for them.
The maturity of floating or variable rate obligations (including
participation interests therein) is deemed to be the longer of (i) the notice
period required before the Fund is entitled to receive payment of the obligation
upon demand, or (ii) the period remaining until the obligation's next interest
rate adjustment. If not redeemed for the Fund through the demand feature, an
obligation matures on a specified date which may range up to 30 years from the
date of issuance.
REPURCHASE AGREEMENTS. The Trust may invest the Fund's assets in
instruments subject to repurchase agreements only with member banks of the
Federal Reserve System or "primary dealers" (as designated by the Federal
Reserve Bank of New York) in U.S. Government securities. Under the terms of a
typical repurchase agreement, an underlying debt instrument would be acquired
for a relatively short period (usually not more than one week) subject to an
obligation of the seller to repurchase the instrument at a fixed price and time,
thereby determining the yield during the Fund's holding period. This results in
a fixed rate of return insulated from market fluctuations during such period. A
repurchase agreement is subject to the risk that the seller may fail to
repurchase the security. Repurchase agreements may be deemed to be loans under
the 1940 Act. All repurchase agreements entered into on behalf of the Fund are
fully collateralized at all times during the period of the agreement in that the
value of the underlying security is at least equal to the amount of the loan,
including the accrued interest thereon, and the Trust or its custodian bank has
possession of the collateral, which the Trust's Board of Trustees believes gives
the Fund a valid, perfected security interest in the collateral. Whether a
repurchase agreement is the purchase and sale of a security or a collateralized
loan has not been definitively established. This might become an issue in the
event of the bankruptcy of the other party to the transaction. In the event of
default by the seller under a repurchase agreement construed to be a
collateralized loan, the underlying securities are not owned by the Fund but
only constitute collateral for the seller's obligation to pay the repurchase
price. Therefore, the Fund may suffer time delays and incur costs in connection
with the disposition of the collateral. The Trust's Board of Trustees believes
that the collateral underlying repurchase agreements may be more susceptible to
claims of the seller's creditors than would be the case with securities owned by
the Fund. Repurchase agreements give rise to income which does not qualify as
tax-exempt income when distributed to Fund shareholders. The Trust will not
invest on behalf of the Fund in a repurchase agreement maturing in more than
seven days if any such investment together with illiquid securities held for the
Fund exceed 10% of the Fund's net assets.
- 2 -
<PAGE>
PARTICIPATION INTERESTS. The Trust may purchase from banks on behalf of
the Fund participation interests in all or part of specific holdings of
Municipal Obligations. The Trust has the right to sell the participation
interest back to the bank and draw on the letter of credit or guarantee for all
or any part of the full principal amount of the participation interest in the
security, plus accrued interest. In some cases, these rights may not be
exercisable in the event of a default on the underlying Municipal Obligations;
in these cases, the underlying Municipal Obligations must meet the Fund's high
credit standards at the time of purchase of the participation interest. Each
participation interest is backed by an irrevocable letter of credit or guarantee
of the selling bank. Participation interests will be purchased only if in the
opinion of counsel interest income on such interests will be tax-exempt when
distributed as dividends to shareholders of the Fund. The Trust will not invest
more than 5% of the Fund's assets in participation interests.
The Trust has no current intention of purchasing any participation
interest for the Fund in the foreseeable future.
FUTURES CONTRACTS. A Futures Contract is an agreement between two
parties for the purchase or sale for future delivery of fixed income securities
or for the payment or acceptance of a cash settlement based upon changes in the
value of an index of securities. A "sale" of a Futures Contract means the
acquisition of a contractual obligation to deliver the securities or to make or
accept the cash settlement called for by the contract at a specified price on a
specified date. A "purchase" of a Futures Contract means the acquisition of a
contractual obligation to acquire the securities or to make or accept the cash
settlement called for by the contract at a specified price on a specified date.
Futures Contracts have been designed by exchanges which have been designated
"contract markets" by the Commodity Futures Trading Commission ("CFTC") and must
be executed through a futures commission merchant, or brokerage firm, which is a
member of the relevant contract market. Futures Contracts trade on these
markets, and the exchanges, through their clearing organizations, guarantee that
the contracts will be performed as between the clearing members of the exchange.
Presently, Futures Contracts are based on such debt securities as long-term U.S.
Treasury bonds, Treasury notes, three-month U.S. Treasury bills and on an index
of municipal bonds.
The Trust may enter into transactions in Futures Contracts on any fixed
income securities and indexes of municipal securities to hedge the Fund's
portfolio, I.E., to protect the Fund from fluctuations in interest rates without
the risks and transaction costs of actually buying or selling long-term debt
securities. For example, if the Fund owns long-term bonds, and interest rates
were expected to increase, the Trust might enter into Futures Contracts on
behalf of the Fund for the sale of debt securities. Such a sale would have much
the same effect as selling an equivalent value of the long-term bonds owned by
the Fund. If interest rates did increase, the value of the debt securities in
the portfolio would decline, but the value of the Fund's Futures Contracts would
increase at approximately the same rate, thereby keeping the net asset value of
the Fund from declining as much as it otherwise would have. When the Fund is not
fully invested, and a decline in interest rates is anticipated, which would
increase the cost of fixed income securities which the Trust intends to acquire
for the Fund, the Trust may purchase Futures Contracts on behalf of the Fund. In
the event that the projected decline in interest rates occurs, the increased
- 3 -
<PAGE>
cost to the Fund of the securities acquired should be offset, in whole or in
part, by gains on the Futures Contracts. As portfolio securities are purchased,
the Trust will close out the Fund's Futures Contracts by entering into
offsetting transactions on the contract market on which the initial purchase was
effected. In a substantial majority of these transactions, the Trust will
purchase fixed income securities for the Fund upon termination of the long
futures positions, but under unusual market conditions, a long futures position
may be terminated without a corresponding purchase of securities.
While Futures Contracts based on debt securities do provide for the
delivery and acceptance of securities, such deliveries and acceptances are very
seldom made. Generally, a Futures Contract is terminated by entering into an
offsetting transaction. The Trust will incur brokerage fees on behalf of the
Fund when it purchases and sells Futures Contracts. At the time a purchase or
sale is made, cash or securities must be provided as an initial deposit known as
"margin". The initial deposit required will vary, but may be as low as 2% or
less of a contract's face value. Daily thereafter, the Futures Contract is
valued through a process known as "marking to market", and the Trust may receive
or be required to pay additional "variation margin" on behalf of the Fund as the
Futures Contract becomes more or less valuable. At the time of delivery of
securities pursuant to such a contract, adjustments are made to recognize
differences in value arising from the delivery of securities with a different
interest rate than the specific security that provides the standard for the
contract. In some (but not many) cases, securities called for by a Futures
Contract may not have been issued when the contract was entered into.
The Trust would purchase and sell Futures Contracts on indexes of
municipal securities on behalf of the Fund for the purpose of hedging against a
broad market decline which would cause a general reduction in the value of the
Fund's portfolio of municipal securities, or in the value of a portion of such
portfolio. To the extent that municipal securities held in the Fund's portfolio
are the same, or have the same characteristics, as the securities comprising the
index underlying the Futures Contract, changes in the value of the index should
correlate closely with changes in the value of the Fund's portfolio securities.
Under such circumstances, declines in the value of the Fund's portfolio
securities may be offset through gains on the Fund's futures position.
Similarly, the Trust may purchase Futures Contracts on indexes of municipal
securities on behalf of the Fund where it expects to acquire a portfolio of
municipal securities for the Fund and anticipates an increase in the cost of
such securities prior to acquisition. To the extent that the securities to be
acquired reflect the composition of the index underlying the Futures Contract,
such increased cost may be offset, in whole or in part, through gains on the
futures position. To the extent that the Trust on behalf of the Fund enters into
Futures Contracts on securities other than municipal bonds, there is a
possibility that the value of such Futures Contracts will not correlate in
direct proportion to the value of the portfolio securities since the value of
municipal bonds and other debt securities may not react in the same manner to a
general change in interest rates and may react differently to factors other than
changes in the general level of interest rates. The Fund's overall performance
would be adversely affected if the value of its Futures Contracts on securities
other than municipal bonds declined disproportionately to the value of the
Fund's municipal bond portfolio.
- 4 -
<PAGE>
Similarly, when it is expected that interest rates may decline, Futures
Contracts may be purchased to attempt to hedge against anticipated purchases of
long-term bonds at higher prices. Since the fluctuations in the value of Futures
Contracts should be similar to that of long-term bonds, the Fund may be
protected, in whole or in part, against the increased cost of acquiring bonds
resulting from a decline in interest rates. Similar results could be
accomplished by selling bonds with long maturities and investing in bonds with
short maturities when interest rates are expected to increase. However, since
the futures market is more liquid than the cash market, the use of Futures
Contracts as an investment technique allows action in anticipation of such an
interest rate decline without having to sell the Fund's portfolio securities. To
the extent Futures Contracts are entered into for this purpose, the assets in
the segregated asset accounts maintained on behalf of the Fund will consist of
cash, cash equivalents or high quality debt securities from the portfolio of the
Fund in an amount equal to the difference between the fluctuating market value
of such Futures Contracts and the aggregate value of the initial deposit and
variation margin payments made for the Fund with respect to such Futures
Contracts.
The ability to hedge effectively all or a portion of the Fund's
portfolio through transactions in Futures Contracts depends on the degree to
which movements in the value of the fixed income securities or index underlying
such contracts correlate with movements in the value of securities held in the
Fund's portfolio. If the security, or the securities comprising the index,
underlying a Futures Contract is different than the portfolio securities being
hedged, they may not move to the same extent or in the same direction. In that
event, the hedging strategy might not be successful and the Fund could sustain
losses on the hedging transactions which would not be offset by gains on its
portfolio. It is also possible that there may be a negative correlation between
the index or security underlying a Futures Contract and the portfolio securities
being hedged, which could result in losses both on the hedging transaction and
the portfolio securities. In such instances, the Fund's overall return could be
less than if the hedging transactions had not been undertaken.
The trading of Futures Contracts on an index of fixed income securities
entails the additional risk of imperfect correlation between movements in the
futures price and the value of the underlying index. The anticipated spread
between the prices may be distorted due to differences in the nature of the
markets, such as differences in margin requirements, the liquidity of such
markets and the participation of speculators in the futures market. The risk of
imperfect correlation, however, generally tends to diminish as the maturity date
of the Futures Contract approaches.
The Trust would purchase or sell Futures Contracts for the Fund only
if, in the judgment of the Adviser, there is expected to be a sufficient degree
of correlation between movements in the value of such instruments and changes in
the value of the relevant portion of the Fund's portfolio for the hedge to be
effective. There can be no assurance that the Adviser's judgment will be
accurate.
The ordinary spreads between prices in the cash and futures markets,
due to differences in the nature of those markets, are subject to distortions.
First, all participants in the futures market are subject to initial deposit and
variation margin requirements. This could require the Trust to post additional
- 5 -
<PAGE>
cash or cash equivalents on behalf of the Fund as the value of the position
fluctuates. Further, rather than meeting additional variation margin
requirements, investors may close out Futures Contracts through offsetting
transactions which could distort the normal relationship between the cash and
futures markets. Second, there is the potential that the liquidity of the
futures market may be lacking. Prior to expiration, a Futures Contract may be
terminated only by entering into a closing purchase or sale transaction, which
requires a secondary market on the contract market on which the Futures Contract
was originally entered into. While the Trust will establish a futures position
for the Fund only if there appears to be a liquid secondary market therefor,
there can be no assurance that such a market will exist for any particular
Futures Contract at any specific time. In that event, it may not be possible to
close out a position held for the Fund, which could require the Trust on behalf
of the Fund to purchase or sell the instrument underlying the Futures Contract,
make or receive a cash settlement, or meet ongoing variation margin
requirements. The inability to close out futures positions also could have an
adverse impact on the Trust's ability to hedge effectively the Fund's portfolio.
The liquidity of a secondary market in a Futures Contract may be
adversely affected by "daily price fluctuation limits" established by the
exchanges, which limit the amount of fluctuation in the price of a Futures
Contract during a single trading day and prohibit trading beyond such limits
once they have been reached. The trading of Futures Contracts also is subject to
the risk of trading halts, suspensions, exchange or clearing house equipment
failures, government intervention, insolvency of the brokerage firm or clearing
house or other disruptions of normal trading activity, which could at times make
it difficult or impossible to liquidate existing positions or to recover excess
variation margin payments.
Investments in Futures Contracts also entail the risk that if the
Adviser's investment judgment about the general direction of interest rates is
incorrect, the Fund's overall performance may be poorer than if the Trust had
not entered into any such contract for the Fund. For example, if the Fund has
been hedged against the possibility of an increase in interest rates which would
adversely affect the price of bonds held in the Fund's portfolio and interest
rates decrease instead, the Fund will lose part or all of the benefit of the
increased value of its bonds which are hedged because there will be offsetting
losses in the Fund's futures positions. In addition, in such situations, if the
Fund has insufficient cash, bonds may have to be sold from the Fund's portfolio
to meet daily variation margin requirements, possibly at a time when it may be
disadvantageous to do so. Such sale of bonds may be, but will not necessarily
be, at increased prices which reflect the rising market.
Each contract market on which Futures Contracts are traded has
established a number of limitations governing the maximum number of positions
which may be held by a trader, whether acting alone or in concert with others.
The Adviser does not believe that these trading and position limits will have an
adverse impact on the hedging strategies regarding the Fund's portfolio.
Regulations of the CFTC require that transactions in Futures Contracts
may be entered into for the Fund for hedging purposes only, in order to assure
that the Fund is not deemed to be a "commodity pool" under such regulations. In
particular, CFTC regulations require that all short futures positions be entered
into in order to hedge the value of securities held in the Fund's portfolio, and
- 6 -
<PAGE>
that all long futures positions either constitute BONA FIDE hedge transactions,
as defined in such regulations, or have a total value not in excess of an amount
determined by reference to certain cash and securities positions maintained for
the Fund, and accrued profits on such positions. In addition, such instruments
may not be entered into for the Fund if, immediately thereafter, the sum of the
amount of initial deposits on the Fund's existing futures positions would exceed
5% of the market value of the Fund's total assets.
When a Futures Contract is purchased, an amount of cash or cash
equivalents will be deposited in a segregated account with the Fund's custodian
bank so that the amount so segregated, plus the initial and variation margin
held in the account of its broker, will at all times equal the value of the
Futures Contract, thereby insuring that the use of such futures is unleveraged.
The ability to engage in the hedging transactions described herein may
be limited by the current federal income tax requirement that less than 30% of
the Fund's gross income be derived from the sale or other disposition of stock
or securities held for less than three months.
The Trustees have adopted the requirement that Futures Contracts only
be used for the Fund as a hedge and not for speculation. In addition to this
requirement, the Board of Trustees has also adopted two percentage restrictions
on the use of Futures Contracts. The first is that no Futures Contract will be
entered into for the Fund if immediately thereafter the amount of margin
deposits on all the Futures Contracts of the Fund would exceed 5% of the market
value of the total assets of the Fund. The second restriction is that the
aggregate market value of the Futures Contracts held for the Fund not exceed 50%
of the market value of the Fund's total assets. Neither of these restrictions
would be changed by the Board of Trustees without considering the policies and
concerns of the various federal and state regulatory agencies.
The Trust has no current intention of entering into any Futures
Contract for the Fund in the foreseeable future.
PORTFOLIO MANAGEMENT. The Trust intends that the Adviser fully manage
the Fund's portfolio by buying and selling securities, as well as by holding
selected securities to maturity. In managing the Fund's portfolio, the Adviser
seeks to maximize the return on the Fund's portfolio by taking advantage of
market developments, yield disparities and variations in the creditworthiness of
issuers, which may include use of the following strategies:
(1) shortening the average maturity of the portfolio in anticipation of
a rise in interest rates so as to minimize depreciation of principal;
(2)lengthening the average maturity of the portfolio in anticipation of
a decline in interest rates so as to maximize tax-exempt yield;
(3) selling one type of debt security (E.G., revenue bonds) and buying
another (E.G., general obligation bonds) when disparities arise in the relative
values of each; and
(4) changing from one debt security to an essentially similar debt
security when their respective yields are distorted due to market factors.
- 7 -
<PAGE>
Distributions of gains, if any, realized from the sale of Municipal
Obligations or other securities are subject to regular federal income taxes and
New York State and New York City personal income taxes. (See "Tax Matters" in
the Prospectus.) These strategies may result in increases or decreases in the
Fund's current income available for distribution to the Fund's shareholders and
in the holding for the Fund of securities which sell at moderate to substantial
premiums or discounts from face value. Moreover, if the expectations of changes
in interest rates or the evaluation of the normal yield relationship between two
securities proves to be incorrect, the Fund's income, net asset value per share
and potential capital gain may be decreased or its potential capital loss may be
increased.
PORTFOLIO TRANSACTIONS. Municipal Obligations and other debt securities
are traded principally in the over-the-counter market on a net basis through
dealers acting for their own account and not as brokers. The cost of executing
portfolio securities transactions for the Fund primarily consists of dealer
spreads and underwriting commissions or concessions. Under the 1940 Act, persons
affiliated with the Fund or the Distributor are prohibited from dealing with the
Fund as a principal in the purchase and sale of securities unless a permissive
order allowing such transactions is obtained from the Securities and Exchange
Commission.
The Trust has no obligation to deal with any dealer or group of dealers
in the execution of transactions in portfolio securities for the Fund. Subject
to policies established by the Trust's Board of Trustees, the Adviser is
primarily responsible for portfolio decisions and the placing of portfolio
transactions. Allocation of transactions, including their frequency, to various
dealers is determined by the Adviser in its best judgment and in a manner deemed
to be in the best interest of Fund shareholders rather than by any formula. In
placing orders for the Fund, the primary consideration is prompt execution of
orders in an effective manner at the most favorable price, although the Fund
does not necessarily pay the lowest spread or commission available. Other
factors taken into consideration are the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities.
The Adviser may, in circumstances in which two or more dealers are in a
position to offer comparable results, give preference to a dealer which has
provided statistical or other research services to the Adviser. By allocating
transactions in this manner, the Adviser is able to supplement its research and
analysis with the views and information of securities firms. These services,
which in some cases may also be purchased for cash, include such matters as
general economic and security market reviews, industry and company reviews,
evaluations of securities and recommendations as to the purchase and sale of
securities. Some of these services are of value to the Adviser in advising
various of its clients (including the Fund), although not all of these services
are necessarily useful and of value in managing the Fund. The management fee
paid from the Fund is not reduced because the Adviser and its affiliates receive
such services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934,
the Adviser may cause the Fund to pay a broker-dealer which provides "brokerage
and research services" (as defined in the Act) to the Adviser an amount of
commission
- 8 -
<PAGE>
for effecting a securities transaction for the Fund in excess of the commission
which another broker-dealer would have charged for effecting that transaction.
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees may
determine, and subject to seeking the most favorable price and execution
available, the Adviser may consider sales of shares of the Fund as a factor in
the selection of broker-dealers to execute portfolio transactions for the Fund.
Investment decisions for the Fund and for the other investment advisory
clients of the Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought for certain clients even though it could have
been sold for other clients at the same time, and a particular security may be
sold for certain clients even though it could have been bought for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. In some
instances, one client may sell a particular security to another client. Two or
more clients may simultaneously purchase or sell the same security, in which
event each day's transactions in that security are, insofar as practicable,
averaged as to price and allocated between such clients in a manner which in the
Adviser's opinion is equitable to each and in accordance with the amount being
purchased or sold by each. In addition, when purchases or sales of the same
security for the Fund and for other clients of the Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantage available to large denomination purchases or sales.
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients in terms of the
price paid or received or of the size of the position obtainable.
SPECIAL FACTORS AFFECTING NEW YORK. The fiscal stability of New York is
related, at least in part, to the fiscal stability of its localities and
authorities. Various State agencies, authorities and localities have issued
large amounts of bonds and notes either guaranteed or supported by the State
through lease-purchase arrangements, other contractual arrangements or moral
obligation provisions. While debt service is normally paid out of revenues
generated by projects of such State agencies, authorities and localities, the
State has had to provide special assistance in recent years, in some cases of a
recurring nature, to enable such agencies, authorities and localities to meet
their financial obligations and, in some cases, to prevent or cure defaults. To
the extent State agencies and local governments require State assistance to meet
their financial obligations, the ability of the State to meet its own
obligations as they become due or to obtain additional financing could be
adversely affected.
For further information concerning New York Municipal Obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is included for the purpose of providing a general
description of New York State and New York City credit and financial conditions.
This summary is based on information from statements of issuers of New York
Municipal Obligations and does not purport to be complete.
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<PAGE>
INVESTMENT RESTRICTIONS. The Trust has adopted the following investment
restrictions with respect to the Fund which may not be changed without approval
by holders of a "majority of the outstanding shares" of the Fund, which as used
in this Statement of Additional Information means the vote of the lesser of (i)
67% or more of the outstanding "voting securities" of the Fund present at a
meeting, if the holders of more than 50% of the outstanding "voting securities"
of the Fund are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities" of the Fund. The term "voting securities" as
used in this paragraph has the same meaning as in the 1940 Act.
The Trust, on behalf of the Fund, may not:
(1) borrow money or pledge, mortgage or hypothecate assets of
the Fund, except that as a temporary measure for extraordinary or
emergency purposes it may borrow in an amount not to exceed 1/3 of the
value of the net assets of the Fund, including the amount borrowed, and
may pledge, mortgage or hypothecate not more than 1/3 of such assets to
secure such borrowings (it is intended that money would be borrowed
only from banks and only to accommodate requests for the redemption of
shares of the Fund while effecting an orderly liquidation of portfolio
securities), provided that collateral arrangements with respect to
Futures Contracts, including deposits of initial and variation margin,
are not considered a pledge of assets for purposes of this Investment
Restriction; for additional related restrictions, see clause (i) under
the caption "State and Federal Restrictions" below;
(2) purchase any security or evidence of interest therein on
margin, except that the Trust may obtain such short-term credit for the
Fund as may be necessary for the clearance of purchases and sales of
securities and except that deposits of initial and variation margin in
connection with the purchase, ownership, holding or sale of Futures
Contracts may be made;
(3) underwrite securities issued by other persons, except
insofar as the Trust may technically be deemed an underwriter under the
Securities Act of 1933, as amended (the "1933 Act"), in selling a
portfolio security for the Fund;
(4) make loans to other persons except (a) through the lending
of securities held by the Fund, but not in excess of 1/3 of the Fund's
net assets taken at market value, (b) through the use of fixed time
deposits or repurchase agreements or the purchase of short-term
obligations, (c) by purchasing all or a portion of an issue of debt
securities of types commonly distributed privately to financial
institutions; for purposes of this Investment Restriction (4) the
purchase of short-term commercial paper or a portion of an issue of
debt securities which are part of an issue to the public shall not be
considered the making of a loan;
(5) purchase or sell real estate (including limited
partnership interests but excluding securities secured by real estate
or interests therein), interests in oil, gas or mineral leases,
commodities or commodity contracts in the ordinary course of business
(the Trust reserves
- 10 -
<PAGE>
the freedom of action to hold and to sell for the Fund real estate
acquired as a result of its ownership of securities);
(6) concentrate its investments in any particular industry,
but if it is deemed appropriate for the achievement of the Fund's
investment objective, up to 25% of the assets of the Fund (taken at
market value at the time of each investment) may be invested in any one
industry, except that positions in Futures Contracts shall not be
subject to this Investment Restriction and except that the Trust may
invest all or substantially all of the Fund's assets in another
registered investment company having the same investment objective and
policies and substantially the same investment restrictions as those
with respect to the Fund;
(7) issue any senior security (as that term is defined in the
1940 Act) if such issuance is specifically prohibited by the 1940 Act
or the rules and regulations promulgated thereunder, except as
appropriate to evidence a debt incurred without violating Investment
Restriction (1) above, and provided that collateral arrangements with
respect to Futures Contracts, including deposits of initial and
variation margin, are not considered to be the issuance of a senior
security for purposes of this Investment Restriction;
(8) write, purchase or sell any put or call option or any
combination thereof, provided that this shall not prevent the writing,
purchase, ownership, holding or sale of Futures Contracts;
(9) invest in securities which are subject to legal or
contractual restrictions on resale (other than fixed time deposits and
repurchase agreements maturing in not more than seven days) if, as a
result thereof, more than 10% of the net assets of the Fund would be so
invested (including fixed time deposits and repurchase agreements
maturing in more than seven days); provided, however, that this
Investment Restriction shall not apply to (a) any security if the
holder thereof is permitted to receive payment upon a specified number
of days' notice of the unpaid principal balance plus accrued interest
either from the issuer or by drawing on a bank letter of credit, a
guarantee or an insurance policy issued with respect to such security
or by tendering or "putting" such security to a third party, or (b) the
investment by the Trust of all or substantially all of the Fund's
assets in another registered investment company having the same
investment objective and policies and substantially the same investment
restrictions as those with respect to the Fund;
(10) purchase securities of any issuer if such purchase at the
time thereof would cause more than 10% of the voting securities of such
issuer to be held for the Fund, except that the Trust may invest all or
substantially all of the Fund's assets in another registered investment
company having the same investment objective and policies and
substantially the same investment restrictions as those with respect to
the Fund; or
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<PAGE>
(11) purchase more than 10% of all outstanding debt
obligations of any one issuer (other than obligations issued by the
U.S. Government, its agencies or instrumentalities).
For purposes of the investment restrictions described above and the state and
federal restrictions described below, 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. If, however, the
creating government or some other entity, such as an insurance company or other
corporate obligor, guarantees a security or a bank issues a letter of credit,
such a guarantee or letter of credit may, in accordance with applicable rules of
the Securities and Exchange Commission, be considered a separate security and
treated as an issue of such government, other entity or bank.
STATE AND FEDERAL RESTRICTIONS. In order to comply with certain state
and federal statutes and policies, the Trust on behalf of the Fund does not, as
a matter of operating policy: (i) borrow money for any purpose in excess of 10%
of the Fund's total assets (taken at cost) (moreover, the Trust will not
purchase any securities for the Fund's portfolio at any time at which borrowings
exceed 5% of the Fund's total assets (taken at market value)), (ii) pledge,
mortgage or hypothecate for any purpose in excess of 10% of the Fund's net
assets (taken at market value) provided that collateral arrangements with
respect to Futures Contracts, including deposits of initial and variation
margin, are not considered a pledge of assets for purposes of this Investment
Restriction, (iii) sell any security which it does not own unless by virtue of
its ownership of other securities it has at the time of sale a right to obtain
securities, without payment of further consideration, equivalent in kind and
amount to the securities sold and provided that if such right is conditional the
sale is made upon the same conditions, (iv) invest for the purpose of exercising
control or management, (v) purchase securities issued by any registered
investment company except by purchase in the open market where no commission or
profit to a sponsor or dealer results from such purchase other than the
customary broker's commission, or except when such purchase, though not made in
the open market, is part of a plan of merger or consolidation, provided,
however, that the Trust will not purchase the securities of any registered
investment company for the Fund if such purchase at the time thereof would cause
more than 10% of the Fund's total assets (taken at the greater of cost or market
value) to be invested in the securities of such issuers or would cause more than
3% of the outstanding voting securities of any such issuer to be held for the
Fund; and provided, further, that the Trust shall not purchase securities issued
by any open-end investment company, (vi) invest more than 15% of the Fund's net
assets in securities that are not readily marketable, including fixed time
deposits and repurchase agreements maturing in more than seven days, (vii)
purchase securities of any issuer if such purchase at the time thereof would
cause the Fund to hold more than 10% of any class of securities of such issuer,
for which purposes all indebtedness of an issuer shall be deemed a single class,
and all preferred stock of an issuer shall be deemed a single class, except that
Futures Contracts shall not be subject to this Investment Restriction, (viii)
invest more than 5% of the Fund's assets in companies which, including
predecessors, have a record of less than three years' continuous operation, or
(ix) purchase or retain in the Fund's portfolio any securities issued by an
issuer any of whose officers, directors, trustees or security holders is an
officer or Trustee of the Trust, or is an officer or director of the Adviser, if
after the purchase of the securities of such issuer
- 12 -
<PAGE>
for the Fund one or more of such persons owns beneficially more than 1/2 of 1%
of the shares or securities, or both, all taken at market value, of such issuer,
and such persons owning more than 1/2 of 1% of such shares or securities
together own beneficially more than 5% of such shares or securities, or both,
all taken at market value. These policies are not fundamental and may be changed
by the Trust on behalf of the Fund without shareholder approval in response to
changes in the various state and federal requirements.
For purposes of the investment restrictions described above, the issuer
of a tax-exempt security is deemed to be the entity (public or private)
ultimately responsible for the payment of principal of and interest on the
security. If, however, the creating government or some other entity, such as an
insurance company or other corporate obligor, guarantees a security or a bank
issues a letter of credit, such a guarantee or letter of credit may, in
accordance with applicable rules of the Securities and Exchange Commission, be
considered a separate security and treated as an issue of such government, other
entity or bank.
PERCENTAGE AND RATING RESTRICTIONS. If a percentage restriction or a
rating restriction on investment or utilization of assets set forth above or
referred to in the Prospectus is adhered to at the time an investment is made or
assets are so utilized, a later change in percentage resulting from changes in
the value of the securities held by the Fund or a later change in the rating of
a security held by the Fund is not considered a violation of policy, however the
Adviser will consider such change in its determination of whether to hold the
security.
Subsequent to its purchase by the Trust on behalf of the Fund, a rated
Municipal Obligation may cease to be rated or its rating may be reduced below
the minimum required for purchase for the Fund. Neither event requires sale of
such Municipal Obligation by the Trust (other than variable rate instruments
which must be sold if they are not "high quality"), but the Adviser considers
such event in determining whether the Trust should continue to hold the
Municipal Obligation on behalf of the Fund. To the extent that the ratings given
to the Municipal Obligations or other securities held by the Trust on behalf of
the Fund are altered due to changes in either the Moody's, Standard & Poor's or
Fitch's ratings systems (see "Description of Ratings" in Appendix A to the
Prospectus for an explanation of Standard & Poor's, Moody's and Fitch ratings),
the Adviser will adopt such changed ratings as standards for its future
investments in accordance with the investment policies contained in the
Prospectus. Certain Municipal Obligations issued by instrumentalities of the
U.S. Government are not backed by the full faith and credit of the U.S. Treasury
but only by the creditworthiness of the instrumentality. The Trust's Board of
Trustees has determined that any Municipal Obligation that depends directly, or
indirectly through a government insurance program or other guarantee, on the
full faith and credit of the U.S. Government is considered to have a rating in
the highest category. Where necessary to ensure that the Municipal Obligations
are of "high quality" (I.E., within the two highest ratings assigned by any
major rating service), or where the obligations are not freely transferable, the
Trust requires that the obligation to pay the principal and accrued interest be
backed by an unconditional irrevocable bank letter of credit, a guarantee,
insurance or other comparable undertaking of an approved financial institution.
- 13 -
<PAGE>
PERFORMANCE INFORMATION
Any current "yield" quotation of the Fund which is used in such a
manner as to be subject to the provisions of Rule 482(d) under the 1933 Act is
calculated by (a) dividing (i) the dividends and interest earned during the
period (as calculated in accordance with the requirements of the Securities and
Exchange Commission) minus the expenses accrued for the period (net of
reimbursements), by (ii) the average daily number of shares outstanding during
the period that were entitled to receive dividends multiplied by the maximum
offering price per share on the last day of the period, (b) adding 1 to the
quotient, (c) raising the sum to the sixth power, (d) subtracting 1 from the
result, and (e) multiplying that result by 2. For the 30-day period ended
October 31, 1995, the yield of the Fund was [ ]%.
Any "tax equivalent yield" quotation for the Fund is calculated as
follows: if the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield will be the current yield quotation divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is not tax-exempt, the tax equivalent yield will be the sum of (a) that portion
of the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates,
and (b) the portion of the yield which is not tax-exempt. For the 30-day period
ended October 31, 1995, the tax equivalent yield of the Fund was [ ]%.
A "total rate of return" quotation for the Fund is calculated for any
period by (a) dividing (i) the sum of the net asset value per share on the last
day of the period and the net asset value per share on the last day of the
period of shares purchasable with dividends and capital gains distributions
declared during such period with respect to a share held at the beginning of
such period and with respect to shares purchased with such dividends and capital
gains distributions, by (ii) the net asset value on the first day of such
period, and (b) subtracting 1 from the result. Any annualized total rate of
return quotation is calculated by (x) adding 1 to the period total rate of
return quotation calculated above, (y) raising such sum to a power which is
equal to 365 divided by the number of days in such period, and (z) subtracting 1
from the result. The total return of the Fund for the period from May 1, 1995
(commencement of operations) to October 31, 1995 was 6.39%.
Any "tax equivalent total rate of return" quotation for the Fund is
calculated as follows: if the entire current total rate of return quotation for
such period is tax-exempt, the tax equivalent total rate of return will be the
current total rate of return quotation divided by 1 minus a stated income tax
rate or rates. If a portion of the current total rate of return quotation is not
tax-exempt, the tax equivalent total rate of return will be the sum of (a) that
portion of the total rate of return which is tax-exempt divided by 1 minus a
stated income tax rate or rates, and (b) the portion of the total rate of return
which is not tax-exempt. The tax equivalent total rate of return of the Fund for
the period ended October 31, 1995 was []%.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
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<PAGE>
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. The address of each, unless otherwise indicated, is 6 St. James
Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant.
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman and Chief Executive Officer, Signature Financial Group, Inc.
("SFG"); Chairman and Chief Executive Officer, Signature (since April,
1989).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, Signature (since October, 1992); law student,
Boston University School of Law (prior to May, 1992).
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, Signature (since February, 1991)
.
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary,
Signature (since April, 1989).
- 15 -
<PAGE>
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, Signature (since April,
1989).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992) .
Messrs. Coolidge, Elder, Lelko, Lenz and Saldana and Mss. Gibson,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which Signature or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Trust
Name of Compensation Part of Fund Benefits Upon Paid to
TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
<PAGE>
The compensation table above reflects the fees received by the Trustees
from the Trust for the period from May 1, 1995 (commencement of operations) to
October 31, 1995. The Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust will receive an annual retainer of $3,600 and a fee
of $1,0001 for each meeting of the Board of Trustees or committee thereof
attended.
As of January 19, 1996, the Trustees and officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund. As of the same
date, the following shareholders of record owned 5% or more of the outstanding
shares of the Fund (the Trust has no knowledge of the beneficial ownership of
such shares): Kinco & Co. c/o Securities Services, One Hanson Place, Brooklyn,
New York, 11243 - 85.5%.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
- ------------
1As of November 1, 1995, Trustee fee for each meeting of the Board of
Trustees or committee thereof attended increased from $600 to $1,000.
- 16 -
<PAGE>
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT ADVISER
Pursuant to an Investment Advisory Contract, Republic is responsible
for the investment management of the Fund's assets, including the responsibility
for making investment decisions and placing orders for the purchase and sale of
securities for the Fund directly with the issuers or with brokers or dealers
selected by Republic in its discretion, not including the Distributor. See
"Portfolio Transactions". Republic also furnishes to the Board of Trustees,
which has overall responsibility for the business and affairs of the Trust,
periodic reports on the investment performance of the Fund.
Republic is a wholly-owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Fund.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Fund are not
exclusive under the terms of the Investment Advisory Contract. Republic is free
to and does render investment advisory services to others.
The Investment Advisory Contract will remain in effect until September
26, 1996, and will continue in effect thereafter from year to year with respect
to the Fund, provided such continuance is approved annually (i) by the holders
of a majority of the outstanding voting securities of the Fund or by the Board
of Trustees, and (ii) by a majority of the Trustees who are not parties to such
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract may be terminated with respect to the Fund without penalty by
either
- 17 -
<PAGE>
party on 60 days' written notice and will terminate automatically if
assigned. The Contract provides that neither the Adviser nor its personnel shall
be liable for any error of judgment or mistake of law or for any loss arising
out of any investment or for any act or omission in the execution of portfolio
transactions for the Fund, except for willful misfeasance, bad faith or gross
negligence or of reckless disregard of its or their obligations and duties under
the Contract.
For the period from May 1, 1995 (commencement of operations) to October
31, 1995, investment advisory fees aggregated $9,063, of which the entire amount
was waived.
ADMINISTRATOR, DISTRIBUTOR AND SPONSOR
The Distribution Plan adopted by the Trust (the "Plan") provides that
it may not be amended to increase materially the costs which the Fund may bear
pursuant to the Plan without approval by Fund shareholders and that other
material amendments of the Plan must be approved by the Board of Trustees, and
by the Trustees who are neither "interested persons" (as defined in the 1940
Act) of the Trust nor have any direct or indirect financial interest in the
operation of the Plan or in any related agreement ("Qualified Trustees"), by
vote cast in person at a meeting called for the purpose of considering such
amendments. The selection and nomination of the Trustees of the Trust has been
committed to the discretion of the Trustees who are not "interested persons" of
the Trust. The Plan has been approved, and is subject to annual approval, by the
Board of Trustees and by the Qualified Trustees, by vote cast in person at a
meeting called for the purpose of voting on the Plan. In adopting the Plan, the
Trustees considered alternative methods to distribute shares of the Fund and to
reduce the Fund's per share expense ratio and concluded that there was a
reasonable likelihood that the Plan will benefit the Fund and its shareholders.
The Plan is terminable with respect to the Fund at any time by a vote of a
majority of the Qualified Trustees or by vote of the holders of a majority of
the shares of the Fund.
During the period from May 1, 1995 (commencement of operations) to
October 31, 1995, the Fund spent a total of $1,947 on the following pursuant to
the Plan: advertising, $0; printing and mailing of prospectuses to other than
current shareholders, $1,947; compensation to underwriters, $0; compensation to
broker-dealers, $0; compensation to sales personnel, $0; interest, carrying or
other financing charges, $0; and other marketing expenses, $0. Total
expenditures pursuant to the Plan as a percentage of average daily net assets
during the same period were 0.05%.
The Administrative Services Contract is terminable with respect to the
Fund without penalty at any time by vote of a majority of the Trustees who are
not "interested persons" of the Trust and who have no direct or indirect
financial interest in the Administrative Services Contract, upon not more than
60 days' written notice to the Sponsor or by vote of the holders of a majority
of the shares of the Fund or upon 15 days' notice by the Sponsor. The
Administrative Services Contract will terminate automatically in the event of
its assignment. The Administrative Services Contract also provides that neither
the Administrator nor its personnel shall be liable for any error of judgment or
mistake of law or for any act or omission in the administration or management of
the Trust, except for willful misfeasance, bad faith or gross negligence in the
performance of its
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or their duties or by reason of reckless disregard of its or their obligations
and duties under the Administrative Services Contract.
For the period ended October 31, 1995, Signature was paid an
administrative services fees of $7,250, of which the entire amount was waived.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Administrative Services Plan continues in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Administrative Services Plan or in any agreement related to
such Plan ("Qualified Trustees"). The Administrative Services Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or by a
majority vote of Fund shareholders. The Administrative Services Plan may not be
amended to increase materially the amount of permitted expense thereunder
without the approval of a majority of Fund shareholders and may not be
materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees.
The Board of Trustees of the Trust has also approved a Custodian
Agreement and a Transfer Agency Agreement between the Trust and Investors Bank &
Trust Company ("IBT") pursuant to which IBT will provide custodial, fund
accounting, transfer agency, dividend disbursing and shareholder servicing
services to the Trust and the Fund. The principal business address of IBT is 24
Federal Street, Boston, Massachusetts 02110.
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents, see "Management of the Trust -
Shareholder Servicing Agents" in the Prospectus.
EXPENSES AND EXPENSE LIMITS
Certain of the states in which shares of the Fund are expected to be
qualified for sale impose limitations on the expenses of the Fund. If, in any
fiscal year, the total expenses of the Fund (excluding taxes, interest, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative fees) exceed the expense limitations applicable to the Fund
imposed by the securities regulations of any state, the Distributor and the
Adviser each will reimburse the Fund for 50% of the excess. The effective
limitation on an annual basis with respect to the Fund is expected to be 2.5% on
the first $30 million of the Fund's net assets, 2.0% on the next $70 million of
such assets, and 1.5% on any excess above $100 million.
Except for the expenses paid by the Adviser and the Distributor, the
Fund bears all costs of its operations. Trust expenses directly related to the
Fund are charged to the Fund; other expenses are allocated proportionally among
all the portfolios of the Trust in relation to the net asset value of the
portfolios.
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DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange is open for trading. As of the
date of this Statement of Additional Information, the New York Stock Exchange is
open every weekday except for the days on which the following holidays are
observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in the Fund's portfolio are valued on
the basis of valuations furnished by a pricing service, use of which has been
approved by the Board of Trustees. In making such valuations, the pricing
service utilizes both dealer-supplied valuations and electronic data processing
techniques which take into account appropriate factors such as
institutional-size trading in similar groups of securities, yield, quality,
coupon rate, maturity, type of issue, trading characteristics and other market
data, without exclusive reliance upon quoted prices or exchange or
over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short- term obligations are valued
at amortized cost, which constitutes fair value as determined by the Board of
Trustees. Futures Contracts are normally valued at the settlement price on the
exchange on which they are traded. Portfolio securities (other than short-term
obligations) for which there are no such valuations are valued at fair value as
determined in good faith by or at the direction of the Board of Trustees.
Interest income on long-term obligations in the Fund's portfolio is
determined on the basis of interest accrued plus amortization of "original issue
discount" (generally, the difference between issue price and stated redemption
price at maturity) and premiums (generally, the excess of purchase price over
stated redemption price at maturity). Interest income on short-term obligations
is determined on the basis of interest accrued plus amortization of premium.
Subject to the Trust's compliance with applicable regulations, the
Trust has reserved the right to pay the redemption or repurchase price of shares
of the Fund, either totally or partially, by a distribution in kind of the
Fund's portfolio securities (instead of cash). The securities so distributed
would be valued at the same amount as that assigned to them in calculating the
net asset value for the shares being sold. If a shareholder received a
distribution in kind, the shareholder could incur brokerage or other charges in
converting the securities to cash.
TAXATION
FEDERAL INCOME TAX
The Fund intends to qualify each year as a "regulated investment
company" under Subchapter M of the Internal Revenue Code (the "Code"). By so
qualifying, the Fund will be exempt from regular federal income taxes to the
extent that it distributes substantially all of its net investment income and
net realized capital gains to shareholders.
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It is intended that the Fund's assets will be sufficiently invested in
municipal securities to qualify to pay "exempt-interest dividends" (as defined
in the Code) to shareholders. The Fund's dividends payable from net tax-exempt
interest earned from municipal securities will qualify as exempt-interest
dividends if, at the close of each quarter of its taxable year, at least 50% of
the value of its total assets consists of securities the interest on which is
exempt from the regular federal income tax under Code section 103. Exempt-
interest dividends distributed to shareholders are not included in shareholders'
gross income for regular federal income tax purposes.
The Fund will determine periodically which distributions will be
designated as exempt-interest dividends. If the Fund earns income which is not
eligible to be so designated, the Fund, nonetheless, intends to distribute such
income. Such distributions will be subject to federal, state, and local state
taxes, as applicable, in the hands of shareholders.
Distributions of net investment income received by the Fund from
investment in taxable debt securities, or ordinary income realized upon the
disposition of market discount bonds (including tax-exempt market discount
bonds), and of any net realized short-term capital gains will be taxable to
shareholders as ordinary income. Because the Fund's investment income is derived
from interest rather than dividends, no portion of such distributions is
expected to be eligible for the dividends-received deduction available to
corporations.
Upon the sale or exchange of shares, a shareholder generally will
realize a taxable gain or loss depending upon his or her basis in the shares.
Such gain or loss will be treated as a capital gain or loss if the shares are
capital assets in the shareholder's hands and will be long-term if the
shareholder's holding period for the shares is more than one year and,
generally, will otherwise be short-term. If a capital gain distribution
designated as a capital gain dividend is paid with respect to any shares of the
Fund sold at a loss after being held for six months or less, the loss will be
treated as a long-term capital loss for tax purposes.
Any loss realized from a disposition of Fund shares that were held for
six months or less will be disallowed, to the extent that dividends received
from the Fund are designated as exempt-interest dividends. Any loss realized on
a sale or exchange of Fund shares also will be disallowed to the extent that the
shares disposed of are replaced (including replacement through reinvesting of
dividends and capital gain distributions in the Fund) within a period of 61 days
beginning 30 days before and ending 30 days after the disposition of the shares.
In such a case, the basis of the shares acquired will be adjusted to reflect the
disallowed loss. Any loss, to the extent not disallowed, realized on a
disposition of shares of the Fund with respect to which long-term capital gain
distributions have been paid will, to the extent of those dividends, be treated
as a long-term capital loss if your shares have been held for six months or less
at the time of their disposition.
Under the Code, any distribution designated as being made from the
Fund's net realized long-term capital gains is taxable to shareholders as
long-term capital gains, regardless of the length of time shares are held.
Distributions by the Fund (other than exempt-interest dividends) and
redemption proceeds may be subject to backup withholding at the rate of 31%.
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Backup withholding generally applies to shareholders who have failed to properly
certify their taxpayer identification numbers, who fail to provide other
required tax-related certifications, and with respect to whom the Fund has
received certain notifications from the Internal Revenue Service requiring or
permitting the Fund to apply backup withholding. Backup withholding is not an
additional tax and amounts so withheld generally may be applied by affected
shareholders as a credit against their federal income tax liability.
Interest on certain types of private activity bonds is not exempt from
regular federal income tax when received by "substantial users" or persons
related to substantial users as defined in the Code. The term "substantial user"
includes any "nonexempt person" who regularly uses in trade or business part of
a facility financed from the proceeds of private activity bonds. The Fund may
invest periodically in private activity bonds and, therefore, may not be
appropriate investments for entities that are substantial users of facilities
financed by private activity bonds or "related persons" of substantial users.
Generally, an individual will not be a related person of a substantial user
under the Code unless he/she or his/her immediate family (spouse, brothers,
sisters, and lineal descendants) owns indirectly in aggregate more than 50% in
the equity value of the substantial user.
Certain futures contracts in which the Fund may invest are "section
1256 contracts." Gains or losses on section 1256 contracts generally are
considered 60% long-term and 40% short-term capital gains or losses (60-40).
Also, section 1256 contracts held by the Fund at the end of each taxable year
(and, in some cases, for purposes of the 4% excise tax, on October 31 of each
year) are marked to market with the result that unrealized gains or losses are
treated as though they were realized.
The hedging transactions undertaken by the Fund may result in straddles
for regular federal income tax purposes. The straddle rules may affect the
character of gains (or losses) realized by the Fund. In addition, losses
realized by the Fund on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which such losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Fund of hedging transactions are not
entirely clear. The hedging transactions may increase the amount of short-term
capital gains realized by the Fund, which are taxed as ordinary income when
distributed to shareholders.
The Fund may make one or more of the elections available under the Code
that are applicable to straddles. If the Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the elections may
operate to accelerate the recognition of gains or losses from the affected
straddle positions.
Because the application of the straddle rules may affect the character
of gains or losses, defer losses, and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount that must be distributed
to shareholders and that will be taxed to shareholders as ordinary income or a
long-term capital gain may be increased or decreased substantially as compared
to a fund that did not engage in such hedging transactions.
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<PAGE>
Opinions relating to the tax status of interest derived from individual
municipal securities are rendered by bond counsel to the issuer. Although the
Fund's advisor attempts to determine that any security it contemplates
purchasing on behalf of the Fund is issued with an opinion indicating that
interest payments will be federal and (as applicable) state tax-exempt, neither
the advisor nor the Fund's counsel makes any review of proceedings relating to
the issuance of municipal securities or the bases of such opinions.
From time to time, proposals have been introduced in Congress for the
purpose of restricting or eliminating the regular federal income tax exemption
for interest on municipal securities, and similar proposals may be introduced in
the future. If such a proposal were enacted, the availability of municipal
securities for investment by the Fund could be adversely affected. Under these
circumstances, Fund management would re-evaluate the Fund's investment
objectives and policies and would consider either changes in the structure of
the Fund and the Trust or their dissolution.
ALTERNATIVE MINIMUM TAX
While the interest on bonds issued to finance essential state and local
government operations is generally tax-exempt, interest on certain nonessential
or private activity securities issued after August 7, 1986, while exempt from
the regular federal income tax, constitutes a tax-preference item for taxpayers
in determining alternative minimum tax liability under the Code and income tax
provisions of several states. The interest on private activity securities could
subject a shareholder to, or increase liability under, the federal alternative
minimum tax, depending on the shareholder's tax situation.
All distributions derived from interest exempt from regular federal
income tax may subject corporate shareholders to or increase their liability
under, the alternative minimum tax and environmental tax because these
distributions are included in the corporation's adjusted current earnings.
The Fund will inform shareholders annually as to the dollar amount of
distributions derived from interest payments on private activity securities.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders; no attempt has been made
to discuss individual tax consequences. A prospective investor should consult
his or her tax advisor or state or local tax authorities to determine whether
the Fund is a suitable investment based on his or her tax situation.
SPECIAL TAX CONSIDERATIONS
Exempt-interest dividends, whether received by shareholders in cash or
in additional shares, derived by New York residents from interest on qualifying
New York bonds generally are exempt from New York State and New York City
personal income taxes, but not corporate franchise taxes. Dividends and
distributions derived from taxable income and capital gains are not exempt from
New York State and New York City taxes. Interest on indebtedness incurred or
continued by a shareholder to purchase or carry shares of the Fund is not
deductible for New York State or New York City personal income tax purposes.
Gain on the sale or redemption of Fund shares generally is subject to New York
State and New York City personal income tax.
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OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young LLP , 200
Clarendon Street, Boston, Massachusetts 02116, served as independent auditors of
the Funds of the Trust.
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The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus 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
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Fund's current audited financial statements dated October 31, 1995
are hereby incorporated herein by reference from the Annual Report of the Fund
dated October 31, 1995 as filed with the Securities and Exchange Commission
pursuant to Rule 30b2-1 under the 1940 Act. A copy of such report will be
provided without charge to each person receiving this Statement of Additional
Information.
FT4113C
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APPENDIX A
DESCRIPTION OF MUNICIPAL OBLIGATIONS
Municipal Obligations include bonds, notes and commercial paper issued
by or on behalf of states, territories and possessions of the United States and
the District of Columbia and their political subdivisions, agencies or
instrumentalities, the interest on which is exempt from regular federal income
taxes (without regard to whether the interest thereon is also exempt from the
personal income taxes of any state). Municipal Obligation bonds are issued to
obtain funds for various public purposes, including the construction of a wide
range of public facilities such as bridges, highways, housing, hospitals, mass
transportation, schools, streets and water and sewer works. Other public
purposes for which Municipal Obligation bonds may be issued include refunding
outstanding obligations, obtaining funds for general operating expenses, and
obtaining funds to loan to other public institutions and facilities. In
addition, certain types of industrial development bonds are issued by or on
behalf of public authorities to obtain funds to provide privately-operated
housing facilities, industrial facilities, sports facilities, convention or
trade show facilities, airport, mass transit, port or parking facilities, air or
water pollution control facilities, hazardous waste treatment or disposal
facilities, and certain local facilities for water supply, gas, electricity or
sewage or solid waste disposal. Such obligations are included within the term
Municipal Obligations if the interest paid thereon qualifies as exempt from
regular federal income tax. Other types of industrial development bonds, the
proceeds of which are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, may
constitute Municipal Obligations, although the current federal tax laws place
substantial limitations on the size of such issues.
The two principal classifications of Municipal Obligation bonds are
"general obligation" and "revenue" bonds. General obligation bonds are secured
by the issuer's pledge of its good faith, credit and taxing, power for the
payment of principal and interest. The payment of the principal of and interest
on such bonds may be dependent upon an appropriation by the issuer's legislative
body. The characteristics and enforcement of general obligation bonds vary
according to the law applicable to the particular issuer. Revenue bonds are
payable only from the revenues derived from a particular facility or class of
facilities or, in some cases, from the proceeds of a special excise or other
specific revenue source. Industrial development bonds which are Municipal
Obligations are in most cases revenue bonds and do not generally constitute the
pledge of the credit of the issuer of such bonds. There are, of course,
variations in the security of Municipal Obligations, both within a particular
classification and between classifications, depending" on numerous factors.
Municipal Obligation notes generally are used to provide for short-term
capital needs and generally have maturities of one year or less. Municipal
Obligation notes include:
1.TAX ANTICIPATION NOTES. Tax Anticipation Notes are issued to finance
operational needs of municipalities. Generally, they are issued in anticipation
of the receipt of various tax revenues, such as property, income, sales, use and
business taxes.
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2.REVENUE ANTICIPATION NOTES. Revenue Anticipation Notes are issued in
expectation of receipt of dedicated revenues, such as state aid or federal
revenues available under federal revenue sharing programs.
3.TAX AND REVENUE ANTICIPATION NOTES. Tax and Revenue Anticipation
Notes are issued by the State to fund its day-to-day operations and certain
local assistance payments to its municipalities and school districts. Such Notes
are issued in anticipation of the receipt of various taxes and revenues, such as
personal income taxes, business taxes and user taxes and fees.
4.BOND ANTICIPATION NOTES. Bond Anticipation Notes are issued to
provide interim financing until long-term bond financing can be arranged. Long-
term bonds or renewal Bond Anticipation Notes provide the money for the
repayment of the Notes.
Issues of commercial paper typically represent short-term, unsecured,
negotiable promissory notes. These obligations are issued by agencies of state
and local governments to finance seasonal working capital needs of
municipalities or to provide interim construction financing and are paid from
general revenues of municipalities or are refinanced with long-term debt. In
most cases, Municipal Obligation commercial paper is backed by letters of
credit, lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or other institutions.
The yields on Municipal Obligations are dependent on a variety of
factors, including general market conditions, supply and demand and general
conditions of the Municipal Obligation market, size of a particular offering,
the maturity of the obligation and rating (if any) of the issue. The ratings of
Moody's Investors Service, Inc., Standard & Poor's Corporation and Fitch
Investors Service, Inc. represent their opinions as to the quality of various
Municipal Obligations. It should be emphasized, however, that ratings are not
absolute standards of quality. Consequently, Municipal Obligations with the same
maturity, coupon and rating may have different yields while Municipal
Obligations of the same maturity and coupon with different ratings may have the
same yield.
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APPENDIX B
ADDITIONAL INFORMATION CONCERNING
NEW YORK MUNICIPAL OBLIGATIONS
The following information is a summary of special factors affecting
investments in New York municipal obligations . It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 23, 1995.
GENERAL
New York (the "State") is the third most populous state in the nation
and has a relatively high level of personal wealth. The State's economy is
diverse with a comparatively large share of the nation's finance, insurance,
transportation, communications and services employment, and a very small share
of the nation's farming and mining activity. The State's location, air transport
facilities and natural harbors have made it an important link in international
commerce. Travel and tourism constitute an important part of the economy. The
State has a declining proportion of its work force engaged in manufacturing and
an increasing proportion engaged in service industries. This transition reflects
a national trend.
The State has historically been one of the wealthiest states in the
nation. For decades, however, the State economy has grown more slowly than that
of the nation as a whole, resulting in the gradual erosion of its relative
economic affluence. Statewide, urban centers have experienced significant
changes involving migration of the more affluent to the suburbs and an 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. New York City (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.
Although industry and commerce are broadly spread across the State,
particular activities are concentrated in the following areas: Westchester
County -- headquarters for several major corporations; Buffalo -- diverse
manufacturing base; Rochester -- manufacture of photographic and optical
equipment; Syracuse and Utica-Rome area -- production of machinery and
transportation equipment; Albany-Troy-Schenectady -- government and education
center and production of electrical products; Binghampton -- original site of
the International Business Machines Corporation and continued concentration of
employment in computer and other high technology manufacturing; and New York
City -- headquarters for the nation's securities business and for a major
portion of the nation's major commercial banks, diversified financial
institutions and life insurance companies. In addition, the City houses the home
offices of three major radio and television broadcasting networks, most of the
national magazines and
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a substantial portion of the nation's book publishers. The City also retains
leadership in the design and manufacture of men's and women's apparel.
ECONOMIC OUTLOOK
The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. Those factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities , but also by entities, such as the Federal government, that
are not under the control of the State. The State Financial Plan is 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, the extent of corporate and governmental restructuring, Federal
financial and monetary policies, the availability of credit, the level of
interest rates, and the condition of the world economy,
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which would have an adverse effect on the State. There can be no assurance that
the State economy will not experience results in the current fiscal year that
are worse than predicted, with corresponding material and adverse effects on the
State's projections of receipts and disbursements.
The national economy began to expand in 1991, although the growth rate
for the first two years of the expansion was modest by historical standards. The
State economy remained in recession until 1993, when employment growth resumed.
Since November 1992, the State has added approximately 185,000 jobs. Employment
growth has been hindered during recent years by significant cutbacks in the
computer and instrument manufacturing, utility, and defense industries. Personal
income increased substantially in 1992 and 1993, aided significantly by large
bonus payments in banking and financial industries.
The national economy performed better in 1994 than in any year since
the recovery began in 1991. National job and income growth were substantial. In
response, the Federal Reserve Board shifted to a policy of monetary tightening
by raising interest rates throughout the year. As a result, the national
economic growth is expected to weaken, but not turn negative, during the course
of 1995 before beginning to rebound by the end of the year. This dynamic is
often described as a "soft landing." The overall rate of growth of the national
economy during calendar year 1995 will be slightly below the "consensus" of a
widely followed survey of national economic forecasters. Growth in the real
gross domestic product during 1995 is projected to be moderate (3.0 percent),
with declines in defense spending and net exports more than offset by increases
in consumption and investment. Continuing efforts by business and government to
reduce costs are expected to exert a drag on economic growth. Inflation, as
measured by the Consumer Price Index, is projected to remain about 3 percent due
to moderate wage growth and foreign competition. Personal income and wages are
projected to increase by about 6 percent or more.
The State economy had a mixed performance during 1994. The moderate
employment growth that characterized 1993 continued into mid-1994, then
virtually ceased. New York's economy is expected to continue to expand modestly
during 1995, but there will be a pronounced slow-down during the course of the
year. Although industries that export goods and services abroad are expected to
benefit from the lower dollar, growth will be slowed by government cutbacks at
all levels. On an average annual basis, employment growth will be about the same
as 1994. Both personal income and wages are expected to record moderate gains in
1995. Bonus payments in the securities industry are expected to increase from
last year's depressed level. Personal income rose 4.0 percent in 1994.
The State has for many years had a very high State and local tax burden
relative to other States. The State and its localities have used these taxes to
develop and maintain their transportation networks, public schools and colleges,
public health systems, other social services and recreational facilities.
Despite these benefits, the burden of State and local taxation, in combination
with the many other causes of regional economic dislocation, may have
contributed to the decisions of some businesses and individuals to relocate
outside, or not locate within, the State.
To stimulate the State's economic growth, the State has developed
programs, including the provision of direct financial assistance, designed to
assist businesses to expand existing operations located within the State and to
attract
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new businesses to the State. Local industrial development agencies raised an
aggregate of approximately $7.8 billion in separate tax-exempt bond issues
through December 31, 1993. There are currently over 100 county, city, town and
village agencies. In addition, the New York State Urban Development Corporation
is empowered to issue, subject to certain State constitutional restrictions and
to approval by the Public Authorities Control Board, bonds and notes on behalf
of private corporations for economic development projects. The State has also
taken advantage of changes in Federal bank regulations to establish a free
international banking zone in the City.
In addition, the State has provided various tax incentives to encourage
business relocation and expansion. These programs include direct tax abatements
from local property taxes for new facilities (subject to locality approval) and
investment tax credits that are applied against the State corporation franchise
tax. Furthermore, legislation passed in 1986 authorizes the creation of up to 40
"economic development zones" in economically distressed regions of the State.
Businesses in these zones are provided a variety of tax and other incentives to
create jobs and make investments in the zones.
STATE FINANCIAL PLAN
The State Constitution requires the Governor to submit to the
Legislature a balanced Executive Budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the Executive Budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.
The State's fiscal year, which commenced on April 1, 1995, and ends on
March 31, 1996, is referred to herein as the State's 1995-96 fiscal year.
The State's budget for the 1995-96 fiscal year was enacted by the
Legislature on June 7, 1995, more than two months after the start of the fiscal
year. 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 1995-96 fiscal year was formulated on June 20, 1995, and
is based on the State's budget as enacted by the Legislature and signed into law
by the Governor. The State Financial Plan will be updated quarterly pursuant to
law in July, October and January.
The 1995-96 budget is the first to be enacted in the administration of
the Governor, who assumed office on January 1. It is the first budget in over
half a century which proposed and, as enacted, projects an absolute
year-over-year decline in General Fund disbursements. Spending for State
operations is projected to drop even more sharply, by 4.6 percent. Nominal
spending from all State funding sources (I.E., excluding Federal aid) is
proposed to increase by only 2.5 percent from the prior fiscal year, in contrast
to the prior decade when such spending growth averaged more than 6.0 percent
annually.
In his Executive Budget, the Governor indicated that in the 1995-96
fiscal year, the State Financial Plan, based on then-current law governing
spending and
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revenues, would be out of balance by almost $4.7 billion, as a result of the
projected structural deficit resulting from the ongoing disparity between
sluggish growth in receipts, the effect of prior-year tax changes, and the rapid
acceleration of spending growth; the impact of unfunded 1994-95 initiatives,
primarily for local aid programs; and the use of one-time solutions, primarily
surplus funds from the prior year, to fund recurring spending in the 1994-95
budget. The Governor proposed additional tax cuts, to spur economic growth and
provide relief for low- and middle-income tax payers, which were larger than
those ultimately adopted, and which added $240 million to the then projected
imbalance or budget gap, bringing the total to approximately $5 billion.
This gap is projected to be closed in the 1995-96 State Financial Plan
based on the enacted budget, through a series of actions, mainly spending
reductions and cost containment measures and certain reestimates that are
expected to be recurring, but also through the use of one-time solutions. The
State Financial Plan projects (i) nearly $1.6 billion in savings from cost
containment, disbursement reestimates, and other savings in social welfare
programs, including Medicaid, income maintenance and various child and family
care programs; (ii) $2.2 billion in savings from State agency actions to reduce
spending on the State work force, SUNY and CUNY, mental hygiene programs,
capital projects, the prison system and fringe benefits; (iii) $300 million in
savings from local assistance reforms, including actions affecting school aid
and revenue sharing while proposing program legislation to provide relief from
certain mandates that increase local spending; (iv) over $400 million in revenue
measures, primarily a new Quick Draw Lottery game, changes to tax payment
schedules, and the sale of assets; and (v) $300 million from reestimates in
receipts.
The Executive Budget indicates that for years State revenues have grown
at a slower rate than State spending, producing an increasing structural
deficit, and that as the Executive Budget is enacted, the State will start to
eliminate the structural imbalance that has characterized the State's fiscal
record. There can, however, be no assurances that the tax and spending cuts will
eliminate potential imbalances in future fiscal years. The Governor's
recommended multi-year personal income tax cuts are designed to reduce the yield
on that tax by about one-third by 1998, and could require significant additional
spending cuts in those years, increased economic growth to provide additional
revenues, additional revenue measures, or a combination of those factors.
GOVERNMENT FUNDS
The four governmental fund types that comprise the State Financial Plan
are the General Fund, the Special Revenue Funds, the Capital Projects Funds, and
the Debt Service Funds.
GENERAL FUND RECEIPTS
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.
In the State's 1995-96 fiscal year, the General Fund is expected to account for
approximately 49 percent of total governmental-funded disbursements and 71
percent of total State-funded disbursements. General Fund moneys are also
transferred to other
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funds, primarily to support certain capital projects and debt service on
long-term bonds, where these costs are not funded from other sources.
The Financial Plan for the 1995-96 fiscal year released on February 1,
1995, projects General Fund receipts, including transfers from other funds, of
$33.110 billion, a reduction of $48 million from the total receipts in the 1994-
95 fiscal year. Tax receipts are projected at $29.793 billion for the 1995-96
fiscal year. Although growth in the base for tax receipts is expected to
accelerate during the 1995-96 fiscal year, tax receipts are expected to fall by
3.5 percent, principally due to the combined effect of implementing during the
1995-96 fiscal year (1) a portion of the tax reductions originally enacted in
1987 and deferred each year since 1990, (2) additional tax cuts to prevent tax
increases also originally enacted in 1987 from taking effect and (3) the
proposed employer day care credit ($5 million), together with the incremental
cost of the tax reductions enacted in 1994 (more than $500 million), which
effectively negate the effect of projected growth in the recurring revenue base.
In addition, certain nonrecurring revenues in the 1994-95 receipts base,
including the 1993-94 surplus of $1.026 billion, additional earmarking to
dedicated funds (more than $210 million) and other miscellaneous one-time
receipts (more than $100 million) are not available in the 1995-96 fiscal year,
thereby reducing potential year-over-year growth by another 4 percentage points.
The projected yield of personal income tax in the 1995-96 fiscal year
of $17.285 billion is a decrease of $305 million from reported collections in
the State's 1994-95 fiscal year. The decrease reflects both the effects of the
tax reductions and the fact that reported collections in the preceding year were
affected by net refund reserve transactions that buoyed collections in that year
by $862 million that will be unavailable in the current year. Without these
changes, the yield of the tax would have grown by more than $1.0 billion (6
percent), reflecting liability growth for the 1995 tax year projected at
approximately the same rate. The income base for the tax is projected to rise
approximately 5 percent for the 1995 tax year. Personal income tax receipts
showed a sharp increase in 1994-95 and are expected to decline in 1995-96.
Personal income tax reductions recommended in the Executive Budget are projected
to produce taxpayer savings of $720 million in calendar year 1995 reflecting the
scheduled implementation of the 1987 tax reductions. The tax reductions
recommended by the Governor are part of a multi-year program designed to reduce
the yield of the income tax by about one-third by 1998.
Receipts in user taxes and fees in the State's 1995-96 fiscal year are
expected to total $6.697 billion, an increase of $73 million from reported 1994-
95 results. Growth in user taxes and fees is expected to slow to about 1 percent
in 1995-96, reflecting nearly $70 million of additional tax relief in this
category in the coming year resulting from tax reductions enacted in 1994, the
absence of extraordinary audit collections received in 1994-95, and a slowdown
in the underlying growth rate of sales and use tax collections, offset by a
projected improvement of $41 million as a result of recommended legislation to
enhance sales tax collection procedures. Business tax receipts are projected at
$4.709 billion, a decline of $360 million from reported 1994-95 results. The
decline in the 1995-96 fiscal year largely reflecting the effect of tax
reductions enacted in 1994.
Total receipts from other taxes in the State's 1995-96 fiscal year are
projected at $1.102 billion, $6 million less than in the preceding year. The
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estimates reflect 1994 and 1995 legislation reducing the burden of the real
property gains tax and the estate tax as well as diversion of a portion of the
real estate transfer tax proceeds to the Environmental Protection Fund.
Miscellaneous receipts in the State's 1995-96 fiscal year are expected to total
$1.596 billion, an increase of $335 million above the amount received in the
prior State fiscal year. Growth in overall collections from miscellaneous
receipts in the coming fiscal year is expected to result largely from several
discrete actions involving settlement of environmental litigation, the
recommended merger of public authorities, and transactions with the Power
Authority, which together account for over $200 million of projected
miscellaneous receipts anticipated in 1995-96. Transfers from other funds
continue at prior year levels, with the addition of the transfer of $220 million
in excess funds from the Metropolitan Mass Transportation Operating Assistance
Fund.
GENERAL FUND DISBURSEMENTS
General Fund disbursements are projected to total $33.055 billion in
1995-96, a decrease of $344 million from the total amount disbursed in the prior
fiscal year. This decline reflects a broad agenda of cost containment actions,
more than offsetting modest increases for fixed costs, such as pensions, debt
service on bonds sold during the current year and capital projects under
construction.
Disbursements from grants to local governments are projected to total
$22.910 billion in the 1995-96 State Financial Plan, a decrease of $392 million
from 1994-95 levels. Although spending in this category is reduced, direct
payments to local governments, including school aid and revenue sharing are
maintained largely at last year's levels. This category of the State Financial
Plan includes $10.823 billion in aid for elementary, secondary, and higher
education. Costs for social services, such as Medicaid, income maintenance and
child support services account for $8.706 billion. Remaining disbursements
primarily support community-based mental hygiene programs, community and public
health programs, local transportation programs, and revenue sharing.
Significant decreases from the prior year result largely from cost
containment initiatives in Medicaid and other social welfare programs. Payments
for Medicaid from the General Fund are projected to be $506 million lower than
in 1994-95. $128 Million in operating aid to the New York City Transit Authority
will be eliminated, matching the reduction in New York City support of the
Authority.
Spending for State operations is projected at $6.020 billion, a
decrease of $288 million. Recommendations in the Executive Budget reduce the
work force by approximately 3,200 positions (most of which reduce disbursements
in this category).
Spending for general State charges is projected at $2.080 billion in
the 1995-96 State Financial Plan, and are virtually unchanged from the 1994-95
level. The budgeted amount for general State charges assumes the use of $110
million from a special reserve for pension supplementation, established in 1970
and funded through State and local employer contributions in the early 1970's,
to offset the State's pension contribution. The Comptroller, as sole trustee of
the Common Retirement Fund and administrative head of the Retirement System, is
in
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the process of reviewing the legislation that directs the use of these reserves
to determine whether or not to commence legal proceedings to prevent such
proposed use in the enacted 1995-96 State budget as a violation of the State
Constitution, and there is a substantial likelihood that he will do so. The
Executive considers the proposed use of these reserves to be a credit for
prior-year supplementation payments and, therefore, in compliance with the State
Constitution.
Debt service in the General Fund for 1995-96 reflects only the $9
million interest cost of the State's commercial paper program. No cost is
included for a TRAN borrowing, since none is expected to be undertaken. General
Fund debt service on short-term obligations of the State reflects the
elimination of the State's spring borrowing. Transfers in support of debt
service are projected to total $1.583 billion, and increase of $157 million.
This increase is heightened by the use of one-time reimbursements from other
funds in the 1994-95 fiscal year. Transfers in support of capital projects are
projected to total $375 million, an increase of $169 million, which reflects
significant investments in both new and ongoing capital programs. All other
transfers are projected to total $78 million, an increase of $9 million from
1994-95 levels.
The 1995-96 opening fund balance of $158 million includes $157 million
which is reserved in the Tax Stabilization Reserve Fund, as well as $1 million
which is reserved in the Contingency Reserve Fund. The Contingency Reserve Fund
was established in 1993-94 to set aside moneys to address adverse judgments or
settlements resulting from litigation against the State. The closing fund
balance in the General Fund of $213 million reflects a balance of $172 million
in the Tax Stabilization Reserve Fund, following an additional payment of $15
million during the year, and a balance of $41 million in the Contingency Reserve
Fund.
The 1995-96 Financial Plan includes over $600 million in non-recurring
resources. These actions include items discussed above, as well as retroactive
Federal reimbursements and some non-recurring social welfare cost containment
actions. The Budget Division believes that recommendations included in the
Executive Budget will provide fully annualized savings in 1996-97 that more than
offset the non-recurring resources used in 1995-96.
SPECIAL REVENUE FUNDS
Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as Federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes. For
1995-96, the State Financial Plan projects disbursements of $26.002 billion from
these funds, an increase of $1.641 billion over 1994-95 levels. Disbursements
from Federal funds, primarily the Federal share of Medicaid and other social
services programs, are projected to total $19.209 billion in the 1995-96 fiscal
year. Remaining projected spending of $6.793 billion primarily reflects aid to
SUNY supported by tuition and dormitory fees, education aid funded from lottery
receipts, operating aid payments to the Metropolitan Transportation Authority
funded from the proceeds of dedicated transportation taxes, and costs of a
variety of self-supporting programs which deliver services financed by user
fees.
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CAPITAL PROJECTS FUNDS
Capital Projects Funds are used to account for the financial resources
used for the acquisition, construction, or rehabilitation of major state capital
facilities and for capital assistance grants to certain local government or
public authorities. This fund type consists of the Capital Projects Fund, which
is supported by tax dollars transferred from the General Fund, and 37 other
capital funds established to distinguish specific capital construction purposes
supported by other revenues.
Disbursements from the Capital Projects Funds in 1995-96 are projected
at $4.160 billion, an increase of $541 million over prior-year levels. Spending
for capital projects will be financed through a combination of sources: Federal
grants, public authority bond proceeds, general obligation bond proceeds, and
current revenues. Total receipts in this fund type are projected at $4.170
billion, not including $364 million expected to be available from the proceeds
of general obligation bonds.
DEBT SERVICE FUNDS
Debt Service Funds are used to account for the payment of principal of,
and interest on, long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements.
Disbursements are estimated at $2.506 billion in the 1995-96 fiscal year, an
increase of $303 million from 1994-95. The transfer from the General Fund of
$1.583 billion is expected to finance 63 percent of these payments. The
remaining payments are expected to be financed by pledged revenues, including
$1.794 billion in taxes, $228 million in dedicated fees, and $2.200 billion in
patient revenues, including transfers of Federal reimbursements. After
impoundment for debt service, as required, $3.481 billion is expected to be
transferred to the General Fund and other funds in support of State operations.
The largest transfer - $1.761 billion - is made to the Special Revenue Fund
type, in support of operations of the mental hygiene agencies. Another $1.341
billion in excess sales taxes is expected to be transferred to the General Fund,
following payment of projected debt service on bonds of LGAC.
The increase in debt service costs recommended in the Executive Budget
primarily reflects prior capital commitments financed by bonds issued by the
State and State-supported debt issued by its public authorities, and the
completion of the LGAC program. The increase has been moderated by the
reductions to bond-financed capital spending as discussed above, and reflects
debt issuances in 1994-95 and 1995-96 which are lower than they would have been,
absent the Governor's review of capital spending.
CASH FLOW
For the second time in many years, the State will meet its cash flow
needs without relying on a spring borrowing. However, this achievement is
predicated on two actions: the issuance of all remaining LGAC bonds authorized
in the 1990 statute; and the passage of proposed legislation permitting the
State to use, for cash flow purposes only, balances in the Lottery Fund.
Temporary transfers will be returned within five months so that all available
Lottery moneys as well as advances of additional aid can be paid to school
districts in September.
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The lingering impact of the 1994-95 receipts shortfall -- as well as
the impact of the potential $5 billion 1995-96 imbalance on cash operations --
exerts substantial pressures on the State's cash balance position in the first
three months of the fiscal year. These pressures are expected to abate later in
the 1995-96 fiscal year, as cash outlays decline from previous levels consistent
with cost-savings initiatives proposed in the Executive Budget.
PRIOR FISCAL YEARS
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. For its
1992-93 and 1993-94 fiscal years, the State recorded balanced budgets on a cash
basis, with substantial fund balances in each year as described below.
1994-95 FISCAL YEAR
The State's budget for the 1994-95 fiscal year was enacted by the
Legislature on June 7, 1994, more than two months after the start of the fiscal
year.
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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 1994-95 budget contained a significant investment in efforts to
spur economic growth. The budget included provisions to reduce the level of
business taxation in New York, with cuts in the corporate tax surcharge, the
alternative minimum tax imposed on business and the petroleum business tax,
repeal of the State's hotel occupancy tax, and reductions in the real property
gains tax to stimulate construction and facilitate the real estate industry's
access to capital. Complementing the elimination of the hotel tax was a $10
million investment of State funds in the "I Love New York" program designed to
spur tourism activity throughout the State.
To help strengthen the State's economic recovery, the 1994-95 budget
also included more than $200 million in additional funding for economic
development programs. Special emphasis was placed on programs intended to enable
New York State to: (i) invest in high technology industries; (ii) expand access
to foreign markets; (iii) strengthen assistance to small businesses,
particularly those owned by women and minorities; (iv) retain and attract new
manufacturing jobs; (v) help companies and communities impacted by continued
cutbacks in Federal defense spending and ongoing corporate downsizings; and (vi)
bolster the tourism industry. In addition, the budget included increased levels
of support for programs to rebuild and maintain State infrastructure, and
provisions to create 21 new economic development zones.
New York State ended its 1994-95 fiscal year with the General Fund in
balance. The closing fund balance of $158 million reflects $157 million in the
Tax Stabilization Reserve Fund and $1 million in the Contingency Reserve Fund
("CRF"). The CRF was established in State Fiscal year 1993-94, funded partly
with surplus moneys, to assist the State in financing the 1994-95 fiscal year
costs of extraordinary litigation known or anticipated at that time; the opening
fund balance in State fiscal year 1994-95 was $265 million. The $241 million
change in the fund balance reflects the use of $264 million in the CRF as
planned, as well as the required deposit of $23 million to the Tax Stabilization
Reserve Fund. In addition, $278 million was on deposit in the tax refund reserve
account, $250 million of which was deposited at the end of the State's 1994-95
fiscal year to continue the process of restructuring the State's cash flow as
part of the LGAC program.
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Compared to the State Financial Plan for 1994-95 as formulated on June
16, 1994, reported receipts fell short of original projections by $1.163
billion, primarily in the categories of personal income and business taxes. Of
this amount, the personal income tax accounts for $800 million, reflecting weak
estimated tax collections and lower withholding due to reduced wage and salary
growth, more severe reductions in brokerage industry bonuses than projected
earlier, and deferral of capital gains realizations in anticipation of potential
Federal tax changes. Business taxes fell short by $373 million, primarily
reflecting lower payments from banks as substantial overpayments of 1993
liability depressed net collections in the 1994-95 fiscal year. These shortfalls
were offset by better performance in the remaining taxes, particularly the user
taxes and fees, which exceeded projections by $210 million. Of this amount, $227
million was attributable to certain restatements for accounting treatment
purposes pertaining to the CRF and LGAC; these restatements had no impact on
balance in the General Fund.
Disbursements were also reduced from original projections by $848
million. After adjusting for the net impact of restatements relating to the CRF
and LGAC which raised disbursements by $38 million, the variance is $886
million. Well over two-thirds of this variance is in the category of grants to
local governments, primarily reflecting the conservative nature of the original
estimates of projected costs for social services and other programs. Lower
education costs are attributable to the availability of $110 million in
additional lottery proceeds and the use of LGAC bond proceeds.
The spending reductions also reflect $188 million in actions initiated
in January 1995 by the Governor to reduce spending to avert a potential gap in
the 1994-95 State Financial Plan. These actions included savings from a hiring
freeze, halting the development of certain services, and the suspension of
nonessential capital projects. These actions, together with $71 million in other
measures comprised the Governor's $259 million gap-closing plan, submitted to
the Legislature in connection with the 1995-96 Executive Budget.
1993-94 FISCAL YEAR
The State ended its 1993-94 fiscal year with a balance of $1.140
billion in the tax refund reserve account, $265 million in its Contingency
Reserve Fund and $134 million in its Tax Stabilization Reserve Fund. These fund
balances were primarily the result of an improving national economy, State
employment growth, tax collections that exceeded earlier projections and
disbursements that were below expectations. Deposits to the personal income tax
refund reserve have the effect of reducing reported personal income tax receipts
in the fiscal year when made and withdrawals from such reserve increase receipts
in the fiscal year when made. The balance in the tax refund reserve account will
be used to pay taxpayer refunds, rather than drawing from 1994-95 receipts.
1992-93 FISCAL YEAR
The State ended its 1992-93 fiscal year with a balance of $671 million
in the tax refund reserve account and $67 million in the Tax Stabilization
Reserve Fund. The State's 1992-93 fiscal year was characterized by performance
that was better than projected for the national and regional economies. National
gross domestic product, State personal income, and State employment and
unemployment performed better than originally projected in April 1992. This
favorable economic
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performance, particularly at year end, combined with a tax-induced acceleration
of income into 1992, was the primary cause of the General Fund surplus. Personal
income tax collections were more than $700 million higher than originally
projected (before reflecting the tax refund reserve account transaction),
primarily in the withholding and estimated payment components of the tax. There
were, however, large and mainly offsetting variances in other categories of
receipts.
CERTAIN LITIGATION
Certain litigation pending against New York or its officers or
employees could have a substantial or long-term adverse effect on New York
finances. Among the more significant of these cases are those that involve: (i)
the validity of agreements and treaties by which various Indian tribes
transferred to New York title to certain land in New York; (ii) certain aspects
of New York's Medicaid rates and regulations, including reimbursements to
providers of mandatory and optional Medicaid services, and the eligibility for
and nature of home care services; (iii) challenges to provisions of Section
2807-C of the Public Health Law, which impose a 13% surcharge on inpatient
hospital bills paid by commercial insurers and employee welfare benefit plans
and portions of Chapter 55 of the laws of 1992, which require hospitals to
impose and remit to the State an 11% surcharge on hospital bills paid by
commercial insurers and which require health maintenance organizations to remit
to the State a surcharge of up to 9%; (iv) an action against the State of New
York and New York City officials alleging that the present level of shelter
allowance for public assistance recipients is inadequate under statutory
standards to maintain proper housing; (v) challenges to the practice of
reimbursing certain Office of Mental Health patient care expenses from the
client's Social Security benefits; (vi) alleged responsibility of New York
officials to assist in remedying racial segregation in the City of Yonkers;
(vii) a challenge to the constitutionality of financing programs of the Thruway
Authority authorized by Chapters 166 and 410 of the Laws of 1991; and (viii) a
claim that the State's Department of Environmental Conservation prevented the
completion of a cogeneration facility by the projected date by failing to
provide data in a timely manner and that the plaintiff thereby suffered damages.
In addition, aspects of petroleum business taxes are the subject of
administrative claims and litigation.
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THE CITY OF NEW YORK
The fiscal health of the State of New York is closely related to the
fiscal health of its localities, particularly the City, which has required and
continues to require significant financial assistance from New York. The City's
independently audited operating results for each of its 1981 through 1993 fiscal
years showed a General Fund surplus reported in accordance with GAAP. In
addition, the City's financial statements for the 1993 fiscal year received an
unqualified opinion from the City's independent auditors, the eleventh
consecutive year the City received such an opinion.
The 1996-1999 Financial Plan reflects a program of proposed actions by
the City to close the gaps between projected revenues and expenditures of $888
million, $1.5 billion and $1.4 billion for the 1997, 1998 and 1999 fiscal years,
respectively. These actions, a substantial number of which are not specified in
detail, include additional agency spending reductions, reduction in
entitlements, government procurement initiatives, revenue initiatives and the
availability of the general reserve.
The Office of the State Deputy Comptroller for the City of New York
(the "OSDC") and the State Financial Control Board continue their respective
budgetary oversight activities.
In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
(the "MAC") to provide financing assistance to the City; the New York State
Financial Control Board (the "Control Board") to oversee the City's financial
affairs; the Office of the State Deputy Comptroller for the City of New York to
assist the Control Board in exercising its powers and responsibilities; and a
"Control Period" from 1975 to 1986 during which the City was subject to certain
statutorily-prescribed fiscal-monitoring arrangements. Although the Control
Board terminated the Control Period in 1986 when certain statutory conditions
were met, thus suspending certain Control Board powers, the Control Board, MAC
and OSDC continue to exercise various fiscal-monitoring functions over the City,
and upon the occurrence or "substantial likelihood and imminence" of the
occurrence of certain events, including, but not limited to a City operating
budget deficit of more than $100 million, the Control Board is required by law
to reimpose a Control Period. Currently, the City and its Covered Organizations
(I.E., those which receive or may receive monies from the City directly,
indirectly or contingently) operate under a four-year financial plan which the
City prepares annually and periodically updates.
The staffs of the OSDC and the Control Board issue periodic reports on
the City's financial plans, as modified, analyzing forecasts of revenues and
expenditures, cash flow, and debt service requirements, as well as compliance
with the financial
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plan, as modified, by the City and its Covered Organizations. OSDC staff reports
issued during the mid-1980's noted that the City's budgets benefitted from a
rapid rise in the City's economy, which boosted the City's collection of
property, business and income taxes. These resources were used to increase the
City's work force and the scope of discretionary and mandated City services.
Subsequent OSDC staff reports examined the 1987 stock market crash and the
1989-92 recession, which affected the New York City region more severely than
the nation, and attributed an erosion of City revenues and increasing strain on
City expenditures to that recession. According to a recent OSDC staff report,
the City's economy is now slowly recovering, but the scope of that recovery is
uncertain and unlikely, in the foreseeable future, to match the expansion of the
mid-1980's. Also, staff reports of OSDC and the Control Board have indicated
that the City's recent balanced budgets have been accomplished, in part, through
the use of non-recurring resources, tax increases and additional State
assistance; that the City has not yet brought its long-term expenditures in line
with recurring revenues; and that the City is therefore likely to continue to
face future projected budget gaps requiring the City to increase revenues and/or
reduce expenditures. According to the most recent staff reports of OSDC and the
Control Board, 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.
The City requires significant amounts of financing for seasonal and
capital purposes. The City issued $1.75 billion of notes for seasonal financing
purposes during its fiscal year ending June 30, 1994. The City's capital
financing program projects long-term financing requirements of approximately $17
billion for the City's fiscal years 1995 through 1998. The major capital
requirements include expenditures for the City's water supply and sewage
disposal systems, roads, bridges, mass transit, schools, hospitals and housing.
OTHER LOCALITIES
In addition to the City, certain localities, including the City of
Yonkers, could have financial problems leading to requests for additional State
assistance during the State's 1995-96 fiscal year and thereafter..
Municipalities and school districts have engaged in substantial short-term and
long-term borrowings. In 1993, the total indebtedness of all localities in the
State other than New York City was approximately $17.7 billion.
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. If the State, the City or any of the public authorities were to
suffer serious financial difficulties jeopardizing their respective
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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.
AUTHORITIES
The fiscal stability of the State is related, in part, to the fiscal
stability of its public authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts, and as otherwise
restricted by, their legislative authorization. As of September 30, 1994, there
were 18 public authorities that had aggregate outstanding debt of $70.3 billion
. Some authorities also receive moneys from State appropriations to pay for the
operating costs of certain of their programs.
The Metropolitan Transit Authority (the "MTA"), which receives the bulk
of the appropriated moneys from the State,
oversees the operation of the City's bus and subway system by its
affiliates, the New York City Transit Authority and Manhattan and Bronx Surface
Transit Operating Authority (collectively, the "TA").
B-16
<PAGE>
The MTA has depended and will continue to depend upon Federal, state and local
government support to operate the transit system because fare revenues are
insufficient.
Over the past several years, 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 served by
the MTA and a special one-quarter of one percent regional sales and use tax)
that provide additional revenues for mass transit purposes, including assistance
to the MTA. In addition, a one-quarter of one percent regional mortgages
recording tax paid on certain mortgages creates an additional source of
recurring revenues for the MTA. Further, in 1993, the State dedicated a portion
of the State petroleum business tax to assist the MTA. For the 1995-96 State
fiscal year, total State assistance to the MTA is estimated at approximately
$1.1 billion.
In 1993, State legislation authorized the funding of a five-year $9.56
billion MTA capital plan for the five-year period, 1992 through 1996 (the
"1992-96 Capital Program"). The MTA has received approval of the 1992-96 Capital
Program based on this legislation from the 1992-96 Capital Program Review Board,
as State law requires. This is the third five-year plan since the Legislature
authorized procedures for the adoption, approval and amendment of a five-year
plan in 1981 for a capital program designed to upgrade the performance of the
MTA's transportation systems and to supplement, replace and rehabilitate
facilities and equipment. The MTA, the Triborough Bridge and Tunnel Authority,
and the TA are collectively authorized to issue an aggregate of $3.1 billion of
bonds (net of certain statutory exclusions) to finance a portion of the 1992-96
Capital Program. The 1992-96 Capital Program is expected to be financed in
significant part through dedication of State petroleum business taxes referred
to above.
There can be no assurance that all the necessary governmental actions
for the Capital Program will be taken, that funding sources currently identified
will not be decreased or eliminated, or that the 1992-96 Capital Program, or
parts thereof, will not be delayed or reduced. Furthermore, the power
B-17
<PAGE>
of the MTA to issue certain bonds expected to be supported by the appropriation
of State petroleum business taxes is currently the subject of a court challenge.
If the Capital Program is delayed or reduced, 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.
B-18
<PAGE>
REPUBLIC EQUITY FUND
6 St. James Avenue
Boston, Massachusetts 02116
General
and (800) 782-8183 (Toll Free)
Account Information
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Lord, Abbett & Co. - Investment Sub-Adviser
("Lord Abbett" or the "Sub-Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator, Distributor and Sponsor
("Signature" or the "Distributor" or the "Sponsor")
STATEMENT OF ADDITIONAL INFORMATION
Republic Equity Fund (the "Fund") is a separate series (portfolio) of
the Republic Funds (the "Trust"), an open-end, management investment company
which currently consists of six portfolios, each of which has different and
distinct investment objectives and policies. The Fund is described in this
Statement of Additional Information.
The investment objective of the Fund is long-term growth of capital and
income without excessive fluctuations in market value. The Fund seeks its
objective by investing in securities selling at reasonable prices in relation to
value. The Fund will normally invest in common stocks of large, seasoned
companies in sound financial condition which are expected to show above-average
price appreciation. There can be no assurance that the investment objective of
the Fund will be achieved.
Shares of the Fund are continuously offered for sale by the Distributor
at net asset value with no sales charge (i) directly to the public, (ii) to
customers of a financial institution, such as a federal or state-chartered bank,
trust company or savings and loan association that has entered into a
shareholder servicing agreement with the Trust (collectively, "Shareholder
Servicing Agents"), and (iii) to customers of a securities broker that has
entered into a dealer agreement with the Distributor.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED JANUARY 26, 1996 (the "Prospectus"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Trust at the address and
telephone number printed above.
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Trust by
<PAGE>
which shares of the Fund are offered. Unless the context otherwise requires,
terms defined in the Prospectus have the same meaning in this Statement of
Additional Information as in the Prospectus.
Dated: January 26, 1996 FT4209F
<PAGE>
TABLE OF CONTENTS
PAGE
Investment Objective, Policies, Risks and Restrictions 1
Convertible Securities ..................................... 1
Portfolio Securities Loans.................................. 1
Rule 144A Securities........................................ 2
Risk Factors................................................ 3
Investment Restrictions .................................... 4
Percentage and Rating Restrictions ......................... 7
Performance Information ............................................. 7
Management of the Trust ............................................. 8
Trustees and Officers ......................................10
Investment Manager ........................................ 10
Investment Sub-Adviser .................................... 11
Distributor, Administrator and Sponsor .................... 12
Shareholder Servicing Agents, Transfer Agent and
Custodian ............................................ 13
Expenses and Expense Limits ............................... 13
Valuation of Securities, Redemption in Kind ........................ 14
Taxation ........................................................... 15
Federal Income Tax ........................................ 15
Options ................................................... 16
Investment in Passive Foreign Investment Companies 17
Disposition of Shares ..................................... 18
Other Information .................................................. 19
Capitalization ............................................ 19
Voting Rights ............................................. 19
Independent Auditors ...................................... 19
Counsel ................................................... 20
Registration Statement .................................... 20
Financial Statements ............................................... 20
Appendix ........................................................... A-1
ii
<PAGE>
INVESTMENT OBJECTIVE, POLICIES, RISKS AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Fund discussed under the caption "Investment
Objective, Risks and Policies" and the discussion of risks described under
"Additional Risk Factors and Policies" in the Prospectus.
The investment objective of the Fund is long-term growth of
- 1 -
<PAGE>
capital and income without excessive fluctuations in market value. The Fund
seeks its objective by investing in securities selling at reasonable prices in
relation to value. The Fund will normally invest in common stocks of large,
seasoned companies in sound financial condition which are expected to show
above-average price appreciation.
CONVERTIBLE SECURITIES
The Fund may buy securities that are convertible into common stock. The
following is a brief description of the various types of convertible securities
in which the Fund may invest.
CONVERTIBLE BONDS are issued with lower coupons than non-convertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value, and the option to convert to common
shares becomes more valuable.
CONVERTIBLE PREFERRED STOCKS are non-voting equity securities that pay
a fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific
price for a specific period of time. The price of a warrant tends to be more
volatile than, and does not always track, the price of its underlying stock.
Warrants are issued with expiration dates. Once a warrant expires, it has no
value in the market.
RIGHTS represent a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public.
PORTFOLIO SECURITIES LOANS
The Fund may lend portfolio securities to registered broker-dealers.
These loans may not exceed 30% of the Fund's total assets. The Fund's loans of
securities will be collateralized by cash or marketable securities issued or
guaranteed by the U.S. Government or its agencies ("U.S. Government Securities")
or other permissible means. The cash or instruments collateralizing the Fund's
loans of securities will be maintained at all times in an amount at least equal
to the current market value of the loaned securities. From time to time, the
Fund may allow a part of the interest received with respect to the investment of
collateral received for securities
- 2 -
<PAGE>
loaned to the borrower and/or a third party that is not affiliated with
the Fund and is acting as a "placing broker." No fee will be paid to affiliated
persons of the Fund.
By lending portfolio securities, the Fund can increase its income by
continuing to receive interest on the loaned securities as well as by either
investing the cash collateral in permissible investments, such as U.S.
Government Securities or obtaining yield in the form of interest paid by the
borrower when such U.S. Government Securities are used as collateral. The Fund
will comply with the following conditions whenever it loans securities: (i) the
Fund must receive at least 100% collateral from the borrower; (ii) the borrower
must increase the collateral whenever the market value of the securities loaned
rises above the level of the collateral; (iii) the Fund must be able to
terminate the loan at any time; (iv) the Fund must receive reasonable
compensation with respect to the loan, as well as any dividends, interest or
other distributions on the loaned securities; (iv) the Fund may pay only
reasonable fees in connection with the loaned securities and (vi) voting rights
on the loaned securities may pass to the borrower except that, if a material
event adversely affecting the investment in the loaned securities occurs, the
Fund's Board of Trustees must terminate the loan and regain the right to vote
the securities.
RULE 144A SECURITIES
The Fund may invest in securities qualifying for resale to "qualified
institutional buyers" under Securities and Exchange Commission ("SEC") Rule 144A
that are determined by the Board, or by the Sub-Adviser pursuant to the Board's
delegation, to be liquid securities. The Board will review quarterly the
liquidity of the investments the Fund makes in such securities.
PORTFOLIO TRANSACTIONS
The Sub-Adviser is primarily responsible for portfolio decisions and
the placing of portfolio transactions. The Trust has no obligation to deal with
any dealer or group of dealers in the execution of transactions in portfolio
securities for the Fund. In placing orders for the Fund, the primary
consideration is prompt execution of orders in an effective manner at the most
favorable price, although the Fund does not necessarily pay the lowest spread or
commission available. Other factors taken into consideration are the dealer's
general execution and operational facilities, the type of transaction involved
and other factors such as the dealer's risk in positioning the securities. To
the extent consistent with applicable legal requirements, the Sub-Adviser may
place orders for the purchase and sale of Fund investments for the Fund with
Republic New York Securities Corporation, an affiliate of the Manager.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "1934 Act"), the Sub-Adviser may cause the Fund to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934 Act) to
the Sub-Adviser an
- 3 -
<PAGE>
amount of commission for effecting a securities transaction for the Fund in
excess of the commission which another broker-dealer would have charged for
effecting that transaction. For the period August 1, 1995 to October 31, 1995,
no brokerage commissions were paid from the Fund.
Investment decisions for the Fund and for the other investment advisory
clients of the Sub-Adviser are made with a view to achieving their respective
investment objectives. Investment decisions are the product of many factors in
addition to basic suitability for the particular client involved. Thus, a
particular security may be bought for certain clients even though it could have
been sold for other clients at the same time, and a particular security may be
sold for certain clients even though it could have been bought for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more other clients are selling that same security. In some
instances, one client may sell a particular security to another client. Two or
more clients may simultaneously purchase or sell the same security, in which
event each day's transactions in that security are, insofar as practicable,
averaged as to price and allocated between such clients in a manner which in the
Sub-Adviser's opinion is equitable to each and in accordance with the amount
being purchased or sold by each. In addition, when purchases or sales of the
same security for the Fund and for other clients of the Sub-Adviser occur
contemporaneously, the purchase or sale orders may be aggregated in order to
obtain any price advantage available to large denomination purchases or sales.
There may be circumstances when purchases or sales of portfolio securities for
one or more clients will have an adverse effect on other clients in terms of the
price paid or received or of the size of the position obtainable.
RISK FACTORS
As stated in the Prospectus, the Fund may invest in lower rated,
high-yield, "junk" bonds. In general, the market for lower rated, high-yield
bonds is more limited than the market for higher rated bonds, and because their
markets may be thinner and less active, the market prices of lower rated,
high-yield bonds may fluctuate more than the prices of higher rated bonds,
particularly in times of market stress. In addition, while the market for
high-yield, corporate debt securities has been in existence for many years, the
market in recent years experienced a dramatic increase in the large-scale use of
such securities to fund highly leveraged corporate acquisitions and
restructurings. Accordingly, past experience may not provide an accurate
indication of future performance of the high-yield bond market, especially
during periods of economic recession. Other risks which may be associated with
lower rated, high-yield bonds include their relative insensitivity to
interest-rate changes; the exercise of any of their redemption or call
provisions in a declining market which may result in their replacement by lower
yielding bonds; and legislation, from time to time, which may adversely affect
their market. Since the risk of default is
- 4 -
<PAGE>
higher among lower rated, high-yield bonds, the Sub-Adviser's research and
analyses are important ingredients in the selection of lower rated, high-yield
bonds. Through portfolio diversification, good credit analysis and attention to
current developments and trends in interest rates and economic conditions,
investment risk can be reduced, although there is no assurance that losses will
not occur. The Fund does not have any minimum rating criteria applicable to the
fixed-income securities in which it invests. A description of the ratings used
herein and in the Prospectus is set forth in the Appendix to this Statement of
Additional Information.
INVESTMENT RESTRICTIONS
The Trust (with respect to the Fund) has adopted the following
investment restrictions which may not be changed without approval by holders of
a "majority of the outstanding voting securities" of the Fund, which as used in
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
"voting securities." The term "voting securities" as used in this paragraph has
the same meaning as in the Investment Company Act of 1940 ("1940 Act").
As a matter of fundamental policy, the Fund may not (except that no
investment restriction of the Fund shall prevent the Fund from investing all of
its assets (other than assets which are not "investment securities" as defined
in the 1940 Act) in an open-end investment company with substantially the same
investment objectives):
(1) invest in physical commodities or contracts on physical
commodities;
(2) purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate, other
than real estate limited partnerships, and may purchase and
sell marketable securities which are secured by interests in
real estate;
(3) make loans except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees
and except as otherwise in accordance with the Fund's
investment objective and policies;
(4) borrow money, except from a bank as a temporary measure to
satisfy redemption requests or for extraordinary or emergency
purposes, provided that the Fund maintains asset coverage of
at least 300% for all such borrowings;
(5) underwrite the securities of other issuers (except to the
extent that the Fund may be deemed to be an
- 5 -
<PAGE>
underwriter within the meaning of the Securities Act of 1933
(the "1933 Act") in the disposition of restricted
securities);
(6) acquire any securities of companies within one industry, if
as a result of such acquisition, more than 25% of the value
of the Fund's total assets would be invested in securities of
companies within such industry; provided, however, that there
shall be no limitation on the purchase of obligations issued
or guaranteed by the U.S. Government, its agencies or
instrumentalities, when the Fund adopts a temporary defensive
position;
(7) issue senior securities, except as permitted under the 1940
Act;
(8) with respect to 75% of its assets, the Fund will not purchase
securities of any issuer if, as a result, more than 5% of the
Fund's total assets taken at market value would be invested
in the securities of any single issuer; and
(9) with respect to 75% of its assets, the Fund will not purchase
a security if, as a result, the Fund would hold more than 10%
of the outstanding voting securities of any issuer.
The Fund is also subject to the following restrictions which may be
changed by the Board of Trustees without shareholder approval. As a matter of
non-fundamental policy, the Fund will not:
(1) borrow money, except that the Fund may borrow for temporary
or emergency purposes up to 10% of its net assets; provided,
however, that the Fund may not purchase any security while
outstanding borrowings exceed 5% of net assets;
(2) sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in
options and futures contracts are not deemed to constitute
short sales of securities;
(3) purchase warrants, valued at the lower of cost or market, in
excess of 10% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of the Fund's
net assets, may be warrants that are not listed on the New
York or American Stock Exchanges or an exchange with
comparable listing requirements. Warrants attached to
securities are not subject to this limitation;
(4) purchase securities on margin, except for use of short-term
credit as may be necessary for the clearance of purchases and
sales of securities, but it may make
- 6 -
<PAGE>
margin deposits in connection with transactions in options,
futures, and options on futures;
(5) invest more than 15% of the Fund's net assets (taken at the
greater of cost or market value) in securities that are
illiquid or not readily marketable (excluding Rule 144A
securities deemed by the Board of Trustees of the Trust to be
liquid);
(6) invest more than 15% of the Fund's total assets (taken at the
greater of cost or market value) in (a) securities (including
Rule 144A securities) that are restricted as to resale under
the 1933 Act, and (b) securities that are issued by issuers
which (including predecessors) have been in operation less
than three years (other than U.S. Government securities),
provided, however, that no more than 5% of the Fund's total
assets are invested in securities issued by issuers which
(including predecessors) have been in operation less than
three years;
(7) invest more than 10% of the Fund's total assets (taken at the
greater of cost or market value) in securities (excluding
Rule 144A securities) that are restricted as to resale under
the 1933 Act;
(8) purchase securities of any issuer if such purchase at the
time thereof would cause the Fund to hold more than 10% of
any class of securities of such issuer, for which purposes
all indebtedness of an issuer shall be deemed a single class
and all preferred stock of an issuer shall be deemed a single
class, except that futures or option contracts shall not be
subject to this restriction;
(9) invest for the purpose of exercising control over management
of any company;
(10) except by purchase in the open market involving only
customary brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; provided, however,
that the Fund shall not invest in the shares of any open-end
investment company unless (a) the Sub-Adviser waives any
investment advisory fees with respect to such assets, and (b)
the Fund pays no sales charge in connection with the
investment;
(11) invest more than 5% of its total assets in securities of
issuers (other than securities issued or guaranteed by U.S.
or foreign government or political subdivisions thereof)
which have (with predecessors) a record of less than three
years' continuous operations;
- 7 -
<PAGE>
(12) write or acquire options or interests in oil, gas or other
mineral explorations or development programs or leases; and
(14) write puts and calls on securities unless each of the
following conditions are met: (a) the security underlying the
put or call is within the investment policies of the Fund and
the option is issued by the Options Clearing Corporation,
except for put and call options issued by non-U.S. entities
or listed on non-U.S. securities or commodities exchanges;
(b) the aggregate value of the obligations underlying the put
determined as of the date the options are sold shall not
exceed 50% of the Fund's net assets; (c) the securities
subject to the exercise of the call written by the Fund must
be owned by the Fund at the time the call is sold and must
continue to be owned by the Fund until the call has been
exercised, has lapsed, or the Fund has purchased a closing
call, and such purchase has been confirmed, thereby
extinguishing the Fund's obligation to deliver securities
pursuant to the call it has sold; and (d) at the time a put
is written, the Fund establishes a segregated account with
its custodian consisting of cash or short-term U.S.
Government securities equal in value to the amount the Fund
will be obligated to pay upon exercise of the put (this
account must be maintained until the put is exercised, has
expired, or the Fund has purchased a closing put, which is a
put of the same series as the one previously written); and
(15) buy and sell puts and calls on securities, stock index
futures or options on stock index futures, or financial
futures or options on financial futures unless such options
are written by other persons and: (a) the options or futures
are offered through the facilities of a national securities
association or are listed on a national securities or
commodities exchange, except for put and call options issued
by non-U.S. entities or listed on non-U.S. securities or
commodities exchanges; (b) the aggregate premiums paid on all
such options which are held at any time do not exceed 20% of
the Fund's total net assets; and (c) the aggregate margin
deposits required on all such futures or options thereon held
at any time do not exceed 5% of the Fund's total assets.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy, however the
- 8 -
<PAGE>
Sub-Adviser will consider such change in its determination of whether to hold
the security.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the SEC,
in advertisements or reports to shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[( a-b + 1)6-1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last
day of the period.
For the 30-day period ending October 31, 1995, the yield of the Fund
was [ ]%.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accompanied by standardized total return information.
The total return of the Fund for the period from August 1, 1995 (commencement of
operations) to October 31, 1995 was 2.75%.
- 9 -
<PAGE>
Performance information for the Fund may also be compared to various
unmanaged indices, such as the Standard & Poor's Stock Index. Unmanaged indices
(I.E., other than Lipper) generally do not reflect deductions for administrative
and management costs and expenses. Comparative information may be compiled or
provided by independent ratings services or by news organizations. Any
performance information should be considered in light of the Fund's investment
objective and policies, characteristics and quality of the Fund, and the market
conditions during the given time period, and should not be considered to be
representative of what may be achieved in the future.
MANAGEMENT OF THE TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust. The address of each, unless otherwise indicated, is 6 St. James
Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant .
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman and Chief Executive Officer, Signature Financial Group, Inc.
("SFG"); Chairman and Chief Executive Officer, Signature (since April,
1989).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since
- 10 -
<PAGE>
April, 1995); Treasurer, Phoenix Family of Mutual Funds (prior to
April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, Signature (since October, 1992); law student,
Boston University School of Law (prior to May, 1992) .
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, Signature (since February, 1991)
.
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary,
Signature (since April, 1989).
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, Signature (since April,
1989).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Attorney, Ropes & Gray (September, 1990 to November, 1992) .
Messrs. Coolidge, Elder, Lelko, Lenz and Saldana and Mss. Gibson,
Mugler and O'Dette are also Trustees and/or officers of certain other investment
companies of which Signature or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Trust
Name of Compensation Part of Fund Benefits Upon Paid to
TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
<PAGE>
The compensation table above reflects the fees received by the Trustees
from the Trust for the period from August 1, 1995 (commencement of operations)
to October 31, 1995. The Trustees who are not "interested persons" (as defined
in the 1940 Act) of the Trust will receive an annual retainer of $3,600 and a
fee of $1,0001 for each meeting of the Board of Trustees or committee thereof
attended.
As of January 19, 1996, the Trustees and officers of the Trust, as a
group, owned less than 1% of the outstanding shares of the Fund. As of the same
date, the following shareholders of record owned 5% or more of the outstanding
shares of the Fund (the Trust has no knowledge of the beneficial ownership of
such shares): Kinco & Co. c/o Securities Services, One Hanson Place, Brooklyn,
New York, 11243 - 98.0%.
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Fund pursuant to an
investment management agreement (the "Investment Management Contract") with the
Trust. For its services, the Manager is paid a fee by the Fund, computed daily
and based on the Fund's average daily net assets, equal on the annual basis to
0.175% of net assets. For the period from August 1, 1995 (commencement of
operations) to October 31, 1995, investment management fees aggregated $6,118,
of which the entire amount was waived.
The Investment Management Contract will remain in effect until April 7,
1997, and will continue in effect thereafter from year to year with respect to
the Fund, provided such continuance is approved annually (i) by the holders of a
majority of the outstanding voting securities of the Fund or by the Trust's
Board of Trustees, and (ii) by a majority of the Trustees of the Trust who are
not parties to the Investment Management Contract or "interested persons" (as
defined in the 1940 Act) of any such
- ------------
1As of November 1, 1995, Trustee fee for each meeting of the Board of
Trustees or committee thereof attended increased from $600 to $1,000.
- 12 -
<PAGE>
party. The Investment Management Contract may be terminated with respect to the
Fund without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Fund.
Republic complies with applicable laws, regulations, and rulings of the
U.S. Comptroller of the Currency relating to fiduciary powers of national banks.
These regulations provide, in general, that assets managed by a national bank as
fiduciary shall not be invested in stock or obligations of, or property acquired
from, the bank, its affiliates or their directors, officers or employees or
other persons with substantial connections with the bank. The regulations
further provide that fiduciary assets shall not be sold or transferred, by loan
or otherwise, to the bank or persons connected with the bank as described above.
Republic, in accordance with federal banking laws, may not purchase for its own
account securities of any investment company the investment adviser of which it
controls, extend credit to any such investment company, or accept the securities
of any such investment company as collateral for a loan to purchase such
securities. Moreover, Republic, its officers and employees do not express any
opinion with respect to the advisability of any purchase of such securities.
The investment management services of Republic to the Fund are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment management and advisory services to others.
INVESTMENT SUB-ADVISER
Lord Abbett, as the Fund's Sub-Adviser, is responsible for the
investment management of the Fund's assets, including making investment
decisions and placing orders for the purchase and sale of securities for the
Fund directly with the issuers or with brokers or dealers selected by the
Sub-Adviser in its discretion. See "Portfolio Transactions." Lord Abbett also
furnishes to the Board of Trustees of the Trust, which has overall
responsibility for the business and affairs of the Trust, periodic reports on
the investment performance of the Fund.
For its services, Lord Abbett receives from the Fund a fee, computed
daily and based on the Fund's average daily net assets, at the annual rate of
0.325% of net assets up to $50 million, 0.25% of net assets over $50 million up
to $100 million, 0.20% of net assets over $100 million up to $200 million, and
0.15% of net assets in excess of $200 million. For the period from August 1,
1995 (commencement of operations) to October 31, 1995, sub-advisory fees
aggregated $11,363, of which the entire amount was reimbursed.
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<PAGE>
The investment advisory services of Lord Abbett to the Fund are not
exclusive under the terms of Lord Abbett's Subadvisory Agreement with Republic.
Lord Abbett is free to and does render investment advisory services to others.
DISTRIBUTOR, ADMINISTRATOR AND SPONSOR
The Distributor acts as agent for the Fund in the distribution of its
shares and, in such capacity, continuously solicits orders for the sale of
shares, advertises and pays the cost of advertising, office space and its
personnel involved in such activities.
The Distribution Plan adopted by the Trust (the "Plan") provides that
it may not be amended to increase materially the costs which the Fund may bear
pursuant to the Plan without approval by a majority vote of Fund shareholders
and that other material amendments of the Plan must be approved by the Board of
Trustees, and by a majority vote of the Trustees who are neither "interested
persons" (as defined in the 1940 Act) of the Trust nor have any direct or
indirect financial interest in the operation of the Plan or in any related
agreement ("Qualified Trustees"), by vote cast in person at a meeting called for
the purpose of considering such amendments. The selection and nomination of the
non-interested Trustees of the Trust has been committed to the discretion of the
Trustees who are not "interested persons" of the Trust. The Plan has been
approved, and is subject to annual approval, by a majority vote of the Board of
Trustees and by a majority vote of the Qualified Trustees, by vote cast in
person at a meeting called for the purpose of voting on the Plan. In adopting
the Plan, the Trustees considered alternative methods to distribute shares of
the Fund and to reduce the Fund's per share expense ratio and concluded that
there was a reasonable likelihood that the Plan will benefit the Fund and its
shareholders. The Plan is terminable with respect to the Fund at any time by a
vote of a majority of the Qualified Trustees or by vote of the holders of a
majority of the shares of the Fund.
During the period from August 1, 1995 (commencement of operations) to
October 31, 1995, the Fund spent a total of $6,835 on the following pursuant to
the Plan: advertising, $0; printing and mailing of prospectuses to other than
current shareholders, $6,835; compensation to underwriters, $0; compensation to
broker-dealers, $0; compensation to sales personnel, $0; interest, carrying or
other financing charges, $0; and other marketing expenses, $0. Total
expenditures pursuant to the Plan as a percentage of average daily net assets
during the same period were 0.20%.
The Administrative Services Contract is terminable with respect to the
Fund without penalty at any time by vote of a majority of the Trustees who are
not "interested persons" of the
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<PAGE>
Trust and who have no direct or indirect financial interest in the
Administrative Services Contract, upon not more than 60 days' written notice to
the Sponsor or by vote of the holders of a majority of the shares of the Fund or
upon 15 days' notice by the Sponsor. The Administrative Services Contract will
terminate automatically in the event of its assignment. The Administrative
Services Contract also provides that neither the Administrator nor its personnel
shall be liable for any error of judgment or mistake of law or for any act or
omission in the administration or management of the Trust, except for willful
misfeasance, bad faith or gross negligence in the performance of its or their
duties or by reason of reckless disregard of its or their obligations and duties
under the Administrative Services Contract.
For the period from August 1, 1995 (commencement of operations) to
October 31, 1995, Signature was paid an administrative services fees of $6,992,
of which the entire amount was waived.
SHAREHOLDER SERVICING AGENTS, TRANSFER AGENT AND CUSTODIAN
The Administrative Services Plan continues in effect indefinitely if
such continuance is specifically approved at least annually by a vote of both a
majority of the Trustees and a majority of the Trustees who are not "interested
persons" of the Fund and who have no direct or indirect financial interest in
the operation of the Administrative Services Plan or in any agreement related to
such Plan ("Qualified Trustees"). The Administrative Services Plan may be
terminated at any time by a vote of a majority of the Qualified Trustees or by a
majority vote of Fund shareholders. The Administrative Services Plan may not be
amended to increase materially the amount of permitted expense thereunder
without the approval of a majority of Fund shareholders and may not be
materially amended in any case without a vote of the majority of both the
Trustees and the Qualified Trustees.
The Board of Trustees of the Trust has also approved a Custodian
Agreement and a Transfer Agency Agreement between the Trust and Investors Bank &
Trust Company ("IBT") pursuant to which IBT will provide custodial, fund
accounting, transfer agency, dividend disbursing and shareholder servicing
services to the Trust and the Fund. The principal business address of IBT is 24
Federal Street, Boston, Massachusetts 02110.
The Trust has entered into a shareholder servicing agreement with each
Shareholder Servicing Agent. For additional information, including a description
of the fees paid to Shareholder Servicing Agents, see "Management of the Trust -
Shareholder Servicing Agents" in the Prospectus.
EXPENSES AND EXPENSE LIMITS
- 15 -
<PAGE>
Certain of the states in which shares of the Fund are expected to be
qualified for sale impose limitations on the expenses of the Fund. If, in any
fiscal year, the total expenses of the Fund (excluding taxes, interest, expenses
under the Plan, brokerage commissions and other portfolio transaction expenses,
other expenditures which are capitalized in accordance with generally accepted
accounting principles and extraordinary expenses, but including the advisory and
administrative fees) exceed the expense limitations applicable to the Fund
imposed by the securities regulations of any state, the Distributor and the
Manager each will reimburse the Fund for 50% of the excess. The effective
limitation on an annual basis with respect to the Fund is expected to be 2.5% on
the first $30 million of the Fund's net assets, 2.0% on the next $70 million of
such assets, and 1.5% on any excess above $100 million.
Except for the expenses paid by the Manager and the Distributor, the
Fund bears all costs of its operations. Trust expenses directly related to the
Fund are charged to the Fund; other expenses are allocated proportionally among
all the portfolios of the Trust in relation to the net asset value of the
portfolios.
VALUATION OF SECURITIES; REDEMPTION IN KIND
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange is open for trading. As of the
date of this Statement of Additional Information, the New York Stock Exchange is
open every weekday except for the days on which the following holidays are
observed: New Year's Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The value of each security for which readily available market
quotations exists is based on a decision as to the broadest and most
representative market for such security. The value of such security is based
either on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the readily available closing bid price on such
exchanges, or at the quoted bid price in the over-the-counter market. Securities
listed on a foreign exchange are valued at the last quoted sale price available
before the time net assets are valued. Unlisted securities are valued at the
average of the quoted bid and asked prices in the over-the-counter market. Debt
securities are valued by a pricing service which determines valuations based
upon market transactions for normal, institutional-size trading units of similar
securities. Securities or other assets for which market quotations are not
readily available are valued at fair value in accordance with procedures
established by the Portfolio Trust. Such procedures include the use of
independent pricing services, which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. All portfolio securities
with a
- 16 -
<PAGE>
remaining maturity of less than 60 days are valued at amortized cost, which
approximates market.
The accounting records of the Fund are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and forward
contracts denominated in foreign currencies are translated into U.S. dollars at
the prevailing exchange rates at the end of the period. Purchases and sales of
securities, income receipts, and expense payments are translated at the exchange
rate prevailing on the respective dates of such transactions. Reported net
realized gains and losses on foreign currency transactions represent net gains
and losses from sales and maturities of forward currency contracts, disposition
of foreign currencies, currency gains and losses realized between the trade and
settlement dates on securities transactions and the difference between the
amount of net investment income accrued and the U.S. dollar amount actually
received.
The problems inherent in making a good faith determination of value are
recognized in the codification effected by SEC Financial Reporting Release No. 1
("FRR 1" (formerly Accounting Series Release No. 113)) which concludes that
there is "no automatic formula" for calculating the value of restricted
securities. It recommends that the best method simply is to consider all
relevant factors before making any calculation. According to FRR 1 such factors
would include consideration of the:
Type of security involved, financial statements, cost at date
of purchase, size of holding, discount from market value of
unrestricted securities of the same class at the time of
purchase, special reports prepared by analysts, information
as to any transactions or offers with respect to the
security, existence of merger proposals or tender offers
affecting the security, price and extent of public trading in
similar securities of the issuer or comparable companies, and
other relevant matters.
To the extent that the Fund purchases securities which are restricted
as to resale or for which current market quotations are not available, the
Advisor will value such securities based upon all relevant factors as outlined
in FRR 1.
Subject to the Trust's compliance with applicable regulations, the
Trust has reserved the right to pay the redemption or repurchase price of shares
of the Fund, either totally or partially, by a distribution in kind of the
Fund's portfolio securities (instead of cash). The securities so distributed
would be valued at the same amount as that assigned to them in calculating the
net asset value for the shares being sold. If a shareholder received a
distribution in kind, the
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<PAGE>
shareholder could incur brokerage or other charges in converting the securities
to cash.
TAXATION
FEDERAL INCOME TAX
The Fund intends to qualify annually as a separate "regulated
investment company" (a "RIC") under the Internal Revenue Code of 1986, as
amended (the "Code"). In order to qualify, at least 90% of the Fund's investment
company taxable income (which includes, among other items, interest, dividends
and the excess of net short-term capital gains over net long-term capital
losses) must be distributed to Fund shareholders, and the Fund must meet certain
diversification of assets, source of income, and other requirements. If the Fund
does not so qualify, it will be taxed as an ordinary corporation.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed that is equal to the sum of (a) at least 98% of the
Fund's ordinary income (excluding any capital gains or losses) for the calendar
year, (b) at least 98% of the Fund's capital gain net income for the 12-month
period ending, as a general rule, on October 31 of the calendar year, and (c)
all such ordinary income and capital gains for previous years that were not
distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described in the Prospectus, even though,
from an investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Fund is the holder of record of any stock on the record date for
any dividends payable with respect to such stock, such dividends are included in
the Fund's gross income not as of the date received but as of the later of (1)
the date such stock became ex-dividend with respect to such dividends (I.E., the
date on which a buyer of the stock would not be entitled to receive the
declared, but unpaid, dividends) or (2) the date the Fund acquired such stock.
Accordingly, in order to satisfy its income distribution requirements, the Fund
may be required to pay dividends based on anticipated earnings, and shareholders
may receive dividends in an earlier year than would otherwise be the case.
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<PAGE>
Some of the debt securities that may be acquired by the Fund may be
treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Fund, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Fund at a discount
which exceeds the original issue discount on such debt securities, if any. This
additional discount represents market discount for federal income tax purposes.
Generally, the gain realized on the disposition of any debt security acquired by
the Fund will be treated as ordinary income to the extent it does not exceed the
accrued market discount on such debt security.
OPTIONS
Some of the options entered into by the Fund may be "Section 1256
contracts." Section 1256 contracts held by the Fund at the end of its taxable
year (and, for purposes of the 4% excise tax, on certain other dates as
prescribed under the Code) are "marked-to-market" with unrealized gains or
losses being treated as though they were realized. Any gains or losses,
including "marked-to-market" gains or losses, on Section 1256 contracts are
generally treated as 60% long-term and 40% short-term capital gains or losses
("60/40"), although all foreign currency gains and losses from such contracts
may be treated as ordinary in character absent a special election.
Generally, certain options transactions undertaken by the Fund may
result in "straddles" for U.S. federal income tax purposes. The straddle rules
may affect the character of gain or loss realized by the Fund. In addition,
losses realized by the Fund on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options to the Fund
are not entirely clear. The transactions may increase the amount of short-term
capital gain realized by the Fund, which generally would increase the amount of
dividends. Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
The Fund may make one or more of the elections available under the Code
which are applicable to straddles. If the Fund makes any of the elections, the
amount, character, and timing of the recognition of gains or losses from the
affected straddle positions will be determined under rules that vary according
to the elections made. The rules applicable under certain of the
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<PAGE>
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such transactions.
The Fund's intention to qualify as a RIC may limit the extent to which
the Fund will be able to engage in these transactions.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Fund may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs"). In
general, a foreign corporation is classified as a PFIC if at least one-half of
its assets constitute investment-type assets, or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to a
tax on a portion of the excess distribution, whether or not the corresponding
income is distributed by the Fund to shareholders. In general, under the PFIC
rules, an excess distribution is treated as having been realized ratably over
the period during which the Fund held the PFIC shares. The Fund itself will be
subject to tax on the portion, if any, of an excess distribution that is so
allocated to prior Fund taxable years and an interest factor will be added to
the tax, as if the tax had been payable in such prior taxable years. Certain
distributions from a PFIC as well as gain from the sale of PFIC shares are
treated as excess distributions. Excess distributions are characterized as
ordinary income even though, absent application of the PFIC rules, certain
excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Fund. Under an election that currently is
available in some circumstances, the Fund generally would be required to include
in its gross income its share of the earnings of a PFIC on a current basis,
regardless of whether distributions are received from the PFIC in a given year.
If this election were made, the special rules, discussed above, relating to the
taxation of excess distributions, would not apply. In addition, another election
may be available that would involve marking-to-market the Fund's PFIC shares at
the end of each taxable year (and on certain other dates prescribed in the
Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be
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<PAGE>
eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. The Fund's intention to qualify annually as a regulated
investment company may limit its elections with respect to PFIC shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
EFFECT OF FOREIGN CURRENCIES
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Fund accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Fund actually collects such receivables or pays such
liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
DISPOSITION OF SHARES
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Fund's distributions
may also be subject to state, local, foreign or other taxes not discussed above.
A prospective investor may wish to consult a tax advisor to determine the
suitability of an
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<PAGE>
investment in the Fund based on the prospective investor's tax situation.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994, the name of the Trust was
"FundTrust."
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees has been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young
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<PAGE>
LLP , 200 Clarendon Street, Boston, Massachusetts 02116, served as independent
auditors of the Funds of the Trust.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the SEC under the 1933 Act with respect to shares of the Fund, certain
portions of which have been omitted pursuant 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 herein and in the Prospectus 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
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
The Fund's current audited financial statements dated October 31, 1995
are hereby incorporated herein by reference from the Annual Report
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<PAGE>
of the Fund dated October 31, 1995 as filed with the SEC pursuant to Rule 30b2-1
under the 1940 Act. A copy of such report will be provided without charge to
each person receiving this Statement of Additional Information.
FT4209F
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<PAGE>
APPENDIX
Description of Security Ratings
STANDARD & POOR'S
CORPORATE AND MUNICIPAL BONDS
AAA Debt rated "AAA" has the highest rating assigned by
Standard & Poor's to a debt obligation. Capacity to pay interest
and repay principal is extremely strong.
AA Debt rated "AA" has a very strong capacity to pay interest and
repay principal and differs from the highest rated issues only in
a small degree.
A Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than
debt in higher rated categories.
BBB Debt rated "BBB" is regarded as having an adequate capacity to
pay interest and repay principal. Whereas it normally exhibits
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 for debt in higher rated categories.
BB Debt rated "BB" has less near-term vulnerability to default than
other speculative issues. However, it faces major ongoing
uncertainties or exposure to adverse business, financial or
economic conditions which could lead to inadequate capacity to
meet timely interest and principal payments. The "BB" rating
category is also used for debt subordinated to senior debt that
is assigned an actual or implied "BBB-" rating.
Plus(+)
or
Minus(-) The ratings from "AA" to "BB" may be modified by the addition of
a plus or minus sign to show relative standing within the major
rating categories.
COMMERCIAL PAPER, INCLUDING TAX EXEMPT
A Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 This highest category indicates that the degree of safety
regarding timely payment is strong. Those issues determined to
possess extremely strong safety characteristics are denoted with
a plus (+) designation.
A-2 Capacity for timely payment on issues with this designation is
satisfactory. However, the relative degree of safety is not as
high as for issues designated "A-1".
A-3 Issues carrying this designation have adequate capacity
A-2
<PAGE>
for timely payment. They are, however, more vulnerable to the
adverse effects of changes in circumstances than obligations
carrying the higher designations.
MOODY'S
CORPORATE AND MUNICIPAL BONDS
Aaa Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edged". Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than
the best bonds because margins of protection may not be as large
as in Aaa securities or fluctuation of protective elements may be
of greater amplitude or there may be other elements present which
make the long term risk appear somewhat larger than in Aaa
securities.
A Bonds which are rated A 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 which are rated Baa are considered as 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 Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very
moderate, and thereby not well safeguarded during both good and
bad times over the future. Uncertainty of position characterizes
bonds in this class.
Note Moody's applies numerical modifiers, 1,2, and 3 in each generic
rating classification from Aa through Bb in its
A-3
<PAGE>
corporate bond rating system. The modifier 1 indicates that the
security rates in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking; and the modifier 3
indicates that the issue ranks in the lower end of its generic
rating category. Those municipal bonds within the Aa, A, Baa, and
Ba categories that Moody's believes possess the strongest credit
attributes within those categories are designated by the symbols
Aa1, A1, Baa1, and Ba1.
COMMERCIAL PAPER
Prime-1 Issuers rated P-1 (or supporting institutions) have a superior
ability for repayment of short-term debt obligations. Prime-1
repayment ability will often be evidenced by many of the
following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structure with moderate reliance
on debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate liquidity.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong
ability for repayment of senior short-term debt 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, may be more subject to variation.
Capitalization characteristics, while still appropriate, may be
more affected by external conditions. Ample alternate liquidity
is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect 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 may require relatively high financial
leverage. Adequate alternate liquidity is maintained.
Not
Prime Issuers rated "Not Prime" do not fall within any of the Prime
rating categories.
FITCH INVESTORS SERVICE
CORPORATE BOND RATINGS
A-4
<PAGE>
AAA Securities of this rating are regarded as strictly high-grade,
broadly marketable, suitable for investment by trustees and
fiduciary institutions, and liable to but slight market
fluctuation other than through changes in the money rate. The
factor last named is of importance varying with the length of
maturity. Such securities are mainly senior issues of strong
companies, and are most numerous in the railway and public
utility fields, though some industrial obligations have this
rating. The prime feature of an AAA rating is showing of earnings
several times or many times interest requirements with such
stability of applicable earnings that safety is beyond reasonable
question whatever changes occur in conditions. Other features may
enter in, such as a wide margin of protection through collateral
security or direct lien on specific property as in the case of
high class equipment certificates or bonds that are first
mortgages on valuable real estate. Sinking funds or voluntary
reduction of the debt by call or purchase are often factors,
while guarantee or assumption by parties other than the original
debtor may also influence the rating.
AA Securities in this group are of safety virtually beyond question,
and as a class are readily salable while many are highly active.
Their merits are not greatly unlike those of the AAA class, but a
security so rated may be of junior though strong lien - in many
cases directly following an AAA security - or the margin of
safety is less strikingly broad. The issue may be the obligation
of a small company, strongly secured but influenced as to ratings
by the lesser financial power of the enterprise and more local
type of market.
A Securities of this rating are 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 Securities of this rating are considered to be investment grade
and of satisfactory 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 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.
Plus(+)
A-5
<PAGE>
or
Minus(-) Plus and minus signs are used with a rating symbol to indicate
the relative position of a credit within the rating category.
Plus and minus signs, however, are not used in the "AAA"
category.
COMMERCIAL PAPER RATINGS
F-1+ Exceptionally Strong Credit Quality. Issues assigned this rating
are regarded as having the strongest degree of assurance for
timely payment.
F-1 Very Strong Credit Quality. Issues assigned this rating reflect
an assurance of timely payment only slightly less in degree than
the strongest issue.
F-2 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 for issues assigned "F-1+"
and F-1" ratings.
F-3 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.
DUFF & PHELPS RATINGS
CORPORATE BOND RATINGS
AAA Highest credit quality. The risk factors are negligible, being
only slightly more than for risk-free U.S. Treasury Funds.
AA+
AA, AA- High credit quality. Protection factors are strong. Risk is
modest but may vary slightly from time to time because of
economic conditions.
A+
A, A- Protection factors are average but adequate. However, risk
factors are more variable and greater in periods of economic
stress.
BBB+
BBB, BBB- Below average protection factors but still considered sufficient
for prudent investment. Considerable variability in risk during
economic cycles.
COMMERCIAL PAPER RATINGS
Duff 1+ Highest certainty of timely payment. Short term liquidity,
including internal operating factors and/or
A-6
<PAGE>
access to alternative sources of funds, is outstanding, and
safety is just below risk free U.S. Treasury short term
obligations.
Duff 1 Very high certainty of timely payment. Liquidity factors are
excellent and supported by good fundamental protection factors.
Risk factors are minor.
Duff 1- High certainty of timely payment. Liquidity factors are strong
and supported by good fundamental protection factors. Risk
factors are very small.
Duff 2 Good certainty of 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.
Duff 3 Satisfactory liquidity and other protection factors qualify issue
as to investment grade. Risk factors are larger and subject to
more variation. Nevertheless, timely payment is expected.
A-7
<PAGE>
REPUBLIC FIXED INCOME FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Miller Anderson & Sherrerd - Sub-Adviser
("MAS" or the "Sub-Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator, Distributor and Sponsor
("SBDS" or the "Administrator of the Fund" or the "Distributor"
or the "Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic Fixed Income Fund (the "Fund") is a separate series of
Republic Funds (the "Trust"), an open-end, management investment company which
currently consists of six portfolios, each of which has different and distinct
investment objectives and policies. The Trust seeks to achieve the Fund's
investment objective by investing all of the Fund's investable assets ("Assets")
in the Fixed Income Portfolio (the "Portfolio") which has the same investment
objective as the Fund. The Portfolio is a series of the Republic Portfolios (the
"Portfolio Trust") which is an open-end management investment company. The Fund
is described in this Statement of Additional Information.
Shares of the Fund are offered only to clients of Republic and its
affiliates for which Republic or its affiliates exercises investment discretion.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED JANUARY 26, 1996 (THE "PROSPECTUS"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
January 26, 1996
FT4133G
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS................. 1
Mortgage-Related and Other Asset-Backed Securities..... 1
Brady Bonds............................................ 6
Foreign Currency Exchange-Related Securities........... 7
Eurodollar and Yankee Obligations...................... 8
Portfolio Management................................... 9
Investment Restrictions................................ 9
Percentage and Rating Restrictions..................... 12
PORTFOLIO TRANSACTIONS...........................................12
PERFORMANCE INFORMATION......................................... 12
Consumer Price Index................................... 14
Lehman Brothers Government/Corporate Index............. 14
Salomon Broad Index.................................... 14
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST................. 14
Trustees and Officers.................................. 14
Investment Manager..................................... 17
Sub-Adviser..................................................... 18
Administrator.......................................... 18
Fund Accounting Agent........................................... 19
Custodian and Transfer Agent.................................... 19
DETERMINATION OF NET ASSET VALUE................................ 19
TAXATION........................................................ 20
Options, Futures, Forward Contracts and Swap Contracts..21
OTHER INFORMATION............................................... 23
Capitalization......................................... 23
Voting Rights.......................................... 24
Independent Auditors............................................ 25
Counsel................................................ 25
Registration Statement................................. 25
Financial Statements............................................ 25
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Fund by which
shares of the Fund are offered. Unless the context otherwise requires, terms
defined in the Prospectus have the same meaning in this Statement of Additional
Information as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
MORTGAGE-RELATED AND OTHER ASSET-BACKED SECURITIES
Mortgage-related securities are interests in pools of mortgage loans
made to residential home buyers, including mortgage loans made by savings and
loan institutions, mortgage bankers, commercial banks and others. Pools of
mortgage loans are assembled as securities for sale to investors by various
governmental, government-related and private organizations (see "MORTGAGE
PASS-THROUGH SECURITIES"). The Portfolio may also invest in debt securities
which are secured with collateral consisting of mortgage-related securities (see
"COLLATERALIZED MORTGAGE OBLIGATIONS") and in other types of mortgage-related
securities.
MORTGAGE PASS-THROUGH SECURITIES. Interests in pools of
mortgage-related securities differ from other forms of debt securities, which
normally provide for periodic payment of interest in fixed amounts with
principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and
principal payments. In effect, these payments are a "pass-through" of the
monthly payments made by the individual borrowers on their residential or
commercial mortgage loans, net of any fees paid to the issuer or guarantor of
such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure,
net of fees or costs which may be incurred. Some mortgage-related securities
(such as securities issued by the Government National Mortgage Association) are
described as "modified pass-through." These securities entitle the holder to
receive all interest and principal payments owed on the mortgage pool, net of
certain fees, at the scheduled payment dates regardless of whether or not the
mortgagor actually makes the payment.
The principal governmental guarantor of mortgage-related securities is
the Government National Mortgage Association ("GNMA"). GNMA is a wholly owned
U.S. Government corporation within the Department of Housing and Urban
Development. GNMA is authorized to guarantee, with the full faith and credit of
the U.S. Government, the timely payment of principal and interest on securities
issued by institutions approved by GNMA (such as savings and loan institutions,
commercial banks and mortgage bankers) and backed by pools of FHA-insured or
VA-guaranteed mortgages.
Government-related guarantors (I.E., not backed by the full faith and
credit of the U.S. Government) include the Federal
- 1 -
<PAGE>
National Mortgage Association ("FNMA") and the Federal Home Loan Mortgage
Corporation ("FHLMC"). FNMA is a government-sponsored corporation owned entirely
by private stockholders. It is subject to general regulation by the Secretary of
Housing and Urban Development. FNMA purchases conventional (I.E., not insured or
guaranteed by any government agency) residential mortgages from a list of
approved seller/servicers which include state and federally chartered savings
and loan associations, mutual savings banks, commercial banks and credit unions
and mortgage bankers. Pass-through securities issued by FNMA are guaranteed as
to timely payment of principal and interest by FNMA but are not backed by the
full faith and credit of the U.S. Government.
FHLMC was created by Congress in 1970 for the purpose of increasing the
availability of mortgage credit for residential housing. It is a
government-sponsored corporation formerly owned by the 12 Federal Home Loan
Banks and now owned entirely by private stockholders. FHLMC issues participation
certificates ("PCs") which represent interests in conventional mortgages from
FHLMC's national portfolio. FHLMC guarantees the timely payment of interest and
ultimate collection of principal, but PCs are not backed by the full faith and
credit of the U.S. Government.
Commercial banks, savings and loan institutions, private mortgage
insurance companies, mortgage bankers and other secondary market issuers also
create pass-through pools of conventional residential mortgage loans. Such
issuers may, in addition, be the originators and/or servicers of the underlying
mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of
interest than government and government-related pools because there are no
direct or indirect government or agency guarantees of payments in the former
pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual
loan, title, pool and hazard insurance and letters of credit. The insurance and
guarantees are issued by governmental entities, private insurers and the
mortgage poolers.
Such insurance and guarantees and the creditworthiness of the issuers
thereof will be considered in determining whether a mortgage-related security
meets the Portfolio's investment quality standards. There can be no assurance
that the private insurers or guarantors can meet their obligations under the
insurance policies or guarantee arrangements. Although the market for such
securities is becoming increasingly liquid, securities issued by certain private
organizations may not be readily marketable. The Portfolio will not purchase
mortgage-related securities or other assets which in the Sub-Adviser's opinion
are illiquid if, as a result, more than 15% of the value of the Portfolio's net
assets will be illiquid.
Mortgage-backed securities that are issued or guaranteed by the U.S.
Government, its agencies or instrumentalities, are not
- 2 -
<PAGE>
subject to the Portfolio's industry concentration restrictions, set forth below
under "Investment Restrictions," by virtue of the exclusion from that test
available to all U.S. Government securities. In the case of privately issued
mortgage-related securities, the Portfolio takes the position that
mortgage-related securities do not represent interests in any particular
"industry" or group of industries. The assets underlying such securities may be
represented by a portfolio of first lien residential mortgages (including both
whole mortgage loans and mortgage participation interests) or portfolios of
mortgage pass-through securities issued or guaranteed by GNMA, FNMA or FHLMC.
Mortgage loans underlying a mortgage-related security may in turn be insured or
guaranteed by the Federal Housing Administration or the Department of Veterans
Affairs. In the case of private issue mortgage-related securities whose
underlying assets are neither U.S. Government securities nor U.S.
Government-insured mortgages, to the extent that real properties securing such
assets may be located in the same geographical region, the security may be
subject to a greater risk of default than other comparable securities in the
event of adverse economic, political or business developments that may affect
such region and, ultimately, the ability of residential homeowners to make
payments of principal and interest on the underlying mortgages.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). A CMO is a hybrid between
a mortgage-backed bond and a mortgage pass-through security. Similar to a bond,
interest and prepaid principal is paid, in most cases, semiannually. CMOs may be
collateralized by whole mortgage loans, but are more typically collateralized by
portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or
FNMA, and their income streams.
CMOs are structured into multiple classes, each bearing a different
stated maturity. Actual maturity and average life will depend upon the
prepayment experience of the collateral. CMOs provide for a modified form of
call protection through a de facto breakdown of the underlying pool of mortgages
according to how quickly the loans are repaid. Monthly payment of principal
received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the
longer maturity classes receive principal only after the first class has been
retired. An investor is partially guarded against a sooner than desired return
of principal because of the sequential payments.
In a typical CMO transaction, a corporation ("issuer") issues multiple
series (E.G., A, B, C, Z) of CMO bonds ("Bonds"). Proceeds of the Bond offering
are used to purchase mortgages or mortgage pass-through certificates
("Collateral"). The Collateral is pledged to a third party trustee as security
for the Bonds. Principal and interest payments from the Collateral are used to
pay principal on the Bonds in the order A, B, C, Z. The Series A, B, and C Bonds
all bear current interest. Interest
- 3 -
<PAGE>
on the Series Z Bond is accrued and added to principal and a like amount is paid
as principal on the Series A, B, or C Bond currently being paid off. When the
Series A, B, and C Bonds are paid in full, interest and principal on the Series
Z Bond begins to be paid currently. With some CMOs, the issuer serves as a
conduit to allow loan originators (primarily builders or savings and loan
associations) to borrow against their loan portfolios.
FHLMC CMOS. FHLMC CMOs are debt obligations of FHLMC issued in multiple
classes having different maturity dates which are secured by the pledge of a
pool of conventional mortgage loans purchased by FHLMC. Unlike FHLMC PCs,
payments of principal and interest on the CMOs are made semiannually, as opposed
to monthly. The amount of principal payable on each semiannual payment date is
determined in accordance with FHLMC's mandatory sinking fund schedule, which, in
turn, is equal to approximately 100% of FHA prepayment experience applied to the
mortgage collateral pool. All sinking fund payments in the CMOs are allocated to
the retirement of the individual classes of bonds in the order of their stated
maturities. Payment of principal on the mortgage loans in the collateral pool in
excess of the amount of FHLMC's minimum sinking fund obligation for any payment
date are paid to the holders of the CMOs as additional sinking fund payments.
Because of the "pass-through" nature of all principal payments received on the
collateral pool in excess of FHLMC's minimum sinking fund requirement, the rate
at which principal of the CMOs is actually repaid is likely to be such that each
class of bonds will be retired in advance of its scheduled maturity date.
If collection of principal (including prepayments) on the mortgage
loans during any semiannual payment period is not sufficient to meet FHLMC's
minimum sinking fund obligation on the next sinking fund payment date, FHLMC
agrees to make up the deficiency from its general funds.
Criteria for the mortgage loans in the pool backing the FHLMC CMOs are
identical to those of FHLMC PCs. FHLMC has the right to substitute collateral in
the event of delinquencies and/or defaults.
OTHER MORTGAGE-RELATED SECURITIES. Other mortgage-related securities
include securities other than those described above that directly or indirectly
represent a participation in, or are secured by and payable from, mortgage loans
on real property, including CMO residuals or stripped mortgage-backed
securities. Other mortgage-related securities may be equity or debt securities
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks,
partnerships, trusts and special purpose entities of the foregoing.
- 4 -
<PAGE>
CMO RESIDUALS. CMO residuals are derivative mortgage securities issued
by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, homebuilders, mortgage banks, commercial banks, investment banks
and special purpose entities of the foregoing.
The cash flow generated by the mortgage assets underlying a series of
CMOs is applied first to make required payments of principal and interest on the
CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash
flow remaining after making the foregoing payments. Each payment of such excess
cash flow to a holder of the related CMO residual represents income and/or a
return of capital. The amount of residual cash flow resulting from a CMO will
depend on, among other things, the characteristics of the mortgage assets, the
coupon rate of each class of CMO, prevailing interest rates, the amount of
administrative expenses and the prepayment experience on the mortgage assets. In
particular, the yield to maturity on CMO residuals is extremely sensitive to
prepayments on the related underlying mortgage assets, in the same manner as an
interest-only ("IO") class of stripped mortgage-backed securities. See "Other
Mortgage-Related Securities --Stripped Mortgage-Backed Securities." In addition,
if a series of a CMO includes a class that bears interest at an adjustable rate,
the yield to maturity on the related CMO residual will also be extremely
sensitive to changes in the level of the index upon which interest rate
adjustments are based. As described below with respect to stripped
mortgage-backed securities, in certain circumstances the Portfolio may fail to
recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through several investment banking firms acting as brokers or dealers.
The CMO residual market has only very recently developed and CMO residuals
currently may not have the liquidity of other more established securities
trading in other markets. Transactions in CMO residuals are generally completed
only after careful review of the characteristics of the securities in question.
In addition, CMO residuals may or, pursuant to an exemption therefrom, may not
have been registered under the Securities Act of 1933, as amended (the "1933
Act"). CMO residuals, whether or not registered under the 1933 Act, may be
subject to certain restrictions on transferability and may be deemed "illiquid"
and subject to the Portfolio's limitations on investment in illiquid securities.
STRIPPED MORTGAGE-BACKED SECURITIES. Stripped mortgage-backed
securities ("SMBS") are derivative multi-class mortgage securities. SMBS may be
issued by agencies or instrumentalities of the U.S. Government or by private
originators of, or investors in, mortgage loans, including savings and loan
associations, mortgage banks, commercial banks,
- 5 -
<PAGE>
investment banks and special purpose entities of the foregoing.
SMBS are usually structured with two classes that receive different
proportions of the interest and principal distributions on a pool of mortgage
assets. A common type of SMBS will have one class receiving some of the interest
and most of the principal from the mortgage assets, while the other class will
receive most of the interest and the remainder of the principal. In the most
extreme case, one class will receive all of the interest (the IO class), while
the other class will receive all of the principal (the principal-only or "PO"
class). The yield to maturity on an IO class is extremely sensitive to the rate
of principal payments (including prepayments) on the related underlying mortgage
assets, and a rapid rate of principal payments may have a material adverse
effect on the Portfolio's yield to maturity from these securities. If the
underlying mortgage assets experience greater than anticipated prepayments of
principal, the Portfolio may fail to fully recoup its initial investment in
these securities even if the security is in one of the highest rating
categories.
Although SMBS are purchased and sold by institutional investors through
several investment banking firms acting as brokers or dealers, these securities
were only recently developed. As a result, established trading markets have not
yet developed and, accordingly, these securities may be deemed "illiquid" and
subject to the Portfolio's limitations on investment in illiquid securities.
OTHER ASSET-BACKED SECURITIES. Similarly, the Sub-Adviser expects that
other asset-backed securities (unrelated to mortgage loans) will be offered to
investors, such as Certificates for Automobile ReceivablesSM ("CARSSM"). CARSSM
represent undivided fractional interests in a trust whose assets consist of a
pool of motor vehicle retail installment sales contracts and security interests
in the vehicles securing the contracts. Payments of principal and interest on
CARSSM are passed through monthly to certificate holders and are guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the trustee or originator of the
trust. An investor's return on CARSSM may be affected by early prepayment of
principal on the underlying vehicle sales contracts. If the letter of credit is
exhausted, the trust may be prevented from realizing the full amount due on a
sales contract because of state law requirements and restrictions relating to
foreclosure sales of vehicles and the obtaining of deficiency judgments
following such sales or because of depreciation, damage or loss of a vehicle,
the application of federal and state bankruptcy and insolvency laws or other
factors. As a result, certificate holders may experience delays in payments or
losses if the letter of credit is exhausted.
Consistent with the Portfolio's investment objective and policies, the
Sub-Adviser also may invest in other types of
- 6 -
<PAGE>
asset-backed securities.
BRADY BONDS
Dollar-denominated, collateralized Brady Bonds, which may be fixed rate
par bonds or floating rate discount bonds, are generally collateralized in full
as to principal due at maturity by U.S. Treasury zero coupon obligations which
have the same maturity as the Brady Bonds. Interest payments on these Brady
Bonds generally are collateralized by cash or securities in an amount that, in
the case of fixed rate bonds, is equal to at least one year of rolling interest
payments or, in the case of floating rate bonds, initially is equal to at least
one year's rolling interest payments based on the applicable interest rate at
the time and is adjusted at regular intervals thereafter. Certain Brady Bonds
are entitled to "value recovery payments" in certain circumstances, which in
effect constitute supplemental interest payments but generally are not
collateralized. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity,
(ii) the collateralized interest payments, (iii) the uncollateralized payments,
and (iv) any uncollateralized repayment of principal at maturity (these
uncollateralized amounts constitute the "residual risk"). In the event of a
default with respect to collateralized Brady Bonds as a result of which the
payment obligations of the issuer are accelerated, the U.S. Treasury zero coupon
obligations held as collateral for the payment of principal will not be
distributed to investors, nor will such obligations be sold and the proceeds
distributed. The collateral will be held by the collateral agent to the
scheduled maturity of the defaulted Brady Bonds, which will continue to be
outstanding, at which time the face amount of the collateral will equal the
principal payments which would have then been due on the Brady Bonds in the
normal course. In addition, in light of the residual risk of the Brady Bonds
and, among other factors, the history of default with respect to commercial bank
loans by public and private entities of countries issuing Brady Bonds,
investments in Brady Bonds are to be viewed as speculative.
Brady Plan debt restructurings totalling approximately $73 billion have
been implemented to date in Argentina, Costa Rica, Mexico, Nigeria, the
Philippines, Uruguay and Venezuela, with the largest proportion of Brady Bonds
having been issued to date by Mexico and Venezuela. Brazil has announced plans
to issue Brady Bonds aggregating approximately $35 billion, based on current
estimates. There can be no assurance that the circumstances regarding the
issuance of Brady Bonds by these countries will not change.
FOREIGN CURRENCY EXCHANGE-RELATED SECURITIES
FOREIGN CURRENCY WARRANTS. Foreign currency warrants such as Currency
Exchange Warrants SM ("CEWs"SM) are warrants which entitle the holder to receive
from their issuer an amount of cash
- 7 -
<PAGE>
(generally, for warrants issued in the United States, in U.S. dollars) which is
calculated pursuant to a predetermined formula and based on the exchange rate
between a specified foreign currency and the U.S. dollar as of the exercise date
of the warrant. Foreign currency warrants generally are exercisable upon their
issuance and expire as of a specified date and time. Foreign currency warrants
have been issued in connection with U.S. dollar-denominated debt offerings by
major corporate issuers in an attempt to reduce the foreign currency exchange
risk which, from the point of view of prospective purchasers of the securities,
is inherent in the international fixed-income marketplace. Foreign currency
warrants may attempt to reduce the foreign exchange risk assumed by purchasers
of a security by, for example, providing for a supplemental payment in the event
that the U.S. dollar depreciates against the value of a major foreign currency
such as the Japanese yen or German deutsche mark. The formula used to determine
the amount payable upon exercise of a foreign currency warrant may make the
warrant worthless unless the applicable foreign currency exchange rate moves in
a particular direction (E.G., unless the U.S. dollar appreciates or depreciates
against the particular foreign currency to which the warrant is linked or
indexed). Foreign currency warrants are severable from the debt obligations with
which they may be offered and may be listed on exchanges. Foreign currency
warrants may be exercisable only in certain minimum amounts, and an investor
wishing to exercise warrants who possesses less than the minimum number required
for exercise may be required to either sell the warrants or to purchase
additional warrants, thereby incurring additional transaction costs. In the case
of any exercise of warrants, there may be a time delay between the time a holder
of warrants gives instructions to exercise and the time the exchange rate
relating to exercise is determined, during which time the exchange rate could
change significantly, thereby affecting both the market and cash settlement
values of the warrants being exercised. The expiration date of the warrants may
be accelerated if the warrants should be delisted from an exchange or if their
trading should be suspended permanently, which would result in the loss of any
remaining "time value" of the warrants (I.E., the difference between the current
market value and the exercise value of the warrants) and, in the case the
warrants were "out-of-the-money," in a total loss of the purchase price of the
warrants. Warrants are generally unaccrued obligations of their issuers and are
not standardized foreign currency options issued by the Options Clearing
Corporation (the "OCC"). Unlike foreign currency options issued by the OCC, the
terms of foreign exchange warrants generally will not be amended in the event of
governmental or regulatory actions affecting exchange rates or in the event of
the imposition of other regulatory controls affecting the international currency
markets. The initial public offering price of foreign currency warrants is
generally considerably in excess of the price that a commercial user of foreign
currencies might pay in the interbank market for a comparable option involving
significantly larger amounts of
- 8 -
<PAGE>
foreign currencies. Foreign currency warrants are subject to complex political
or economic factors.
PRINCIPAL EXCHANGE RATE LINKED SECURITIES. Principal exchange rate
linked securities ("PERLs"SM) are debt obligations the principal on which is
payable at maturity in an amount that may vary based on the exchange rate
between the U.S. dollar and a particular foreign currency at or about that time.
The return on "standard" PERLS is enhanced if the foreign currency to which the
security is linked appreciates against the U.S. dollar, and is adversely
affected by increases in the foreign exchange value of the U.S. dollar;
"reverse" PERLS are like the "standard" securities, except that their return is
enhanced by increases in the value of the U.S. dollar and adversely impacted by
increases in the value of foreign currency. Interest payments on the securities
are generally made in U.S. dollars at rates that reflect the degree of foreign
currency risk assumed or given up by the purchaser of the notes (I.E., at
relatively higher interest rates if the purchaser has assumed some of the
foreign exchange risk, or relatively lower interest rates if the issuer has
assumed some of the foreign exchange risk, based on the expectations of the
current market). PERLS may in limited cases be subject to acceleration of
maturity (generally, not without the consent of the holders of the securities),
which may have an adverse impact on the value of the principal payment to be
made at maturity.
PERFORMANCE INDEXED PAPER. Performance indexed paper ("PIPs"SM) is U.S.
dollar-denominated commercial paper the yield of which is linked to certain
foreign exchange rate movements. The yield to the investor on PIPs is
established at maturity as a function of the spot exchange rates between the
U.S. dollar and a designated currency as of or about that time (generally, the
index maturity two days prior to maturity). The yield to the investor will be
within a range stipulated at the time of purchase of the obligation, generally
with a guaranteed minimum rate of return that is below, and a potential maximum
rate of return that is above, market yields on U.S. dollar-denominated
commercial paper, with both the minimum and maximum rates of return on the
investment corresponding to the minimum and maximum values of the spot exchange
rate two business days prior to maturity. The Portfolio has no current intention
of investing in CEWsSM, PERLsSM or PIPsSM.
EURODOLLAR AND YANKEE OBLIGATIONS
Eurodollar bank obligations are dollar-denominated certificates of
deposit and time deposits issued outside the U.S. capital markets by foreign
branches of banks and by foreign banks. Yankee bank obligations are
dollar-denominated obligations issued in the U.S. capital markets by foreign
banks.
Eurodollar and Yankee obligations are subject to the same risks that
pertain to domestic issues, notably credit risk,
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<PAGE>
market risk and liquidity risk. Additionally, Eurodollar (and to a limited
extent Yankee) obligations are subject to certain sovereign risks. One such risk
is the possibility that a sovereign country might prevent capital, in the form
of dollars, from flowing across its borders. Other risks include: adverse
political and economic development, the extent and quality of government
regulation of financial markets and institutions, the imposition of foreign
withholding taxes and the expropriation or nationalization of foreign issuers.
PORTFOLIO MANAGEMENT
The Sub-Adviser's investment strategy for achieving the Portfolio's
investment objective has two basic components: maturity and duration management
and value investing.
MATURITY AND DURATION MANAGEMENT. Maturity and duration management
decisions are made in the context of an intermediate maturity orientation. The
maturity structure of the Portfolio is adjusted in anticipation of cyclical
interest rate changes. Such adjustments are not made in an effort to capture
short-term, day-to-day movements in the market, but instead are implemented in
anticipation of longer term, secular shifts in the levels of interest rates
(I.E., shifts transcending and/or not inherent to the business cycle).
Adjustments made to shorten portfolio maturity and duration are made to limit
capital losses during periods when interest rates are expected to rise.
Conversely, adjustments made to lengthen maturity are intended to produce
capital appreciation in periods when interest rates are expected to fall. The
foundation for the Sub-Adviser's maturity and duration strategy lies in analysis
of the U.S. and global economies, focusing on levels of real interest rates,
monetary and fiscal policy actions, and cyclical indicators.
VALUE INVESTING. The second component of the Sub-Adviser's investment
strategy for the Portfolio is value investing, whereby the Sub-Adviser seeks to
identify undervalued sectors and securities through analysis of credit quality,
option characteristics and liquidity. Quantitative models are used in
conjunction with judgment and experience to evaluate and select securities with
embedded put or call options which are attractive on a risk- and option-adjusted
basis. Successful value investing will permit the portfolio to benefit from the
price appreciation of individual securities during periods when interest rates
are unchanged.
INVESTMENT RESTRICTIONS
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
this Statement of Additional Information means the vote of the
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<PAGE>
lesser of (i) 67% or more of the outstanding "voting securities" of the Fund
present at a meeting, if the holders of more than 50% of the outstanding "voting
securities" are present or represented by proxy, or (ii) more than 50% of the
outstanding "voting securities". The term "voting securities" as used in this
paragraph has the same meaning as in the Investment Company Act of 1940, as
amended (the "1940 Act").
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objectives):
(1) invest in physical commodities or contracts on physical
commodities;
(2) purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate, other
than real estate limited partnerships, and may purchase and
sell marketable securities which are secured by interests in
real estate;
(3) make loans except: (i) by purchasing debt securities in
accordance with its investment objective and policies, or
entering into repurchase agreements, and (ii) by lending its
portfolio securities;
(4) with respect to 75% of its assets, purchase a security if, as
a result, it would hold more than 10% (taken at the time of
such investment) of the outstanding voting securities of any
issuer;
(5) with respect to 75% of its assets, purchase securities of any
issuer if, as the result, more than 5% of the Portfolio's
(Fund's) total assets, taken at market value at the time of
such investment, would be invested in the securities of such
issuer, except that this restriction does not apply to
securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(6) underwrite the securities of other issuers (except to the
extent that the Portfolio (Fund) may be deemed to be an
underwriter within the meaning of the 1933 Act in the
disposition of restricted securities);
(7) acquire any securities of companies within one industry,
except for mortgage-backed securities, if as a result of such
acquisition, more than 25% of the value of the Portfolio's
(Fund's) total assets would be invested in securities of
companies within such industry; provided, however, that there
shall be no limitation on the purchase of obligations issued
or
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<PAGE>
guaranteed by the U.S. Government, its agencies or
instrumentalities, when the Portfolio (Fund) adopts a
temporary defensive position.
Each of the Portfolio and the Fund is also subject to the following
restrictions which may be changed by their respective Boards of Trustees without
investor approval (except that none of the following investment policies shall
prevent the Trust from investing all of the Assets of the Fund in a separate
registered investment company with substantially the same investment
objectives).
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(a) borrow money (including through reverse repurchase agreements
or forward dollar roll transactions involving mortgage-backed
securities or similar investment techniques entered into for
leveraging purposes), except that the Portfolio (Fund) may
borrow for temporary or emergency purposes up to 10% of its
net assets; provided, however, that the Portfolio (Fund) may
not purchase any security while outstanding borrowings exceed
5% of net assets;
(b) invest in futures and/or options on futures to the extent that
its outstanding obligations to purchase securities under any
future contracts in combination with its outstanding
obligations with respect to options transactions would exceed
35% of its total assets;
(c) invest in warrants, valued at the lower of cost or market, in
excess of 5% of the value of its total assets (included within
that amount, but not to exceed 2% of the value of the
Portfolio's (Fund's) net assets, may be warrants that are not
listed on the New York Stock Exchange, the American Stock
Exchange or an exchange with comparable listing requirements;
warrants attached to securities are not subject to this
limitation);
(d) purchase on margin, except for use of short-term credit as may
be necessary for the clearance of purchases and sales of
securities, but it may make margin deposits in connection with
transactions in options, futures, and options on futures; or
sell short unless, by virtue of its ownership of other
securities, it has the right to obtain securities equivalent
in kind and amount to the securities sold and, if the right is
conditional, the sale is made upon the same conditions
(transactions in futures contracts and options are not deemed
to constitute selling securities short);
- 12 -
<PAGE>
(e) purchase or retain securities of an issuer if those officers
and Trustees of the Portfolio Trust or the Manager or
Sub-Adviser owning more than 1/2 of 1% of such securities
together own more than 5% of such securities;
(f) pledge, mortgage or hypothecate any of its assets to an extent
greater than one-third of its total assets at fair market
value;
(g) invest more than an aggregate of 15% of the net assets of the
Portfolio (Fund), determined at the time of investment, in
securities that are illiquid because their disposition is
restricted under the federal securities laws or securities for
which there is no readily available market; provided, however
that this policy does not limit the acquisition of (i)
securities that have legal or contractual restrictions on
resale but have a readily available market or (ii) securities
that are not registered under the 1933 Act, but which can be
sold to qualified institutional investors in accordance with
Rule 144A under the 1933 Act and which are deemed to be liquid
pursuant to guidelines adopted by the Board of Trustees
("Restricted Securities").
(h) invest more than 10% of its assets in Restricted Securities
(including Rule 144A Securities);
(i) invest for the purpose of exercising control over management
of any company;
(j) invest its assets in securities of any investment company,
except by purchase in the open market involving only customary
brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; provided, however,
that the Portfolio shall not invest in the shares of any
open-end investment company unless (1) the Portfolio's
Sub-Adviser waives any investment advisory fees with respect
to such assets and (2) the Portfolio pays no sales charge in
connection with the investment;
(k) invest more than 5% of its total assets in securities of
issuers (other than securities issued or guaranteed by U.S. or
foreign government or political subdivisions thereof) which
have (with predecessors) a record of less than three years'
continuous operations;
(l) write or acquire options or interests in oil, gas or other
mineral explorations or development programs or leases.
PERCENTAGE AND RATING RESTRICTIONS
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<PAGE>
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Portfolio or a later change in the rating of a security held by the
Portfolio is not considered a violation of policy; however, the Sub-Adviser will
consider such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
The Sub-Adviser is primarily responsible for portfolio decisions and
the placing of portfolio transactions. In placing orders for the Portfolio, the
primary consideration is prompt execution of orders in an effective manner at
the most favorable price, although the Portfolio does not necessarily pay the
lowest spread or commission available. Other factors taken into consideration
are the dealer's general execution and operational facilities, the type of
transaction involved and other factors such as the dealer's risk in positioning
the securities. To the extent consistent with applicable legal requirements, the
Sub-Adviser may place orders for the purchase and sale of the Portfolio's
investments with Republic New York Securities Corporation, an affiliate of the
Manager.
Because the Portfolio invests primarily in fixed-income securities, it
is anticipated that most purchases and sales will be with the issuer or with
underwriters of or dealers in those securities, acting as principal.
Accordingly, the Portfolio would not ordinarily pay significant brokerage
commissions with respect to securities transactions.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the
Securities and Exchange Commission (the "SEC"), in advertisements or reports to
shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[( A-B + 1)6-1]
---
cd
where a = dividends and interest earned during the period,
- 14 -
<PAGE>
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last
day of the period.
For the 30-day period ending October 31, 1995, the yield of the Fund
was [ ]%.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accomplished by standardized total return information.
The total return of the Fund for the period from January 9, 1995 (commencement
of operations) to October 31, 1995 was 14.37%.
Performance information for the Fund may also be compared to various
unmanaged indices, described below. Unmanaged indices (I.E., other than Lipper)
generally do not reflect deductions for administrative and management costs and
expenses. Comparative information may be compiled or provided by independent
ratings services or by news organizations. Any performance information should be
considered in light of the Fund's investment objective and policies,
characteristics and quality of the Fund, and the market conditions during the
given time period, and should not be considered to be representative of what may
be achieved in the future.
The Fund may from time to time use one or more of the following
unmanaged indices for performance comparison purposes:
CONSUMER PRICE INDEX
The Consumer Price Index is published by the U.S. Department of Labor
and is a measure of inflation.
LEHMAN BROTHERS GOVERNMENT/CORPORATE INDEX
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<PAGE>
The Lehman Brothers Government/Corporate Index is a combination of the
Government and Corporate Bond Indices. The Government Index includes public
obligations of the U.S. Treasury, issues of government agencies, and corporate
debt backed by the U.S. Government. The Corporate Bond Index includes fixed-rate
nonconvertible corporate debt. Also included are Yankee Bonds and nonconvertible
debt issued by or guaranteed by foreign or international governments and
agencies. All issues are investment grade (BBB) or higher, with maturities of at
least one year and an outstanding par value of at least $100 million for U.S.
Government issues and $25 million for others. Any security downgraded during the
month is held in the index until month-end and then removed. All returns are
market value weighted inclusive of accrued income.
SALOMON BROAD INDEX
The Salomon Bond Index, also known as the Broad Investment Grade (BIG)
Index, is a fixed income market capitalization-weighted index, including U.S.
Treasury, agency, mortgage and investment grade (BBB or better) corporate
securities with maturities of one year or longer and with amounts outstanding of
at least $25 million. The government index includes traditional agencies; the
mortgage index includes agency pass-throughs and FHA and GNMA project loans; the
corporate index includes returns for 17 industry sub-sectors. Securities
excluded from the Broad Index are floating/variable rate bonds, private
placements, and derivatives (E.G., U.S. Treasury zeros, CMOs, mortgage strips).
Every issue is trader-priced at month-end and the index is published monthly.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant .
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania,
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<PAGE>
336 Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since April, 1995); Treasurer, Phoenix Family of
Mutual Funds (prior to April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since March, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, ASSISTANT SECRETARY AND ASSISTANT TREASURER
P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I. - Manager and Senior Fund Administrator, SFG and
Signature (Cayman) (since August 1994); Assistant Treasurer, SBDS
(since September 1994); Fund Compliance Administrator, Concord
Financial Group, Inc. (from November 1990 to August 1994); Senior Fund
Accountant, Neuberger & Berman Management Incorporated (from February
1988 to November 1990).
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
- 17 -
<PAGE>
THOMAS M. LENZ*, SECRETARY
Senior Vice President and Associate General Counsel, SFG (since
November, 1989); Assistant Secretary, SBDS (since February, 1991);
Assistant Secretary, Signature (since March, 1993) .
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since March,
1993).
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since March, 1993).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since March, 1993); Attorney, Ropes & Gray (September, 1990
to November, 1992) .
Messrs. Coolidge, Elder, Lelko, Lenz and Saldana and Mss. Gibson,
Jakuboski, Mugler and O'Dette are also Trustees and/or officers of certain other
investment companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Fund
Name of Compensation Part of Fund Benefits Upon Complex* Paid
TRUSTEE FROM TRUST EXPENSES RETIREMENT TO TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
<PAGE>
*The Fund Complex consists of the Trust and the Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
from the Trust and Portfolio Trust for the period from January 9, 1995
(commencement of operations) to October 31, 1995. The Trustees who are not
"interested persons" (as defined in the 1940 Act) of the Trust and the Portfolio
Trust will receive an annual retainer of $3,600 and a fee of $1,000 for each
meeting of the Board of Trustees or committee thereof attended.
As of December 29, 1995, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund (the Trust has no knowledge of the
beneficial ownership of such shares):
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the investment manager receives no
compensation from the Portfolio.
The Investment Management Contract will remain in effect until November
21, 1996, and will continue in effect thereafter from year to year with respect
to the Portfolio, provided such continuance is approved annually (i) by the
holders of a majority of the outstanding voting securities of the Portfolio or
by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
- 18 -
<PAGE>
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. 'Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
SUB-ADVISER
MAS, as the Portfolio's Sub-Adviser, is responsible for the investment
management of the Portfolio's assets, including making investment decisions and
placing orders for the purchase and sale of securities for the Portfolio
directly with the issuers or with brokers or dealers selected by MAS or Republic
in its discretion. See "Portfolio Transactions." MAS also furnishes to the Board
of Trustees of the Portfolio Trust, which has overall responsibility for the
business and affairs of the Portfolio Trust, periodic reports on the investment
performance of the Portfolio.
For its services, MAS receives from the Portfolio a fee, computed daily
and based on the Portfolio's average daily net assets, equal on an annual basis
to 0.375% on net assets up to $50 million, 0.25% on net assets over $50 million
and up to $95 million, $300,000 on net assets over $95 million and up to $150
million, 0.20% on net assets over $150 million and up to $250 million, and 0.15%
on net assets over $250 million. For the period from January 9, 1995
(commencement of operations) to October 31, 1995, sub-advisory fees aggregated
$53,963.
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<PAGE>
The investment advisory services of MAS to the Portfolio are not
exclusive under the terms of the Sub-Advisory Agreement. MAS is free to and does
render investment advisory services to others.
ADMINISTRATOR
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000. For the period from January 9,
1995 (commencement of operations) to October 31, 1995, Signature was paid
administrative services fees of $20,274, of which $6,672 was waived.
FUND ACCOUNTING AGENT
Pursuant to respective fund accounting agreements, Signature serves as
fund accounting agent to each of the Fund and the Portfolio. For its services to
the Fund, Signature receives from the Fund fees payable monthly equal on an
annual basis to $12,000. For its services to the Portfolio, Signature receives
fees payable monthly equal on an annual basis to $40,000.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company ("IBT") serves as custodian and transfer
agent for each of the Fund and the Portfolio pursuant to Custodian Agreements
and Transfer Agency Agreements, respectively. The Custodian may use the services
of sub-custodians with respect to the Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange ("NYSE") is open for trading. As
of the date of this Statement of Additional Information, the NYSE is open every
weekday except for the days on which the following holidays are observed: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
Bonds and other fixed income securities listed on a foreign exchange
are valued at the latest quoted sales price available
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<PAGE>
before the time when assets are valued. For purposes of determining the
Portfolio's net asset value, all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the bid price of such
currencies against U.S. dollars last quoted by any major bank.
Bonds and other fixed-income securities which are traded
over-the-counter and on a stock exchange will be valued according to the
broadest and most representative market, and it is expected that for bonds and
other fixed-income securities this ordinarily will be the over-the-counter
market. Bonds and other fixed income securities (other than short-term
obligations but including listed issues) in the Portfolio's portfolio may be
valued on the basis of valuations furnished by a pricing service, use of which
has been approved by the Board of Trustees of the Portfolio Trust. In making
such valuations, the pricing service utilizes both dealer-supplied valuations
and electronic data processing techniques which take into account appropriate
factors such as institutional-size trading in similar groups of securities,
yield, quality, coupon rate, maturity, type of issue, trading characteristics
and other market data, without exclusive reliance upon quoted prices or exchange
or over-the-counter prices, since such valuations are believed to reflect more
accurately the fair value of such securities. Short-term obligations are valued
at amortized cost, which constitutes fair value as determined by the Board of
Trustees of the Portfolio Trust. Futures contracts are normally valued at the
settlement price on the exchange on which they are traded. Portfolio securities
(other than short-term obligations) for which there are no such valuations are
valued at fair value as determined in good faith under the direction of the
Board of Trustees of the Portfolio Trust.
Interest income on long-term obligations in the Portfolio's portfolio
is determined on the basis of interest accrued plus amortization of "original
issue discount" (generally, the difference between issue price and stated
redemption price at maturity) and premiums (generally, the excess of purchase
price over stated redemption price at maturity). Interest income on short-term
obligations is determined on the basis of interest accrued plus amortization of
premium.
Subject to the Trust's compliance with applicable regulations, the
Trust has reserved the right to pay the redemption or repurchase price of shares
of the Fund, either totally or partially, by a distribution in kind of portfolio
securities (instead of cash). The securities so distributed would be valued at
the same amount as that assigned to them in calculating the net asset value for
the shares being sold. If a shareholder received a distribution in kind, the
shareholder could incur brokerage or other charges in converting the securities
to cash.
TAXATION
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<PAGE>
Each year, to qualify as a separate "regulated investment company"
under the Internal Revenue Code of 1986, as amended (the "Code"), at least 90%
of the Fund's investment company taxable income (which includes, among other
items, interest, dividends and the excess of net short-term capital gains over
net long-term capital losses) must be distributed to Fund shareholders and the
Fund must meet certain diversification of assets, source of income, and other
requirements. If the Fund does not so qualify, it will be taxed as an ordinary
corporation.
The Fund intends to apply to the Internal Revenue Service for rulings
including, among others, rulings to the effect that, (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share. While the IRS has issued
substantially similar rulings in the past and SBDS anticipates that the Fund
will receive the rulings it seeks, the IRS has complete discretion in granting
rulings and complete assurance cannot be given that such rulings will be
obtained. The Portfolio has advised its corresponding Fund that it intends to
conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment standpoint, it may constitute a partial return of capital. In
particular, investors should be careful to consider the tax implication of
buying shares just prior to a distribution by the Fund. The price of shares
purchased at that time includes the amount of the forthcoming distribution, but
the distribution will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not
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<PAGE>
as of the date received but as of the later of (a) the date such stock became
ex-dividend with respect to such dividends (I.E., the date on which a buyer of
the stock would not be entitled to receive the declared, but unpaid, dividends)
or (b) the date the Portfolio acquired such stock. Accordingly, in order to
satisfy its income distribution requirements, the Fund may be required to pay
dividends based on anticipated earnings, and shareholders may receive dividends
in an earlier year than would otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
Under certain circumstances, the Fund may be taxed on income deemed to
be earned from certain CMO residuals.
OPTIONS, FUTURES, FORWARD CONTRACTS AND SWAP CONTRACTS
Some of the options, futures contracts, forward contracts and swap
contracts entered into by the Portfolio may be "Section 1256 contracts." Section
1256 contracts held by the Portfolio at the end of its taxable year (and, for
purposes of the 4% excise tax, on certain other dates as prescribed under the
Code) are "marked-to-market" with unrealized gains or losses being treated as
though they were realized. Any gains or losses, including "marked-to-market"
gains or losses, on Section 1256 contracts are generally 60% long-term and 40%
short-term capital gains or losses ("60/40") although all foreign currency gains
and losses from such contracts may be treated as ordinary in character absent a
special election.
Generally, hedging transactions and certain other transactions in
options, futures, forward contracts and swap contracts undertaken by the
Portfolio may result in "straddles" for U.S. federal income tax purposes. The
straddle rules may affect the character of gain or loss realized by the
Portfolio. In addition, losses realized by the Portfolio on positions that
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<PAGE>
are part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable year
in which such losses are realized. Because only a few regulations implementing
the straddle rules have been promulgated, the tax consequences of transactions
in options, futures, forward contracts and swap contracts to the Portfolio are
not entirely clear. The transactions may increase the amount of short-term
capital gain realized by the Portfolio. Short-term gain is taxed as ordinary
income when distributed to Fund shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options,
futures, forward contracts and swap contracts held less than three months, and
the qualifying income and diversification requirements applicable to the
Portfolio assets, may limit the extent to which the Portfolio will be able to
engage in these transactions.
Rules governing the tax aspects of swap contracts are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Fund intends to account for such transactions in a manner deemed to be
appropriate, the Internal Revenue Service might not necessarily accept such
treatment. If it does not, the status of the Fund as a regulated investment
company might be affected. The Fund intends to monitor developments in this
area. Certain requirements that must be met under the Code in order for the Fund
to qualify as a regulated investment company may limit the extent to which the
Fund will be able to engage in swap agreements.
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss.
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<PAGE>
Similarly, in disposing of debt securities denominated in foreign currencies and
certain other foreign currency contracts, gains or losses attributable to
fluctuations in the value of a foreign currency between the date the security or
contract is acquired and the date it is disposed of are also usually treated as
ordinary income or loss. Under Section 988 of the Code, these gains or losses
may increase or decrease the amount of the Fund's investment company taxable
income to be distributed to shareholders as ordinary income.
Earnings derived by the Portfolio from sources outside the U.S. may be
subject to non-U.S. withholding and possibly other taxes. Such taxes may be
reduced or eliminated under the terms of a U.S. income tax treaty and the
Portfolio would undertake any procedural steps required to claim the benefits of
such a treaty. With respect to any non-U.S. taxes actually paid by the
Portfolio, if more than 50% in value of the Portfolio's total assets at the
close of any taxable year consists of securities of foreign corporations, the
Fund will elect to treat its share of any non-U.S. income and similar taxes the
Portfolio pays as though the taxes were paid by the Fund's shareholders.
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed
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<PAGE>
FundSource). Prior to October 3, 1994 the name of the Trust was "FundTrust".
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and
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<PAGE>
regulatory requirements, the Trust would not request a vote of the Fund's
shareholders with respect to any proposal relating to the Portfolio which
proposal, if made with respect to the Fund, would not require the vote of the
shareholders of the Fund.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young LLP , 200
Clarendon Street, Boston, Massachusetts 02116, served as independent auditors of
the Funds of the Trust, and Ernst & Young, One Capital Place, George Town, Grand
Cayman, Cayman Islands, served as independent auditors of the Portfolio.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108. The Portfolio has appointed KPMG
Peat Marwick, Grand Cayman, Cayman Islands as its independent account for the
fiscal year ended October 31, 1996, who will audit its financial statements.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus 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
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
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<PAGE>
FINANCIAL STATEMENTS
The Fund's current audited financial statements dated October 31, 1995
are hereby incorporated herein by reference from the Annual Report of the Fund
dated October 31, 1995 as filed with the SEC pursuant to Rule 30b2-1 under the
1940 Act. A copy of such report will be provided without charge to each person
receiving this Statement of Additional Information.
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FT4133G
<PAGE>
REPUBLIC INTERNATIONAL EQUITY FUND
6 St. James Avenue
Boston, MA 02116
(800) 782-8183
Republic National Bank of New York - Investment Manager
("Republic" or the "Manager")
Capital Guardian Trust Company - Sub-Adviser
("CGTC" or the "Sub-Adviser")
Signature Broker-Dealer Services, Inc. -
Administrator of the Fund, Distributor and Sponsor
("SBDS" or the "Administrator of the Fund" or the "Distributor"
or the "Sponsor")
Signature Financial Group (Grand Cayman) Limited -
Administrator of the Portfolio
("Signature (Cayman)")
Signature Financial Services, Inc. -
Fund Accounting Agent
("Signature")
STATEMENT OF ADDITIONAL INFORMATION
Republic International Equity Fund (the "Fund") is a separate series of
Republic Funds (the "Trust"), an open-end, management investment company which
currently consists of six portfolios, each of which has different and distinct
investment objectives and policies. The Trust seeks to achieve the Fund's
investment objective by investing all of the Fund's investable assets ("Assets")
in the International Equity Portfolio (the "Portfolio") which has the same
investment objective as the Fund.
The Portfolio is a series of the Republic Portfolios (the "Portfolio Trust")
which is an open-end management investment company. The Fund is described in
this Statement of Additional Information.
Shares of the Fund are offered only to clients of Republic and its
affiliates for which Republic or its affiliates exercises investment discretion.
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS AND IS
ONLY AUTHORIZED FOR DISTRIBUTION WHEN PRECEDED OR ACCOMPANIED BY THE PROSPECTUS
FOR THE FUND, DATED JANUARY 26, 1996 (THE "PROSPECTUS"). This Statement of
Additional Information contains additional and more detailed information than
that set forth in the Prospectus and should be read in conjunction with the
Prospectus. The Prospectus and Statement of Additional Information may be
obtained without charge by writing or calling the Fund at the address and
telephone number printed above.
January 26, 1996 FT4135E
<PAGE>
TABLE OF CONTENTS
PAGE
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS...................... 1
U.S. Government Securities.................................. 1
Convertible Securities...................................... 1
Repurchase Agreements....................................... 2
Investment Restrictions..................................... 2
Percentage and Rating Restrictions.......................... 5
PORTFOLIO TRANSACTIONS............................................... 5
PERFORMANCE INFORMATION.............................................. 6
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST...................... 7
Trustees and Officers....................................... 7
Investment Manager........................................... 10
Sub-Adviser.................................................. 11
Administrator................................................ 11
Fund Accounting Agent........................................ 11
Custodian and Transfer Agent................................. 12
DETERMINATION OF NET ASSET VALUE...................................... 12
TAXATION ............................................................. 12
Options, Futures and Forward Contracts....................... 13
Swap Agreements.............................................. 14
Investment in Passive Foreign Investment Companies........... 15
Disposition of Shares........................................ 16
OTHER INFORMATION..................................................... 16
Capitalization............................................... 16
Voting Rights................................................. 16
Independent Auditors........................................ 17
Counsel .................................................... 18
Registration Statement....................................... 18
Financial Statements......................................... 18
References in this Statement of Additional Information to the
"Prospectus" are to the Prospectus, dated January 26, 1996, of the Fund by which
shares of the Fund are offered. Unless the context otherwise requires, terms
defined in the Prospectus have the same meaning in this Statement of Additional
Information as in the Prospectus.
<PAGE>
INVESTMENT OBJECTIVE, POLICIES AND RESTRICTIONS
The following information supplements the discussion of the investment
objective and policies of the Portfolio discussed under the caption "Investment
Objective and Policies" in the Prospectus.
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<PAGE>
U.S. GOVERNMENT SECURITIES
For liquidity purposes and for temporary defensive purposes, the
Portfolio may invest in U.S. Government securities held directly or under
repurchase agreements. U.S. Government securities include bills, notes, and
bonds issued by the U.S. Treasury and securities issued or guaranteed by
agencies or instrumentalities of the U.S. Government.
Some U.S. Government securities are supported by the direct full faith
and credit pledge of the U.S. Government; others are supported by the right of
the issuer to borrow from the U.S. Treasury; others, such as securities issued
by the Federal National Mortgage Association ("FNMA"), are supported by the
discretionary authority of the U.S. Government to purchase the agencies'
obligations; and others are supported only by the credit of the issuing or
guaranteeing instrumentality. There is no assurance that the U.S. Government
will provide financial support to an instrumentality it sponsors when it is not
obligated by law to do so.
CONVERTIBLE SECURITIES
The Portfolio may buy securities that are convertible into common
stock. The following is a brief description of the various types of convertible
securities in which the Portfolio may invest.
CONVERTIBLE BONDS are issued with lower coupons than non-convertible
bonds of the same quality and maturity, but they give holders the option to
exchange their bonds for a specific number of shares of the company's common
stock at a predetermined price. This structure allows the convertible bond
holder to participate in share price movements in the company's common stock.
The actual return on a convertible bond may exceed its stated yield if the
company's common stock appreciates in value, and the option to convert to common
shares becomes more valuable.
CONVERTIBLE PREFERRED STOCKS are non-voting equity securities that pay
a fixed dividend. These securities have a convertible feature similar to
convertible bonds; however, they do not have a maturity date. Due to their
fixed-income features, convertible issues typically are more sensitive to
interest rate changes than the underlying common stock. In the event of
liquidation, bondholders would have claims on company assets senior to those of
stockholders; preferred stockholders would have claims senior to those of common
stockholders.
WARRANTS entitle the holder to buy the issuer's stock at a specific
price for a specific period of time. The price of a warrant tends to be more
volatile than, and does not always track, the price of its underlying stock.
Warrants are issued with expiration dates. Once a warrant expires, it has no
value
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<PAGE>
in the market.
RIGHTS represent a privilege granted to existing shareholders of a
corporation to subscribe to shares of a new issue of common stock before it is
offered to the public.
REPURCHASE AGREEMENTS
The Portfolio may invest in instruments subject to repurchase
agreements only with member banks of the Federal Reserve System or "primary
dealers" (as designated by the Federal Reserve Bank of New York) in U.S.
Government securities. Under the terms of a typical repurchase agreement, an
underlying debt instrument would be acquired for a relatively short period
(usually not more than one week) subject to an obligation of the seller to
repurchase the instrument at a fixed price and time, thereby determining the
yield during the Fund's holding period. This results in a fixed rate of return
insulated from market fluctuations during such period. A repurchase agreement is
subject to the risk that the seller may fail to repurchase the security.
Repurchase agreements may be deemed to be loans under the 1940 Act. All
repurchase agreements entered into on behalf of the Fund are fully
collateralized at all times during the period of the agreement in that the value
of the underlying security is at least equal to the amount of the loan,
including accrued interest thereon, and the Portfolio or its custodian bank has
possession of the collateral, which the Portfolio Trust's Board of Trustees
believes gives the Portfolio a valid, perfected security interest in the
collateral. Whether a repurchase agreement is the purchase and sale of a
security or a collateralized loan has not been definitively established. This
could become an issue in the event of the bankruptcy of the other party to the
transaction. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities are not owned
by the Portfolio but only constitute collateral for the seller's obligation to
pay the repurchase price. Therefore, the Portfolio may suffer time delays and
incur costs in connection with the disposition of the collateral. The Board of
Trustees of the Portfolio Trust believes that the collateral underlying
repurchase agreements may be more susceptible to claims of the seller's
creditors than would be the case with securities owned by the Portfolio. The
Portfolio will not invest in a repurchase agreement maturing in more than seven
days if any such investment together with illiquid securities held for the
Portfolio exceed 15% of the Portfolio's net assets.
INVESTMENT RESTRICTIONS
Each of the Portfolio Trust (with respect to the Portfolio) and the
Trust (with respect to the Fund) has adopted the following investment
restrictions which may not be changed without approval by holders of a "majority
of the outstanding voting securities" of the Portfolio or Fund, which as used in
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<PAGE>
this Statement of Additional Information means the vote of the lesser of (i) 67%
or more of the outstanding "voting securities" of the Fund present at a meeting,
if the holders of more than 50% of the outstanding "voting securities" are
present or represented by proxy, or (ii) more than 50% of the outstanding
"voting securities". The term "voting securities" as used in this paragraph has
the same meaning as in the 1940 Act.
As a matter of fundamental policy, the Portfolio (Fund) will not
(except that none of the following investment restrictions shall prevent the
Trust from investing all of the Fund's Assets in a separate registered
investment company with substantially the same investment objectives):
(1) invest in physical commodities or contracts on physical
commodities:
(2) purchase or sell real estate, although it may purchase and
sell securities of companies which deal in real estate, other
than real estate limited partnerships, and may purchase and
sell marketable securities which are secured by interests in
real estate;
(3) make loans except for the lending of portfolio securities
pursuant to guidelines established by the Board of Trustees
and except as otherwise in accordance with the Portfolio's
(Fund's) investment objective and policies;
(4) borrow money, except from a bank as a temporary measure to
satisfy redemption requests or for extraordinary or emergency
purposes, provided that the Portfolio (Fund) maintains asset
coverage of at least 300% for all such borrowings;
(5) underwrite the securities of other issuers (except to the
extent that the Portfolio (Fund) may be deemed to be an
underwriter within the meaning of the Securities Act of 1933
in the disposition of restricted securities);
(6) acquire any securities of companies within one industry, if as
a result of such acquisition, more than 25% of the value of
the Portfolio's (Fund's) total assets would be invested in
securities of companies within such industry; provided,
however, that there shall be no limitation on the purchase of
obligations issued or guaranteed by the U.S. Government, its
agencies or instrumentalities, when the Portfolio (Fund)
adopts a temporary defensive position;
(7) issue senior securities, except as permitted under the 1940
Act;
- 4 -
<PAGE>
(8) with respect to 75% of its assets, the Portfolio (Fund) will
not purchase securities of any issuer if, as a result, more
than 5% of the Portfolio's (Fund's) total assets taken at
market value would be invested in the securities of any single
issuer;
(9) with respect to 75% of its assets, the Portfolio (Fund) will
not purchase a security if, as a result, the Portfolio (Fund)
would hold more than 10% of the outstanding voting securities
of any issuer.
Each of the Portfolio and the Fund is also subject to the following
restrictions which may be changed by the Board of Trustees without shareholder
approval (except that none of the following investment policies shall prevent
the Trust from investing all of the Assets of the Fund in a separate registered
investment company with substantially the same investment objectives).
As a matter of non-fundamental policy, the Portfolio (Fund) will not:
(1) borrow money, except that the Portfolio (Fund) may borrow for
temporary or emergency purposes up to 10% of its net assets;
provided, however, that the Portfolio (Fund) may not purchase
any security while outstanding borrowings exceed 5% of net
assets;
(2) sell securities short, unless it owns or has the right to
obtain securities equivalent in kind and amount to the
securities sold short, and provided that transactions in
options and futures contracts are not deemed to constitute
short sales of securities;
(3) purchase warrants, valued at the lower of cost or market, in
excess of 10% of the value of its net assets. Included within
that amount, but not to exceed 2% of the value of the
Portfolio's (Fund's) net assets, may be warrants that are not
listed on the New York or American Stock Exchanges or an
exchange with comparable listing requirements. Warrants
attached to securities are not subject to this limitation;
(4) purchase securities on margin, except for use of short-term
credit as may be necessary for the clearance of purchases and
sales of securities, but it may make margin deposits in
connection with transactions in options, futures, and options
on futures;
(5) invest more than an aggregate of 15% of the net assets of the
Portfolio (Fund), determined at the time of investment, in
securities that are illiquid because their disposition is
restricted under the federal securities laws or securities for
which there is no
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<PAGE>
readily available market; provided, however that this policy
does not limit the acquisition of (i) securities that have
legal or contractual restrictions on resale but have a readily
available market or (ii) securities that are not registered
under the 1933 Act, but which can be sold to qualified
institutional investors in accordance with Rule 144A under the
1933 Act and which are deemed to be liquid pursuant to
guidelines adopted by the Board of Trustees ("Restricted
Securities").
(6) invest more than 10% of the Portfolio's (Fund's) assets in
Restricted Securities (including Rule 144A securities);
(7) invest for the purpose of exercising control over management
of any company;
(8) invest its assets in securities of any investment company,
except by purchase in the open market involving only customary
brokers' commissions or in connection with mergers,
acquisitions of assets or consolidations and except as may
otherwise be permitted by the 1940 Act; provided, however,
that the Portfolio shall not invest in the shares of any
open-end investment company unless (1) the Portfolio's
Sub-Adviser waives any investment advisory fees with respect
to such assets and (2) the Portfolio pays no sales charge in
connection with the investment;
(9) invest more than 5% of its total assets in securities of
issuers (other than securities issued or guaranteed by U.S. or
foreign government or political subdivisions thereof) which
have (with predecessors) a record of less than three years'
continuous operations;
(10) write or acquire options or interests in oil, gas or other
mineral explorations or development programs or leases.
PERCENTAGE AND RATING RESTRICTIONS
If a percentage restriction or a rating restriction on investment or
utilization of assets set forth above or referred to in the Prospectus is
adhered to at the time an investment is made or assets are so utilized, a later
change in percentage resulting from changes in the value of the securities held
by the Fund or a later change in the rating of a security held by the Fund is
not considered a violation of policy; however, the Sub-Adviser will consider
such change in its determination of whether to hold the security.
PORTFOLIO TRANSACTIONS
The Sub-Adviser is primarily responsible for portfolio decisions and
the placing of portfolio transactions. In placing
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<PAGE>
orders for the Portfolio, the primary consideration is prompt execution of
orders in an effective manner at the most favorable price, although the
Portfolio does not necessarily pay the lowest spread or commission available.
Other factors taken into consideration are the dealer's general execution and
operational facilities, the type of transaction involved and other factors such
as the dealer's risk in positioning the securities. To the extent consistent
with applicable legal requirements, the Sub-Adviser may place orders for the
purchase and sale of Portfolio investments for the Portfolio with Republic New
York Securities Corporation, an affiliate of the Manager.
As permitted by Section 28(e) of the Securities Exchange Act of 1934
(the "1934 Act"), the Sub-Adviser may cause the Portfolio to pay a broker-dealer
which provides "brokerage and research services" (as defined in the 1934 Act) to
the Sub-Adviser an amount of commission for effecting a securities transaction
for the Fund in excess of the commission which another broker-dealer would have
charged for effecting that transaction. For the period January 9, 1995
(commencement of operations) to October 31, 1995, the aggregate brokerage
commissions paid from the Fund were $[].
Consistent with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc. and such other policies as the Trustees of the
Portfolio Trust may determine, and subject to seeking the most favorable price
and execution available, the Sub-Adviser may consider sales of shares of the
Fund as a factor in the selection of broker-dealers to execute portfolio
transactions for the Portfolio.
Investment decisions for the Portfolio and for the other investment
advisory clients of the Sub-Adviser are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved.
Thus, a particular security may be bought for certain clients even though it
could have been sold for other clients at the same time, and a particular
security may be sold for certain clients even though it could have been bought
for other clients at the same time. Likewise, a particular security may be
bought for one or more clients when one or more other clients are selling that
same security. In some instances, one client may sell a particular security to
another client. Two or more clients may simultaneously purchase or sell the same
security, in which event each day's transactions in that security are, insofar
as practicable, averaged as to price and allocated between such clients in a
manner which in the Sub-Adviser's opinion is equitable to each and in accordance
with the amount being purchased or sold by each. In addition, when purchases or
sales of the same security for the Fund and for other clients of the Sub-Adviser
occur contemporaneously, the purchase or sale orders may be aggregated in order
to obtain any price advantage available to large denomination purchases or
sales. There may be circumstances when purchases or sales of portfolio
securities for one or more clients will have an adverse effect on other clients
- 7 -
<PAGE>
in terms of the price paid or received or of the size of the position
obtainable.
PERFORMANCE INFORMATION
The Trust may, from time to time, include the yield and total return
for the Fund, both computed in accordance with formulas prescribed by the
Securities and Exchange Commission ("SEC"), in advertisements or reports to
shareholders or prospective investors.
Quotations of yield for the Fund will be based on all investment income
per share (as defined by the SEC during a particular 30-day (or one month)
period (including dividends and interest), less expenses accrued during the
period ("net investment income"), and are computed by dividing net investment
income by the maximum offering price per share on the last day of the period,
according to the following formula:
YIELD = 2[( A-B + 1)6-1]
---
cd
where a = dividends and interest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last
day of the period.
Quotations of average annual total return for the Fund will be
expressed in terms of the average annual compounded rate of return of a
hypothetical investment in the Fund over periods of 1, 5 and 10 years (up to the
life of the Fund), calculated pursuant to the following formula: P (1 + T)n =
ERV (where P = a hypothetical initial payment of $1,000, T = the average annual
total return, n = the number of years, and ERV = the ending redeemable value of
a hypothetical $1,000 payment made at the beginning of the period). All total
return figures reflect the deduction of a proportional share of Fund expenses on
an annual basis, and assume that all dividends and distributions are reinvested
when paid. The Fund also may, with respect to certain periods of less than one
year, provide total return information for that period that is unannualized. Any
such information would be accomplished by standardized total return information.
The total return of the Fund for the period from January 9, 1995 (commencement
of operations) to October 31, 1995 was 8.31%.
Performance information for the Fund may also be compared to various
unmanaged indices, such as the Morgan Stanley Capital
- 8 -
<PAGE>
International Europe, Australia and Far East ("EAFE") Index. Unmanaged indices
(I.E., other than Lipper) generally do not reflect deductions for administrative
and management costs and expenses. Comparative information may be compiled or
provided by independent ratings services or by news organizations. Any
performance information should be considered in light of the Fund's investment
objectives and policies, characteristics and quality of the Fund, and the market
conditions during the given time period, and should not be considered to be
representative of what may be achieved in the future.
MANAGEMENT OF THE TRUST AND THE PORTFOLIO TRUST
TRUSTEES AND OFFICERS
The principal occupations of the Trustees and executive officers of the
Trust for the past five years are listed below. Asterisks indicate that those
Trustees and officers are "interested persons" (as defined in the 1940 Act) of
the Trust and the Portfolio Trust. The address of each, unless otherwise
indicated, is 6 St. James Avenue, Boston, Massachusetts 02116.
FREDERICK C. CHEN, TRUSTEE
126 Butternut Hollow Road, Greenwich, Connecticut 06830 - Management
Consultant .
ALAN S. PARSOW*, TRUSTEE
2222 Skyline Drive, Elkhorn, Nebraska 68022 - General Partner of Parsow
Partnership, Ltd. (investments).
LARRY M. ROBBINS, TRUSTEE
Wharton Communication Program, University of Pennsylvania, 336
Steinberg Hall-Dietrich Hall, Philadelphia, Pennsylvania 19104 -
Director of the Wharton Communication Program and Adjunct Professor of
Management at the Wharton School of the University of Pennsylvania.
MICHAEL SEELY, TRUSTEE
405 Lexington Avenue, Suite 909, New York, New York 10174 - President
of Investor Access Corporation (investor relations consulting firm).
PHILIP W. COOLIDGE*, PRESIDENT
Chairman, President and Chief Executive Officer, Signature Financial
Group, Inc. ("SFG"); Chairman, President and Chief Executive Officer,
SBDS (since April, 1989), Chairman, President and Chief Executive
Officer, Signature (May, 1993); Director, Chairman and President,
Signature (Cayman) (since March, 1992).
JOHN R. ELDER*, TREASURER
Vice President, SFG (since
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<PAGE>
April, 1995); Treasurer, Phoenix Family of Mutual Funds (prior to
April, 1995).
LINDA T. GIBSON*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since June, 1991);
Assistant Secretary, SBDS (since October, 1992); Assistant Secretary,
Signature (since March, 1993); law student, Boston University School of
Law (prior to May, 1992).
JAMES E. HOOLAHAN*, VICE PRESIDENT
Senior Vice President, SFG (since December, 1989).
SUSAN JAKUBOSKI*, ASSISTANT SECRETARY AND ASSISTANT TREASURER
P.O. Box 2494, Elizabethan Square, George Town, Grand Cayman, Cayman
Islands, B.W.I. - Manager and Senior Fund Administrator, SFG and
Signature (Cayman) (since August 1994); Assistant Treasurer, SBDS
(since September 1994); Fund Compliance Administrator, Concord
Financial Group, Inc. (from November 1990 to August 1994); Senior Fund
Accountant, Neuberger & Berman Management Incorporated (from February
1988 to November 1990) .
JAMES S. LELKO*, ASSISTANT TREASURER
Assistant Manager, SFG (since January, 1993); Senior Tax Compliance
Accountant, Putnam Companies (since prior to December, 1992).
THOMAS M. LENZ*, SECRETARY
Vice President and Associate General Counsel, SFG (since November,
1989); Assistant Secretary, SBDS (since February, 1991); Assistant
Secretary, Signature (since March, 1993) .
MOLLY S. MUGLER*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG; Assistant Secretary, SBDS
(since April, 1989); Assistant Secretary, Signature (since March,
1993).
BARBARA M. O'DETTE*, ASSISTANT TREASURER
Assistant Treasurer, SFG; Assistant Treasurer, SBDS (since April,
1989); Assistant Treasurer, Signature (since March, 1993).
ANDRES E. SALDANA*, ASSISTANT SECRETARY
Legal Counsel and Assistant Secretary, SFG (since November, 1992);
Assistant Secretary, SBDS (since September, 1993); Assistant Secretary,
Signature (since March, 1993); Attorney, Ropes & Gray (September, 1990
to November, 1992)
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<PAGE>
.
Messrs. Coolidge, Elder, Lelko, Lenz and Saldana and Mss. Gibson,
Jakuboski, Mugler and O'Dette are also Trustees and/or officers of certain other
investment companies of which SBDS or an affiliate is the administrator.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Pension or
Retirement Total
Benefits Estimated Compensation
Aggregate Accrued as Annual From Fund
Name of Compensation Part of Fund Benefits Upon Complex* Paid
TRUSTEE FROM TRUST EXPENSES RETIREMENT TO TRUSTEES
<S> <C> <C> <C> <C>
Frederick C. Chen $6,700 none none $6,700
Alan S. Parsow $6,700 none none $6,700
Larry M. Robbins $6,700 none none $6,700
Michael Seely $6,700 none none $6,700
</TABLE>
<PAGE>
*The Fund Complex consists of the Trust and the Portfolio Trust.
The compensation table above reflects the fees received by the Trustees
from the Trust and the Portfolio Trust for the period from January 9, 1995
(commencement of operations) to October 31, 1995. The Trustees who are not
"interested persons" (as defined in the 1940 Act) of either the Trust or
Portfolio Trust will receive an annual retainer of $3,600 and a fee of $1,0001
for each meeting of the Board of Trustees or committee thereof attended.
As of December 29, 1995, the Trustees and officers of the Trust and the
Portfolio Trust, as a group, owned less than 1% of the outstanding shares of the
Fund. As of the same date, the following shareholders of record owned 5% or more
of the outstanding shares of the Fund (the Trust has no knowledge of the
beneficial ownership of such shares):
The Trust's Declaration of Trust provides that it will indemnify its
Trustees and officers against liabilities and expenses incurred in connection
with litigation in which they may be involved because of their officers with the
Trust, unless, as to liability to the Trust or its shareholders, it is finally
adjudicated that they engaged in wilful misfeasance, bad faith, gross negligence
or reckless disregard of the duties involved in their offices, or unless with
respect to any other matter it is finally adjudicated that they did not act in
good faith in the reasonable belief that their actions were in the best
interests of the Trust. In the case of settlement, such indemnification will not
be provided unless it has been determined by a court or other body approving the
settlement or other disposition, or by a reasonable determination, based upon a
review of readily available facts, by vote of a majority of disinterested
Trustees or in a written opinion of independent counsel, that such officers or
Trustees have not engaged in wilful misfeasance, bad faith, gross negligence or
reckless disregard of their duties.
INVESTMENT MANAGER
Republic is the investment manager to the Portfolio pursuant to an
investment management agreement (the "Investment Management Contract") with the
Portfolio Trust. For its services, the investment manager receives no
compensation from the Portfolio.
The Investment Management Contract will remain in effect until November
21, 1996, and will continue in effect thereafter from year to year with respect
to the Portfolio, provided such continuance is approved annually (i) by the
holders of a majority of the outstanding voting securities of the Portfolio or
by the Portfolio Trust's Board of Trustees, and (ii) by a majority of the
Trustees of the Portfolio Trust who are not parties to the Investment Management
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Investment Management Contract may be terminated with respect to the
- -----------
1As of November 1, 1995, Trustee fee for each meeting of the Board of
Trustees or committee thereof attended increased from $600 to $1,000.
- 11 -
<PAGE>
Portfolio without penalty by either party on 60 days' written notice and will
terminate automatically if assigned.
Republic is a wholly owned subsidiary of Republic New York Corporation,
a registered bank holding company. No securities or instruments issued by
Republic New York Corporation or Republic will be purchased for the Portfolio.
Republic complies with applicable laws and regulations, including the
regulations and rulings of the U.S. Comptroller of the Currency relating to
fiduciary powers of national banks. These regulations provide, in general, that
assets managed by a national bank as fiduciary shall not be invested in stock or
obligations of, or property acquired from, the bank, its affiliates or their
directors, officers or employees or other persons with substantial connections
with the bank. The regulations further provide that fiduciary assets shall not
be sold or transferred, by loan or otherwise, to the bank or persons connected
with the bank as described above. Republic, in accordance with federal banking
laws, may not purchase for its own account securities of any investment company
the investment adviser of which it controls, extend credit to any such
investment company, or accept the securities of any such investment company as
collateral for a loan to purchase such securities. Moreover, Republic, its
officers and employees do not express any opinion with respect to the
advisability of any purchase of such securities.
The investment advisory services of Republic to the Portfolio are not
exclusive under the terms of the Investment Management Contract. Republic is
free to and does render investment advisory services to others.
SUB-ADVISER
CGTC, as the Portfolio's Sub-Adviser, is responsible for the investment
management of the Portfolio's assets, including making investment decisions and
placing orders for the purchase and sale of securities for the Portfolio
directly with the issuers or with brokers or dealers selected by CGTC or
Republic in its discretion. See "Portfolio Transactions." CGTC also furnishes to
the Board of Trustees of the Portfolio Trust, which has overall responsibility
for the business and affairs of the Portfolio Trust, periodic reports on the
investment performance of the Portfolio.
For its services, CGTC receives from the Portfolio a fee, computed
daily and based on the Fund's average daily net assets, at the annual rate of
0.70% of net assets up to $25 million, 0.55% of net assets over $25 million up
to $50 million, 0.425% of net assets over $50 million up to $250 million, and
0.375% of net assets in excess of $250 million. For the period from January 9,
1995 (commencement of operations) to October 31, 1995, sub-advisory fees
aggregated $131,059.
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<PAGE>
The investment advisory services of CGTC to the Portfolio are not
exclusive under the terms of the Sub-Advisory Agreement. CGTC is free to and
does render investment advisory services to others.
ADMINISTRATOR
Each Administrative Services Agreement is terminable with respect to
the Fund or the Portfolio, as the case may be, without penalty at any time by
vote of a majority of the respective Trustees, or by the respective
Administrator, upon not less than 60 days' written notice to the Fund or the
Portfolio, as the case may be. Each Agreement provides that neither the
respective Administrator nor its personnel shall be liable for any error of
judgment or mistake of law or for any act or omission in the administration of
the Fund or the Portfolio, as the case may be, except for willful misfeasance,
bad faith or gross negligence in the performance of its or their duties or by
reason of reckless disregard of its or their obligations and duties under the
respective Administrative Services Agreement. The minimum annual administrative
services fees paid by the Fund shall be $25,000. For the period from January 9,
1995 (commencement of operations) to October 31, 1995, Signature was paid
administrative services fees of $20,274, of which $5,914 was waived.
FUND ACCOUNTING AGENT
Pursuant to respective fund accounting agreements, Signature serves as
fund accounting agent to each of the Fund and the Portfolio. For its services to
the Fund, Signature receives from the Fund fees payable monthly equal on an
annual basis to $12,000. For its services to the Portfolio, Signature receives
fees payable monthly equal on an annual basis to $50,000.
CUSTODIAN AND TRANSFER AGENT
Investors Bank & Trust Company serves as custodian and transfer agent
for each of the Fund and the Portfolio pursuant to Custodian Agreements and
Transfer Agency Agreements, respectively. The Custodian may use the services of
sub-custodians with respect to the Portfolio.
DETERMINATION OF NET ASSET VALUE
The net asset value of each of the shares of the Fund is determined on
each day on which the New York Stock Exchange ("NYSE") is open for trading. As
of the date of this Statement of Additional Information, the NYSE is open every
weekday except for the days on which the following holidays are observed: New
Year's Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day.
The Sub-Adviser typically completes its trading on behalf of
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<PAGE>
the Portfolio in various markets before 4:00 p.m., and the value of portfolio
securities is determined when the primary market for those securities closes for
the day. Foreign currency exchange rates are also determined prior to 4:00 p.m.
However, if extraordinary events occur that are expected to affect the value of
a portfolio security after the close of the primary exchange on which it is
traded, the security will be valued at fair value as determined in good faith
under the direction of the Board of Trustees of the Portfolio Trust.
TAXATION
Each year, to qualify as a separate "regulated investment company"
under the Code, at least 90% of the Fund's investment company taxable income
(which includes, among other items, interest, dividends and the excess of net
short-term capital gains over net long-term capital losses) must be distributed
to Fund shareholders and the Fund must meet certain diversification of assets,
source of income, and other requirements. If the Fund does not so qualify, it
will be taxed as an ordinary corporation.
The Fund intends to apply to the Internal Revenue Service for rulings,
including, among others, rulings to the effect that (1) the Portfolio will be
treated for federal income tax purposes as a partnership and (2) for purposes of
determining whether the Fund satisfies the income and diversification
requirements to maintain its status as a RIC, the Fund, as an investor in its
corresponding Portfolio, will be deemed to own a proportionate share of the
Portfolio's income attributable to that share. While the IRS has issued
substantially similar rulings in the past, and SBDS anticipates that the Fund
will receive the rulings it seeks, the IRS has complete discretion in granting
rulings and complete assurance cannot be given that such rulings will be
obtained. The Portfolio has advised its corresponding Fund that it intends to
conduct its operations so as to enable its investors, including the Fund, to
satisfy those requirements.
Amounts not distributed by the Fund on a timely basis in accordance
with a calendar year distribution requirement are subject to a nondeductible 4%
excise tax. To prevent imposition of the excise tax, for each calendar year an
amount must be distributed equal to the sum of (1) at least 98% of the Fund's
ordinary income (excluding any capital gains or losses) for the calendar year,
(2) at least 98% of the excess of the Fund's capital gain net income for the
12-month period ending, as a general rule, on October 31 of the calendar year,
and (3) all such ordinary income and capital gains for previous years that were
not distributed during such years.
Distributions by the Fund reduce the net asset value of the Fund
shares. Should a distribution reduce the net asset value below a shareholder's
cost basis, the distribution nevertheless would be taxable to the shareholder as
ordinary income or capital gain as described above, even though, from an
investment
- 14 -
<PAGE>
standpoint, it may constitute a partial return of capital. In particular,
investors should be careful to consider the tax implication of buying shares
just prior to a distribution by the Fund. The price of shares purchased at that
time includes the amount of the forthcoming distribution, but the distribution
will generally be taxable to them.
If the Portfolio is the holder of record of any stock on the record
date for any dividends payable with respect to such stock, such dividends are
included in the Portfolio's gross income not as of the date received but as of
the later of (a) the date such stock became ex-dividend with respect to such
dividends (I.E., the date on which a buyer of the stock would not be entitled to
receive the declared, but unpaid, dividends) or (b) the date the Portfolio
acquired such stock. Accordingly, in order to satisfy its income distribution
requirements, the Fund may be required to pay dividends based on anticipated
earnings, and shareholders may receive dividends in an earlier year than would
otherwise be the case.
Some of the debt securities that may be acquired by the Portfolio may
be treated as debt securities that are originally issued at a discount. Original
issue discount can generally be defined as the difference between the price at
which a security was issued and its stated redemption price at maturity.
Although no cash income is actually received by the Portfolio, original issue
discount on a taxable debt security earned in a given year generally is treated
for federal income tax purposes as interest and, therefore, such income would be
subject to the distribution requirements of the Code.
Some of the debt securities may be purchased by the Portfolio at a
discount which exceeds the original issue discount on such debt securities, if
any. This additional discount represents market discount for federal income tax
purposes. Generally, the gain realized on the disposition of any debt security
acquired by the Portfolio will be treated as ordinary income to the extent it
does not exceed the accrued market discount on such debt security.
OPTIONS, FUTURES AND FORWARD CONTRACTS
Some of the options, futures contracts and forward contracts entered
into by the Portfolio may be "Section 1256 contracts." Section 1256 contracts
held by the Portfolio at the end of its taxable year (and, for purposes of the
4% excise tax, on certain other dates as prescribed under the Code) are
"marked-to-market" with unrealized gains or losses being treated as though they
were realized. Any gains or losses, including "marked-to-market" gains or
losses, on Section 1256 contracts are generally 60% long-term and 40% short-term
capital gains or losses ("60/40") although all foreign currency gains and losses
from such contracts may be treated as ordinary in character absent a special
election.
- 15 -
<PAGE>
Generally, hedging transactions and certain other transactions in
options, futures and forward contracts undertaken by the Portfolio may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gain or loss realized by the Portfolio. In addition, losses
realized by the Portfolio on positions that are part of a straddle may be
deferred under the straddle rules, rather than being taken into account in
calculating the taxable income for the taxable year in which such losses are
realized. Because only a few regulations implementing the straddle rules have
been promulgated, the tax consequences of transactions in options, futures and
forward contracts to the Portfolio are not entirely clear. The transactions may
increase the amount of short-term capital gain realized by the Portfolio.
Short-term gain is taxed as ordinary income when distributed to Fund
shareholders.
The Portfolio may make one or more of the elections available under the
Code which are applicable to straddles. If the Portfolio makes any of the
elections, the amount, character, and timing of the recognition of gains or
losses from the affected straddle positions will be determined under rules that
vary according to the elections made. The rules applicable under certain of the
elections operate to accelerate the recognition of gains or losses from the
affected straddle positions.
Because application of the straddle rules may affect the character of
gains or losses, defer losses and/or accelerate the recognition of gains or
losses from the affected straddle positions, the amount which must be
distributed to Fund shareholders, and which will be taxed to Fund shareholders
as ordinary income or long-term capital gain, may be increased or decreased
substantially as compared to a fund that did not engage in such hedging
transactions.
The 30% limit on gains from the disposition of certain options, futures
and forward contracts held less than three months, and the qualifying income and
diversification requirements applicable to the Portfolio assets, may limit the
extent to which the Portfolio will be able to engage in these transactions.
SWAP AGREEMENTS
Rules governing the tax aspects of swap contracts are in a developing
stage and are not entirely clear in certain respects. Accordingly, while the
Fund intends to account for such transactions in a manner deemed to be
appropriate, the Internal Revenue Service might not necessarily accept such
treatment. If it does not, the status of the Fund as a regulated investment
company might be affected. The Fund intends to monitor developments in this
area. Certain requirements that must be met under the Code in order for the Fund
to qualify as a regulated investment company may limit the extent to which the
Fund will be
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<PAGE>
able to engage in swap agreements.
INVESTMENT IN PASSIVE FOREIGN INVESTMENT COMPANIES
The Portfolio may invest in shares of foreign corporations (through
ADRs) which may be classified under the Code as passive foreign investment
companies ("PFICs"). In general, a foreign corporation is classified as a PFIC
if at least one-half of its assets constitute investment-type assets, or 75% or
more of its gross income is investment-type income. If the Portfolio receives a
so-called "excess distribution" with respect to PFIC stock, the Fund itself may
be subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Fund to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been realized
ratably over the period during which the Portfolio held the PFIC shares. The
Fund itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Fund taxable years and an interest
factor will be added to the tax, as if the tax had been payable in such prior
taxable years. Certain distributions from a PFIC as well as gain from the sale
of PFIC shares are treated as excess distributions. Excess distributions are
characterized as ordinary income even though, absent application of the PFIC
rules, certain excess distributions might have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with
respect to PFIC shares held by the Portfolio. Under an election that currently
is available in some circumstances, the Fund generally would be required to
include in its gross income its share of the earnings of a PFIC on a current
basis, regardless of whether distributions are received from the PFIC in a given
year. If this election were made, the special rules, discussed above, relating
to the taxation of excess distributions, would not apply. In addition, another
election may be available that would involve marking to market the Fund's PFIC
shares at the end of each taxable year (and on certain other dates prescribed in
the Code), with the result that unrealized gains are treated as though they were
realized. If this election were made, tax at the Fund level under the PFIC rules
would generally be eliminated, but the Fund could, in limited circumstances,
incur nondeductible interest charges. The Fund's intention to qualify annually
as a regulated investment company may limit its elections with respect to PFIC
shares.
Because the application of the PFIC rules may affect, among other
things, the character of gains, the amount of gain or loss and the timing of the
recognition of income with respect to PFIC shares, as well as subject the Fund
itself to tax on certain income from PFIC shares, the amount that must be
distributed to shareholders, and which will be taxed to shareholders as ordinary
income or long-term capital gain, may be increased or decreased substantially as
compared to a fund that did not invest in PFIC shares.
- 17 -
<PAGE>
Under the Code, gains or losses attributable to fluctuations in
exchange rates that occur between the time the Portfolio accrues income or other
receivables or accrues expenses or other liabilities denominated in a foreign
currency and the time the Portfolio actually collects such receivables or pays
such liabilities generally are treated as ordinary income or loss. Similarly, in
disposing of debt securities denominated in foreign currencies and certain other
foreign currency contracts, gains or losses attributable to fluctuations in the
value of a foreign currency between the date the security or contract is
acquired and the date it is disposed of are also usually treated as ordinary
income or loss. Under Section 988 of the Code, these gains or losses may
increase or decrease the amount of the Fund's investment company taxable income
to be distributed to shareholders as ordinary income.
DISPOSITION OF SHARES
Upon the sale or exchange of shares of the Fund, a shareholder
generally will realize a taxable gain or loss depending upon his basis in the
shares. Such gain or loss will be treated as capital gain or loss if the shares
are capital assets in the shareholder's hands, and will be long-term if the
shareholder's holding period for the shares is more than one year and generally
otherwise will be short-term. Any loss realized on a sale or exchange of Fund
shares will be disallowed to the extent that the shares disposed of are replaced
(including replacement through reinvesting of dividends and capital gain
distributions in the Fund) within a period of 61 days beginning 30 days before
and ending 30 days after the disposition of the shares. In such a case, the
basis of the shares acquired will be adjusted to reflect the disallowed loss.
The information above is only a summary of some of the tax
considerations affecting the Fund and its shareholders. The Portfolio, the Fund,
and the Fund's distributions may also be subject to state, local, foreign or
other taxes not discussed above. A prospective investor may wish to consult a
tax advisor to determine the suitability of an investment in the Fund based on
the prospective investor's tax situation.
OTHER INFORMATION
CAPITALIZATION
The Trust is a Massachusetts business trust established under a
Declaration of Trust dated April 22, 1987, as a successor to two
previously-existing Massachusetts business trusts, FundTrust Tax-Free Trust
(organized on July 30, 1986) and FundVest (organized on July 17, 1984, and since
renamed FundSource). Prior to October 3, 1994 the name of the Trust was
"FundTrust".
- 18 -
<PAGE>
The capitalization of the Trust consists solely of an unlimited number
of shares of beneficial interest with a par value of $0.001 each. The Board of
Trustees may establish additional series (with different investment objectives
and fundamental policies) at any time in the future. Establishment and offering
of additional series will not alter the rights of the Fund's shareholders. When
issued, shares are fully paid, nonassessable, redeemable and freely
transferable. Shares do not have preemptive rights or subscription rights. In
liquidation of the Fund, each shareholder is entitled to receive his pro rata
share of the net assets of the Fund.
VOTING RIGHTS
Under the Declaration of Trust, the Trust is not required to hold
annual meetings of Fund shareholders to elect Trustees or for other purposes. It
is not anticipated that the Trust will hold shareholders' meetings unless
required by law or the Declaration of Trust. In this regard, the Trust will be
required to hold a meeting to elect Trustees to fill any existing vacancies on
the Board if, at any time, fewer than a majority of the Trustees have been
elected by the shareholders of the Trust. In addition, the Declaration of Trust
provides that the holders of not less than two-thirds of the outstanding shares
of the Trust may remove persons serving as Trustee either by declaration in
writing or at a meeting called for such purpose. The Trustees are required to
call a meeting for the purpose of considering the removal of persons serving as
Trustee if requested in writing to do so by the holders of not less than 10% of
the outstanding shares of the Trust.
The Trust's shares do not have cumulative voting rights, so that the
holders of more than 50% of the outstanding shares may elect the entire Board of
Trustees, in which case the holders of the remaining shares would not be able to
elect any Trustees.
Interests in the Portfolio have no preference, preemptive, conversion
or similar rights, and are fully paid and non-assessable. The Portfolio Trust is
not required to hold annual meetings of investors, but will hold special
meetings of investors when, in the judgment of the Portfolio Trust's Trustees,
it is necessary or desirable to submit matters for an investor vote. Each
investor is entitled to a vote in proportion to the share of its investment in
the Portfolio.
Except as described below, whenever the Trust is requested to vote on a
matter pertaining to the Portfolio, the Trust will hold a meeting of the Fund's
shareholders and will cast all of its votes on each matter at a meeting of
investors in the Portfolio proportionately as instructed by the Fund's
shareholders. However, subject to applicable statutory and regulatory
requirements, the Trust would not request a vote of the Fund's shareholders with
respect to any proposal relating to the Portfolio which proposal, if made with
respect to the Fund,
- 19 -
<PAGE>
would not require the vote of the shareholders of the Fund.
INDEPENDENT AUDITORS
For the fiscal year ended October 31, 1995, Ernst & Young LLP , 200
Clarendon Street, Boston, Massachusetts 02116, served as independent auditors of
the Funds of the Trust, and Ernst & Young, One Capital Place, George Town, Grand
Cayman, Cayman Islands, served as independent auditors of the Portfolio.
The Board of Trustees has appointed KPMG Peat Marwick LLP as
independent accountants of the Funds of the Trust for the fiscal year ended
October 31, 1996. KPMG Peat Marwick LLP will audit the Trust's annual financial
statements, prepare the Trust's income tax returns, and assist in the filings
with the Securities and Exchange Commission. KPMG Peat Marwick LLP's address is
99 High Street, Boston, Massachusetts 02108. The Portfolio has appointed KPMG
Peat Marwick, Grand Cayman, Cayman Islands as its independent account for the
fiscal year ended October 31, 1996, who will audit its financial statements.
COUNSEL
Dechert Price & Rhoads, 1500 K Street, N.W., Washington, D.C. 20005,
passes upon certain legal matters in connection with the shares of the Fund
offered by the Trust, and also acts as counsel to the Trust.
REGISTRATION STATEMENT
This Statement of Additional Information and the Prospectus do not
contain all the information included in the Trust's registration statement filed
with the Securities and Exchange Commission under the 1933 Act with respect to
shares of the Fund, certain portions of which have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. The
registration statement, including the exhibits filed therewith, may be examined
at the office of the Securities and Exchange Commission in Washington, D.C.
Statements contained herein and in the Prospectus 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
which was filed as an exhibit to the registration statement, each such statement
being qualified in all respects by such reference.
FINANCIAL STATEMENTS
- 20 -
<PAGE>
The Fund's current audited financial statements dated October 31, 1995
are hereby incorporated herein by reference from the Annual Report of the Fund
dated October 31, 1995 as filed with the SEC pursuant to Rule 30b2-1 under the
1940 Act. A copy of such report will be provided without charge to each person
receiving this Statement of Additional Information.
FT4135E
- 21 -
<PAGE>
PART C
Item 24. Financial Statements.
(a) Included in Part A of the Registration Statement:
FINANCIAL HIGHLIGHTS -- Republic U.S. Government Money Market Fund; Republic New
York Tax Free Money Market Fund; Republic New York Tax Free Bond Fund; Republic
Equity Fund; Republic Fixed Income Fund; Republic International Equity Fund.
(b) Incorporated by reference into Part B of the Registration
Statement:
REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
Statement of Net Assets, September 30, 1995
Statement of Operations for the year ended September 30, 1995
Statement of Changes in Net Assets for the years ended September 30, 1994 and
September 30, 1995
Financial Highlights
Notes to Financial Statements, September 30, 1995
Report of Ernst & Young LLP
REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
Statement of Net Assets, October 31, 1995
Statement of Operations for the period November 17, 1994 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period November 17, 1994
(commencement of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
REPUBLIC NEW YORK TAX FREE BOND FUND
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period May 1, 1995 (commencement of operations)
to October 31, 1995
Statement of Changes in Net Assets for the period May 1, 1995 (commencement of
operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
REPUBLIC EQUITY FUND
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period August 1, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period August 1, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
REPUBLIC FIXED INCOME FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young, LLP
FIXED INCOME PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young
REPUBLIC INTERNATIONAL EQUITY FUND
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young LLP
INTERNATIONAL EQUITY PORTFOLIO
Schedule of Investments, October 31, 1995
Statement of Assets and Liabilities, October 31, 1995
Statement of Operations for the period January 9, 1995 (commencement of
operations) to October 31, 1995
Statement of Changes in Net Assets for the period January 9, 1995 (commencement
of operations) to October 31, 1995
Financial Highlights
Notes to Financial Statements, October 31, 1995
Report of Ernst & Young
(b) Exhibits
1. Amended and Restated Declaration of Trust, with establishment
and designation of series and further amendments.1
2. By-Laws.1
4. Specimen certificate of shares of beneficial interest of Republic Funds.1
5(a). Master Investment Advisory Contract, with supplements
regarding Republic New York Tax Free Bond Fund, Republic New York
Tax Free Money Market Fund and Republic Equity Fund.1
5(b). Subadvisory Agreement between Lord, Abbett & Co. and
Republic National Bank of New York regarding Republic Equity Fund.1
5(c). Amended and Restated Second Master Investment Advisory
Contract, with supplement regarding Republic U.S. Government
Money Market Fund.1
6(a). Master Distribution Contract, with supplements regarding
Republic U.S. Government Money Market Fund, Republic New York Tax
Free Money Market Fund, Republic New York Tax Free Bond Fund and
Republic Equity Fund.1
6(b). Second Master Distribution Contract, with supplements
regarding Republic International Equity Fund and Republic Fixed
Income Fund.1
8(a). Custodian Agreement.1
8(b). Transfer Agency and Service Agreement.1
9(a). Form of Service Agreement.1
9(b). Master Administrative Services Contract, with supplements
regarding Republic New York Tax Free Money Market Fund, Republic
Republic U.S. Government Money Market Fund, Republic New York Tax
Free Bond Fund, and Republic Equity Fund.1
9(c). Second Master Administrative Services Contract, with
supplements regarding Republic Fixed Income Fund and Republic
International Equity Fund.1
9(d). Administrative Services Plan.1
10. Opinion of Counsel.2
11. Consent of Independent Auditors.1
13(a). Initial Investor Representation letter regarding Republic
International Equity Fund and Republic Fixed Income Fund.3
13(b). Initial Investor Representation letter regarding Republic
Equity Fund.2
15(a). Amended and Restated Master Distribution Plan, with
supplements regarding Republic U.S. Government Money Market Fund,
Republic New York Tax Free Money Market Fund, Republic New York
Tax Free Bond Fund and Republic Equity Fund.1
16. Schedule of Performance Computations.1
17. Financial Data Schedules.1
18. Powers of Attorney of Trustees and Officers of Registrant
and Republic Portfolios.4
- -----------------
1 Filed herewith.
2 Incorporated herein by reference from post-effective amendment No. 33 to
the registration statement on Form N-1A of the Registrant (File no. 33-7647)
(the "Registration Statement") as filed with the Securities and Exchange
Commission (the "SEC") on June 27, 1995.
3 Incorporated by reference herein from post-effective amendment No. 29 to
the Registration Statement as filed with the SEC on December 20, 1994.
4 Incorporated herein by reference from post-effective
amendment No. 28 to the Registration Statement as filed with the
SEC on December 2, 1994.
Item 25. Persons Controlled by or under Common Control with
Registrant.
Not applicable.
Item 26. Number of Holders of Securities
As of December 29, 1995, the number of shareholders of each Fund was as
follows:
Republic U.S. Government Money Market Fund: 726
Republic New York Tax Free Money Market Fund: 124
Republic New York Tax Free Bond Fund: 12
Republic Fixed Income Fund: 32
Republic Equity Fund: 12
Republic International Equity Fund: 63
Item 27. Indemnification
Reference is hereby made to Article IV of the Registrant's Declaration
of Trust. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees or officers of the
Registrant by the Registrant pursuant to the Declaration of Trust of otherwise,
the Registrant is aware 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 (the "1940 Act") and, therefore, is
unenforceable.
A claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by trustees or officers
of the Registrant in connection with the successful defense of any act, suit or
proceeding) is asserted by such trustees or officers in connection with the
shares being registered, the 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 whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issues.
Item 28. Business and Other Connections of Investment Advisers
(a) Republic National Bank of New York ("Republic") acts as investment
adviser to Republic U.S. Government Money Market Fund, Republic New York Tax
Free Money Market Fund, Republic New York Tax Free Bond Fund, Republic Equity
Fund, Republic Fixed Income Fund and Republic International Equity Fund, and is
a subsidiary of Republic New York Corporation ("RNYC"), 452 Fifth Avenue, New
York, New York 10018, a registered bank holding company.
(i) Republic's directors, and their business and other connections,
are as follows(1):
NAME -- BUSINESS AND OTHER CONNECTIONS
Kurt Andersen -- Executive Vice President and a Director of RNYC and
Republic Anthony G. Chappell Executive Vice President and Director of Republic
Albert S. Corwen -- Director of RNYC and President of John Mullins & Sons, Inc.,
furniture retailer
Cyril S. Dwek -- Vice Chairman of the Board and Director of Republic and RNYC
Ernest Ginsberg -- Vice Chairman of the Board and Director of RNYC and Republic,
and General Counsel to Republic
Nathan Hasson -- Vice Chairman of the Board, Director and Treasurer of Republic
and Vice Chairman of the Board and Director of RNYC
Morris Hirsch -- Director of and Senior Consultant to RNYC and Republic
Jeffrey C. Keil -- Vice Chairman of the Board and Director of RNYC and President
and Director of Republic
Peter Kimmelman -- A private investor and a Director of RNYC and Republic(2)
Leonard Lieberman -- Director of various companies, including Consolidated Cigar
Corporation and Outlet Communications, Inc.; and Director of RNYC and Republic
Eugene Lubin -- Director of Republic and President and Chief Executive Officer
of Lubin's Men's World, Inc.
William C. MacMillen, Jr. -- President, William C. MacMillen & Co., Inc.
(investment Banking) and a Director of RNYC and Republic; and Director of
Carroon & Black Corporation(3)
Martin F. Mertz -- Chairman of the Executive Committee of the Board of Directors
of The Republic Bank for Savings, a wholly-owned subsidiary of RNYC, Director of
RNYC and Republic
Charles G. Meyer, Jr. -- President of Cord Meyer Development Co.; and Director
of Republic(4)
James L. Morice -- Partner in the management consulting and executive search
firm of Mirtz Morice, Inc.; and a Director of RNYC and Republic(5)
E. Daniel Morris -- President, Corsair Capital Corporation, Director of RNYC
Dr. Janet L. Norwood -- Senior Fellow at The Urban Institute (research
organization), Director of RNYC and Republic
John A. Pancetti -- Chairman of the Board, Chief Executive Officer of Republic
Bank for Savings, a wholly-owned subsidiary of RNYC; and Director of RNYC and
Republic
The Hon. Javier Perez De Cuellar -- Former Secretary General of the United
Nations and Director of RNYC
Vito S. Portera -- Vice Chairman of the Board, and a Director of RNYC and
Republic; Chairman of the Board of Republic International Bank of New York, the
wholly-owned Florida Edge Act subsidiary of Republic; Chairman of the Board and
President of SafraCorp, a Florida bank holding company, and Chairman of its
subsidiary bank
Wilbur M. Rabinowitz -- Private Investor and Director of RNYC
William P. Rogers -- Partner, Rogers & Wells and Director of RNYC and Republic
Dov C. Schlein -- President and Chief Operating Officer, and a Director of RNYC
and Vice Chairman and Director of Republic
Jacques Tawil -- Director of RNYC (Suisse) S.A.
Richard Waters -- Retired Executive Officer of The Sporting News Publishing
Company and Director of Republic
Walter H. Weiner -- Chairman of the Board and Director of Republic and RNYC
Peter White -- Senior Consultant and a Director of RNYC and Republic
(ii) The principal executive officers of Republic and their business
and other connections for at least the past two years are as follows(1):
Walter H. Weiner -- Chairman of the Board and Chief Executive Officer of
Republic and RNYC
Dov C. Schlein -- President and Chief Executive Officer and Director of Republic
and a Director and Vice Chairman of RNYC
Cyril S. Dwek -- Vice Chairman of the Board and a Director of Republic and RNYC
Ernest Ginsberg -- Vice Chairman of the Board, Director and General Counsel of
Republic, a Vice Chairman and a Director of RNYC
Nathan Hassan -- Vice Chairman of the Board, Treasurer and a Director of
Republic and Vice Chairman and a Director of RNYC
Jeffrey C. Keil -- Vice Chairman of the Board, and a Director of Republic and
President and a Director of RNYC
John A. Pancetti -- Vice Chairman of the Board and a Director of Republic and
RNYC; and Chairman of the Board and Chief Executive Officer of the Manhattan
Savings Bank, a wholly-owned savings bank subsidiary of RNYC
Vito S. Portera -- Vice Chairman of the Board and a Director of Republic and
RNYC; Chairman of the Board of Republic International Bank of New York, the
wholly-owned Florida Edge Act subsidiary of Republic; and Chairman of the Board
and President of SafraCorp, a Florida bank holding company, and Chairman of its
subsidiary bank
Kurt Andersen -- Executive Vice President and a Director of Republic and RNYC
Leslie E. Bains -- Executive Vice President of Republic
Anthony G. Chappell -- Executive Vice President of Republic
Patrick Constantinides -- Executive Vice President of Republic
Walter R. Cook -- Executive Vice President of Republic
Manuel L. Diaz -- Executive Vice President, and a Director, President and
Treasurer of Republic International Bank of New York, the wholly-owned Florida
Edge Act Subsidiary of Republic
Jean-Pierre Diels -- Executive Vice President
William A. Dueker, Jr. -- Executive Vice President
Adrian Fletcher -- Executive Vice President, General Manager; and Chief
Operating Officer of Republic's London Branch
Rick D. Friedlander -- Executive Vice President of Republic
John R. Gorman -- Executive Vice President of Republic
John H. Guiton -- Executive Vice President of Republic
John P. Holdcroft, Jr. -- Executive Vice President and Comptroller of RNYC
John M. Heffer -- Executive Vice President of Republic
John D. Kaberle, Jr. -- Executive Vice President and Comptroller of Republic and
RNYC
Elie Krayem -- Executive Vice President of Republic
Morton Leader -- Executive Vice President; and Executive Vice President and
Director of Republic Factors Corp., the wholly-owned factoring subsidiary of
RNYC
Terrence G. Lloyd -- Executive Vice President of Republic
Alberto Munchnick -- Executive Vice President of Republic
Martin Rabinowitz -- Executive Vice President of Republic
Herbert J. Richman -- Executive Vice President; and a Vice President of RNYC
Thomas F. Robards -- Executive Vice President and Treasurer of RNYC and
Executive Vice President of Republic
Elias Saal -- Executive Vice President of Republic
Daniel M. Schwartz -- Executive Vice President of Republic
John M. Scopaz -- Executive Vice President of Republic
Richard C. Spikerman -- Executive Vice President of Republic
John Tamberlane -- Executive Vice President; and President of The Manhattan
Savings Bank, a wholly-owned savings bank subsidiary of RNYC
Moise Tawil -- Executive Vice President of Republic
Gerald N. Weiner -- Executive Vice President of Republic
Thomas F. Weiner -- Executive Vice President of Republic
George T. Wendler -- Executive Vice President of Republic
Peter F. Huezey -- Senior Vice President and Director of Internal Audit of
Republic
Robert Parkinson -- Senior Vice President and Deputy Comptroller of RNYC
William F. Rosenblum, Jr. -- Senior Vice President, Senior Deputy General
Counsel and Corporate Secretary of Republic and RNYC
William H. Slattery -- Senior Vice President and General Counsel of Republic
Edmond J. Safra -- Honorary Chairman of Republic and RNYC
- ------------------
(1) Unless otherwise noted by footnote, the address of all directors and
officers is 452 Fifth Avenue, New York, New York 10018
(2) 1270 Avenue of the Americas, Suite 3010, New York 10020
(3) 254 Victoria Place, Lawrence, New York 11559
(4) 19355 Turnberry Way, Apartment #8H, 32 Tower North, Miami Beach, Florida
33180
(5) 111-15 Queens Boulevard, 2nd Floor, Forest Hills, New York, New York 11375
(b) Lord, Abbett & Co. ("Lord Abbett") acts as investment adviser to
Republic Equity Fund. Lord Abbett's address is The General Motors Building, 767
Fifth Avenue, New York, NY 10153- 0203. Lord Abbett acts as investment adviser
for seventeen other open-end investment companies (of which it is principal
underwriter for fourteen) and as investment adviser to approximately 5,100
private accounts. Other than acting as directors and/or officers of open-end
investment companies sponsored by Lord Abbett, none of Lord Abbett's partners
has, in the past two fiscal years, engaged in any other business, profession,
vocation or employment of a substantial nature for his own account or in the
capacity of director, officer, employee, or partner of any entity except as
follows:
NAME -- BUSINESS AND OTHER CONNECTIONS
John J. Walsh -- Trustee of The Brooklyn Hospital Center
ITEM 29. PRINCIPAL UNDERWRITER
(a) Signature Broker-Dealer Services, Inc. (the "Sponsor") and its
affiliates serve as distributor and administrator for other registered
investment companies.
(b) The information required by this Item 29 with respect to each
director or officer of Signature is incorporated by reference from Schedule A of
Form BD filed by the Sponsor pursuant to the Securities Exchange Act of 1934
(File No. 8-41134).
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
The account books and other documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
the Rules thereunder will be maintained at the offices of: Republic National
Bank of New York, 452 Fifth Avenue, New York, New York 10018; Lord, Abbett &
Co., The General Motors Building, 767 Fifth Avenue, New York, New York, 10153-
0203; Signature Broker-Dealer Services, Inc., 6 St. James Avenue, Boston,
Massachusetts 02116; Signature Financial Services, Inc., 1 First Canadian Place,
Suite 5820, P.O. Box 231, Toronto, Ontario, M5X 1C8; and Investors Bank & Trust
Company, N.A., 24 Federal Street, Boston, Massachusetts 02110.
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
(a) The Registrant undertakes to furnish to each person to whom a
prospectus is delivered a copy of the Registrant's latest annual report to
shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940
Act as though such provisions of the Act were applicable to the Registrant
except that the request referred to in the third full paragraph thereof may only
be made by shareholders who hold in the aggregate at least 10% of the
outstanding shares of the Registrant, regardless of the net asset value or
values of shares held by such requesting shareholders.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, Republic Funds certifies that it meets all the
requirements for effectiveness of this amendment to its registration statement
on Form N-1A (File No. 33-7647) (the "Registration Statement") pursuant to Rule
485(b) under the Securities Act of 1933, and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereto duly authorized
in the City of Boston and Commonwealth of Massachusetts, on the 19th day of
January, 1996.
REPUBLIC FUNDS
By /S/THOMAS M. LENZ
---------------------------
Thomas M. Lenz, Secretary
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities indicated on January 19, 1996.
/S/ PHILIP W. COOLIDGE
- --------------------------
Philip W. Coolidge
President
/S/JOHN R. ELDER
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer
ALAN S. PARSOW*
- --------------------------
Alan S. Parsow
Trustee
LARRY M. ROBBINS*
- --------------------------
Larry M. Robbins
Trustee
MICHAEL SEELY*
- --------------------------
Michael Seely
Trustee
FREDERICK C. CHEN*
- --------------------------
Frederick C. Chen
Trustee
*By /S/THOMAS M. LENZ
--------------------------
Thomas M. Lenz,
as attorney-in-fact pursuant to a power of attorney previously filed.
<PAGE>
SIGNATURES
Republic Portfolios (the "Portfolio Trust") has duly caused this
amendment to the registration statement on Form N-1A (File No. 33-7647)
("Registration Statement") of Republic Funds (the "Trust") to be signed on its
behalf by the undersigned, thereto duly authorized in George Town, Grand Cayman,
Cayman Islands, B.W.I. on the 19th day of January, 1996.
REPUBLIC PORTFOLIOS
By /S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski, Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on January 19, 1996.
PHILIP W. COOLIDGE*
- --------------------------
Philip W. Coolidge
President of the Portfolio Trust
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolio Trust
ALAN S. PARSOW*
- --------------------------
Alan S. Parsow
Trustee of the Portfolio Trust
LARRY M. ROBBINS*
- --------------------------
Larry M. Robbins
Trustee of the Portfolio Trust
MICHAEL SEELY*
- --------------------------
Michael Seely
Trustee of the Portfolio Trust
FREDERICK C. CHEN*
- --------------------------
Frederick C. Chen
Trustee of the Portfolio Trust
*By /S/SUSAN JAKUBOSKI
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney previously filed
<PAGE>
SIGNATURES
Republic Portfolios (the "Portfolio Trust") has duly caused this
amendment to the registration statement on Form N-1A (File No. 33-7647)
("Registration Statement") of Republic Funds (the "Trust") to be signed on its
behalf by the undersigned, thereto duly authorized in London, England on the
28th day of November, 1995.
REPUBLIC PORTFOLIOS
By
--------------------------
Susan Jakuboski, Assistant Treasurer
Pursuant to the requirements of the Securities Act of 1933, the Trust's
Registration Statement has been signed below by the following persons in the
capacities indicated on November 28, 1995.
- --------------------------
Philip W. Coolidge
President of the Portfolio Trust
/S/JOHN R. ELDER
- --------------------------
John R. Elder
Treasurer and Principal Accounting and Financial Officer of the Portfolio Trust
- --------------------------
Alan S. Parsow
Trustee of the Portfolio Trust
- --------------------------
Larry M. Robbins
Trustee of the Portfolio Trust
- --------------------------
Michael Seely
Trustee of the Portfolio Trust
- --------------------------
Frederick C. Chen
Trustee of the Portfolio Trust
*By
--------------------------
Susan Jakuboski,
as attorney-in-fact pursuant to a power of attorney previously filed
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INDEX TO EXHIBITS
Exhibit No.: Description of Exhibit
1. Amended and Restated Declaration of Trust, with establishment
and designation of series and further amendments.
2. By-Laws.
4. Specimen certificate of shares of beneficial interest of
Republic Funds.
5(a). Master Investment Advisory Contract, with supplements
regarding Republic New York Tax Free Bond Fund, Republic New York
Tax Free Money Market Fund and Republic Equity Fund.
5(b). Republic Equity Fund Subadvisory Agreement between Lord,
Abbett & Co. and Republic National Bank of New York.
5(c). Amended and Restated Second Master Investment Advisory
Contract, with supplement regarding Republic U.S. Government
Money Market Fund.
6(a). Master Distribution Contract, with supplements regarding
Republic U.S. Government Money Market Fund, Republic New York Tax
Free Money Market Fund, Republic New York Tax Free Bond Fund and
Republic Equity Fund.
6(b). Second Master Distribution Contract, with supplements
regarding Republic International Equity Fund and Republic Fixed
Income Fund.
8(a). Custodian Agreement.
8(b). Transfer Agency and Service Agreement.
9(a). Form of Service Agreement.
9(b). Master Administrative Services Contract, with supplements
regarding Republic New York Tax Free Money Market Fund, Republic
Republic U.S. Government Money Market Fund, Republic New York Tax
Free Bond Fund, and Republic Equity Fund.
9(c). Second Master Administrative Services Contract, with
supplements regarding Republic Fixed Income Fund and Republic
International Equity Fund.
9(d). Administrative Services Plan.
11. Consent of Independent Auditors.
15(a). Amended and Restated Master Distribution Plan, with
supplements regarding Republic U.S. Government Money Market Fund,
Republic New York Tax Free Money Market Fund, Republic New York
Tax Free Bond Fund and Republic Equity Fund.
16. Schedule of Performance Computations.
17. Financial Data Schedules.
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
FUNDTRUST
Dated July 1, 1987
AMENDED AND RESTATED DECLARATION OF TRUST made July 1,
1987;
WHEREAS, the Trustees desire to establish a trust for
the investment and reinvestment of funds contributed thereto; and
WHEREAS, the Trustees desire that the beneficial interest in
the trust assets be divided into transferable shares of beneficial interest, as
hereinafter provided;
NOW, THEREFORE, the Trustees declare that all money and
property contributed to the trust established hereunder shall be held and
managed in trust for the benefit of the holders, from time to time, of the
shares of beneficial interest issued hereunder and subject to the provisions
hereof.
ARTICLE I
NAME AND DEFINITIONS
SECTION 1.1. NAME. The name of the trust created
hereby, until and unless changed by the Trustees as provided in
Section 8.3(a) hereof, is "FundTrust."
SECTION 1.2. DEFINITIONS. Wherever they are used
herein, the following terms have the following respective
meanings:
(a) "BY-LAWS" means the By-laws referred to in
Section 2.8 hereof, as from time to time amended.
(b) The terms "COMMISSION" and "INTERESTED
PERSON," have the meanings given them in the 1940 Act. Except as otherwise
defined by the Trustees in conjunction with the establishment of any series of
Shares the term "VOTE OF A MAJORITY OF THE SHARES OUTSTANDING AND ENTITLED TO
VOTE" shall have the same meaning as the term "VOTE OF A MAJORITY OF THE
OUTSTANDING VOTING SECURITIES" given it in the 1940 Act.
(c) "CUSTODIAN" means any Person other than the
Trust who has custody of any Trust Property as required by
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Section 17(f) of the 1940 Act, but does not include a system for the central
handling of securities described in said Section 17(f).
(d) "DECLARATION" means this Declaration of Trust
as amended from time to time. Reference in this Declaration of Trust to
"DECLARATION," "HEREOF," and "HEREUNDER," shall be deemed to refer to this
Declaration rather than exclusively to the article or section in which such
words appear.
(e) "DISTRIBUTION" means a party other than the
Trust, to a contract described in Section 3.1 hereof.
(f) "HIS" shall include the feminine and neuter,
as well as the masculine genders, and the plural as well as the singular number,
in accordance with the context.
(g) The "1940 ACT" means the Investment Company
Act of 1940, as amended from time to time.
(h) "PERSON" means and includes individuals,
corporations, partnerships, trusts, associations, joint ventures and other
entities, whether or not legal entities, and governments and agencies and
political subdivisions thereof.
(i) "SHAREHOLDER" means a record owner of
Outstanding Shares.
(j) "SHARES" means the equal proportionate units
of interest into which the beneficial interest in the Trust shall be divided
from time to time, including the Shares of any and all series which may be
established by the Trustees, and includes fractions of Shares as well as whole
Shares. "OUTSTANDING SHARES" means those Shares shown from time to time on the
books of the Trust or its Transfer Agent as then issued and outstanding, but
shall not include Shares which have been redeemed or repurchased by the Trust
and which are at the time held in the Treasury of the Trust.
(k) "TRANSFER AGENT" means any Person other than
the Trust who maintains the Shareholder records of the Trust, such as the list
of Shareholders, the number of Shares credited to each account, and the like.
(l) The "TRUST" means FundTrust II.
(m) The "TRUST PROPERTY" means any and all
property, real or personal, tangible or intangible, which is owned or held by or
for the account of the Trust, including any series of the Trust, or the Trustees
in their capacity as such.
(n) The "TRUSTEES" means any Person who has
signed this Declaration, so long as he shall continue in office
in accordance with the terms hereof, and any other Person who may
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from time to time be duly elected, qualified and serving as Trustees in
accordance with the provisions of Article II hereof, and reference herein to a
Trustee or the Trustees shall refer to such Person or Persons in this capacity
or their capacities as Trustees hereunder.
ARTICLE II
TRUSTEES
SECTION 2.1. GENERAL POWERS. The Trustees shall have exclusive
and absolute control over the Trust Property and over the business of the Trust
to the same extent as if the Trustees were the sole owners of the Trust Property
and business in their own right, but with such powers of delegation as may be
permitted, and such obligations and duties as may be prescribed, by this
Declaration. The Trustees shall have power to conduct the business of the Trust
and carry on its operations in any and all of its branches and maintain offices
both within and without the Commonwealth of Massachusetts, in any and all states
of the United States of America, in the District of Columbia, and in any and all
commonwealths, territories, dependencies, colonies, possessions, agencies or
instrumentalities of the United States of America and of foreign governments,
and to do all such other things and execute all such instruments as they may
deem necessary, proper or desirable in order to promote the interests of the
Trust, including such things as may not be herein specifically mentioned. Any
determination as to what is in the interests of the Trust made by the Trustees
in good faith shall be conclusive. In construing the provisions of this
Declaration, the presumption shall be in favor of a grant of power to the
Trustees.
The enumeration of any specific power herein shall not be construed as
limiting the aforesaid power. Such powers of the Trustees may be executed
without order of or resort to any court.
SECTION 2.2. INVESTMENTS. The Trustees shall have the
power:
(a) To operate as and carry on the business of an
open-end, management investment company, as defined in the 1940 Act, and
exercise all the powers necessary and appropriate to the conduct of such
operations.
(b) To invest in, hold for investment, or
reinvest in, securities (which term "securities" shall include common and
preferred stocks; warrants; bonds, debentures, bills, time notes and all other
evidences of indebtedness; negotiable or non-negotiable instruments; government
securities, including securities of any state, municipality or other political
subdivision thereof, or any government or quasi-governmental
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agency or instrumentality; and money market instruments including bank
certificates of deposit, finance paper, commercial paper, bankers' acceptances
and all kinds of repurchase agreements, of any corporation, company, trust,
association, firm or other business organization however established, and of any
country, state, municipality or other political subdivision, or any governmental
or quasi-governmental agency or instrumentality).
(c) To acquire (by purchase, subscription or
otherwise), to hold, to trade in and deal in, to acquire or sell any rights,
options, futures contracts or other instruments to purchase or sell, and to sell
or otherwise dispose of, to lend, and to pledge any securities, property or
other assets.
(d) To exercise all rights, powers and privileges
of ownership or interest in all securities and repurchase agreements included in
the Trust Property, including the right to vote thereon and otherwise act with
respect thereto and to do all acts for the preservation, protection, improvement
and enhancement in value of all such securities and repurchase agreements.
(e) To acquire (by purchase, lease or otherwise)
and to hold, use, maintain, develop and dispose of (by sale or otherwise) any
property real or personal, including cash, and any interest therein.
(f) To borrow money and in this connection issue
notes or other evidence of indebtedness; to secure borrowings by mortgaging,
pledging or otherwise subjecting as security the Trust Property; to endorse,
guarantee, or undertake the performance of any obligation or engagement of any
other Person and to lend Trust Property.
(g) To aid by further investment any corporation,
company, trust, association or firm, any obligation of or interest in which is
included in the Trust Property or in the affairs of which the Trustees have any
direct or indirect interest; to do all acts and things designed to protect,
preserve, improve or enhance the value of such obligation or interest.
(h) In general to carry on any other business in
connection with or incidental to any of the foregoing powers, to do everything
necessary, suitable or proper for the accomplishment of any purpose or the
attainment of any object or the furtherance of any power hereinbefore set forth,
either alone or in association with others, and to do every other act or thing
incidental or appurtenant to or growing out of or connected with the aforesaid
business or purposes, objects or powers.
The foregoing clauses shall be construed both as
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objects and powers, and the foregoing enumeration of specific powers shall not
be held to limit or restrict in any manner the general powers of the Trustees.
The Trustees shall not be limited to investing in obligations
maturing before the possible termination of the Trust, nor shall the Trustees be
limited by any law limiting the investments which may be made by fiduciaries.
SECTION 2.3. LEGAL TITLE. Legal title to all the Trust
Property shall be vested in the Trustees as joint tenants except that the
Trustees shall have power to cause legal title to any Trust Property to be held
by or in the name of one or more of the Trustees, or in the name of the Trust,
or in the name of any other Person as nominee, on such terms as the Trustees may
determine, provided that the interest of the Trust therein is deemed
appropriately protected. The right, title and interest of the Trustees in the
Trust Property and the property of each series of the Trust shall vest
automatically in each Person who may hereafter become a Trustee. Upon the
termination of the term of office, resignation, removal or death of a Trustee he
shall automatically cease to have any right, title or interest in any of the
Trust Property and the right, title and interest of such Trustee in all such
property shall vest automatically in the remaining Trustees. Such vesting and
cessation of title shall be effective whether or not conveying documents have
been executed and delivered.
SECTION 2.4. ISSUANCE AND REPURCHASE OF SECURITIES. The
Trustees shall have the power to issue, sell, repurchase, redeem, retire,
cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal
in Shares and, subject to the provisions set forth in Articles VI and VII and
Section 5.11 hereof, to apply to any such repurchase, redemption, retirement,
cancellation or acquisition of Shares any funds or property of the particular
series of the Trust with respect to which such Shares are issued, whether
capital or surplus or otherwise, to the full extent now or hereafter permitted
by the laws of the Commonwealth of Massachusetts governing business
corporations.
SECTION 2.5. DELEGATION; COMMITTEES. The Trustees shall have
power to delegate from time to time to such of their number or to officers,
employees or agents of the Trust the doing of such things and the execution of
such instruments either in the name of the Trust or the names of the Trustees or
otherwise as the Trustees may deem expedient, to the same extent as such
delegation is permitted by the 1940 Act.
SECTION 2.6. COLLECTION AND PAYMENT. The Trustees
shall have power to collect all property due to the Trust; to pay
all claims, including taxes, against the Trust Property; to
prosecute, defend, compromise or abandon any claims relating to
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the Trust Property; to foreclose any security interest securing any obligations,
by virtue of which any property is owed to the Trust; and, without need for any
court order, to enter into releases, agreements and other instruments.
SECTION 2.7. EXPENSES. The Trustees shall have the power to
incur and pay any expenses which in the opinion of the Trustees are necessary or
incidental to carrying out any of the purposes of this Declaration, and to pay
reasonable compensation from the Trust and/or its series to themselves as
Trustees. The Trustees shall fix the compensation of all officers, employees and
Trustees.
SECTION 2.8. MANNER OF ACTING; BY-LAWS. Except as otherwise
provided herein or in the By-laws, any action to be taken by the Trustees may be
taken by a majority of the Trustees present at a meeting of Trustees (a quorum
being present), including any meeting held by means of a conference telephone
circuit or similar Communications equipment by means of which all persons
participating in the meeting can hear each other, or by written consents of a
majority of the Trustees then in office. The Trustees may adopt By-laws not
inconsistent with this Declaration to provide for the conduct of the business of
the Trust and may amend or repeal such By-laws to the extent such power is not
reserved to the Shareholders.
Notwithstanding the foregoing provisions of this Section 2.8
and in addition to such provisions or any other provision of this Declaration or
of the By-laws, the Trustees may by resolution appoint a committee consisting of
one or more Trustees and less than the whole number of Trustees then in office,
which committee may be empowered to act for and bind the Trustees and the Trust,
as if the acts of such committee were the acts of all the Trustees then in
office, with respect to the institution, prosecution, dismissal, settlement,
review or investigation of any action, suit or proceeding which shall be pending
or threatened to be brought before any court, administrative agency or other
adjudicatory body.
SECTION 2.9. MISCELLANEOUS POWERS. The Trustees shall have the
power to: (a) employ or contract with such Persons as the Trustees may deem
desirable for the transaction of the business of the Trust; (b) enter into joint
ventures, partnerships and any other combinations or associations, to the extent
permitted by law; (c) remove Trustees or fill vacancies in or add to their
number, elect and remove such officers and appoint and terminate such agents or
employees as they consider appropriate, and appoint from their own number and
terminate, any one or more committees which may exercise some or all of the
power and authority of the Trustees as the Trustees may determine; (d) to the
extent permitted by law, purchase, and pay for out of Trust Property, insurance
policies insuring the
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Shareholders, Trustees, officers, employees, agents, investment advisers,
administrators, distributors, selected dealers or independent contractors of the
Trust against all claims arising by reason of holding any such position or by
reason of any action taken or omitted by any such Person in such capacity; (e)
establish pension, profit-sharing, Share purchase, and other retirement,
incentive and benefit plans for any Trustees, officers, employees and agents of
the Trust; (f) to the extent permitted by law, indemnify any person with whom
the Trust has dealings, including persons referred to in subparagraph (d),
above, to such extent as the Trustees shall determine; (g) determine and change
the fiscal year of the Trust and the method by which its accounts shall be kept;
and (h) adopt a seal for the Trust, but the absence of such seal shall not
impair the validity of any instrument executed on behalf of the Trust.
SECTION 2.10. PRINCIPAL TRANSACTIONS. Except in transactions
not permitted by the 1940 Act or rules and regulations adopted by the
Commission, the Trustees may, on behalf of the Trust, buy any securities from or
sell any securities to, or lend any assets of the Trust or any Trustee or
officer of the Trust or any firm of which any such Trustee or officer is a
member acting as principal, or have any such dealings with persons acting as
investment adviser, administrator, Distributor or Transfer Agent or with any
interested Person of such Person; and the Trust may employ any such Person, or
firm or company in which such Person is an Interested Person, as broker, legal
counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian upon
customary terms.
SECTION 2.11. NUMBER OF TRUSTEES. The number of Trustees shall
initially be one (1), and thereafter shall be such number as shall be fixed from
time to time by a written instrument signed by a majority of the Trustees,
provided, however, that the number of Trustees shall in no event be less than
one (1) nor more than fifteen (15).
SECTION 2.12. ELECTION AND TERM. Except for the Trustees named
herein, designated by such Trustees prior to the issuance of Shares, or
appointed to fill vacancies pursuant to Section 2.14 hereof, the Trustees shall
be elected by the Shareholders owning of record a plurality of the Shares voting
at a meeting of Shareholders called for that purpose. Except in the event of
resignation or removal pursuant to Section 2.13 hereof, each Trustee shall hold
office until the next such meeting of Shareholders and until his successor is
duly elected and qualified.
SECTION 2.13. RESIGNATION AND REMOVAL. Any Trustee may
resign his trust (without need for prior or subsequent
accounting) by an instrument in writing signed by him and
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delivered to the other Trustees and such resignation shall be effective upon
such delivery, or at a later date according to the terms of the instrument. Any
of the Trustees may be removed (i) with cause, by the action of two-thirds of
the remaining Trustees (provided the aggregate number of Trustees after such
removal shall not be less than three) or (ii) by vote of holders of two-thirds
of the outstanding Shares of the Trust, either by declaration in writing or at a
meeting called for such purpose. A meeting for the purpose of considering the
removal of a person serving as Trustee shall be called by the Trustees if
requested in writing to do so by holders of not less than 101 of the outstanding
Shares of the Trust. Upon the resignation or removal of a Trustee, or his
otherwise ceasing to be a Trustee, he shall execute and deliver such documents
as the remaining Trustees shall require for the purpose of conveying to the
Trust or the remaining Trustees any Trust Property held in the name of the
resigning or removed Trustee. Upon the incapacity or death of any Trustee, his
legal representative shall execute and deliver on his behalf such documents as
the remaining Trustee shall require as provided in the preceding sentence.
SECTION 2.14. VACANCIES. The term of office of a Trustee shall
terminate and a vacancy shall occur in the event of the death, resignation,
removal, bankruptcy, adjudicated incompetence or other incapacity to perform the
duties of the office of a Trustee. No such vacancy shall operate to annul the
Declaration or to revoke any existing vacancy, including a vacancy existing by
reason of an increase in the number of Trustees. Subject to the provisions of
Section 16(a) of the 1940 Act, the remaining Trustees shall fill such vacancy by
the appointment of such other person as they in their discretion shall see fit,
made by a written instrument signed by a majority of the Trustees then in
office. Any such appointment shall not become effective, however, until the
person named in the written instrument of appointment shall have accepted in
writing such appointment and agreed in writing to be bound by the terms of the
Declaration. An appointment of a Trustee may be made in anticipation of a
vacancy to occur at a later date by reason of retirement, resignation or
increase in the number of Trustees, provided that such appointment shall not
become effective prior to such retirement, resignation or increase in the number
of Trustees. Whenever a vacancy in the number of Trustees shall occur, until
such vacancy is filled as provided in this Section 2.14, the Trustees in office,
regardless of their number, shall have all the powers granted to the Trustees
and shall discharge all the duties imposed upon the Trustees by the Declaration.
A written instrument certifying the existence of such vacancy signed by a
majority of the Trustees in office shall be conclusive evidence of the existence
of such vacancy.
SECTION 2.15. DELEGATION OF POWER TO OTHER TRUSTEES.
Any Trustee may, by power of attorney, delegate his power for a
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period not exceeding six (6) months at any one time to any other Trustee or
Trustees; provided that in no case shall less than two (2) Trustees personally
exercise the powers granted to the Trustees under this Declaration, except as
herein otherwise expressly provided.
ARTICLE III
CONTRACTS
SECTION 3.1. UNDERWRITING CONTRACT. The Trustees may in their
discretion from time to time enter into an exclusive or non-exclusive
underwriting contract or contracts providing for the sale of the Shares to net
the Trust not less than the amount provided for in Section 7.1 of Article VII
hereof, whereby the Trustees may either agree to sell the Shares to the other
party to the contract or appoint such other party their sales agent for the
Shares, and in either case on such terms and conditions as may be prescribed in
the By-laws, if any, and such further terms and conditions as the Trustees may
in their discretion determine not inconsistent with the provisions of this
Article III or of the By-laws; and such contract may also provide for the
repurchase of the Shares by such other party as agent of the Trustees.
SECTION 3.2. ADVISORY, MANAGEMENT OR ADMINISTRATIVE CONTRACTS.
The Trustees may in their discretion from time to time enter into one or more
investment advisory, management or administrative contracts whereby the other
party(ies) to such contract(s) shall undertake to furnish to the Trust or to one
or more of its series such management, investment advisory, administrative,
statistical and research facilities and services and such other facilities and
services, if any, and all upon such terms and conditions as the Trustees may in
their discretion determine, including the grant of authority to such other party
to recommend or to determine what securities shall be purchased or sold by the
Trust or a series and what portion of assets shall be uninvested, which
authority shall include the power to make changes in investments, and to
recommend or to select the brokers or dealers to be used for such transactions.
SECTION 3.3. OTHER SERVICE CONTRACTS. The Trustees are also
empowered, at any time and from time to time, to contract with any corporations,
trusts, associations, or other organizations, appointing it or them the Business
Manager, Custodian(s), Transfer Agent(s) and/or shareholder servicing agent(s)
and/or other agents for the Trust or one or more of the series. Every such
contract shall comply with such requirements and restrictions as may be set
forth in the By-laws or stipulated by resolution of the Trustees.
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SECTION 3.4. AFFILIATIONS OF TRUSTEES OR OFFICERS, ETC.
The fact that:
(i) any of the Shareholders, Trustees or officers of
the Trust is a shareholder, director, officer,
partner, trustee, employee, manager, adviser or
distributor of or for any partnership, corporation,
trust, association or other organization or of or for
any parent or affiliate of any organization, with
which a contract of the character described in
Sections 3.1, 3.2 or 3.3 above may have been or may
hereafter be made, or that any such organization, or
any parent or affiliate thereof, is a Shareholder of
or has an interest in the Trust, or that
(ii) any partnership, corporation, trust, association
or other organization with which a contract of the
character described in Sections 3.1, 3.2 or 3.3 above
may have been or may hereafter be made also has any
one or more of such contracts with one or more other
partnerships, corporations, trusts, associations or
other organizations, or has other businesses or
interests, shall not affect the validity of any such
contract or disqualify any Shareholder, Trustee or
officer of the Trust from voting upon or executing
the same or create any liability or accountability to
the Trust or its Shareholders.
SECTION 3.5. COMPLIANCE WITH 1940 ACT. Any contract entered
into by the Trust shall be consistent with applicable requirements of the 1940
Act or other applicable law.
ARTICLE IV
LIMITATIONS OF LIABILITY OF SHAREHOLDERS,
TRUSTEES, AND OTHERS
SECTION 4.1. NO PERSONAL LIABILITY OF SHAREHOLDERS, TRUSTEES,
ETC. No Shareholder shall be subject to any personal liability whatsoever to any
Person in connection with Trust Property or the acts, obligations or affairs of
the Trust. No Trustee, officer, employee or agent of the Trust shall be subject
to any personal liability whatsoever to any Persons other than to the Trust or
its Shareholders, in connection with Trust Property or the affairs of the Trust,
save only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard of his duties with respect to such Person; and all such
Persons shall look solely to the Trust Property for satisfaction of claims of
any nature arising in connection with the affairs of
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the Trust. If any Shareholder, Trustee, officer, employee, or agent, as such, of
the Trust is made a party to any suit or Proceeding to enforce any such
liability of the Trust, he shall not, on account thereof, be held to any
personal liability. The Trust shall indemnify and hold each Shareholder harmless
From and against all claims and liabilities, to which such Shareholder may
become subject by reason of his being or having been a Shareholder, and shall
reimburse such Shareholder for all legal and other expenses reasonably incurred
by him in connection with any such claim or liability, provided that any such
expenses shall be paid solely out of the funds and property of the series of the
Trust with respect to which such Shareholder's Shares are issued. The rights
accruing to a Shareholder under this Section 4.1 shall not exclude any other
right to which such Shareholder may be lawfully entitled, nor shall anything
herein contained restrict the right of the Trust to indemnify or reimburse a
Shareholder in any appropriate situation even though not specifically provided
for herein.
SECTION 4.2. NON-LIABILITY OF TRUSTEES, ETC. No Trustee,
officer, employee or agent of the Trust shall be liable to the Trust, its
Shareholders, or to any Shareholder, Trustee, officer, employee, agent or
service provider thereof for any action or failure to act by him (her) or any
other such Trustee, officer, employee, agent or service provider (including
without limitation the failure to compel in any way any former or acting Trustee
to redress any breach of trust) except for his own bad faith, willful
misfeasance, gross negligence or reckless disregard of the duties involved in
the conduct of his office. The term "service provider," as used in this Section
4.2, shall include any investment adviser, principal underwriter, transfer agent
or other person with whom the Trust has an agreement for provision of services.
SECTION 4.3. MANDATORY INDEMNIFICATION.
(a) Subject to the exceptions and limitations contained in
paragraph (b) below:
(i) every person who is, or has been, a Trustee or officer of
the Trust shall be indemnified by the Trust to the fullest
extent permitted by law against all 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
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appeals), actual or threatened; 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
Trustee or officer:
(i) against any liability to the Trust or the Shareholders by
reason of a final adjudication by the court or other body
before which the proceeding was brought that he engaged in
willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his office;
(ii) with respect to any matter as to which he shall have been
finally adjudicated not to have acted in good faith in the
reasonable belief that his action was in the best interest of
the Trust;
(iii) in the event of a settlement or other disposition not
involving a final adjudication as provided in paragraph (b)(i)
resulting in a payment by a Trustee or officer, 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 or other disposition; or
(B) based upon a review of readily available facts
(as opposed to a full trial-type inquiry) by (1) vote
of a majority of the Disinterested Trustees acting on
the matter (provided that a majority of the
Disinterested Trustees then in office act on the
matter) or (2) written opinion of independent legal
counsel.
(c) To the extent permitted by law, the rights of indemnification
herein provided may be insured against by policies maintained by the Trust,
shall be severable, shall not affect any other rights to which any Trustee or
officer may now or hereafter be entitled, shall continue as to a person who has
ceased to be such Trustee or officer and shall inure to the benefit of the
heirs, executors, administrators and assigns of such a person. Nothing contained
herein shall affect any rights to indemnification to which personnel of the
Trust other than Trustees and officers may be entitled by contract or otherwise
under law.
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(d) Expenses of preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in paragraph (a) of this
Section 4.3 may be advanced by the Trust prior to final disposition thereof upon
receipt of an undertaking by or on behalf of the recipient to repay such amount
if it is ultimately determined that he is not entitled to indemnification under
this Section 4.3, provided that either:
(i) such undertaking is secured by a surety bond or some other
appropriate security provided by the recipient, or the Trust
shall be insured against losses arising out of any such
advances; or
(ii) a majority of the Disinterested Trustees acting on the
matter (provided that a majority of the Disinterested Trustees
act on the matter) or an independent legal counsel in a
written opinion shall determine, based upon a review of
readily available facts (as opposed to a full trial-type
inquiry), there is reason to believe that the recipient
ultimately will be found entitled to indemnification.
As used in this Section 4.3, a "Disinterested Trustee" is one
who is not (i) an "Interested Person" of the Trust (including
anyone who has been exempted from being an "Interested Person"
by any rule, regulation or order of the Commission), or (ii)
involved in the claim, action, suit or proceeding.
SECTION 4.4. NO BOND REQUIRED OF TRUSTEES. No Trustee
shall be obligated to give any bond or other security for the
performance of any of his duties hereunder.
SECTION 4.5. NO DUTY OF INVESTIGATION; NOTICE IN TRUST
INSTRUMENTS, ETC. No purchaser, lender, transfer agent or other Person dealing
with the Trustees or any officer, employee or agent of the Trust shall be bound
to make any inquiry concerning the validity of any transaction purporting to be
made by the Trustees or by said officer, employee or agent or be liable for the
application of money or property paid, loaned, or delivered to or on the order
of the Trustees or of said officer, employee or agent. Every obligation,
contract, instrument, certificate, Share, other security of the Trust or
undertaking, and every other act or thing whatsoever executed in connection with
the Trust shall be conclusively presumed to have been executed or done by the
executors thereof only in their capacity as Trustees under this Declaration or
in their capacity as officers, employees or agents of the Trust. Every written
obligation, contract, instrument, certificate, Share, other security of the
Trust or undertaking made or issued by the Trustees may recite that the same is
executed or made by them not individually, but as Trustees under the
Declaration, and that the obligations of
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the Trust under any such instrument are not binding upon any of the Trustees or
Shareholders individually, but bind only the estate of the Trust or series, as
applicable, and may contain any further recital which they or he may deem
appropriate, but the omission of such recital shall not operate to bind the
Trustees individually. The Trustees may maintain insurance for the protection of
the Trust Property, its Shareholders, Trustees, officers, employees and agents
in such amount as the Trustees shall deem adequate to cover possible tort
liability, and such other insurance as the Trustees in their sole judgment shall
deem advisable.
SECTION 4.6. RELIANCE ON EXPERTS, ETC. Each Trustee and
officer or employee of the Trust shall, in the performance of his duties, be
fully and completely justified and protected with regard to any act or any
failure to act resulting from reliance in good faith upon the books of account
or other records of the Trust, upon an opinion of counsel, or upon reports made
to the Trust by any of its officers or employees or by the Investment Adviser,
the Distributor, Transfer Agent, selected dialers, accountants, appraisers or
other experts or consultants selected with reasonable care by the Trustees,
officers or employees of the Trust, regardless of whether such counsel or expert
may also be a Trustee.
ARTICLE V
SHARES OF BENEFICIAL INTEREST
SECTION 5.1. BENEFICIAL INTEREST. The interest of the
beneficiaries hereunder shall be divided into transferable Shares of beneficial
interest of $0.001 par value per share. All Shares shall be of one class, except
as provided in Section 5.11 hereof. The number of shares of beneficial interest
authorized hereunder is unlimited. All Shares issued hereunder including,
without limitation, Shares issued in connection with a dividend in Shares or a
split of Shares, shall be fully paid and non-assessable.
SECTION 5.2. RIGHTS OF SHAREHOLDERS. The ownership of the
Trust Property and the property of each series of the Trust of every description
and the right to conduct any business hereinbefore described are vested
exclusively in the Trustees, and the Shareholders shall have no interest therein
other than the beneficial interest conferred by their Shares, and they shall
have no right to call for any partition or division of any property, profits,
rights or interests of the Trust nor can they be called upon to share or assume
any losses of the Trust or suffer an assessment of any kind by virtue of their
ownership of Shares. The Shares shall be personal property giving only the
rights in this Declaration specifically set forth. The Shares shall not entitle
the holder to preference, preemptive,
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appraisal, conversion or exchange rights, except as the Trustees may determine
with respect to any series of Shares.
SECTION 5.3. TRUST ONLY. It is the intention of the Trustees
to create only the relationship of trustee and beneficiary between the Trustees
and each Shareholder from time to time. It is not the intention of the Trustees
to create a general partnership, limited partnership, joint stock association,
corporation, bailment or any form of legal relationship other than a trust.
Nothing in this Declaration of Trust shall be construed to make the
Shareholders, either by themselves or with the Trustees, partners or members of
a joint stock association.
SECTION 5.4. ISSUANCE OF SHARES. The Trustees in their
discretion may, from time to time without vote of the Shareholders, issue
Shares, in addition to the then issued and outstanding Shares and Shares held in
the treasury, to such party or parties and for such amount and type of
consideration, including cash or property, at such time or times and on such
terms as the Trustees may deem best, and may in such manner acquire other assets
(including the acquisition of assets subject to, and in connection with the
assumption of liabilities) and businesses. In connection with any issuance of
Shares, the Trustees may issue fractional Shares and Shares held in the
treasury, and Shares may be issued in separate series as provided in Section
5.11 hereof. The Trustees may from time to time divide or combine the Shares
into a greater or lesser number without thereby changing the proportionate
beneficial interests in the Trust or any series. Contributions to the Trust may
be accepted for, and Shares shall be redeemed as, whole Shares and/or 1/1,000ths
of a Share or integral multiples thereof. The Trustees, the Distributor or any
other person the Trustees may authorize for the purpose may, in their
discretion, reject any application for the issuance of Shares.
SECTION 5.5. REGISTER OF SHARES. A register shall be kept at
the principal office of the Trust or an office of the Transfer Agent which shall
contain the names and addresses of the Shareholders and the number of Shares
held by them respectively and a record of all transfers thereof. Such register
shall be conclusive as to who are the holders of the Shares and who shall be
entitled to receive dividends or distributions or otherwise to exercise or enjoy
the rights of Shareholders. No Shareholder shall be entitled to receive payment
of any dividend or distribution, nor to have notice given to him as herein or in
the By-laws provided, until he has given his address to the Transfer Agent or
such other officer or agent of the Trustees as shall keep the said register for
entry thereon. It is not contemplated that certificates will be issued for the
Shares; however, the Trustees, in their discretion, may authorize the issuance
of share certificates and promulgate appropriate rules and
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regulations as to their use.
SECTION 5.6. TRANSFER OF SHARES. Shares shall be transferable
on the records of the Trust only by the record holder thereof or by his agent
thereunto duly authorized in writing, upon delivery to the Trustees or the
Transfer Agent of a duly executed instrument of transfer, together with such
evidence of the genuineness of each such execution and authorization and of
other matters as may reasonably be required. Upon such delivery the transfer
shall be recorded on the register of the Trust. Until such record is made, the
Shareholder of record shall be deemed to be the holder of such Shares for all
purposes hereunder and neither the Trustees nor any Transfer Agent or registrar
nor any officer, employee or agent of the Trust shall be affected by any notice
of the proposed transfer.
Any Person becoming entitled to any Shares in consequence of
the death, bankruptcy, or incompetence of any Shareholder, or otherwise by
operation of law, shall be recorded on the register of Shares as the holder of
such Shares upon production of the proper evidence thereof to the Trustees or
the Transfer Agent, but until such record is made, the Shareholder of record
shall be deemed to be the holder of such Shares for all purposes hereunder and
neither the Trustees nor any Transfer Agent or registrar nor any officer or
agent of the Trust shall be affected by any notice of such death, bankruptcy or
incompetence, or other operation of law.
SECTION 5.7. NOTICES. Any and all notices to which any
Shareholder may be entitled and any and all communications shall be deemed duly
served or given if mailed, postage prepaid, addressed to any Shareholder of
record at his last known address as recorded on the register of the Trust.
SECTION 5.8. TREASURY SHARES. Charts held in the treasury
shall, until reissued pursuant to Section 5.4, not confer any voting rights on
the Trustees, nor shall such Shares be entitled to any dividends or other
distributions declared with respect to the Shares.
SECTION 5.9. VOTING POWERS. The Shareholders shall have power
to vote only (i) for the election of Trustees as provided in Section 2.12; (ii)
with respect to any investment advisory or investment management contract
entered into pursuant to Section 3.2; (iii) with respect to termination of the
Trust as provided in Section 8.2; (iv) with respect to any amendment of this
Declaration to the extent and as provided in Section 8.3; (v) with respect to
any merger, consolidation or sale of assets as provided in Section 8.4; (vi)
with respect to incorporation of the Trust to the extent and as provided in
Section 8.5; (vii) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court action, proceeding or
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claim should or should not be brought or maintained derivatively or as a class
action on behalf of the Trust or the Shareholders; and (viii) with respect to
such additional matters relating to the Trust as may be required by this
Declaration, the By-laws or any registration of the Trust as an investment
company under the 1940 Act with the Commission (or any successor agency) or as
the Trustees may consider necessary or desirable. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote and each
fractional Share shall be entitled to a proportionate fractional vote, except
that the Trustees may, in conjunction with the establishment of any series of
Shares, establish conditions under which the several series shall have separate
voting rights or no voting rights. There shall be no cumulative voting in the
election of Trustees. Until Shares are issued, the Trustees may exercise all
rights of Shareholders and may take any action required by law, this Declaration
or the Bylaws to be taken by Shareholders. The By-laws may include further
provisions for Shareholders' votes and meetings and related matters.
SECTION 5.10. MEETINGS OF SHAREHOLDERS. A meeting of the
Shareholders shall be held at such times, on such day and at such hour as the
Trustees may from time to time determine, either at the principal office of the
Trust, or at such other place as may be designated by the Trustees, for the
purposes specified in Section 2.12 or 2.13 and for such other purposes as may be
specified by the Trustees.
SECTION 5.11. SERIES DESIGNATION. The Trustees, in their
discretion, may authorize the division of Shares into two or more series, and
the different series shall be established and designated, and the variations in
the relative rights and preferences as between the different series shall be
fixed and determined, by the Trustees; provided, that all Shares shall be
identical except for such variations as shall be fixed and determined by the
Trustees and set forth in the Trust's then current registration statement, and
the reasonable consequences of such variations. All references to Shares in this
Declaration shall be deemed to be Shares of any or all series as the context may
require.
If the Trustees shall divide the Shares of the Trust into two
or more series, the following provisions shall be applicable:
(a) All provisions herein relating to the Trust shall apply
equally to each series of the Trust except as the context requires otherwise.
(b) The number of authorized Shares and the number of
Shares of each series that may be issued shall be unlimited. The
Trustees may classify or reclassify any unissued Shares or any
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Shares previously issued and reacquired of any series into one or more series
that may be established and designated from time to time. The Trustees may hold
as treasury shares (of the same or some other series), reissue for such
consideration and on such terms as they may determine, or cancel any Shares of
any series reacquired by the Trust at their discretion from time to time.
(c) All consideration received by the Trust for the issue or
sale of Shares of a particular series, together with all assets in which such
consideration is invested or reinvested, all income, earnings, profits, and
proceeds thereof, including any proceeds derived from the sale, exchange or
liquidation of such assets, and any funds or payments derived from any
reinvestment of such proceeds in whatever form the same may be, shall
irrevocably belong to that series for all purposes, subject only to the rights
of creditors of such series and except as may otherwise be required by
applicable tax laws, and shall be so recorded upon the books of account of the
Trust. in the event that there are any assets, income, earnings, profits, and
proceeds thereof, funds, or payments which are not readily identifiable as
belonging to any particular series, the Trustees shall allocate them among any
one or more of the series established and designated from time to time in such
manner and on such basis as they, in their sole discretion, deem fair and
equitable. Each such allocation by the Trustees shall be conclusive and binding
upon all persons for all purposes.
(d) The assets belonging to each particular series shall be
charged with the liabilities of the Trust in respect of that series and all
expenses, costs, charges and reserves attributable to that series, and any
general liabilities, expenses, costs, charges or reserves of the Trust which are
not readily identifiable as belonging to any particular series shall be
allocated and charged by the Trustees to and among any one or more of the series
established and designated from time to time in such manner and on such basis as
the Trustees in their sole discretion deem fair and equitable and no series
shall be liable to any person except for its allocated share. Each allocation of
liabilities, expenses, costs, charges and reserves by the Trustees shall be
conclusive and binding upon all persons for all purposes. The Trustees shall
have full discretion, to the extent not inconsistent with the 1940 Act, to
determine which items are capital; and each such determination and allocation
shall be conclusive and binding upon all persons. All persons extending credit
to, or contracting with or having any claim against a particular series of the
Trust shall look only to the assets of that particular series for payment of
such credit, contract or claim.
(e) Each Share of a series of the Trust shall
represent a beneficial interest in the net assets of such series.
Each holder of Shares of a series shall be entitled to receive
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his pro rata share of distributions of income and capital gains made with
respect to such series. Upon redemption of his Shares or indemnification for
liabilities incurred by reason of his being or having been a Shareholder of a
series, such Shareholder shall be paid solely out of the funds and property of
such series of the Trust. Upon liquidation or termination of a series of the
Trust, Shareholders of such series shall be entitled to receive a pro rata share
of the net assets of such series. A Shareholder of a particular series of the
Trust shall not be entitled to participate in a derivative or class action on
behalf of any other series or the Shareholders of any other series of the Trust.
(f) Notwithstanding any other provision hereof, on any matter
submitted to a vote of Shareholders of the Trust, all Shares then entitled to
vote shall be voted in the aggregate, except that (1) when required by the 1940
Act, Shares shall be voted by individual series and not in the aggregate, and
(2) when the Trustees have determined that the matter affects only the interests
of Shareholders of a limited number of series, then only the Shareholders of
such series shall be entitled to vote thereon.
The establishment and designation of any series of Shares
shall be effective upon the execution by a majority of the Trustees of an
instrument setting forth such establishment and designation and the relative
rights and preferences of such series, or as otherwise provided in such
instrument. At any time that there are no Shares outstanding of any particular
series previously established and designated, the Trustees may by an instrument
executed by a majority of their number abolish that series and the establishment
and designation thereof. Each instrument referred to in this paragraph shall
have the status of an amendment to this Declaration.
SECTION 5.12. POWER OF TRUSTEES TO CHANGE PROVISIONS RELATING
TO SHARES. Notwithstanding any other provision of this Declaration of Trust and
without limiting the power of the Trustees to amend the Declaration of Trust as
provided elsewhere herein, the Trustees shall have the power to amend this
Declaration of Trust, at any time and from time to time, in such manner as the
Trustees may determine in their sole discretion, without the need for
Shareholder action, so as to add to, delete, replace or otherwise modify any
provisions relating to the Shares contained in this Declaration of Trust,
provided that before adopting any such amendment without Shareholder approval
the Trustees shall determine that it is consistent with the fair and equitable
treatment of all Shareholders or that Shareholder approval is not otherwise
required by the 1940 Act or other applicable law.
Without limiting the generality of the foregoing, the
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Trustees may, for the above-stated purposes, amend the Declaration of Trust to:
(a) create one or more Series of Shares (in addition to any
Series already existing or otherwise) with such rights and
preferences and such eligibility requirements for investment
therein as the Trustees shall determine and reclassify any or
all outstanding Shares as shares of particular Series in
accordance with such eligibility requirements;
(b) amend any of the provisions set forth in Section
5.11 of this Article V;
(c) combine one or more Series of Shares into a single
Series on such terms and conditions as the Trustees
shall determine;
(d) change or eliminate any eligibility requirements for
investment in Shares of any Series, including without
limitation, to provide for the issue of Shares of any Series
in connection with any merger or consolidation of the Trust
with another Trust or company or any acquisition by the Trust
of part or all of the assets of another trust or investment
company;
(e) change the designation of any Series of Shares;
(f) change the method of allocating dividends among
the various Series of Shares;
(g) allocate any specific assets or liabilities of the
Trust or any specific items of income or expense of the
Trust to one or more Series of Shares;
(h) specifically allocate assets to any or all Series of
Shares or create one or more additional Series of Shares which
are preferred over all other Series of Shares in respect of
assets specifically allocated thereto or any dividends paid by
the Trust with respect to any net income, however determined,
earned from the investment and reinvestment of any assets so
allocated or otherwise and provide for any special voting or
other rights with respect to such Series.
ARTICLE VI
REDEMPTION AND REPURCHASE OF SHARES
SECTION 6.1. REDEMPTION OF SHARES. All Shares of the
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Trust shall be redeemable at the redemption price determined in the manner set
out in this Declaration. Redeemed or repurchased Shares may be resold by the
Trust.
The Trust shall redeem the Shares at the price determined as
hereinafter set forth, upon the appropriately verified written application of
the record holder thereof (or upon such other form of request as the Trustees
may determine) at such office or agency as may be designated from time to time
for that purpose by the Trustees. The Trustees may from time to time specify
additional conditions, not inconsistent with the 1940 Act, regarding the
redemption of Shares in the Trust's then effective registration statement or
prospectus under the Securities Act of 1933.
SECTION 6.2. PRICE. Shares will be redeemed at their net asset
value determined as set forth in Section 7.1 hereof as of such time as the
Trustees shall have theretofore prescribed by resolution. In the absence of such
resolution, the redemption price of Shares deposited shall be the net asset
value of such Shares next determined as set forth in Section 7.1 hereof after
receipt of such application.
SECTION 6.3. PAYMENT. Payment for such Shares shall be made in
cash or in property out of the assets of the relevant series of the Trust to the
Shareholder of record at such time and in the manner, not inconsistent with the
1940 Act or other applicable laws, as may be specified from time to time in the
Trust's then effective registration statement or prospectus under the Securities
Act of 1933, subject to the provisions of Section 6.4 hereof.
SECTION 6.4. EFFECT OF SUSPENSION OF DETERMINATION OF NET
ASSET VALUE. If, pursuant to Section 6.9 hereof, the Trustees shall declare a
suspension of the determination of net asset value, the rights of Shareholders
(including those who shall have applied for redemption pursuant to Section 6.1
hereof but who shall not yet have received payment) to have Shares redeemed and
paid for by the Trust shall be suspended until the termination of such
suspension is declared. Any record holder who shall have his redemption right so
suspended may, during the period of such suspension, by appropriate written
notice of revocation at the office or agency where application was made, revoke
any application for redemption not honored and withdraw any certificates on
deposit. The redemption price of Shares for which redemption applications have
not been revoked shall be the net asset value of such Shares next determined as
set forth in Section 7.1 after the termination of such suspension, and payment
shall be made within seven (7) days after the date upon which the application
was made plus the period after such application during which the determination
of net asset value was suspended.
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SECTION 6.5. REPURCHASE BY AGREEMENT. The Trust may repurchase
Shares directly, or through the Distributor or another agent designated for the
purpose, by agreement with the owner thereof at a price not exceeding the net
asset value per share determined as of the time when the purchase or contract of
purchase is made or the net asset value as of any time which may be later
determined pursuant to Section 7.1 hereof, provided payment is not made for the
Shares prior to the time as of which such net asset value is determined.
SECTION 6.6. REDEMPTION OF SHAREHOLDER'S INTEREST. The Trust
shall have the right at any time to redeem Shares of any Shareholder for their
then current net asset value per Share if at such time the aggregate purchase
price of the Shares owned by the Shareholder is less than $10,000, subject to
such terms and conditions as the Trustees may approve.
SECTION 6.7. REDEMPTION OF SHARES IN ORDER TO QUALIFY AS
REGULATED INVESTMENT COMPANY; DISCLOSURE OF HOLDING. If the Trustees shall, at
any time and in good faith, be of the opinion that direct or indirect ownership
of Shares or other securities of the Trust has or may become concentrated in any
Person to an extent which would disqualify any series of the Trust as a
regulated investment company under the Internal Revenue Code, then the Trustees
shall have the power by lot or other means deemed equitable by them (i) to call
for redemption by any such Person of a number, or principal amount, of Shares or
other securities of the Trust sufficient to maintain or bring the direct or
indirect ownership of Shares or other securities of the Trust into conformity
with the requirements for such qualification and (ii) to refuse to transfer or
issue Shares or other securities of the Trust to any Person whose acquisition of
the Shares or other securities of the Trust in question would result in such
disqualification. The redemption shall be effected at the redemption price and
in the manner provided in Section 6.1.
The holders of Shares of the Trust shall upon demand disclose
to the Trustees in writing such information with respect to direct and indirect
ownership of Shares of the Trust as the Trustees may deem necessary to comply
with the provisions of the Internal Revenue Cods, or to comply with the
requirements of any other taxing authority.
SECTION 6.8. REDUCTIONS IN NUMBER OF OUTSTANDING SHARES
PURSUANT TO NET ASSET VALUE FORMULA. The Trust may also reduce the number of
outstanding Shares pursuant to the provisions of Section 7.3.
SECTION 6.9. SUSPENSION OF RIGHT OF REDEMPTION. The
Trustees may adopt procedures under which the Trust may declare a
suspension of the right of redemption or postpone the date of
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payment or redemption for the whole or any part of any period (i) during which
the New York Stock Exchange is closed other than customary weekend and holiday
closings, (ii) during which trading on the New York Stock Exchange is
restricted, (iii) during which an emergency exists as a result of which disposal
by the Trust of securities owned by it is not reasonably practicable or it is
not reasonably practicable for the Trust fairly to determine the value of its
net assets, or (iv) during any other period when the Commission may for the
protection of security holders of the Trust by order permit suspension of the
right of redemption or postponement of the date of payment or redemption;
provided that applicable rules and regulations of the Commission shall govern as
to whether the conditions prescribed in (ii), (iii), or (iv) exist. To the
extent permitted by the Commission, (i) and (ii) above may be expanded to
include other securities exchanges. Such suspension shall take effect at such
time as the Trust shall specify and there shall be no right of redemption or
payment on redemption until the Trust shall declare the suspension at an end.
ARTICLE VII
DETERMINATION OF NET ASSET VALUE,
NET INCOME AND DISTRIBUTIONS
SECTION 7.1. NET ASSET VALUE. The value of the assets of any
series of the Trust shall be determined by appraisal of the securities allocated
to such series, such appraisal to be on the basis of the market value of such
securities or, consistent with the rules and regulations of the Commission, by
such other method as shall be deemed to reflect the fair value thereof,
determined in good faith by or under the direction of the Trustees. Money market
instruments with remaining maturities of less than sixty days shall be valued on
an amortized cost basis. From the total value of said assets, there shall be
deducted all indebtedness, interest, taxes, payable or accrued, including
estimated taxes on unrealized book profits, expenses and management charges
accrued to the appraisal date, net income determined and declared as a
distribution and all other items in the nature of liabilities attributable to
such series which shall be deemed appropriate. The resulting amount which shall
represent the total net assets of the series shall be divided by the number of
Shares of such series outstanding at the time and the quotient so obtained shall
be deemed to be the net asset value of the Shares of such series (which may be
rounded to the nearest whole cent). The net asset value of the Shares shall be
determined at least once daily on such days and in accordance with the
requirements provided for in applicable rules of the Commission, at such time or
times as the Trustees shall determine. The power and duty to make the daily
calculations may
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be delegated by the Trustees to the Investment Advisor, the Custodian, the
Administrator, the Transfer Agent or such other Person as the Trustees may
determine. The Trustees may suspend the daily determination of net asset value
to the extent permitted by the 1940 Act.
SECTION 7.2. DISTRIBUTIONS TO SHAREHOLDERS. The Trustees shall
from time to time distribute ratably among the Shareholders of a series such
proportion of the net profits, surplus (including paid-in surplus), capital, or
assets of such series held by the Trustees as they may deem proper. Such
distributions may be made in cash or property (including without limitation any
type of obligations of such series or any assets thereof), and the Trustees may
distribute ratably among the Shareholders additional Shares of such series
issuable hereunder in such manner, at such times, and on such terms as the
Trustees may deem proper. Such distributions may be among the Shareholders of
record at the time of declaring a distribution or among the Shareholders of
record at such other date or time or dates or times as the Trustees shall
determine. The Trustees may in their discretion determine that, solely for the
purposes of such distributions, Outstanding Shares shall exclude Shares for
which orders have been placed subsequent to a specified time on the date the
distribution is declared or on the next preceding day if the distribution is
declared as of a day on which the Transfer Agent for the Trust or applicable
series is not open for business. The Trustees may always retain from the net
profits such amount as they may deem necessary to pay the debts or expenses of
the series or to meet obligations of the series, or as they may deem desirable
to use in the conduct of its affairs or to retain for future requirements or
extensions of the business. The Trustees may adopt and offer to Shareholders
such dividend reinvestment plans, cash dividend payout plans or related plans as
the Trustees shall deem appropriate.
Inasmuch as the computation of net income and gains for
Federal income tax purposes may vary from the computation thereof on the books,
the above provisions shall be interpreted to give the Trustees the power in
their discretion to distribute for any fiscal year as ordinary dividends and as
capital gains, distributions, respectively, additional or lesser amounts
sufficient to enable the Trust or the series to avoid or reduce liability for
taxes.
SECTION 7.3. DETERMINATION OF NET INCOME. The net income of
any series may consist of (i) all dividend and interest income accrued on
portfolio assets of the series, less (ii) all actual and accrued liabilities
determined in accordance with generally accepted accounting principles and plus
or minus (iii) net realized or net unrealized gains and losses on the assets of
the series. Interest income may include discount earned (including both original
issue and market discount) on discount
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paper accrued ratably to the date of maturity or determined in such other manner
as the Trustees may determine. Expenses of the series, including the advisory or
management fee, shall be accrued each day. Such net income may be determined by
or under the direction of the Trustees as of such time or times as the Trustees
shall determine, and all the net income of the series, so determined, may be
declared as a dividend on the Outstanding Shares of such series. If, for any
reason, the net income of the series determined at any time is a negative
amount, the Trustees shall have the power (i) to offset each Shareholder's pro
rata share of such negative amount from the accrued dividend account of such
Shareholders or (ii) to reduce the number of outstanding Shares of the series by
reducing the number of Shares in the account of such Shareholder by that number
of full and fractional Shares which represents the amount of such excess
negative net income, or (iii) to cause to be recorded on the books of the series
an asset account in the amount of such negative net income, which account may be
reduced by the amount, provided that the same shall thereupon become the
property of the series and shall not be paid to any Shareholder, of dividends
declared thereafter upon the Outstanding Shares on the day such negative net
income is experienced, until such asset account is reduced to zero; or (iv) to
combine the methods described in clauses (i) and (ii) and (iii) of this
sentence, in order to cause the net asset value per Share of the series to
remain at a constant amount per Outstanding Share immediately after each such
determination and declaration. The Trustees shall also have the power to omit to
declare a dividend out of net income for the purpose of causing the net asset
value per Share of the series to be increased to a constant amount. The Trustees
shall not be required to adopt, but may at any time adopt, discontinue or amend
a practice of maintaining the net asset value per Share of a series at a
constant amount, in accordance with applicable rules under the 1940 Act.
SECTION 7.4. ALLOCATION BETWEEN PRINCIPAL AND INCOME. The
Trustees shall have full discretion to determine whether any cash or property
received shall be treated as income or as principal and whether any item of
expense shall be charged to the income or the principal account, and their
determination made in good faith shall be conclusive. In the case of stock
dividends received, the Trustees shall have full discretion to determine, in the
light of the particular circumstances, how much if any of the value thereof
shall be treated as income, the balance, if any, to be treated as principal.
SECTION 7.5. POWER TO MODIFY FOREGOING PROCEDURES.
Notwithstanding any of the foregoing provisions of this Article VII, the
Trustees may prescribe, in their absolute discretion, such other bases and times
for determining the per Share net asset value of the series' Shares or net
income, or the declaration and payment of dividends and distributions as they
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may deem necessary or desirable.
ARTICLE VIII
DURATION; TERMINATION OF TRUST;
AMENDMENT; MERGERS, ETC.
SECTION 8.1. DURATION. The Trust or any series of the
Trust shall continue without limitation of time but subject to
the provisions of this Article VIII.
SECTION 8.2. TERMINATION OF TRUST OR SERIES OF THE TRUST. (a)
The Trust or any series of the Trust may be terminated by the affirmative vote
of the holders of not less than two-thirds of the Shares outstanding and
entitled to vote, at any meeting of Shareholders or by an instrument in writing,
without a meeting, signed by a majority of the Trustees and consented to by the
holders of not less than two-thirds of such Shares, or by such other vote as may
be established by the Trustees with respect to any series of Shares. Upon the
termination of the Trust or any series of the Trust,
(i) The Trust or the series of the Trust shall carry on no
business except for the purpose of winding up its affairs.
(ii) The Trustees shall proceed to wind up the affairs of the
Trust or the series of the Trust and all of the powers of the
Trustees under this Declaration shall continue until the
affairs of the Trust or the series of the Trust shall have
been wound up, including the power to fulfill or discharge the
contracts of the Trustees on behalf of the Trust or any series
of the Trust, collect its assets, sell, convoy, assign,
exchange, transfer or otherwise dispose of all or any part of
the remaining Trust Property or property of the series of the
Trust to one or more persons at public or private sale for
consideration which may consist in whole or in part of cash,
securities or other property of any kind, discharge or pay its
liabilities, and do all other acts appropriate to liquidate
its business; provided that any sale, conveyance, assignment,
exchange, transfer or other disposition of all or
substantially all the Trust Property or property of the series
of the Trust shall require Shareholder approval in accordance
with Section 8.4 hereof.
(iii) After paying or adequately providing for the
payment of all liabilities, and upon receipt of such
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releases, indemnities and refunding agreements as they deem
necessary for their protection, the Trustees may distribute
the remaining Trust Property, in cash or in kind or partly
each, among the Shareholders according to their respective
rights.
(b) After termination of the Trust or any series of the Trust
and distribution to the Shareholders as herein provided, a majority of the
Trustees shall execute and lodge among the records of the Trust or the series of
the Trust an instrument in writing setting forth the fact of such termination,
and the Trustees shall thereupon be discharged from all further liabilities and
duties hereunder, and the rights and interests of all Shareholders shall
thereupon cease.
SECTION 8.3. AMENDMENT PROCEDURE. (a) This Declaration may be
amended by a vote of the holders of a majority of the Shares outstanding and
entitled to vote or by any instrument in writing, without a meeting, signed by a
majority of the Trustees and consented to by the holders of a majority of the
Shares outstanding and entitled to vote. The Trustees may also amend this
Declaration without the vote or consent of Shareholders to change the name of
the Trust, to supply any omission, to cure, correct or supplement any ambiguous,
defective or inconsistent provision hereof, or if they deem it necessary to
conform this Declaration to the requirements of applicable state or federal laws
or regulations or the requirements of the regulated investment company
provisions of the Internal Revenue Code, but the Trustees shall not be liable
for failing so to do.
(b) No amendment may be made under this Section 8.3 which
would change any rights with respect to any Shares of the Trust by reducing the
amount payable thereon upon liquidation of the Trust or by diminishing or
eliminating any voting rights pertaining thereto, except with the vote or
consent of the holders of two-thirds of the Shares outstanding and entitled to
vote, or by such other vote as may be established by the Trustees with respect
to any series of Shares. Nothing contained in this Declaration shall permit the
amendment of this Declaration to impair the exemption from personal liability of
the Shareholders, Trustees, officers, employees and agents of the Trust or to
permit assessments upon Shareholders.
(c) A certificate signed by a majority of the Trustees setting
forth an amendment and reciting that it was duly adopted by the Shareholders or
by the Trustees as aforesaid or a copy of the Declaration, as amended, and
executed by a majority of the Trustees, shall be conclusive evidence of such
amendment when lodged among the records of the Trust.
Notwithstanding any other provision hereof, until such time as
a Registration Statement under the Securities Act of
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1933, as amended, covering the first public offering of securities of the Trust
shall become effective, this Declaration may be terminated or amended in any
respect by the affirmative vote of a majority of the Trustees or by an
instrument signed by a majority of the Trustees.
SECTION 8.4. MERGER, CONSOLIDATION AND SALE OF ASSETS. The
Trust may with respect to the Trust or with respect to any Series of the Trust
merge or consolidate with any other corporation, association, trust or other
organization or may sell, lease or exchange all or substantially all of the
Trust Property, including its good will, upon such terms and conditions and for
such consideration when and as authorized at any meeting the Shares outstanding
and entitled to vote, or by an instrument or instruments in writing without a
meeting, consented to by the holders of two-thirds of the Shares or by such
other vote as may be established by the Trustees with respect to any series of
Shares; provided, however, that, if such merger, consolidation, sale, lease or
exchange is recommended by the Trustees, the vote or written consent of the
holders of a majority of the Shares outstanding and entitled to vote, or such
other vote or written consent as may be established by the Trustees with respect
to any series of Shares, shall be sufficient authorization; and any such merger,
consolidation, sale, lease or exchange shall be deemed for all purposes to have
been accomplished under and pursuant to the statutes of the Commonwealth of
Massachusetts.
SECTION 8.5. INCORPORATION. With the approval of the holders
of a majority of the Shares outstanding and entitled to vote, or by such other
vote as may be established by the Trustees with respect to any series of Shares,
the Trustees may cause to be organized or assist in organizing a corporation or
corporations under the laws of any jurisdiction or any other trust, partnership,
association or other organization to take over all of the Trust Property or to
carry on any business in which the Trust shall directly or indirectly have any
interest, and to sell, convey and transfer the Trust Property to any such
corporation, trust, association or organization in exchange for the Shares or
securities thereof or otherwise, and to lend money to, subscribe for the Shares
or securities of, and enter into any contracts with any such corporation, trust,
partnership, association or organization, or any corporation, partnership,
trust, association or organization in which the Trust holds or is about to
acquire shares or any other interest. The Trustees may also cause a merger or
consolidation between the Trust or any successor thereto and any such
corporation, trust, partnership, association or other organization if and to the
extent permitted by law, as provided under the law then in effect. Nothing
contained herein shall be construed as requiring approval of Shareholders for
the Trustees to organize or assist in organizing one or more corporations,
trusts, partnerships, associations or other organizations and selling, conveying
or transferring a
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portion of the Trust Property for value to such organizations or
entities.
ARTICLE IX
REPORTS TO SHAREHOLDERS
The Trustees shall at least semiannually submit to the
Shareholders a written financial report, which may be included in the Trust's
prospectus, of the transactions of the Trust, including financial statements
which shall at least annually be certified by independent public accountants.
ARTICLE X
MISCELLANEOUS
SECTION 10.1. FILING. This Declaration and any amendment
hereto shall be filed in the office of the Secretary of the Commonwealth of
Massachusetts and in such other places as may be required under the laws of
Massachusetts and may also be filed or recorded in such other places as the
Trustees deem appropriate. Each amendment so filed shall be accompanied by a
certificate signed and acknowledged by a Trustee stating that such action was
duly taken in a manner provided herein, and unless such amendment or such
certificate sets forth some later time for the effectiveness of such amendment,
such amendment shall be effective upon execution. A restated Declaration,
integrating into a single instrument all of the provisions of the Declaration
which are then in effect and operative, may be executed from time to time by a
majority of the Trustees and shall, upon filing with the Secretary of the
Commonwealth of Massachusetts, be conclusive evidence of all amendments
contained therein and may hereafter be referred to in lieu of the original
Declaration and the various amendments thereto.
SECTION 10.2. GOVERNING LAW. This Declaration is executed by
the Trustees and delivered in the Commonwealth of Massachusetts and with
reference to the laws thereof, and the rights of all parties and the validity
and construction of every provision hereof shall be subject to and construed
according to the laws of said State.
SECTION 10.3. COUNTERPARTS. This Declaration may be
simultaneously executed in several counterparts, each of which shall be deemed
to be an original, and such counterparts, together, shall constitute one and the
same instrument, which shall be sufficiently evidenced by any such original
counterpart.
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SECTION 10.4. RELIANCE BY THIRD PARTIES. Any certificate
executed by an individual who, according to the records of the Trust appears to
be a Trustee hereunder, certifying to: (a) the number or identity of Trustees or
Shareholders, (b) the due authorization of the execution of any instrument or
writing, (c) the form of any vote passed at a meeting of Trustees or
Shareholders, (d) the fact that the number of Trustees or Shareholders present
at any meeting or executing any written instrument satisfies the requirements of
this Declaration, (e) the form of any By-laws adopted by or the identity of any
officers elected by the Trustees, or (f) the existence of any fact or facts
which in any manner relate to the affairs of the Trust, shall be conclusive
evidence as to the matters so certified in favor of any Person entitled to rely
upon such certificates in dealing with the Trustees and their successors.
SECTION 10.5. PROVISIONS IN CONFLICT WITH LAW OR REGULATIONS.
(a) The provisions of this Declaration are severable, and if the Trustees shall
determine, with the advice of counsel, that any of such provisions is in
conflict with the 1940 Act, the Internal Revenue Code or with other applicable
laws and regulations, the conflicting provision shall be deemed never to have
constituted a part of this Declaration; provided, however, that such
determination shall not affect any of the remaining provisions of this
Declaration or render invalid or improper any action taken or omitted prior to
such determination.
(b) If any provision of this Declaration shall be held invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
attach only to such provision in such jurisdiction and shall not in any manner
affect such provisions in any other jurisdiction or any other provision of this
Declaration in any jurisdiction.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this instrument this
__ day of July, 1987.
/S/ EDMUND A. HAJIM
Edmund A. Hajim
As trustee, not individually
On this __ day of July, in the year 1987, before me,
____________________, a notary public, personally appeared Edmund A. Hajim (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to this instrument, and acknowledged that he executed it.
Notary Public
SEAL
My commission expires:
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
instrument this __ day of July, 1987.
/S/ ALAN S. PARSOW
Alan S. Parsow
As trustee, not individually
On this __ day of July, in the year 1987, before me,
_______________, a notary public, personally appeared Alan S. Parsow (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to this instrument, and acknowledged that he executed it.
Notary Public
SEAL
My commission expires:
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
instrument this _________ day of July, 1987.
/S/ LARRY M. ROBBINS
Larry M. Robbins
As trustee, not individually
On this ____ day of July, in the year 1987, before me,
____________ , a notary public, personally appeared Larry M. Robins (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to this instrument, and acknowledged that he executed it.
Notary Public
SEAL
My commission expires:
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
instrument this __ day of July, 1987.
/S/ MICHAEL SEELY
Michael Seely
As trustee, not individually
On this __ day of July, in the year 1987, before me,
________________, a notary public, personally appeared Michael Seely (or proved
to me on the basis of satisfactory evidence) to be the person whose name is
subscribed to this instrument, and acknowledged that he executed it.
Notary Public
SEAL
My commission expires:
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<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this
instrument this ___ day of July, 1987.
/S/ ROBERT H. WADSWORTH
Robert H. Wadsworth
As trustee, not individually
On this ____ day of July, in the year 1987, before me,
______________, a notary public, personally appeared Robert H. Wadsworth (or
proved to me on the basis of satisfactory evidence) to be the person whose name
is subscribed to this instrument, and acknowledged that he executed it.
Notary Public
SEAL
My commission expires:
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<PAGE>
FUNDTRUST
Establishment and Designation
of Additional Series of Shares of Beneficial
Interest, Par Value $O.OO1 Per Share
RESOLVED, that pursuant to Section 5.11(f) of the Declaration of Trust of
FundTrust dated April 22, 1987, as amended and restated on July 1, 1987
("Declaration"), the shares of beneficial interest of the Trust shall be divided
into an additional separate series (the "Series");
RESOLVED FURTHER, that the Series shall have the following special and
relative rights:
1. The Series shall be designated "FundTrust Managed
Total Return Fund."
2. The Series shall be authorized to invest in cash,
securities, instruments and other property as from time to time
described in the Trust's then currently effective prospectuses and
registration statement under the Securities Act of 1933. Each share of
beneficial interest of the Series ("Share") shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional
Share) on matters on which Shares of the Series shall be entitled to
vote, shall represent a pro rata beneficial interest in the assets
allocated to the Series, and shall be entitled to receive its pro rata
share of net assets of the Series upon liquidation of the Series, all
as provided in the Declaration.
3. Shareholders of the Series shall vote separately as a class
on any matter, except to the extent required by the Investment Company
Act of 1940 or when the Trustees have determined that the matter
affects only the interests of Shareholders of such Series, then only
the Shareholders of such Series shall be entitled to vote thereon. Any
matter shall be deemed to have been effectively acted upon with respect
to any Series as provided in Rule 18f-2 under such Act or any successor
rule and in the Declaration.
4. The assets and liabilities of the Trust shall be allocated
among the series of the Trust as set forth in Section 5.11 of the
Declaration, except that the Series shall bear its allocable portion of
the remaining unamortized costs incurred and payable by the Trust in
connection with its organization and registration; costs of
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<PAGE>
establishing each additional series and of the registration and public
offering of its Shares shall be amortized for each such series over the
period beginning on the date such costs become payable and ending sixty
months thereafter.
5. The Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter
created, or to otherwise change the special and relative rights of any
such series, provided that such change shall not adversely affect the
rights of the Shareholders of such series.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 12th
day of January, 1988.
/S/ EDMUND A. HAJIM
Edmund A. Hajim
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
/S/ ROBERT H. WADSWORTH
Robert H. Wadsworth
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<PAGE>
FUNDTRUST
Establishment and Designation
of Additional Series of Shares of Beneficial
Interest, Par Value $O.OO1 Per Share
RESOLVED, that pursuant to Section 5.11(f) of the Declaration of Trust of
FundTrust dated April 22, 1987, as amended and restated on July 1, 1987
("Declaration"), the shares of beneficial interest of the Trust shall be divided
into an additional separate series (the "Series");
RESOLVED FURTHER, that the Series shall have the following special and
relative rights:
1. The Series shall be designated "FundTrust
MoneyTrust."
2. The Series shall be authorized to invest in cash,
securities, instruments and other property as from time to time
described in the Trust's then currently effective prospectuses and
registration statement under the Securities Act of 1933. Each share of
beneficial interest of the Series ("Share") shall be redeemable, shall
be entitled to one vote (or fraction thereof in respect of a fractional
Share) on matters on which Shares of the Series shall be entitled to
vote, shall represent a pro rata beneficial interest in the assets
allocated to the Series, and shall be entitled to receive its pro rata
share of net assets of the Series upon liquidation of the Series, all
as provided in the Declaration.
3. Shareholders of the Series shall vote separately as a class
on any matter, except to the extent required by the Investment Company
Act of 1940 or when the Trustees have determined that the matter
affects only the interests of Shareholders of such Series, then only
the Shareholders of such Series shall be entitled to vote thereon. Any
matter shall be deemed to have been effectively acted upon with respect
to any Series as provided in Rule 18f-2 under such Act or any successor
rule and in the Declaration.
4. The assets and liabilities of the Trust shall be allocated
among the series of the Trust as set forth in Section 5.11 of the
Declaration, except that the Series shall bear its allocable portion of
the remaining unamortized costs incurred and payable by the Trust in
connection with its organization and registration; costs of
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<PAGE>
establishing each additional series and of the registration and public
offering of its Shares shall be amortized for each such series over the
period beginning on the date such costs become payable and ending sixty
months thereafter.
5. The Trustees (including any successor Trustees) shall have
the right at any time and from time to time to reallocate assets and
expenses or to change the designation of any series now or hereafter
created, or to otherwise change the special and relative rights of any
such series, provided that such change shall not adversely affect the
rights of the Shareholders of such series.
IN WITNESS WHEREOF, the undersigned has executed this instrument this 16th
day of November, 1989.
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
/S/ ROBERT H. WADSWORTH
Robert H. Wadsworth
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<PAGE>
FUNDTRUST
Amendment to Amended and Restated Declaration of Trust and
Establishment and Designation of Additional Series of
Shares of Beneficial Interest, Par Value $0.001 Per Share
RESOLVED, that pursuant to Section 8.3(a) of the Declaration of Trust
of FundTrust, a Massachusetts business trust (the "Trust"), dated April 22,
1987, as amended and restated July 1, 1987 (the "Declaration"), the name of the
Trust is hereby changed to "Republic Funds" effective October 3, 1994;
FURTHER RESOLVED, that pursuant to Section 5.12 of the Declaration, the
name of the Trust's series FundTrust MoneyTrust is hereby changed to "Republic
MoneyTrust" effective October 3, 1994;
FURTHER RESOLVED, that pursuant to Section 5.11 of the Declaration, the
shares of beneficial interest (the "Shares") of the Trust shall be divided into
two additional separate series (each a "Fund" and collectively the "Funds");
FURTHER RESOLVED, that each Fund shall have the following special and
relative rights:
1. The Funds shall be designated "Republic New York Tax
Free Money Market Fund" and "Republic New York Intermediate Bond
Fund," respectively.
2. Each Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the Trust's
then currently effective prospectus and registration statement on Form N-1A
under the Securities Act of 1933 with respect to that Fund. Each Share of each
Fund shall be redeemable, shall be entitled to one vote (or fraction thereof in
respect of a fractional Share) on matters on which Shares of that Fund shall be
entitled to vote, shall represent a pro rata beneficial interest in the assets
allocated to that Fund and shall be entitled to receive its pro rata share of
net assets of that Fund upon liquidation of that Fund, all as provided in the
Declaration.
3. Each Fund's Shareholders shall vote separately as a class on any
matter, except to the extent required by the Investment Company Act of 1940 (the
"1940 Act"); or when the Trustees have determined that the matter affects only
the interests of one Fund's Shareholders, then only that Fund's Shareholders
shall be entitled to vote thereon; and any matter shall be deemed to have been
effectively acted upon with respect to that Fund as provided in Rule 18f-2 under
the 1940 Act or any successor rule and in the Declaration.
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<PAGE>
4. The assets and liabilities of the Trust shall be allocated among the
Funds and the six other series of the Trust as set forth in Section 5.11 of the
Declaration, except that costs of establishing each Fund and of the registration
and public offering of the Shares thereof shall be amortized for each Fund over
the period beginning on the date such costs become payable and ending 60 months
thereafter.
5. Subject to the provisions of Section 5.12 of the Declaration, the
Trustees (including any successor Trustees) shall have the right at any time and
from time to time to reallocate assets and expenses, to change the designation
of either Fund or any other series previously, now or hereafter created, or
otherwise to change the special and relative rights of either Fund or any such
other series, provided that such change shall not adversely affect the rights of
any Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 27th day of July, 1994. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ FREDERICK C. CHEN
Frederick C. Chen
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
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<PAGE>
Republic Funds (formerly FundTrust)
Amendment to Declaration of Trust and
Establishment and Designation of Additional Series of
Shares of Beneficial Interest, Par Value $0.001 Per Share
RESOLVED, that pursuant to Section 5.12 of the Declaration of Trust of
Republic Funds (formerly FundTrust), a Massachusetts business trust (the
"Trust"), dated April 22, 1987, as amended on July 1, 1987 and October 3, 1994
(the "Declaration"), the name of the Trust's series Republic MoneyTrust is
hereby changed to "Republic U.S. Government Money Market Fund" effective October
14, 1994;
FURTHER RESOLVED, that pursuant to Section 5.12 of the Declaration, the
name of the Trust's series Republic New York Intermediate Bond Fund is hereby
changed to "Republic New York Tax Free Intermediate Bond Fund" effective October
7, 1994;
FURTHER RESOLVED, that pursuant to Section 5.11 of the Declaration, the
shares of beneficial interest (the "Shares") of the Trust shall be divided into
two additional separate series (each a "Fund" and collectively the "Funds")
effective November 14, 1994;
FURTHER RESOLVED, that each Fund shall have the following special and
relative rights:
1. The Funds shall be designated "Republic Fixed Income
Fund" and "Republic International Equity Fund,"
respectively.
2. Each Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the
Trust's then currently effective prospectus and registration statement
on Form N-lA under the Securities Act of 1933 with respect to that
Fund. Each Share of each Fund shall be redeemable, shall be entitled to
one vote (or fraction thereof in respect of a fractional Share) on
matters on which Shares of that Fund shall be entitled to vote, shall
represent a pro rata beneficial interest in the assets allocated to
that Fund and shall be entitled to receive its pro rata share of net
assets of that Fund upon liquidation of that Fund, all as provided in
the Declaration.
3. Each Fund's Shareholders shall vote separately as a class on any
matter, except to the extent required by the Investment Company Act of
1940 (the "1940 Act") or when the Trustees have determined that the
matter affects only the interests of one Fund's Shareholders, then only
that Fund's
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<PAGE>
Shareholders shall be entitled to vote thereon; and any matter shall be
deemed to have been effectively acted upon with respect to that Fund as
provided in Rule 18f-2 under the 1940 Act or any successor rule and in
the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Funds and the eight other series of the Trust as set forth in Section
5.11 of the Declaration, except that costs of establishing each Fund
and of the registration and public offering of the Shares thereof shall
be amortized for each Fund over the period beginning on the date such
costs become payable and ending 60 months thereafter.
5. Subject to the provisions of Section 5.12 of the Declaration, the
Trustees (including any successor Trustees) shall have the right at any
time and from time to time to reallocate assets and expenses, to change
the designation of either Fund or any other series previously, now or
hereafter created, or otherwise to change the special and relative
rights of either Fund or any such other series, provided that such
change shall not adversely affect the rights of any Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 6th day of October, 1994. This instrument may be executed by the Trustees in
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ FREDERICK C. CHEN
Frederick C. Chen
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
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<PAGE>
REPUBLIC FUNDS
Amendment to Amended and Restated Declaration of Trust and
Establishment and Designation of Additional Series of
Shares of Beneficial Interest, Par Value $0.001 Per Share
RESOLVED, that pursuant to Section 5.12 of the Amended and Restated
Declaration of Trust of Republic Funds, a Massachusetts business trust (the
"Trust"), dated July 1, 1987, as amended, the name of the Trust's series
Republic New York Tax Free Intermediate Bond Fund is hereby changed to "Republic
New York Tax Free Bond Fund" effective November 20, 1994;
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 20th day of November, 1994. This instrument may be executed by the Trustees
on separate counterparts but shall be effective only when signed by a majority
of the Trustees.
/S/ FREDERICK C. CHEN
Frederick C. Chen
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
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<PAGE>
REPUBLIC FUNDS
Amendment to Amended and Restated Declaration of Trust and
Establishment and Designation of Additional Series of
Shares of Beneficial Interest, Par Value $0.001 Per Share
RESOLVED, that pursuant to Section 5.11 of the Declaration of Trust of
Republic Funds, a Massachusetts business trust (the "Trust"), dated April 22,
1987, as amended and restated July 1, 1987 (the "Declaration") and as further
amended, the shares of beneficial interest (the "Shares") of the Trust shall be
divided into one additional separate series (the "Fund");
FURTHER RESOLVED, that the Fund shall have the following special and
relative rights:
1. The Fund shall be designated "Republic Equity Fund".
2. The Fund shall be authorized to invest in cash, securities,
instruments and other property as from time to time described in the
Trust's then currently effective prospectus and registration statement
on Form N-IA under the Securities Act of 1933 with respect to the Fund.
Each Share of the Fund shall be redeemable, shall be entitled to one
vote (or fraction thereof in respect of a fractional Share) on matters
on which Shares of the Fund shall be entitled to vote, shall represent
a pro rata beneficial interest in the assets allocated to the Fund and
shall be entitled to receive its pro rata share of net assets of the
Fund upon liquidation of the Fund, all as provided in the Declaration.
3. The Fund's Shareholders shall vote separately as a class on any
matter, except to the extent required by the Investment Company Act of
1940 (the "1940 Act"); or when the Trustees have determined that the
matter affects only the interests of one series' Shareholders, then
only that series' Shareholders shall be entitled to vote thereon; and
any-matter shall be deemed to have been effectively acted upon with
respect to that series as provided in Rule 18f-2 under the 1940 Act or
any successor rule and in the Declaration.
4. The assets and liabilities of the Trust shall be allocated among the
Fund and the eight other series of the Trust as set forth in Section
5.11 of the Declaration, except that costs of establishing the Fund and
of the registration and public offering of the Shares thereof shall be
amortized for the Fund over the period beginning on the date such costs
become payable and ending sixty months
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<PAGE>
thereafter.
5. Subject to the provisions of Section 5.12 of the Declaration, the
Trustees (including any successor Trustees) shall have the right at any
time and from time to time to reallocate assets and expenses, to change
the designation of the Fund or any other series previously, now or
hereafter created, or otherwise to change the special and relative
rights of the Fund or any such other series, provided that such change
shall not adversely affect the rights of any Shareholder.
IN WITNESS WHEREOF, the undersigned have executed this instrument as of
the 7th day of April, 1995. This instrument may be executed by the Trustees on
separate counterparts but shall be effective only when signed by a majority of
the Trustees.
/S/ FREDERICK C. CHEN
Frederick C. Chen
/S/ ALAN S. PARSOW
Alan S. Parsow
/S/ LARRY M. ROBBINS
Larry M. Robbins
/S/ MICHAEL SEELY
Michael Seely
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BY-LAWS
OF
FUNDTRUST II
(renamed FUNDTRUST as of July 1, 1987)
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TABLE OF CONTENTS
PAGE
ARTICLE I - DEFINITIONS 1
ARTICLE II - OFFICES 1
Section 1. Resident Agent 1
Section 2. Offices 1
ARTICLE III - SHAREHOLDERS 2
Section 1. Meetings 2
Section 2. Notice of Meetings 2
Section 3. Record Date for Meetings
and Other Purposes 2
Section 4. Proxies 3
Section 5. Action without Meeting 4
ARTICLE IV - TRUSTEES 4
Section 1. Meetings of the Trustees 4
Section 2. Quorum and Manner of Acting 5
ARTICLE V - COMMITTEES 6
Section 1. Executive and Other Committees 6
Section 2. Meetings, Quorum and Manner of Acting 7
ARTICLE VI - OFFICERS 7
Section 1. General Provisions 7
Section 2. Term of Office and Qualifications 8
Section 3. Removal 8
Section 4. Powers and Duties of the President 8
Section 5. Powers and Duties of Vice Presidents 9
Section 6. Powers and Duties of the Treasurer 9
Section 7. Powers and Duties of the Secretary 9
Section 5. Powers and Duties of Assistant Treasurers 10
Section 9. Powers and Duties of Assistant Secretaries 10
Section 10. Compensation of officers and Trustees and
Members of the Advisory Board 10
ARTICLE VII - FISCAL YEAR 11
ARTICLE VIII - SEAL 11
ARTICLE IX - WAIVERS OF NOTICE 11
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<PAGE>
TABLE OF CONTENTS (continued)
PAGE
ARTICLE X - CUSTODY OF SECURITIES 12
Section 1. Employment of a Custodian 12
Section 2. Action Upon Termination of
Custodian Agreement 12
section 3. Provisions of Custodian Agreement 13
Section 4. Central Certificate System 14
Section 5. Acceptance of Receipts in Lieu
of Certificates 14
ARTICLE XI - AMENDMENTS 15
ARTICLE XII - INSPECTION OF BOOKS 15
ARTICLE XIII - MISCELLANEOUS 15
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<PAGE>
BY-LAWS
OF
FUNDTRUST II
ARTICLE I
DEFINITIONS
Any terms defined in the Declaration of Trust of Fundtrust II dated
April _, 1987, as amended from time to time, shall have the same meaning when
used herein.
ARTICLE II
OFFICES
SECTION 1. RESIDENT AGENT. The Trust shall maintain a resident agent
in the Commonwealth of Massachusetts, which agent shall initially be CT
Corporation System, 2 Oliver Street, Boston, Massachusetts 02109. The Trustees
may designate a successor resident agent, provided, however, that such
appointment shall not become effective until written notice thereof is delivered
to the office of the Secretary of the Commonwealth.
SECTION 2. OFFICES. The Trust may have its principal
office and other offices in such places within as well as without
the Commonwealth as the Trustees may from time to time determine.
ARTICLE III
SHAREHOLDERS
SECTION 1. MEETINGS. Meetings of the Shareholders shall be held as
provided in the Declaration of Trust at such place within or without the
Commonwealth of Massachusetts as the Trustees shall designate. The holders of a
majority of outstanding Shares present in person or by proxy shall constitute a
quorum at any meeting of the Shareholders.
SECTION 2. NOTICE OF MEETINGS. Notice of all meetings
of the Shareholders, stating the time, place and purposes of the
meeting, shall be given by the Trustees by mail to each
Shareholder at his address as recorded on the register of the
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Trust mailed at least ten (10) days and not more than sixty (60) days before the
meeting. Only the business stated in the notice of the meeting shall be
considered at such meeting. Any adjourned meeting may be held as adjourned
without further notice. No notice need be given to any Shareholder who shall
have failed to inform the Trust of his current address or if a written waiver of
notice, executed before or after the meeting by the Shareholder or his attorney
thereunto authorized, is filed with the records of the meeting.
SECTION 3. RECORD DATE FOR MEETINGS AND OTHER PURPOSES. For the
purpose of determining the Shareholders who are entitled to notice of and to
vote at any meeting, or to participate in any distribution, or for the purpose
of any other action, the Trustees may from time to time close the transfer books
for such period, not exceeding thirty (30) days, as the Trustees may determine;
or without closing the transfer books the Trustees may fix a date not more than
sixty (60) days prior to the date of any meeting of Shareholders or distribution
or other action as a record date for the determinations of the persons to be
treated as Shareholders of record for such purposes, except for dividend
payments which shall be governed by the Declaration.
SECTION 4. PROXIES. At any meeting of Shareholders, any holder of
Shares entitled to vote thereat may vote by proxy, provided that no proxy shall
be voted at any meeting unless it shall have been placed on file with the
Secretary, or with such other officer or agent of the Trust as the Secretary may
direct, for verification prior to the time at which such vote shall be taken.
Proxies may be solicited in the name of one or more Trustees or one or more of
the officers of the Trust. Only Shareholders of record shall be entitled to
vote. Each whole share shall be entitled to one vote as to any matter on which
it is entitled by the Declaration to vote, and each fractional Share shall be
entitled to a proportionate fractional vote. When any Share is held jointly by
several persons, any one of them may vote at any meeting in person or by proxy
in respect of such Share, but if more than one of them shall be present at such
meeting in person or by proxy, and such joint owners or their proxies so present
disagree as to any vote to be cast, such vote shall not be received in respect
of such Share. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its exercise,
and the burden of proving invalidity shall rest on the challenger. If the holder
of any such share is a minor or legally incompetent, and subject to guardianship
or the legal control of any other person as regards the charge or management of
such Share, he may vote by his guardian or such other person appointed or having
such control, and such vote may be given in person or by proxy.
SECTION 5. ACTION WITHOUT MEETING. Any action which
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may be taken by Shareholders may be taken without a meeting if a majority of
Shareholders entitled to vote on the matter (or such larger proportion thereof
as shall be required by law, the Declaration or these By-Laws for approval of
such matter) consent to the action in writing and the written consents are filed
with the records of the meetings of Shareholders. Such consents shall be treated
for all purposes as a vote taken at a meeting of Shareholders.
ARTICLE IV
TRUSTEES
SECTION 1. MEETINGS OF THE TRUSTEES. The Trustees may in their
discretion provide for regular or stated meetings of the Trustees. Notice of
regular or stated meetings need not be given. Meetings of the Trustees other
than regular or stated meetings shall be held whenever called by the President,
or by any one of the Trustees, at the time being in office. Notice of the time
and place of each meeting other than regular or stated meetings shall be given
by the Secretary or an Assistant Secretary or by the officer or Trustee calling
the meeting and shall be mailed to each Trustee at least two days before the
meeting, or shall be telegraphed, cabled, or wirelessed to each Trustee at his
business address, or personally delivered to him at least one day before the
meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting
need not be given to any Trustee if a written waiver of notice, executed by him
before or after the meeting, is filed with the records of the meeting, or to any
Trustee who attends the meeting without protesting prior thereto or at its
commencement the lack of notice to him. A notice or waiver of notice need not
specify the purpose of any meeting. The Trustees may meet by means of a
telephone conference circuit or similar communications equipment by means of
which all persons participating in the meeting shall be deemed to have been held
at a place designated by the Trustees at the meeting. Participation in a
telephone conference meeting shall constitute presence in person at such
meeting. Any action required or permitted to be taken at any meeting of the
Trustees may be taken by the Trustees without a meeting if all the Trustees
consent to the action in writing and the written consents are filed with the
records of the Trustees' meetings. Such consents shall be treated as a vote for
all purposes.
SECTION 2. QUORUM AND MANNER OF ACTING. A majority of the Trustees
shall be present in person at any regular or special meeting of the Trustees in
order to constitute a quorum for the transaction of business at such meeting and
(except as otherwise required by law, the Declaration or these By-Laws) the act
of a majority of the Trustees present at any such meeting, at which a quorum is
present, shall be the act of the Trustees. In the
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absence of a quorum, a majority of the Trustees present may adjourn the meeting
from time to time until a quorum shall be present. Notice of an adjourned
meeting need not be given.
ARTICLE V
COMMITTEES
SECTION 1. EXECUTIVE AND OTHER COMMITTEES. The Trustees by vote of a
majority of all the Trustees may elect from their own number an Executive
Committee to consist of not less than three (3) to hold office at the pleasure
of the Trustees, which shall have the power to conduct the current and ordinary
business of the Trust while the Trustees are not in session, including the
purchase and sale of securities and the designation of securities to be
delivered upon redemption of Shares of the Trust, and such other powers of the
Trustees as the Trustees may, from time to time, delegate to them except those
powers which by law, the Declaration or these By-Laws they are prohibited from
delegating. The Trustees may also elect from their own number other Committees
from time to time, the number composing such Committees, the powers conferred
upon the same (subject to the same limitations as with respect to the Executive
Committee) and the term of membership on such Committees to be determined by the
Trustees. The Trustees may designate a Chairman of any such Committee. In the
absence of such designation, the Committee may elect its own Chairman.
SECTION 2. MEETINGS, QUORUM AND MANNER OF ACTING. The Trustees may
(1) provide for stated meetings of any Committee, (2) specify the manner of
calling and notice required for special meetings of any Committee, (3) specify
the number of members of a Committee required to constitute a quorum and the
number of members of a Committee required to exercise specified powers delegated
to such Committee, (4) authorize the making of decisions to exercise specified
powers by written assent of the requisite number of members of a Committee
without a meeting, and (5) authorize the members of a Committee to meet by means
of a telephone conference circuit.
The Executive Committee shall keep regular minutes of its meetings and
records of decisions taken without a meeting and cause them to be recorded in a
book designated for that purpose and kept in the office of the Trust.
ARTICLE VI
OFFICERS
SECTION 1. GENERAL PROVISIONS. The officers of the
Trust shall be a President, a Treasurer and a Secretary, who
shall be elected by the Trustees. The Trustees may elect or
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<PAGE>
appoint such other officers or agents as the business of the Trust may require,
including one or more Executive or Senior Vice Presidents, one or more vice
Presidents, one or more Assistant Secretaries, and one or more Assistant
Treasurers. The Trustees may delegate to any officer or Committee the power to
appoint any subordinate officers or agents.
SECTION 2. TERM OF OFFICE AND QUALIFICATIONS. Except as
otherwise provided by law, the Declaration or these By-Laws, the President, the
Treasurer and the Secretary shall each hold office until his successor shall
have been duly elected and qualified, and all other officers shall hold office
at the pleasure of the Trustees. The Secretary and Treasurer may be the same
person, A Vice President and the Treasurer or Assistant Treasurer or a Vice
President and the Secretary or Assistant Secretary may be the same person, but
the offices of Vice President and Secretary and Treasurer shall not be held by
the same person. The President shall hold no other office. Except as above
provided, any two offices may be held by the same person. Any officer may be,
but none need be, a Trustee or Shareholder.
SECTION 3. REMOVAL. The Trustees, at any regular or special meeting of
the Trustees, may remove any officer without cause, by a vote of a majority of
the Trustees then in office. Any officer or agent appointed by an officer or
Committee may be removed with or without cause by such appointing officer or
Committee.
SECTION 4. POWERS AND DUTIES OF THE PRESIDENT. The President may call
meetings of the Trustees and of any Committee thereof when he deems it necessary
and shall preside at all meetings of the Shareholders. Subject to the control of
the Trustees and to the control of any Committees of the Trustees, within their
respective spheres, as provided by the Trustees, he shall at all times exercise
general supervision and direction over the affairs of the Trust. He shall have
the power to employ attorneys and counsel for the Trust and to employ such
subordinate officers, agents, clerks and employees as he may find necessary to
transact the business of the Trust. He shall also have the power to grant,
issue, execute or sign such powers of attorney, proxies or other documents as
may be deemed advisable or necessary in furtherance of the interests of the
Trust. The President shall have such other powers and duties as from time to
time may be conferred upon or assigned to him by the Trustees.
SECTION 5. POWERS AND DUTIES OF VICE PRESIDENTS. In the absence or
disability of the President, any Vice President designated by the Trustees shall
perform all the duties and may exercise any of the powers of the President,
subject to the control of the Trustees. Each Vice President shall perform such
other duties as may be assigned to him from time to time by the
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Trustees and the President.
SECTION 6. POWERS AND DUTIES OF THE TREASURER. The Treasurer shall be
the principal financial and accounting officer of the Trust. He shall deliver
all funds of the Trust which may come into his hands to such Custodian as the
Trustees may employ pursuant to Article X of these By-Laws. He shall in general
perform all the duties incident to the office of Treasurer and such other duties
as from time to time may be assigned to him by the Trustees.
SECTION 7. POWERS AND DUTIES OF THE SECRETARY. The Secretary shall
keep the minutes of all meetings of the Trustees and of the Shareholders in
proper books provided for that purpose; he shall have custody of the seal of the
Trust; he shall have charge of the Share transfer books, lists and records
unless the same are in the charge of the Transfer Agent. He shall attend to the
giving and serving of all notices by the Trust in accordance with the provisions
of these By-Laws and as required by law; and subject to these By-Laws, he shall
in general perform all duties incident to the office of Secretary and such other
duties as from time to time may be assigned to him by the Trustees.
SECTION 8. POWERS AND DUTIES OF ASSISTANT TREASURERS. In the absence
or disability of the Treasurer, any Assistant Treasurer designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Treasurer. Each Assistant Treasurer shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 9. POWERS AND DUTIES OF ASSISTANT SECRETARIES. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
SECTION 10. COMPENSATION OF OFFICERS AND TRUSTEES AND MEMBERS OF THE
ADVISORY BOARD. Subject to any applicable provisions of the Declaration, the
compensation of the officers and Trustees and members of any Advisory Board
shall be fixed from time to time by the Trustees or, in the case of officers, by
any Committee or officer upon whom such power may be conferred by the Trustees.
No officer shall be prevented from receiving such compensation as such officer
by reason of the fact that he is also a Trustee.
ARTICLE VII
FISCAL YEAR
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The fiscal year of the Trust shall begin on the first day of
in each year and shall end on the day of
in each year, provided, however, that the Trustees may from time to
time change the fiscal year.
ARTICLE VIII
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
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ARTICLE IX
WAIVERS OF NOTICE
Whenever any notice is required to be given by law, the Declaration or
these By-Laws, a waiver thereof in writing, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent thereto. A notice shall be deemed to have been telegraphed,
cabled or wirelessed for the purposes of these By-Laws when it has been
delivered to a representative of any telegraph, cable or wireless company with
instructions that it be telegraphed, cabled or wirelessed.
ARTICLE X
CUSTODY OF SECURITIES
SECTION 1. EMPLOYMENT OF A CUSTODIAN. The Trust shall place and at all
times maintain in the custody of a Custodian (including any sub-custodian for
the Custodian, which may be a foreign bank which meets applicable requirements
of law) all funds, securities and similar investments included in the Trust
Property. The Custodian (and any sub-custodian) shall be a bank having not less
than $2,000,000 aggregate capital, surplus and undivided profits and shall be
appointed from time to time by the Trustees, who shall fix its remuneration.
SECTION 2. ACTION UPON TERMINATION OF CUSTODIAN AGREEMENT. Upon
termination of a Custodian Agreement or inability of the Custodian to continue
to serve, the Trustees shall promptly appoint a successor Custodian, but in the
event that no successor Custodian can be found who has the required
qualifications and is willing to serve, the Trustees shall call as promptly as
possible a special meeting of the Shareholders to determine whether the Trust
shall function without a Custodian or shall be liquidated. If so directed by
vote of the holders of a majority of the outstanding voting securities, the
Custodian shall deliver and pay over all Trust Property held by it as specified
in such vote.
SECTION 3. PROVISIONS OF CUSTODIAN AGREEMENT. The
following provisions shall apply to the employment of a Custodian
and to any contract entered into with the Custodian so employed:
The Trustees shall cause to be delivered to the Custodian all
securities included in the Trust Property or to which the Trust may
become entitled, and shall order the same to be delivered by the
Custodian only in completion of a sale, exchange, transfer, pledge,
loan of portfolio securities to
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another person, or other disposition thereof, all as the Trustees may
generally or from time to time require or approve or to a successor
Custodian; and the Trustees shall cause all funds included in the Trust
Property or to which it may become entitled to be paid to the
Custodian, and shall order the same disbursed only for investment
against delivery of the securities acquired, or the return of cash held
as collateral for loans of portfolio securities, or in payment of
expenses, including management compensation, and liabilities of the
Trust, including distributions to Shareholders, or to a successor
Custodian. In connection with the Trust's purchase or sale of futures
contracts, the Custodian shall transmit, prior to receipt on behalf of
the Trust of any securities or other property, funds from the Trust's
Custodian account in order to furnish to and maintain funds with
brokers as margin to guarantee the performance of the Trust's futures
obligations in accordance with the applicable requirements of
commodities exchanges and brokers.
SECTION 4. CENTRAL CERTIFICATE SYSTEM. Subject to such rules,
regulations and orders as the Commission may adopt, the Trustees may direct the
Custodian to deposit all or any part of the securities owned by the Trust in a
system for the central handling of securities established by a national
securities exchange or a national securities association registered with the
Commission under the Securities Exchange Act of 1934, or such other person as
may be permitted by the Commission, or otherwise in accordance with the 1940
Act, pursuant to which system all securities of any particular class or series
of any issuer deposited within the system are treated as fungible and may be
transferred or pledged by bookkeeping entry without physical delivery of such
securities, provided that all such deposits shall be subject to withdrawal only
upon the order of the Trust.
SECTION 5. ACCEPTANCE OF RECEIPTS IN LIEU OF CERTIFICATES. Subject to
such rules, regulations and orders as the Commission may adopt, the Trustees may
direct the Custodian to accept written receipts or other written evidences
indicating purchases of securities held in book-entry form in the Federal
Reserve System in accordance with regulations promulgated by the Board of
Governors of the Federal Reserve System and the local Federal Reserve Banks in
lieu of receipt of certificates representing such securities.
ARTICLE XI
AMENDMENTS
These By-Laws, or any of them, may be altered, amended or repealed, or
new By-Laws may be adopted by vote of a majority of (a) the Shares outstanding
and entitled to vote or (b) the
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Trustees, provided, however, that no By-Law may be amended, adopted or repealed
by the Trustees if such amendment, adoption or repeal requires, pursuant to law,
the Declaration or these ByLaws, a vote of the Shareholders.
ARTICLE XII
INSPECTION OF BOOKS
The Trustees shall from time to time determine whether and to what
extent, and at what times and places, and under what conditions and regulations
the accounts and books of the Trust or any of them shall be open to the
inspection of the Shareholders; and no Shareholder shall have any right to
inspect any account or book or document of the Trust except as conferred by laws
or authorized by the Trustees or by resolution of the Shareholders.
ARTICLE XIII
MISCELLANEOUS
(A) Except as hereinafter provided, no officer or Trustee of the Trust
and no partner, officer, director or shareholder of the Investment Adviser or
Distributor of the Trust, and no Investment Adviser or Distributor of the Trust,
shall take long or short positions in the securities issued by the Trust.
(1) The foregoing provisions shall not prevent the Distributor
from purchasing Shares from the Trust if such purchases are limited
(except for reasonable allowances for clerical errors, delays and
errors of transmission and cancellation of orders) to purchases for the
purpose of filling orders for such Shares received by the Distributor,
and provided that orders to purchase from the Trust are entered with
the Trust or the Custodian promptly upon receipt by the Distributor of
purchase orders for such Shares, unless the Distributor is otherwise
instructed by its customer.
(2) The foregoing provision shall not prevent the Distributor from
purchasing Shares of the Trust as agent for the account of the Trust.
(3) The foregoing provision shall not prevent the purchase from
the Trust or from the Distributor of Shares issued by the Trust, by any
officer, or Trustee of the Trust or by any partner, officer, director
or shareholder of the Investment Adviser or Distributor of the Trust at
the price available to the public generally at the moment of such
purchase, or as described in the then currently effective Prospectus of
the Trust.
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(4) The foregoing shall not prevent the Distributor, or any
affiliate thereof, of the Trust from purchasing Shares prior to the
effectiveness of the first registration statement relating to the
shares under the Securities Act of 1933.
(B) The Trust shall not lend assets of the Trust to any officer or Trustee
of the Trust, or to any partner, officer, director or shareholder of, or person
financially interested in, the Investment Adviser or the Distributor of the
Trust, or to the Investment Adviser or the Distributor of the Trust.
(C) The Trust shall not impose any restrictions upon the transfer of the
Shares of the Trust except as provided in the Declaration, but this requirement
shall not prevent the charging of customary transfer agent fees.
(D) The Trust shall not permit any officer or Trustee of the Trust, or any
partner, officer or director of the Investment Adviser or Distributor of the
Trust to deal for or on behalf of the Trust with himself as principal or agent,
or with any partnership, association or corporation in which he has a financial
interest; provided that the foregoing provisions shall not prevent (a) officers
and Trustees of the Trust or partners, officers or directors of the Investment
Adviser or Distributor of the Trust from buying, holding or selling shares in
the Trust, or from being partners, officers or directors or otherwise
financially interested in the Investment Adviser or Distributor of the Trust;
(b) purchases or sales of securities or other property by the Trust from or to
an affiliated person or to the Investment Adviser or Distributor of the Trust if
such transaction is exempt from the applicable provisions of the 1940 Act; (c)
purchases of investments for the portfolio of the Trust or sales of investments
owned by the Trust through a security dealer who is, or one or more of whose
partners, shareholders, officers or directors is, an officer or Trustee of the
Trust, or a partner, officer or director of the Investment Adviser or
Distributor of the Trust, if such transactions are handled in the capacity of
broker only and commissions charged do not exceed customary brokerage charges
for such services; (d) employment of legal counsel, registrar, Transfer Agent,
dividend disbursing agent or Custodian who is, or has a partner, shareholder,
officer, or director who is, an officer or Trustee of the Trust, or a partner,
officer or director of the Investment Adviser or Distributor of the Trust, if
only customary fees are charged for services to the Trust; (e) sharing
statistical research, legal and management expenses and office hire and expenses
with any other investment company in which an officer or Trustee of the Trust,
or a partner, officer or director of the Investment Adviser or Distributor of
the Trust, is an officer or director or otherwise financially interested.
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<PAGE>
END OF BY-LAWS
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Certificate No. __________ _________Shares
REPUBLIC FUNDS
(a Massachusetts Business Trust)
--[NAME OF SERIES]
Shares of Beneficial Interest
(par value $0.0O1)
THIS CERTIFIES THAT ___________[SPECIMEN]_____________ is the holder of
__________________________________________________ fully paid and non-assessable
shares of beneficial interest (par value $0.001) of [name of series] (the
"Fund"), a series of Republic Funds, a Massachusetts business trust (the
"Trust"), transferable only on the books of the Trust by the holder hereof in
person or by duly authorized attorney upon surrender of this Certificate
properly endorsed. This Certificate is not valid until countersigned by the
transfer agent of the Trust. The aforesaid holder is entitled to require the
Trust to purchase all or any part of the shares represented by this Certificate
at net asset value, as more fully set forth below.
The registered holder of this Certificate is entitled to all the
rights, interest and privileges of a shareholder as provided by the Declaration
of Trust and By-Laws of the Trust as from time to time amended, which are
incorporated by reference herein. In particular the shares represented by this
Certificate are transferable by the holder, in person or by his duly authorized
attorney, but only on surrender of this Certificate properly endorsed and when
the transfer is made on the books of the Trust.
The Declaration of Trust consists of several separate series. The
shares of each series would participate equally in the earnings, dividends and
assets of that particular series.
Any shareholder desiring to dispose of his shares may deposit his
Certificate duly endorsed in blank or accompanied by an instrument of transfer
executed in blank at the office of the Transfer Agent of the Trust, together
with an irrevocable offer in writing to sell the shares represented thereby at
the net asset value thereof and the Trustees will thereafter purchase said
shares for cash (except as described in the current prospectus of the Trust
relating to [name of series]) at net asset value. The computation of net asset
value, the limitations upon the date of payment and provisions dealing with
suspension of the right of redemption in certain emergencies are fully described
in said Declaration of Trust and By-Laws as from time to time amended.
See current prospectus of the Trust relating to [name of series] for
further information concerning repurchases of shares by the Trust.
<PAGE>
IN WITNESS WHEREOF, the said Trust has caused this Certificate to be
signed by its duly authorized officers.
Dated:______________________________
_____________________________________ Countersigned:
__________________, President
NAME OF TRANSFER AGENCY BANK,
TRANSFER AGENT
_____________________________________
_______________, Treasurer
By_____________________________
Authorized Signature
ASSIGNMENT
For Value Received ______________ hereby sell, assign and transfer unto
________________________________________________________________________________
_______________________________________________________________________ Shares
of the within-named Trust represented by the within Certificate and do hereby
irrevocably constitute and appoint ________________________________________ to
transfer the said Shares on the books of the within-named Trust with full power
of substitution in the premises.
Dated_______________________19___. _____________________________________
SIGNATURE GUARANTEED BY:
_____________________________________
(Signature must be guaranteed)
FT4180
MASTER INVESTMENT ADVISORY CONTRACT
The Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust and consists of one or more separate investment
portfolios (the "Funds") as may be established and designated by the Trust's
Board of Trustees (the "Board of Trustees") from time to time. This Contract
shall pertain to such Funds as shall be designated in Supplements to this
Contract as further agreed between the Trust and the Adviser (the "Covered
Funds"). A separate series of shares of beneficial interest in the Trust is
offered to investors with respect to each Fund. The Trust engages in the
business of investing and reinvesting the assets of each Fund in the manner and
in accordance with the investment objectives and restrictions specified in the
currently effective prospectus (the "Prospectus") relating to the Trust and the
Funds included in the company's Registration Statement, as amended from time to
time, filed by the Trust under the Investment Company Act of 1940 (the "1940
Act") and the Securities Act of 1933. Copies of the documents referred to in the
preceding sentence have been furnished to the Adviser. Any amendments to those
documents shall be furnished to the Adviser promptly. Pursuant to a Master
Distribution Contract and Supplements thereto and a Master Administrative
Services Contract and Supplements thereto between the Trust and Signature
Broker- Dealer Services, Inc. (the "Sponsor"), the Trust has employed the
Sponsor to act as principal underwriter for each Fund and to provide to the
Trust management and other services.
2. The Trust hereby appoints the Adviser to provide the investment
advisory services specified in this Contract and the Adviser hereby accepts such
appointment.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this Contract and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Contract.
(b) The Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliated with
the Sponsor or any of its affiliates; taxes and governmental fees; interest
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 2
charges; fees and expenses of the Trust's independent accountants and legal
counsel; trade association membership dues; fees and expenses of any custodian
(including maintenance of books and accounts and calculation of the net asset
value of shares of the Funds), transfer agent, registrar and dividend disbursing
agent of the Trust; expenses of issuing, selling, redeeming, registering and
qualifying for sale shares of beneficial interest in the Trust; expenses of
preparing and printing share certificates, prospectuses and reports to
shareholders, notices, proxy statements and reports to regulatory agencies; the
cost of office supplies, including stationery; travel expenses of all officers,
Trustees and employees; insurance premiums; brokerage and other expenses of
executing portfolio transactions; expenses of shareholders' meetings;
organization expenses; and extraordinary expenses.
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the portfolio of each
Covered Fund, including oral and written research, analysis, advice, statistical
and economic data and information and judgments of both a macroeconomic and
microeconomic character.
The Adviser will determine the securities to be purchased or sold by
each Covered Fund and will place orders pursuant to its determinations either
directly with the issuer or with any broker or dealer who deals in such
securities. The Adviser will determine what portion of each Covered Fund's
portfolio shall be invested in securities described by the policies of such
Covered Fund and what portion, if any, should be invested otherwise or held
uninvested.
The Trust will have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to investment
advisory customers of the Adviser. It is understood that the Adviser will not
use any inside information pertinent to investment decisions undertaken in
connection with this Contract that may be in its possession or in the possession
of any of its affiliates nor will the Adviser seek to obtain any such
information.
(b) The Adviser also shall provide to the Trust's officers
administrative assistance in connection with the operation of the Trust and each
of the Covered Funds, which shall include (i) compliance with all reasonable
requests of the Trust for information, including information required in
connection with the Trust's filings with the Securities and Exchange Commission
and state securities commissions and (ii) such other services as the Adviser
shall from time to time determine, upon consultation with the Sponsor, to be
necessary or useful to the administration of the Trust and each of the Covered
Funds.
(c) As manager of the assets of each Covered Fund, the Adviser shall
make investments for the account of that Fund in accordance with the Adviser's
best judgment and within the investment objectives and restrictions set forth in
the Prospectus, the 1940 Act and the provisions of the Internal Revenue Code of
1986 relating to regulated investment companies subject to policy decisions
adopted by the Board of Trustees.
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 3
(d) The Adviser shall furnish to the Board of Trustees periodic reports
on the investment performance of each Covered Fund and on the performance of its
obligations under this Contract and shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of a Covered Fund as well as other
customers, the Adviser, to the extent permitted by applicable law, may aggregate
the securities to be so sold or purchased in order to obtain the best execution
or lower brokerage commissions, if any. The Adviser may also on occasions
purchase or sell a particular security for one or more customers in different
amounts. On either occasion, and to the extent permitted by applicable law and
regulations, allocation of the securities so purchased or sold, as well as the
expenses incurred in the transaction, will be made by the Adviser in the manner
it considers to be the most equitable and consistent with its fiduciary
obligations to that Fund and to such other customers.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this Contract. As an inducement
to the Adviser's undertaking to render these services, the Trust agrees that the
Adviser shall not be liable under this Contract for any mistake in judgment or
in any other event whatsoever PROVIDED that nothing in this Contract shall be
deemed to protect or purport to protect the Adviser against any liability to the
Trust or its shareholders to which the Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser's duties under this Contract or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser under
this Contract, each Covered Fund shall pay the Adviser a monthly fee on the
first business day of each month based upon the average daily value (as
determined on each business day at the time set forth in the Prospectus for
determining net asset value per share) of the net assets of that Fund during the
preceding month, at annual rates set forth in a Supplement to this Contract with
respect to that Fund. If the fees payable to the Adviser pursuant to this
paragraph 6 begin to accrue before the end of any month or if this Contract
terminates before the end of any month, the fees for the period from that date
to the end of that month or from the beginning of that month to the date of
termination, as the case may be, shall be prorated according to the proportion
which the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of each Covered Fund shall be computed in the manner specified in
the Prospectus for the computation of net asset value. For purposes of this
Contract, a "business day" is any day the New York Stock Exchange is open for
trading.
7. If the aggregate expenses of every character incurred by, or
allocated to, each Covered Fund in any fiscal year, other than interest, taxes,
expenses under the Master Distribution Plan, brokerage commissions and other
portfolio
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 4
transaction expenses, other expenditures which are capitalized in accordance
with generally accepted accounting principles and any extraordinary expense
(including, without limitation, litigation and indemnification expense), but
including the fees payable under this Contract and the fees payable to the
Sponsor under the Master Distribution Plan ("includible expenses"), shall exceed
the expense limitations applicable to that Fund imposed by state securities law
or regulations thereunder, as these limitations may be raised or lowered from
time to time, the Adviser shall pay that Fund an amount equal to 50% of that
excess. With respect to portions of a fiscal year in which this Contract shall
be in effect, the foregoing limitations shall be prorated according to the
proportion which that portion of the fiscal year bears to the full fiscal year.
At the end of each month of the Trust's fiscal year, the Sponsor will review the
includible expenses accrued during that fiscal year to the end of the period and
shall estimate the contemplated includible expenses for the balance of that
fiscal year. If, as a result of that review and estimation, it appears likely
that the includible expenses will exceed the limitations referred to in this
paragraph 7 for a fiscal year with respect to a Covered Fund, the monthly fees
relating to that Fund payable to the Adviser under this Contract for such month
shall be reduced, subject to a later reimbursement to reflect actual expenses,
by an amount equal to 50% of a pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year (less an amount
equal to the aggregate of actual reductions made pursuant to this provision with
respect to prior months of the fiscal year) are expected to exceed the
limitations provided in this paragraph 7. For purposes of the foregoing, the
value of the net assets of each Covered Fund shall be computed in the manner
specified in paragraph 6, and any payments required to be made by the Adviser
shall be made once a year promptly after the end of the Trust's fiscal year.
8. (a) This Contract and any Supplement hereto shall become effective
with respect to a Covered Fund on the date specified in such Supplement and
shall thereafter continue in effect with respect to that Fund for a period of
more than two years from such date only so long as the continuance is
specifically approved at least annually (i) by the vote of a majority of the
outstanding voting securities of the Fund (as defined in the 1940 Act) or by the
Board of Trustees and (ii) by the vote, cast in person at a meeting called for
that purpose, of a majority of the members of the Board of Trustees who are not
parties to this Contract or "interested persons" (as defined in the 1940 Act) of
any such party.
(b) This Contract and any Supplement hereto may be terminated with
respect to a Covered Fund at any time, without the payment of any penalty, by a
vote of a majority of the outstanding voting securities of that Fund (as defined
in the 1940 Act) or by a vote of a majority of the entire Board of Trustees on
60 days' written notice to the Adviser or by the Adviser on 60 days' written
notice to the Trust. This Contract shall terminate automatically in the event of
its assignment (as defined in the 1940 Act).
9. Except to the extent necessary to perform the Adviser's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 5
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The investment management services of the Adviser to the Trust
under this Contract are not to be deemed exclusive as to the Adviser and the
Adviser will be free to render similar services to others.
11. This Contract shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
12. In the event that the Board of Trustees shall establish one or more
additional investment portfolios, it shall so notify the Adviser in writing. If
the Adviser wishes to render investment advisory services to such portfolio, it
shall so notify the Trust in writing, whereupon such portfolio shall become a
Covered Fund hereunder.
13. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name of the Trust refers to the Trustees under the Declaration
collectively as Trustees and not as individuals or personally, and that no
shareholder, Trustee, officer, employee or agent of the Trust shall be subject
to claims against or obligations of the Trust to any extent whatsoever, but that
the Trust estate only shall be liable.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
THE REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4108
<PAGE>
INVESTMENT ADVISORY CONTRACT SUPPLEMENT
The Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
RE: REPUBLIC NEW YORK INTERMEDIATE BOND FUND
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic New
York Intermediate Bond Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Adviser have entered into a Master Investment
Advisory Contract ("Master Advisory Contract") pursuant to which the Trust has
employed the Adviser to provide investment advisory and other services specified
in the Master Advisory Contract and the Adviser has accepted such employment.
Terms used but not otherwise defined herein shall have the same meanings
assigned to them by the Master Advisory Contract.
3. As provided in paragraph 1 of the Master Advisory Contract, the
Trust hereby adopts the Master Advisory Contract with respect to the Fund and
the Adviser hereby acknowledges that the Master Advisory Contract shall pertain
to the Fund, the terms and conditions of the Master Advisory Contract being
hereby incorporated herein by reference.
4. The term "Covered Fund" as used in the Master Advisory Contract
shall, for purposes of this Supplement, pertain to the Fund.
5. As provided in paragraph 6 of the Master Advisory Contract and
subject to further conditions as set forth therein, the Trust shall with respect
to the Fund pay the Adviser a monthly fee on the first business day of each
month of 0.25% of the average daily value (as determined on each business day at
the time
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 2
set forth in the Prospectus for determining net asset value per share) of the
net assets of the Fund during the preceding month.
6. This Supplement and the Master Advisory Contract (together, the
"Contract") shall become effective with respect to the Fund on October 6, 1994
and shall continue in effect with respect to the Fund until October 6, 1996 and
thereafter but only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Board of Trustees and (b) by the
vote, cast in person at a meeting called for that purpose, of a majority of the
members of the Board of Trustees who are not parties to this Contract or
"interested persons" (as defined in the 1940 Act) of any such party. This
Contract may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by a vote of a majority
of the members of the Board of Trustees on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written notice to the Trust. This Contract
shall terminate automatically in the event of its assignment as defined in the
1940 Act.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
THE REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4108
<PAGE>
INVESTMENT ADVISORY CONTRACT SUPPLEMENT
The Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
RE: REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic New
York Tax Free Money Market Fund (the "Fund") is a separate investment portfolio
of the Trust.
2. The Trust and the Adviser have entered into a Master Investment
Advisory Contract ("Master Advisory Contract") pursuant to which the Trust has
employed the Adviser to provide investment advisory and other services specified
in the Master Advisory Contract and the Adviser has accepted such employment.
Terms used but not otherwise defined herein shall have the same meanings
assigned to them by the Master Advisory Contract.
3. As provided in paragraph 1 of the Master Advisory Contract, the
Trust hereby adopts the Master Advisory Contract with respect to the Fund and
the Adviser hereby acknowledges that the Master Advisory Contract shall pertain
to the Fund, the terms and conditions of the Master Advisory Contract being
hereby incorporated herein by reference.
4. The term "Covered Fund" as used in the Master Advisory Contract
shall, for purposes of this Supplement, pertain to the Fund.
5. As provided in paragraph 6 of the Master Advisory Contract and
subject to further conditions as set forth therein, the Trust shall with respect
to the Fund pay the Adviser a monthly fee on the first business day of each
month of 0.15% of the average daily value (as determined on each business day at
the time set forth in the Prospectus for determining net asset value per share)
of the net assets of the Fund during the preceding month.
<PAGE>
Republic National Bank of New York
September 26, 1994
Page 2
6. This Supplement and the Master Advisory Contract (together, the
"Contract") shall become effective with respect to the Fund on October 6, 1994
and shall continue in effect with respect to the Fund until October 6, 1996 and
thereafter but only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Board of Trustees and (b) by the
vote, cast in person at a meeting called for that purpose, of a majority of the
members of the Board of Trustees who are not parties to this Contract or
"interested persons" (as defined in the 1940 Act) of any such party. This
Contract may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by a vote of a majority
of the members of the Board of Trustees on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written notice to the Trust. This Contract
shall terminate automatically in the event of its assignment as defined in the
1940 Act.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
THE REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4108
<PAGE>
INVESTMENT ADVISORY CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
April 7, 1995
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
RE: REPUBLIC EQUITY FUND
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic Equity
Fund (the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Adviser have entered into a Master Investment
Advisory Contract ("Master Advisory Contract") pursuant to which the Trust has
employed the Adviser to provide investment advisory and other services specified
in the Master Advisory Contract and the Adviser has accepted such employment.
Terms used but not otherwise defined herein shall have the same meanings
assigned to them by the Master Advisory Contract.
3. As provided in paragraph 1 of the Master Advisory Contract, the
Trust hereby adopts the Master Advisory Contract with respect to the Fund and
the Adviser hereby acknowledges that the Master Advisory Contract shall pertain
to the Fund, the terms and conditions of the Master Advisory Contract being
hereby incorporated herein by reference.
4. The term "Covered Fund" as used in the Master Advisory Contract
shall, for purposes of this Supplement, pertain to the Fund.
5. As provided in paragraph 6 of the Master Advisory Contract and
subject to further conditions as set forth therein, the Trust shall with respect
to the Fund pay the Adviser a monthly fee on the first business day of each
month of [AMOUNT OF FEE] of the average daily value (as determined on each
business day at the time set forth in the Prospectus for determining net asset
value per share) of the net assets of the Fund during the preceding month.
<PAGE>
Republic National Bank of New York
April 7, 1995
Page 2
6. This Supplement and the Master Advisory Contract (together, the
"Contract") shall become effective with respect to the Fund on April 7, 1995 and
shall continue in effect with respect to the Fund until April 7, 1997 and
thereafter but only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Board of Trustees and (b) by the
vote, cast in person at a meeting called for that purpose, of a majority of the
members of the Board of Trustees who are not parties to this Contract or
"interested persons" (as defined in the 1940 Act) of any such party. This
Contract may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by a vote of a majority
of the members of the Board of Trustees on 60 days' written notice to the
Adviser or by the Adviser on 60 days' written notice to the Trust. This Contract
shall terminate automatically in the event of its assignment as defined in the
1940 Act.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4199E
REPUBLIC FUNDS
REPUBLIC EQUITY FUND
SUBADVISORY AGREEMENT
AGREEMENT, effective commencing on April 7, 1995, between Lord, Abbett
& Co. (the "Subadviser") and Republic National Bank of New York (the "Manager").
WHEREAS, the Manager has been retained by Republic Funds, a
Massachusetts business trust (the "Trust") registered as an open end diversified
investment management company under the Investment Company Act of 1940, as
amended (the "1940 Act"), to provide investment advisory services to Republic
Equity Fund (the "Fund") pursuant to a Master Investment Advisory Contract and
Supplement thereto dated April 7, 1995 (the "Management Agreement");
WHEREAS, the Trust's Board of Trustees, including a majority of the
Trustees who are not "interested persons" (as defined in the 1940 Act) of the
Trust and the Fund's shareholders have approved the appointment of the
Subadviser to perform certain investment advisory services for the Fund pursuant
to this Subadvisory Agreement and the Subadviser is willing to perform such
services for the Fund;
WHEREAS, the Subadviser is registered or exempt from registration as an
investment adviser under the Investment Advisers Act of 1940, as amended
("Advisers Act");
NOW THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed between the Manager and the Subadviser as
follows:
1. APPOINTMENT. The Manager hereby appoints the Subadviser to
perform advisory services to the Fund for the periods and on the terms set forth
in this Subadvisory Agreement. The Subadviser accepts such appointment and
agrees to furnish the services herein set forth, for the compensation herein
provided.
2. INVESTMENT ADVISORY DUTIES. Subject to the supervision of the
Trustees of the Trust and the Manager, the Subadviser will[, IN COORDINATION
WITH THE MANAGER,] (a) provide a program of continuous investment management for
the Fund in accordance with the Fund's investment objectives, policies and
limitations as stated in the Fund's Prospectus and Statement of Additional
Information included as part of the Trust's Registration Statement on behalf of
the Fund filed with the Securities and Exchange Commission, as they may be
amended from time to time, copies of which shall be provided to the Subadviser
by the Manager; (b) make investment decisions for the Fund; and (c) place orders
to purchase and sell securities for the Fund. In particular, the Subadviser will
be responsible for the market timing of purchases and sales and for all yield
enhancement strategies used in managing the Fund's investment portfolio.
In performing its investment management services to the Fund hereunder,
the Subadviser will provide the Fund with ongoing investment guidance and policy
direction, including oral and written research, analysis, advice, statistical
and economic data and judgments regarding individual investments, general
economic conditions and trends and long-range investment policy. The Subadviser
will determine the securities, instruments, repurchase agreements, options and
other
<PAGE>
investments and techniques that the Fund will purchase, sell, enter into or use,
and will provide an ongoing evaluation of the Fund's portfolio. The Subadviser
will determine what portion of the Fund's portfolio shall be invested in
securities and other assets.
The Subadviser further agrees that, in performing its duties hereunder,
it will:
(a) comply with the 1940 Act and all rules and regulations thereunder,
the Advisers Act, the Internal Revenue Code of 1986, as amended (the "Code"),
and all other applicable federal and state laws and regulations, and with any
applicable procedures adopted by the Trustees;
(b) manage the Fund so that it will qualify, and continue to qualify
(except where extraordinary circumstances dictate otherwise), as a regulated
investment company under Subchapter M of the Code and regulations issued
thereunder, and conduct periodically such Subchapter M compliance reviews as the
Manager and Subadviser determine appropriate;
(c) place orders pursuant to its investment determinations for the Fund
directly with the issuer, or with any broker or dealer, in accordance with
applicable policies expressed in the Fund's Prospectus and/or Statement of
Additional Information and in accordance with applicable legal requirements;
(d) furnish to the Trust or to the Manager whatever statistical
information the Trust or the Manager may reasonably request with respect to the
Fund's assets or contemplated investments. In addition, the Subadviser will keep
the Trust, the Trustees and the Manager informed of developments materially
affecting the Fund's portfolio and shall, on the Subadviser's own initiative,
furnish to the Trust and the Manager from time to time whatever information the
Subadviser believes appropriate for this purpose;
(e) make available to the Manager and the Trust, promptly upon their
request, such copies of its investment records and ledgers with respect to the
Fund as may be required to assist the Manager and the Trust in their compliance
with applicable laws and regulations. The Subadviser will furnish the Trustees
with such periodic and special reports regarding the Fund as they may reasonably
request;
(f) immediately notify the Manager and the Trust in the event that the
Subadviser or any of its affiliates: (1) becomes aware that it is subject to a
statutory disqualification that prevents the Subadviser from serving as an
investment adviser pursuant to this Subadvisory Agreement; or (2) becomes aware
that it is the subject of an administrative proceeding or enforcement action by
the Securities and Exchange Commission ("SEC") or other regulatory authority.
The Subadviser further agrees to notify the Trust and the Manager immediately of
any material fact known to the Subadviser respecting or relating to the
Subadviser that is not contained in the Trust's Registration Statement with
respect to the Fund, or any amendment or supplement thereto, but that is
required to be disclosed therein, and of any statement contained therein that
becomes untrue in any material respect.
3. ALLOCATION OF CHARGES AND EXPENSES. Except as otherwise
specifically provided in this Section 3, the Subadviser shall pay the
<PAGE>
compensation and expenses of all its directors, partners, officers and employees
who serve as officers and executive employees of the Trust (including the Fund's
share of payroll taxes), and the Subadviser shall make available, without
expense to the Fund, the service of its directors, partners, officers and
employees who may be duly elected officers of the Trust, subject to their
individual consent to serve and to any limitations imposed by law.
The Subadviser shall not be required to pay any expenses of the Fund
other than those specifically allocated to the Subadviser in this Section 3. In
particular, but without limiting the generality of the foregoing, the Subadviser
shall not be responsible, except to the extent of the reasonable compensation of
such of the Trust's employees as are officers or employees of the Subadviser
whose services may be involved, for the following expenses of the Fund:
organization and certain offering expenses of the Fund (including out-of-pocket
expenses); fees payable to the Manager and to any other Fund advisers or
consultants; legal expenses; auditing and accounting expenses; interest
expenses; telephone, telex, facsimile, postage and other communications
expenses; taxes and governmental fees; dues and expenses incurred by or with
respect to the Fund in connection with membership in investment company trade
organizations; cost of insurance relating to fidelity coverage for the Trust's
officers and employees; fees and expenses of any custodian, subcustodian,
transfer agent, registrar, or dividend disbursing agent of the Fund; payments
for maintaining the Fund's financial books and records and calculating the daily
net asset value of the Fund's shares; other payments for portfolio pricing or
valuation services to pricing agents, accountants, bankers and other
specialists, if any; expenses of preparing share certificates and other expenses
in connection with the issuance, offering, distribution or sale of securities
issued by the Fund; expenses relating to investor and public relations; expenses
of registering and qualifying shares of the Fund for sale; freight, insurance
and other charges in connection with the shipment of the portfolio securities of
the Fund; brokerage commissions or other costs of acquiring or disposing of any
portfolio securities or other assets of the Fund, or of entering into other
transactions or engaging in any investment practices with respect to the Fund;
expenses of printing and distributing Prospectuses, Statements of Additional
Information, reports, notices and dividends to stockholders; costs of
stationery; litigation expenses; costs of stockholders' and other meetings; the
compensation and all expenses (specifically including travel expenses relating
to the Fund's business) of officers, trustees and employees of the Trust who are
not "interested persons" (as defined in the 1940 Act) of the Subadviser; and
travel expenses (or an appropriate portion thereof) of officers or trustees of
the Trust who are officers, directors or employees of the Subadviser to the
extent that such expenses relate to attendance at meetings of the Trustees of
the Trust or any committees thereof or advisers thereto.
4. COMPENSATION. As compensation for the services provided and expenses
assumed by the Subadviser under this Agreement, the Trust will pay the
Subadviser within 21 calendar days after the end of each calendar quarter an
advisory fee computed daily on the basis of the Fund's average daily net assets,
in accordance with the following schedule of annual rates.
NET ASSETS FEE RATE
Up to $50 million 0.325%
<PAGE>
$50,000,001 - $100 million 0.25%
$100,000,001 - $200 million 0.20%
Over $200 million 0.15%
The "average daily net assets" of the Fund shall mean the average of the values
placed on the Fund's net assets as of 4:00 p.m. (New York time) on each day on
which the net asset value of the Fund is determined consistent with the
provisions of Rule 22c-1 under the 1940 Act or, if the Fund lawfully determines
the value of its net assets as of some other time on each business day, as of
such other time. The value of net assets of the Fund shall always be determined
pursuant to the applicable provisions of the Trust's Declaration of Trust and
Registration Statement. If, pursuant to such provisions, the determination of
net asset value is suspended for any particular business day, then for the
purposes of this Section 4, the value of the net assets of the Fund as last
determined shall be deemed to be the value of its net assets as of the close of
regular trading on the New York Stock Exchange, or as of such other time as the
value of the net assets of the Fund's portfolio may lawfully be determined, on
that day. If the determination of the net asset value of the shares of the Fund
has been so suspended for a period including any quarter end when the
Subadviser's compensation is payable pursuant to this Section, then the
Subadviser's compensation payable at the end of such month shall be computed on
the basis of the value of the net assets of the Fund as last determined (whether
during or prior to such quarter). If the Fund determines the value of the net
assets of its portfolio more than once on any day, then the last such
determination thereof on that day shall be deemed to be the sole determination
thereof on that day for the purposes of this Section 4. In the event that this
Agreement is terminated pursuant to Section 10 hereof, the Subadviser shall be
entitled to a pro rata portion of the fee under this Section 4 through and
including the date upon which the Agreement is terminated and the Subadviser
ceases to provide investment advisory services to the Fund hereunder.
5. BOOKS AND RECORDS. The Subadviser agrees to maintain such books and
records with respect to its services to the Fund as are required by Section 31
under the 1940 Act, and rules adopted thereunder, and by other applicable legal
provisions, and to preserve such records for the periods and in the manner
required by that Section, and those rules and legal provisions. The Subadviser
also agrees that records it maintains and preserves pursuant to Rules 31a-1 and
Rule 31a-2 under the 1940 Act and otherwise in connection with its services
hereunder are the property of the Fund and will be surrendered promptly to the
Fund upon its request. The Subadviser further agrees that it will furnish to
regulatory authorities having the requisite authority any information or reports
in connection with its services hereunder which may be requested in order to
determine whether the operations of the Fund are being conducted in accordance
with applicable laws and regulations.
6. STANDARD OF CARE AND LIMITATION OF LIABILITY. The Subadviser shall
exercise its best judgment in rendering the services provided by it under this
Subadvisory Agreement. The Subadviser shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Fund or the holders
of the Fund's shares in connection with the matters to which this Subadvisory
Agreement relate, provided that nothing in this Subadvisory Agreement shall be
deemed to protect or purport to protect the Subadviser against any liability to
the Fund or to holders of the Fund's shares to which the Subadviser would
<PAGE>
otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence on its part in the performance of its duties or by reason of the
Subadviser's reckless disregard of its obligations and duties under this
Subadvisory Agreement. As used in this Section 6, the term "Subadviser" shall
include any officers, directors, partners, employees or other affiliates of the
Subadviser performing services for the Fund.
7. INDEMNIFICATION.
(a) The Subadviser hereby agrees to indemnify and hold harmless the
Manager from any controversies, claims, suits, losses, liabilities, judgments,
awards or settlements, and costs or expenses, including reasonable legal fees,
caused by, or in any way related to, the investment decisions rendered by the
Subadviser concerning the Fund in a manner inconsistent with Section 6 hereof,
any failure of the Subadviser to fulfill any of its other obligations under this
Subadvisory Agreement, any material misrepresentation, or omission to disclose
material facts, by the Subadviser to the Manager or any shareholder of the Fund,
or any violation of applicable law, by the Subadviser. The Subadviser also
agrees to indemnify and hold harmless the Manager with respect to any losses
incurred as the result of errors made by the Subadviser in transmitting orders
to any broker for execution.
(b) The Manager hereby agrees to indemnify and hold harmless the
Subadviser from any controversies, claims, suits, losses, liabilities,
judgments, awards or settlements, and costs or expenses, including reasonable
legal fees, caused by, or in any way related to, its failure to fulfill any of
its obligations under this Subadvisory Agreement.
(c) If any party seeks indemnification under this Agreement (an
"indemnified party"), it shall notify the other party (the "indemnifying party")
in writing of the assertion of any third party claim or action and shall deliver
all copies of materials received in connection with the matter to the
indemnifying party. The indemnifying party shall have the right to participate
at its own expense in the defense of any such claim or action with counsel of
its own choosing satisfactory to the indemnified party, and the indemnified
party shall cooperate fully with the indemnifying party in the defense or
settlement of any matter that is covered by paragraphs (a) or (b) above, subject
to reimbursement by the indemnifying party for expenses incurred by the
indemnified party in connection with the indemnifying party's participation in
the defense.
8. SERVICES NOT EXCLUSIVE. It is understood that the services of the
Subadviser are not exclusive, and that nothing in this Subadvisory Agreement
shall prevent the Subadviser from providing similar services to other investment
companies (whether or not their investment objectives and policies are similar
to those of the Fund) or from engaging in other activities, provided such other
services and activities do not, during the term of this Subadvisory Agreement,
interfere in a material manner with the Subadviser's ability to meet its
obligations to the Trust and the Fund hereunder. When the Subadviser recommends
the purchase or sale of a security for other investment companies and other
clients, and at the same time the Subadviser recommends the purchase or sale of
the same security for the Fund, the Subadviser may, but shall be under no
obligation to, aggregate the orders for securities to be purchased or sold. It
is understood that in light of its fiduciary duty to the Fund, such transactions
will be executed on a basis that is fair and equitable to the Fund. In
<PAGE>
connection with purchases or sales of portfolio securities for the account of
the Fund, neither the Subadviser nor any of its directors, partners, officers or
employees shall act as a principal or agent or receive any commission.
9. DOCUMENTATION. The Fund shall provide the Subadviser with the
following documents, as requested by the Subadviser:
(a) the Trust's registration statement relating to the Fund, and
any amendments thereto;
(b) the Declaration of Trust and By-laws (and any amendments
thereto) of the Trust;
(c) resolutions of the Board of Trustees of the Trust authorizing
the appointment of Lord, Abbett & Co. to serve as Subadviser and approving this
Subadvisory Agreement;
(d) the Trust's Notification of Registration on Form N-8A; and
(e) the Fund's current Prospectus and any supplements thereto.
10. DURATION AND TERMINATION. This Subadvisory Agreement shall continue
until April 7, 1997 unless sooner terminated as provided herein. Notwithstanding
the foregoing, this Subadvisory Agreement may be terminated: (a) at any time
without penalty upon thirty (30) days' written notice to the Subadviser by (i)
the Fund upon the vote of a majority of the Trustees or upon the vote of a
majority of the Fund's outstanding voting securities, or (ii) the Manager, or
(b) by the Subadviser upon thirty (30) days' written notice to the Fund,
provided that the Subadviser shall continue to be responsible for managing the
assets of the Fund for sixty (60) business days after the end of the notice
period unless the Fund shall agree in writing to shorten the period. Anything to
the contrary herein notwithstanding, any termination carried out pursuant to
this Section 10(b) shall be without penalty and, further, the compensation
schedule set forth in Section 4 hereof shall apply to the service of the
Subadviser beyond the end of the notice period provided in this Section 10(b).
This Subadvisory Agreement will also terminate automatically in the event of its
assignment (as defined in the 1940 Act) or the assignment or termination of the
Management Agreement.
11. AMENDMENTS. No provision of this Subadvisory Agreement may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Subadvisory
Agreement shall be effective until approved by an affirmative vote of (i) a
majority of the outstanding voting securities of the Fund, and (ii) a majority
of the Trustees, including a majority of the Trustees who are not "interested
persons" (as defined in the 1940 Act) of any party to this Subadvisory
Agreement, cast in person at a meeting called for the purpose of voting on such
approval, if such approval is required by applicable law.
12. NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be given in writing and mailed, faxed or
delivered to the other party at its address as follows:
<PAGE>
IF TO THE MANAGER:
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Attention: Ms. Mary E. Martinez
IF TO THE SUBADVISER:
Lord, Abbett & Co.
The General Motors Building
767 Fifth Avenue
New York, NY 10153-0203
Attention:
Any party may specify a different or additional address for notice by
sending a written notice to the other at the address above, or at that or those
last given hereunder.
13. MISCELLANEOUS.
a. This Subadvisory Agreement shall be governed by the laws of the
State of New York, provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act, the Advisers Act, or rules or orders of the SEC
thereunder. Exclusive original jurisdiction to any claim, action or dispute
between the parties arising out of this Agreement shall be solely in state or
federal district courts sitting in the State of New York.
b. The captions of this Subadvisory Agreement are included for
convenience only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
c. If any provision of this Subadvisory Agreement shall be held or made
invalid by a court decision, statute, rule or otherwise, the remainder of this
Subadvisory Agreement shall not be affected hereby and, to this extent, the
provisions of this Subadvisory Agreement shall be deemed to be severable.
d. Nothing herein shall be construed as constituting the Subadviser, or
any of its directors, officers or employees, an agent of the Manager or the
Fund, nor the Manager, or any of its directors, officers or employees, an agent
of the Subadviser.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their officers designated below as of April 7, 1995.
LORD, ABBETT & CO.
By
Name:
Title:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Name:
Title:
FT4228A
AMENDED AND RESTATED
SECOND MASTER INVESTMENT ADVISORY CONTRACT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
February 1, 1991
as amended and restated September 1, 1993
and as of October 14, 1994
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") as successor to Republic
Asset Management, Inc., which succeeded M.D. Hirsch Investment Management, Inc.,
as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust and consists of one or more separate investment
portfolios (the "Funds") as may be established and designated by the Trust's
Board of Trustees (the "Board of Trustees") from time to time. This Contract
shall pertain to such Funds as shall be designated in Supplements to this
Contract as further agreed between the Trust and the Adviser. A separate series
of shares of beneficial interest in the Trust is offered to investors with
respect to each Fund. The Trust engages in the business of investing and
reinvesting the assets of each Fund in the manner and in accordance with the
investment objectives and restrictions specified in the currently effective
prospectus (the "Prospectus") relating to the Trust and the Funds included in
the company's Registration Statement, as amended from time to time, filed by the
Trust under the Investment Company Act of 1940 (the "1940 Act") and the
Securities Act of 1933. Copies of the documents referred to in the preceding
sentence have been furnished to the Adviser. Any amendments to those documents
shall be furnished to the Adviser promptly. Pursuant to a Master Distribution
Contract and Supplements thereto and a Master Administrative Services Contract
and Supplements thereto between the Trust and Signature Broker-Dealer Services,
Inc. (the "Sponsor"), the Trust has employed the Sponsor to act as principal
underwriter for each Fund and to provide to the Trust management and other
services.
2. The Trust hereby appoints the Adviser to provide the investment
advisory services specified in this Contract and the Adviser hereby accepts such
appointment.
3. (a) The Adviser shall, at its expense, (i) employ or associate with
itself such persons as it believes appropriate to assist it in performing its
obligations under this Contract and (ii) provide all services, equipment and
facilities necessary to perform its obligations under this Contract.
<PAGE>
Republic National Bank of New York
October 14, 1994
Page 2
(b) The Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliated with
the Sponsor or any of its affiliates; taxes and governmental fees; interest
charges; fees and expenses of the Trust's independent accountants and legal
counsel; trade association membership dues; fees and expenses of any custodian
(including maintenance of books and accounts and calculation of the net asset
value of shares of the Funds), transfer agent, registrar and dividend disbursing
agent of the Trust; expenses of issuing, selling, redeeming, registering and
qualifying for sale shares of beneficial interest in the Trust; expenses of
preparing and printing share certificates, prospectuses and reports to
shareholders, notices, proxy statements and reports to regulatory agencies; the
cost of office supplies, including stationery; travel expenses of all officers,
Trustees and employees; insurance premiums; brokerage and other expenses of
executing portfolio transactions; expenses of shareholders' meetings;
organization expenses; and extraordinary expenses.
4. (a) The Adviser shall provide to the Trust investment guidance and
policy direction in connection with the management of the portfolio of each
Fund, including oral and written research, analysis, advice, statistical and
economic data and information and judgments of both a macroeconomic and
microeconomic character.
The Adviser will determine the securities to be purchased or sold by
each Fund and will place orders pursuant to its determinations either directly
with the issuer or with any broker or dealer who deals in such securities. The
Adviser will determine what portion of each Fund's portfolio shall be invested
in securities described by the policies of such Fund and what portion, if any,
should be invested otherwise or held uninvested.
The Trust will have the benefit of the investment analysis and
research, the review of current economic conditions and trends and the
consideration of long-range investment policy generally available to investment
advisory customers of the Adviser. It is understood that the Adviser will not
use any inside information pertinent to investment decisions undertaken in
connection with this Contract that may be in its possession or in the possession
of any of its affiliates nor will the Adviser seek to obtain any such
information.
(b) The Adviser also shall provide to the Trust's officers
administrative assistance in connection with the operation of the Trust and each
of the Funds, which shall include (i) compliance with all reasonable requests of
the Trust for information, including information required in connection with the
Trust's filings with the Securities and Exchange Commission and state securities
commissions and (ii) such other services as the Adviser shall from time to time
determine, upon consultation with the Sponsor, to be necessary or useful to the
administration of the Trust and each of the Funds.
(c) As manager of the assets of each Fund, the Adviser shall make
investments for the account of each Fund in accordance with the Adviser's best
judgment and within the investment objectives and restrictions set forth in the
<PAGE>
Republic National Bank of New York
October 14, 1994
Page 3
Prospectus, the 1940 Act and the provisions of the Internal Revenue Code of 1986
relating to regulated investment companies subject to policy decisions adopted
by the Board of Trustees.
(d) The Adviser shall furnish to the Board of Trustees periodic reports
on the investment performance of each Fund and on the performance of its
obligations under this Contract and shall supply such additional reports and
information as the Trust's officers or Board of Trustees shall reasonably
request.
(e) On occasions when the Adviser deems the purchase or sale of a
security to be in the best interest of a Fund as well as other customers, the
Adviser, to the extent permitted by applicable law, may aggregate the securities
to be so sold or purchased in order to obtain the best execution or lower
brokerage commissions, if any. The Adviser may also on occasions purchase or
sell a particular security for one or more customers in different amounts. On
either occasion, and to the extent permitted by applicable law and regulations,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Adviser in the manner it
considers to be the most equitable and consistent with its fiduciary obligations
to that Fund and to such other customers.
5. The Adviser shall give the Trust the benefit of the Adviser's best
judgment and efforts in rendering services under this Contract. As an inducement
to the Adviser's undertaking to render these services, the Trust agrees that the
Adviser shall not be liable under this Contract for any mistake in judgment or
in any other event whatsoever PROVIDED that nothing in this Contract shall be
deemed to protect or purport to protect the Adviser against any liability to the
Trust or its shareholders to which the Adviser would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Adviser's duties under this Contract or by reason of the Adviser's
reckless disregard of its obligations and duties hereunder.
6. In consideration of the services to be rendered by the Adviser under
this Contract, each Fund shall pay the Adviser a monthly fee on the first
business day of each month based upon the average daily value (as determined on
each business day at the time set forth in the Prospectus for determining net
asset value per share) of the net assets of each Fund during the preceding
month, at annual rates set forth in a Supplement to this Contract with respect
to each Fund. If the fees payable to the Adviser pursuant to this paragraph 6
begin to accrue before the end of any month or if this Contract terminates
before the end of any month, the fees for the period from that date to the end
of that month or from the beginning of that month to the date of termination, as
the case may be, shall be prorated according to the proportion which the period
bears to the full month in which the effectiveness or termination occurs. For
purposes of calculating the monthly fees, the value of the net assets of each
Fund shall be computed in the manner specified in the Prospectus for the
computation of net asset value. For purposes of this Contract, a "business day"
is any day the New York Stock Exchange is open for trading.
<PAGE>
Republic National Bank of New York
October 14, 1994
Page 4
7. If the aggregate expenses of every character incurred by, or
allocated to, each Fund in any fiscal year, other than interest, taxes, expenses
under the Master Distribution Plan, brokerage commissions and other portfolio
transaction expenses, other expenditures which are capitalized in accordance
with generally accepted accounting principles and any extraordinary expense
(including, without limitation, litigation and indemnification expense), but
including the fees payable under this Contract and the fees payable to the
Sponsor under the Master Distribution Plan ("includible expenses"), shall exceed
the expense limitations applicable to that Fund imposed by state securities law
or regulations thereunder, as these limitations may be raised or lowered from
time to time, the Adviser shall pay that Fund an amount equal to 50% of that
excess. With respect to portions of a fiscal year in which this Contract shall
be in effect, the foregoing limitations shall be prorated according to the
proportion which that portion of the fiscal year bears to the full fiscal year.
At the end of each month of the Trust's fiscal year, the Sponsor will review the
includible expenses accrued during that fiscal year to the end of the period and
shall estimate the contemplated includible expenses for the balance of that
fiscal year. If, as a result of that review and estimation, it appears likely
that the includible expenses will exceed the limitations referred to in this
paragraph 7 for a fiscal year with respect to a Fund, the monthly fees relating
to that Fund payable to the Adviser under this Contract for such month shall be
reduced, subject to a later reimbursement to reflect actual expenses, by an
amount equal to 50% of a pro rata portion (prorated on the basis of the
remaining months of the fiscal year, including the month just ended) of the
amount by which the includible expenses for the fiscal year (less an amount
equal to the aggregate of actual reductions made pursuant to this provision with
respect to prior months of the fiscal year) are expected to exceed the
limitations provided in this paragraph 7. For purposes of the foregoing, the
value of the net assets of each Fund shall be computed in the manner specified
in paragraph 6, and any payments required to be made by the Adviser shall be
made once a year promptly after the end of the Trust's fiscal year.
8. (a) This Contract and any Supplement hereto shall become effective
with respect to a Fund on the date specified in such Supplement and shall
thereafter continue in effect with respect to that Fund for a period of more
than two years from such date only so long as the continuance is specifically
approved at least annually (i) by the vote of a majority of the outstanding
voting securities of the Fund (as defined in the 1940 Act) or by the Board of
Trustees and (ii) by the vote, cast in person at a meeting called for that
purpose, of a majority of the members of the Board of Trustees who are not
parties to this Contract or "interested persons" (as defined in the 1940 Act) of
any such party.
(b) This Contract and any Supplement hereto may be terminated with
respect to a Fund at any time, without the payment of any penalty, by a vote of
a majority of the outstanding voting securities of that Fund (as defined in the
1940 Act) or by a vote of a majority of the entire Board of Trustees on 60 days'
written notice to the Adviser or by the Adviser on 60 days' written notice to
the Trust. This Contract shall terminate automatically in the event of its
assignment (as defined in the 1940 Act).
<PAGE>
Republic National Bank of New York
October 14, 1994
Page 5
9. Except to the extent necessary to perform the Adviser's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Adviser, or any affiliate of the Adviser, or any employee of the
Adviser, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
10. The investment management services of the Adviser to the Trust
under this Contract are not to be deemed exclusive as to the Adviser and the
Adviser will be free to render similar services to others.
11. This Contract shall be construed in accordance with the laws of the
State of New York provided that nothing herein shall be construed in a manner
inconsistent with the 1940 Act.
12. In the event that the Board of Trustees shall establish one or more
additional investment portfolios, it shall so notify the Adviser in writing. If
the Adviser wishes to render investment advisory services to such portfolio, it
shall so notify the Trust in writing, whereupon such portfolio shall become a
Fund hereunder.
13. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Republic Funds" refers to the Trustees under the
Declaration collectively as Trustees and not as individuals or personally, and
that no shareholder, Trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4005A
<PAGE>
AMENDED AND RESTATED
SECOND INVESTMENT ADVISORY CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
February 1, 1991
as amended and restated September 1, 1993
and as of October 14, 1994
Republic National Bank of New York
452 Fifth Avenue
New York, NY 10018
Dear Sirs:
RE: REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
This will confirm the agreement between the undersigned (the "Trust")
and Republic National Bank of New York (the "Adviser") effective October 14,
1994, as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic U.S.
Government Money Market Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Adviser have entered into a Second Master
Investment Advisory Contract ("Second Master Advisory Contract") pursuant to
which the Trust has employed the Adviser to provide investment advisory and
other services specified in the Second Master Advisory Contract and the Adviser
has accepted such employment. Terms used but not otherwise defined herein shall
have the same meanings assigned to them by the Second Master Advisory Contract.
3. As provided in paragraph 1 of the Second Master Advisory Contract,
the Trust hereby adopts the Second Master Advisory Contract with respect to the
Fund and the Adviser hereby acknowledges that the Second Master Advisory
Contract shall pertain to the Fund, the terms and conditions of the Second
Master Advisory Contract being hereby incorporated herein by reference.
4. The term "Fund" as used in the Second Master Advisory Contract
shall, for purposes of this Supplement, pertain to the Fund.
5. As provided in paragraph 6 of the Second Master Advisory Contract
and subject to further conditions as set forth therein, the Trust shall with
respect to the Fund pay the Adviser a monthly fee on the first business day of
each month
<PAGE>
Republic National Bank of New York
October 14, 1994
Page 2
based upon the average daily value (as determined on each business day at the
time set forth in the Prospectus for determining net asset value per share) of
the net assets of the Fund during the preceding month at the annual rate of
0.20% of average daily net assets.
6. This Amended and Restated Supplement and the Second Master Advisory
Contract (together, the "Contract") shall become effective with respect to the
Fund on October 14, 1994 and shall thereafter continue in effect with respect to
the Fund only so long as the continuance is specifically approved at least
annually (a) by the vote of a majority of the outstanding voting securities of
the Fund (as defined in the 1940 Act) or by the Board of Trustees and (b) by the
vote, cast in person at a meeting called for that purpose, of a majority of the
members of the Board of Trustees who are not parties to this Contract or
"interested persons" (as defined in the 1940 Act) of any such party. This
Contract may be terminated with respect to the Fund at any time, without the
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act) or by a vote of a majority
of the members of the Board of Trustees on 60 days' written notice to the Trust.
This Contract shall terminate automatically in the event of its assignment as
defined in the 1940 Act.
If the foregoing correctly sets forth the agreement between the Trust
and the Adviser, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By
Title: President
ACCEPTED:
REPUBLIC NATIONAL BANK OF NEW YORK
By
Title:
FT4005A
FT4070A
MASTER DISTRIBUTION CONTRACT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
June 14, 1993
as amended and restated August 28, 1995
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust, and consists of one or more separate investment
portfolios as may be established and designated by the Trustees from time to
time (the "Funds"). This Amended and Restated Master Distribution Contract (this
"Contract") shall pertain to such Funds as shall be designated in supplements to
this Contract ("Supplements"), as further agreed between the Trust and the
Sponsor. A separate series of shares of beneficial interest in the Trust (the
"Shares") is offered to investors with respect to each Fund. The Trust engages
in the business of investing and reinvesting the assets of each Fund in the
manner and in accordance with the investment objective and restrictions
specified in the currently effective Prospectus (the "Prospectus") relating to
the Trust and each Fund included in the Trust's Registration Statement, as
amended from time to time (the "Registration Statement"), filed by the Trust
under the Investment Company Act of 1940 (the "1940 Act") and the Securities Act
of 1933 (the "1933 Act"). Copies of the documents referred to in the preceding
sentence have been furnished to the Sponsor. Any amendments to those documents
shall be furnished to the Sponsor promptly. The Trust has entered into a Master
Investment Advisory Contract and Supplements thereto (the "Advisory Contract")
with Republic National Bank of New York, N.A. (the "Adviser") under which the
Adviser will provide the Trust with investment management services and a Master
Administrative Services Contract and Supplements thereto (the "Administrative
Services Contract") with you. The Trust also has adopted an amended and Restated
Master Distribution Plan (and Supplements thereto) (the "Plan") pursuant to Rule
12b-1 under the 1940 Act.
2. The Sponsor shall be the Trust's distributor for the unsold portion
of the Shares which may from time to time be registered under the 1933 Act and
will provide (or cause to be provided) certain shareholder services.
<PAGE>
2
3. The Trust shall sell Shares to the Sponsor, as the Trust's
distributor, for resale, directly or through dealers, to the eligible investors
as described in the Prospectus. All orders through the Sponsor shall be subject
to acceptance and confirmation by the Trust. The Trust shall have the right, at
its election, to deliver either Shares issued upon original issue or treasury
Shares.
4. As the Trust's distributor, the Sponsor may sell and distribute
Shares in such manner not inconsistent with the provisions hereof and the
Trust's Prospectus as the Sponsor may determine from time to time. In this
connection, the Sponsor shall comply with all laws, rules and regulations
applicable to it, including, without limiting the generality of the foregoing,
all applicable rules or regulations under the 1940 Act and of any securities
association registered under the Securities Exchange Act of 1934 (the "1934
Act").
5. The Trust reserves the right to sell Shares to purchasers to the
extent that it or the transfer agent for its Shares receives purchase requests
therefor.
6. All Shares offered for sale and sold by the Sponsor shall be offered
for sale and sold by the Sponsor to designated investors at the price per Share
specified and determined as provided in the Prospectus including any applicable
reductions or eliminations of sales charges described therein (the "offering
price"). The Trust shall determine and promptly furnish to the Sponsor a
statement of the offering price at least once on each day on which the New York
Stock Exchange is open for trading and on each additional day on which each
Fund's net asset value might be materially affected by changes in the value of
its portfolio securities. Each offering price shall become effective at the time
and shall remain in effect during the period specified in the statement. Each
such statement shall show the basis of its computation. The difference between
the offering price and net asset value (which amount shall not be in excess of
that set forth in the Prospectus) may be retained by the Sponsor, or all or any
part thereof may be paid to a purchaser's investment dealer, in accordance with
the Prospectus.
7. The Sponsor may provide shareholder services or, as agent for the
Trust, arrange for the provision of shareholder services by dealers, banks or
others. Such services may include providing personal services to shareholders
and maintaining shareholder accounts.
8. The Trust shall furnish the Sponsor from time to time, for use in
connection with the sale of Shares, such written information with respect to the
Trust as the Sponsor may reasonably request. In each case such written
information shall be signed by an authorized officer of the Trust. The Trust
represents and warrants that such information, when signed by one of its
officers, shall be true and correct. The Trust also shall furnish to the Sponsor
copies of its reports to its shareholders and such additional information
regarding the Trust's financial condition as the Sponsor may reasonably request
from time to time.
9. The Registration Statement and the Prospectus have been or will be,
as the case may be, prepared in conformity with the 1933 Act, the 1940 Act and
the rules and regulations of the Securities and Exchange Commission (the "SEC").
The Trust represents and warrants to the Sponsor that the Registration Statement
and
<PAGE>
3
the Prospectus contain or will contain all statements required to be stated
therein in accordance with the 1933 Act, the 1940 Act and the rules and
regulations thereunder, that all statements of fact contained or to be contained
therein are or will be true and correct at the time indicated or the effective
date, as the case may be, and that neither the Registration Statement nor the
Prospectus, when it shall become effective under the 1933 Act or be authorized
for use, shall include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of Shares. The Trust shall from time to
time file such amendment or amendments to the Registration Statement and the
Prospectus as, in the light of future developments, shall, in the opinion of the
Trust's counsel, be necessary in order to have the Registration Statement and
the Prospectus at all times contain all material facts required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares. If the Trust shall not file such amendment or amendments
within 15 days after receipt by the Trust of a written request from the Sponsor
to do so, the Sponsor may, at its option, terminate this Contract immediately.
The Trust shall not file any amendment to the Registration Statement or the
Prospectus without giving the Sponsor reasonable notice thereof in advance,
provided that nothing in this Contract shall in any way limit the Trust's right
to file at any time such amendments to the Registration Statement or the
Prospectus as the Trust may deem advisable. The Trust represents and warrants to
the Sponsor that any amendment to the Registration Statement or the Prospectus
filed hereafter by the Trust will, when it becomes effective under the 1933 Act,
contain all statements required to be stated therein in accordance with the 1933
Act, the 1940 Act and the rules and regulations thereunder, that all statements
of fact contained therein will, when the same shall become effective, be true
and correct, and that no such amendment, when it becomes effective, will include
an untrue statement of a material fact or will omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading to a purchaser of Shares.
10. The Trust shall prepare and furnish to the Sponsor from time to
time such number of copies of the most recent form of the Prospectus filed with
the SEC as the Sponsor may reasonably request. The Trust authorizes the Sponsor
to use the Prospectus, in the form furnished to the Sponsor from time to time,
in connection with the sale of Shares. The Trust shall indemnify, defend and
hold harmless the Sponsor, its officers and Trustees and any person who controls
the Sponsor within the meaning of the 1933 Act, from and against any and all
claims, demands, liabilities and expenses (including the cost of investigating
or defending such claims, demands or liabilities and any counsel fees incurred
in connection therewith) which the Sponsor, its officers and Trustees or any
such controlling person may incur under the 1933 Act, the 1940 Act, the common
law or otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either or necessary to make the statements in either
not misleading. This Contract shall not be construed to protect the Sponsor
against any liability to the Trust or its shareholders to which the Sponsor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Contract. This indemnity
<PAGE>
4
agreement is expressly conditioned upon the Trust being notified of any action
brought against the Sponsor, its officers or Trustees or any such controlling
person, which notification shall be given by letter or by telegram addressed to
the Trust at its principal office and sent to the Trust by the person against
whom such action is brought within 10 days after the summons or other first
legal process shall have been served. The failure to notify the Trust of any
such action shall not relieve the Trust from any liability which it may have to
the person against whom such action is brought by reason of any such alleged
untrue statement or omission otherwise than on account of the indemnity
agreement contained in this paragraph. The Trust shall be entitled to assume the
defense of any suit brought to enforce any such claim, demand or liability, but,
in such case, the defense shall be conducted by counsel chosen by the Trust and
approved by the Sponsor. If the Trust elects to assume the defense of any such
suit and retain counsel approved by the Sponsor, the defendant or defendants in
such suit shall bear the fees and expenses of any additional counsel retained by
any of them, but in case the Trust does not elect to assume the defense of any
such suit, or in case the Sponsor does not approve of counsel chosen by the
Trust, the Trust will reimburse the Sponsor, its officers and Trustees or the
controlling person or persons named as defendant or defendants in such suit, for
the fees and expenses of any counsel retained by the Sponsor or them. In
addition, the Sponsor shall have the right to employ counsel to represent it,
its officers and Trustees and any such controlling person who may be subject to
liability arising out of any claim in respect of which indemnity may be sought
by the Sponsor against the Trust hereunder if in the reasonable judgment of the
Sponsor it is advisable for the Sponsor, its officers and Trustees or such
controlling person to be represented by separate counsel, in which event the
fees and expenses of such separate counsel shall be borne by the Trust. This
indemnity agreement and the Trust's representations and warranties in this
Contract shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Sponsor, its officers and Trustees or
any such controlling person. This indemnity agreement shall inure exclusively to
the benefit of the Sponsor and its successors, the Sponsor's officers and
directors and their respective estates and any such controlling persons and
their successors and estates. The Trust shall promptly notify the Sponsor of the
commencement of any litigation or proceedings against it in connection with the
issue and sale of any Shares.
11. The Sponsor agrees to indemnify, defend and hold harmless the
Trust, its officers and Trustees and any person who controls the Trust within
the meaning of the 1933 Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in connection
therewith) which the Trust, its officers or Trustees or any such controlling
person, may incur under the 1933 Act, the 1940 Act, common law or otherwise, but
only to the extent that such liability or expense incurred by the Trust, its
officers or Trustees or such controlling person resulting from such claims or
demands shall arise out of or be based upon any alleged untrue statement of a
material fact contained in information furnished in writing by the Sponsor to
the Trust specifically for use in the Registration Statement or the Prospectus
or shall arise out of or be based upon any alleged omission to state a material
fact in connection with such information required to be stated in the
Registration Statement or the Prospectus or necessary to make such information
not misleading.
<PAGE>
5
This indemnity agreement is expressly conditioned upon the Sponsor being
notified of any action brought against the Trust, its officers or Trustees or
any such controlling person, which notification shall be given by letter or
telegram addressed to the Sponsor at its principal office and sent to the
Sponsor by the person against whom such action is brought, within 10 days after
the summons or other first legal process shall have been served. The failure to
notify the Sponsor of any such action shall not relieve the Sponsor from any
liability which it may have to the Trust, its officers or Trustees or such
controlling person by reason of any such alleged misstatement or omission on the
Sponsor's part otherwise than on account of the indemnity agreement contained in
this paragraph. The Sponsor shall have a right to control the defense of such
action with counsel of its own choosing and approved by the Trust if such action
is based solely upon such alleged misstatement or omission on the Sponsor's
part, and in any other event the Trust, its officers and Trustees or such
controlling person shall each have the right to participate in the defense or
preparation of the defense of any such action at their own expense.
12. No Shares shall be sold to the Sponsor or by the Trust under this
Contract and no orders for the purchase of Shares shall be confirmed or accepted
by the Trust if and so long as the effectiveness of the Registration Statement
shall be suspended under any of the provisions of the 1933 Act. Nothing
contained in this paragraph 11 shall in any way restrict, limit or have any
application to or bearing upon the Trust's obligation to redeem Shares from any
shareholder in accordance with the provisions of its Declaration of Trust. The
Trust will use its best efforts at all times to have Shares effectively
registered under the 1933 Act.
13. The Trust agrees to advise the Sponsor immediately:
(a) of any request by the SEC for amendments to the
Registration Statement or the Prospectus or for additional information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the Prospectus
under the 1933 Act or the initiation of any proceedings for that purpose;
(c) of the happening of any material event which makes untrue
any statement made in the Registration Statement or the Prospectus or which
requires the making of a change in either thereof in order to make the
statements therein not misleading; and
(d) of all action of the SEC with respect to any amendments
to the Registration Statement or the Prospectus which may from time to time be
filed with the SEC under the 1933 Act or the 1940 Act.
14. Insofar as they concern the Trust, the Trust shall comply with all
applicable laws, rules and regulations, including, without limiting the
generality of the foregoing, all rules or regulations made or adopted pursuant
to the 1933 Act, the 1940 Act or by any securities association registered under
the 1934 Act.
<PAGE>
6
15. The Sponsor may, if it desires and at its own cost and expense,
appoint or employ agents to assist it in carrying out its obligations under this
Contract, but no such appointment or employment shall relieve the Sponsor of any
of its responsibilities or obligations to the Trust under this Contract.
16. (a) The Sponsor shall from time to time employ or
associate with it such persons as it believes necessary to assist it in carrying
out its obligations under this Contract.
(b) The Sponsor shall pay all expenses incurred in connection
with its qualification as a dealer or broker under Federal or state law.
(c) The Trust shall pay all expenses incurred in connection
with (i) the preparation, printing and distribution to shareholders of the
Prospectus and reports and other communications to shareholders, (ii) future
registrations of Shares under the 1933 Act and the 1940 Act, (iii) amendments of
the Registration Statement subsequent to the initial public offering of Shares,
(iv) qualification of Shares for sale in jurisdictions designated by the
Sponsor, (v) qualification of the Trust as a dealer or broker under the laws of
jurisdictions designated by the Sponsor, (vi) qualification of the Trust as a
foreign corporation authorized to do business in any jurisdiction if the Sponsor
determines that such qualification is necessary or desirable for the purpose of
facilitating sales of Shares, (vii) maintaining facilities for the issue and
transfer of Shares and (viii) supplying information, prices and other data to be
furnished by the Trust under this Contract.
(d) The Trust shall pay any original issue taxes or transfer
taxes applicable to the sale or delivery of Shares or certificates therefor.
(e) The Trust shall execute all documents and furnish any
information which may be reasonably necessary in connection with the
qualification of Shares of the Trust for sale in jurisdictions designated by the
Sponsor.
17. The Sponsor will render all services hereunder without compensation
or reimbursement, except that the Sponsor shall receive such compensation or
reimbursement in the form of (i) applicable sales charges described in the
Prospectus, (ii) any reimbursement as is provided for by the Plan, (iii) such
other reimbursement as is expressly permitted under this Contract, and (iv)
applicable dealer reallowances described in the Prospectus.
18. This Contract, and any Supplement, shall become effective with
respect to each Fund on the date specified in each Fund's Supplement, and shall
continue in effect until such time as there shall remain no unsold balance of
Shares for such Fund registered under the 1933 Act, provided that this Contract
shall continue in effect with respect to such Fund for a period of more than one
year from such date specified in such Fund's Supplement only so long as such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or by the vote of a majority of such Fund's outstanding voting
securities (as defined in the 1940 Act), and (b) the vote, cast in person at a
meeting called for the purpose of voting on such approval, of a majority of the
Trust's Trustees who are not parties to this Contract or "interested persons"
(as
<PAGE>
7
defined in the 1940 Act) of any such party. This Contract, and all of its
Supplements, shall terminate automatically in the event of assignment (as
defined in the 1940 Act). This Contract, and/or any and all Supplements, may, in
any event, be terminated at any time, without the payment of any penalty, by
vote of a majority of the Trust's Trustees who are not parties to this Contract
or "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of the Plan or this Contract or by
vote of a majority of the appropriate Fund's outstanding voting securities (as
defined in the 1940 Act) upon 60 days' written notice to the Sponsor and by the
Sponsor upon 60 days' written notice to the Trust.
19. Except to the extent necessary to perform the Sponsor's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Sponsor, or any affiliate of the Sponsor, or any employee of the
Sponsor to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
20. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Republic Funds" refers to the Trustees under the
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, Trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
21. This Contract shall be construed and its provisions interpreted, in
accordance with the laws of the Commonwealth of Massachusetts.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Title:
ACCEPTED:
SIGNATURE BROKER-DEALER SERVICES, INC.
By: /S/ PHILIP W. COOLIDGE
Title:
FT4070
<PAGE>
DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
June 14, 1993
as amended and restated August 28, 1995
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of Shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic U.S.
Government Money Market Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Sponsor have entered into a Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts
the Contract with respect to the Fund, and the Sponsor hereby acknowledges that
the Contract shall pertain to the Fund, the terms and conditions of such
Contract being hereby incorporated herein by reference. All terms defined in the
Contract and not defined in this Supplement shall have the same meaning herein
as therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect
to the Trust and the Fund on June 14, 1993, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED that the Contract and this Supplement shall continue in
effect with respect to the Fund for a period of more than one year from the
effective date of this Supplement only so long as such continuance is
specifically approved at least annually by (a) the Trust's Board of Trustees or
by the vote of a
<PAGE>
Signature Broker-Dealer
Services, Inc.
June 14, 1993
Page 2
majority of the Fund's outstanding voting securities (as defined in the 1940
Act), and (b) the vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Trust's trustees who are not
parties to the Contract or "interested persons" (as defined in the 1940 Act) of
any such party. The Contract and this Supplement shall terminate automatically
in the event of assignment (as defined in the 1940 Act). The Contract and this
Supplement may, in any event, be terminated at any time, without the payment of
any penalty, by vote of a majority of the Trust's Trustees who are not parties
to this Contract or "interested persons" (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
this Contract or by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) upon 60 days' written notice to the
Sponsor and by the Sponsor upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
FT4070
<PAGE>
DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of Shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic New
York Tax Free Money Market Fund (the "Fund") is a separate investment portfolio
of the Trust.
2. The Trust and the Sponsor have entered into a Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts
the Contract with respect to the Fund, and the Sponsor hereby acknowledges that
the Contract shall pertain to the Fund, the terms and conditions of such
Contract being hereby incorporated herein by reference. All terms defined in the
Contract and not defined in this Supplement shall have the same meaning herein
as therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect
to the Trust and the Fund on October 6, 1994, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED that the Contract and this Supplement shall continue in
effect with respect to the Fund for a period of more than one year from the
effective date of this Supplement only so long as such continuance is
specifically approved at least annually by (a) the Trust's Board of Trustees or
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act), and (b) the vote, cast in person at a meeting called
for the purpose of
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 2
voting on such approval, of a majority of the Trust's Trustees who are not
parties to the Contract or "interested persons" (as defined in the 1940 Act) of
any such party. The Contract and this Supplement shall terminate automatically
in the event of assignment (as defined in the 1940 Act). The Contract and this
Supplement may, in any event, be terminated at any time, without the payment of
any penalty, by vote of a majority of the Trust's Trustees who are not parties
to this Contract or "interested persons" (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
this Contract or by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) upon 60 days' written notice to the
Sponsor and by the Sponsor upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
FT4070
<PAGE>
DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
as amended and restated August 28, 1995
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC NEW YORK TAX FREE BOND FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic New
York Tax Free Bond Fund (the "Fund") is a separate investment portfolio of the
Trust.
2. The Trust and the Sponsor have entered into a Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts
the Contract with respect to the Fund, and the Sponsor hereby acknowledges that
the Contract shall pertain to the Fund, the terms and conditions of such
Contract being hereby incorporated herein by reference. All terms defined in the
Contract and not defined in this Supplement shall have the same meaning herein
as therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect
to the Trust and the Fund on October 6, 1994, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED that the Contract and this Supplement shall continue in
effect with respect to the Fund for a period of more than one year from the
effective date of this Supplement only so long as such continuance is
specifically approved at least annually by (a) the Trust's Board of Trustees or
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 2
Act), and (b) the vote, cast in person at a meeting called for the purpose of
voting on such approval, of a majority of the Trust's Trustees who are not
parties to the Contract or "interested persons" (as defined in the 1940 Act) of
any such party. The Contract and this Supplement shall terminate automatically
in the event of assignment (as defined in the 1940 Act). The Contract and this
Supplement may, in any event, be terminated at any time, without the payment of
any penalty, by vote of a majority of the Trust's Trustees who are not parties
to this Contract or "interested persons" (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
this Contract or by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) upon 60 days' written notice to the
Sponsor and by the Sponsor upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
FT4070
<PAGE>
DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
April 7, 1995
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC EQUITY FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as
a Massachusetts business trust and consists of such separate investment
portfolios as have been or may be established by the Trustees of the Trust from
time to time. A separate class of shares of beneficial interest of the Trust is
offered to investors with respect to each investment portfolio. Republic Equity
Fund (the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts
the Contract with respect to the Fund, and the Sponsor hereby acknowledges that
the Contract shall pertain to the Fund, the terms and conditions of such
Contract being hereby incorporated herein by reference. All terms defined in the
Contract and not defined in this Supplement shall have the same meaning herein
as therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect
to the Trust and the Fund on April 7, 1995, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED that the Contract and this Supplement shall continue in
effect with respect to the Fund for a period of more than one year from the
effective date of this Supplement only so long as such continuance is
specifically approved at least annually by (a) the Trust's Board of Trustees or
by the vote of a majority of the Fund's outstanding voting securities (as
defined in the 1940 Act), and (b) the vote, cast in person at a meeting called
for the purpose of voting on such approval, of a majority of the Trust's
Trustees who are not
<PAGE>
Signature Broker-Dealer
Services, Inc.
April 7, 1995
Page 2
parties to the Contract or "interested persons" (as defined in the 1940 Act) of
any such party. The Contract and this Supplement shall terminate automatically
in the event of assignment (as defined in the 1940 Act). The Contract and this
Supplement may, in any event, be terminated at any time, without the payment of
any penalty, by vote of a majority of the Trust's Trustees who are not parties
to this Contract or "interested persons" (as defined in the 1940 Act) and who
have no direct or indirect financial interest in the operation of the Plan or
this Contract or by vote of a majority of the Fund's outstanding voting
securities (as defined in the 1940 Act) upon 60 days' written notice to the
Sponsor and by the Sponsor upon 60 days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
FT4199G
SECOND MASTER DISTRIBUTION CONTRACT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Sponsor") as follows:
1. The Trust is an open-end investment company organized as a Massachusetts
business trust, and consists of one or more separate investment portfolios as
may be established and designated by the Trustees from time to time (the
"Funds"). This Second Master Distribution Contract (this "Contract") shall
pertain to such Funds as shall be designated in supplements to this Contract
("Supplements"), as further agreed between the Trust and the Sponsor. A separate
series of shares of beneficial interest in the Trust (the "Shares") is offered
to investors with respect to each Fund. The Trust engages in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objective and restrictions specified in the
currently effective Prospectus (the "Prospectus") relating to each Fund and the
Trust's Registration Statement, as amended from time to time (the "Registration
Statement"), filed by the Trust under the Investment Company Act of 1940 (the
1940 Act") and the Securities Act of 1933 (the 111933 Act"). Copies of the
documents referred to in the preceding sentence have been furnished to the
Sponsor. Any amendments to those documents shall be furnished to the Sponsor
promptly. The Trust has entered into a Master Investment Management Contract and
Supplements thereto (the "Management Contract") with Republic National Bank of
New York (the "Adviser") under which the Adviser will provide the Trust with
investment management services and a Second Master Administrative Services
Contract and Supplements thereto (the "Administrative Services Contract") with
you.
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 2
2. The Sponsor shall be the Trust's distributor for the unsold portion of
the Shares which may from time to time be registered under the 1933 Act.
3. The Trust shall sell Shares to the Sponsor, as the Trust's distributor,
for resale to the eligible investors as described in the Prospectus. All orders
through the Sponsor shall be subject to acceptance and confirmation by the
Trust. The Trust shall have the right, at its election, to deliver either Shares
issued upon original issue or treasury Shares.
4. As the Trust's distributor, the Sponsor may sell and distribute Shares
in such manner not inconsistent with the provisions hereof and each Fund's
Prospectus as the Sponsor may determine from time to time. In this connection,
the Sponsor shall comply with all laws, rules and regulations applicable to it,
including, without limiting the generality of the foregoing, all applicable
rules or regulations under the 1940 Act and of any securities association
registered under the Securities Exchange Act of 1934 (the 111934 Act").
5. The Trust reserves the right to sell Shares to purchasers to the extent
that it or the transfer agent for its Shares receives purchase requests
therefor.
6. All Shares offered for sale and sold by the Sponsor shall be offered for
sale and sold by the Sponsor to designated investors at the price per Share
specified and determined as provided in the Prospectus including any applicable
reductions or eliminations of sales charges described therein (the "offering
price"). The Trust shall determine and promptly furnish to the Sponsor a
statement of the offering price at least once on each day on which the New York
Stock Exchange is open for trading and on each additional day on which each
Fund's net asset value might be materially affected by changes in the value of
its portfolio securities. Each offering price shall become effective at the time
and shall remain in effect during the period specified in the statement. Each
such statement shall show the basis of its computation. The difference between
the offering price and net asset value (which amount shall not be in excess of
that set forth in the Prospectus) may be retained by the Sponsor, or all or any
part thereof may be paid to a purchaser's investment dealer, in accordance with
the Prospectus.
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 3
7. The Trust shall furnish the Sponsor from time to time, for use in
connection with the sale of Shares, such written information with respect to the
Trust as the Sponsor may reasonably request. In each case such written
information shall be signed by an authorized officer of the Trust. The Trust
represents and warrants that such information, when signed by one of its
officers, shall be true and correct. The Trust also shall furnish to the Sponsor
copies of its reports to its shareholders and such additional information
regarding the Trust's financial condition as the Sponsor may reasonably request
from time to time.
8. The Registration Statement and the Prospectus have been or will be, as
the case may be, prepared in conformity with the 1933 Act, the 1940 Act and the
rules and regulations of the Securities and Exchange Commission (the "SECII).
The Trust represents and warrants to the Sponsor that the Registration Statement
and the Prospectus contain or will contain all statements required to be stated
therein in accordance with the 1933 Act, the 1940 Act and the rules and
regulations thereunder, that all statements of fact contained or to be contained
therein are or will be true and correct at the time indicated or the effective
date, as the case may be, and that neither the Registration Statement nor the
Prospectus, when it shall become effective under the 1933 Act or be authorized
for use, shall include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading to a purchaser of Shares. The Trust shall from time to
time file such amendment or amendments to the Registration Statement and the
Prospectus as, in the light of future developments, shall, in the opinion of the
Trust's counsel, be necessary in order to have the Registration Statement and
the Prospectus at all times contain all material facts required to be stated
therein or necessary to inake the statements therein not misleading to a
purchaser of Shares. if the Trust shall not file such amendment or amendments
within 15 days after receipt by the Trust of a written request from the Sponsor
to do so, the Sponsor may, at its option, terminate this Contract immediately.
The Trust shall not file any amendment to the Registration Statement or the
Prospectus without giving the Sponsor reasonable notice thereof in advance,
provided that nothing in this Contract shall in any way limit the Trust's right
to file at any time such amendments to the Registration Statement or the
Prospectus as the Trust nay deem advisable. The Trust
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 4
represents and warrants to the Sponsor that any amendment to the Registration
Statement or the Prospectus filed hereafter by the Trust will, when it becomes
effective under the 1933 Act, contain all statements required to be stated
therein in accordance with the 1933 Act, the 1940 Act and the rules and
regulations thereunder, that all statements of fact contained therein will, when
the same shall become effective, be true and correct, and that no such
amendment, when it becomes effective, will include an untrue statement of a
material fact or will omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading to a
purchaser of Shares.
9. The Trust shall prepare and furnish to the Sponsor from time to time
such number of copies of the most recent form of the Prospectus filed with the
SEC as the Sponsor may reasonably request. The Trust authorizes the Sponsor to
use the Prospectus, in the form furnished to the Sponsor from time to time, in
connection with the sale of Shares. The Trust shall indemnify, defend and hold
harmless the Sponsor, its officers and Trustees and any person who controls the
Sponsor within the meaning of the 1933 Act, from and against any and all claims,
demands, liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel fees incurred in
connection therewith) which the Sponsor, its officers and Trustees or any such
controlling person may incur under the 1933 Act, the 1940 Act, the common law or
otherwise, arising out of or based upon any alleged untrue statement of a
material fact contained in the Registration Statement or the Prospectus or
arising out of or based upon any alleged omission to state a material fact
required to be stated in either or necessary to make the statements in either
not misleading. This Contract shall not be construed to protect the Sponsor
against any liability to the Trust or its shareholders to which the Sponsor
would otherwise be subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties under this Contract. This indemnity
agreement is expressly conditioned upon the Trust being notified of any action
brought against the Sponsor, its officers or Trustees or any such controlling
person, which notification shall be given by letter or by telegram addressed to
the Trust at its principal office and sent to the Trust by the person against
whom such action is brought within 10 days after the summons or other first
legal process shall have been served. The failure to
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 5
notify the Trust of any such action shall not relieve the Trust from any
iiability which it may have to the person against whom such action is brought by
reason of any such alleged untrue statement or omission otherwise than on
account of the indemnity agreement contained in this paragraph. The Trust shall
be entitled to assume the defense of any suit brought to enforce any such claim,
demand or liability, but, in such case, the defense shall be conducted by
counsel chosen by the Trust and approved by the Sponsor. If the Trust elects to
assume the defense of any such suit and retain counsel approved by the Sponsor,
the defendant or defendants in such suit shall bear the fees and expenses of any
additional counsel retained by any of them, but in case the Trust does not elect
to assume the defense of any such suit, or in case the Sponsor does not approve
of counsel chosen by the Trust, the Trust will reimburse the Sponsor, its
officers and Trustees or the controlling person or persons named as defendant or
defendants in such suit, for the fees and expenses of any counsel retained by
the Sponsor or them. In addition, the Sponsor shall have the right to employ
counsel to represent it, its officers and Trustees and any such controlling
person who may be subject to liability arising out of any claim in respect of
which indemnity may be sought by the Sponsor against the Trust hereunder if in
the reasonable judgment of the Sponsor it is advisable for the Sponsor, its
officers and Trustees or such controlling person to be represented by separate
counsel, in which event the fees and expenses of such separate counsel shall be
borne by the Trust. This indemnity agreement and the Trust's representations and
warranties in this Contract shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of the Sponsor, its
officers and Trustees or any such controlling person. This indemnity agreement
shall inure exclusively to the benefit of the Sponsor and its successors, the
Sponsor's officers and directors and their respective estates and any such
controlling persons and their successors and estates. The Trust shall promptly
notify the Sponsor of the commencement of any litigation or proceedings against
it in connection with the issue and sale of any Shares.
10. The Sponsor agrees to indemnify, defend and hold harmless the Trust,
its officers and Trustees and any person who controls the Trust within the
meaning of the 1933 Act, from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or defending such
claims, demands or liabilities and any counsel fees incurred in
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 6
connection therewith) which the Trust, its officers or Trustees or any such
controlling person, may incur under the 1933 Act, the 1940 Act, common law or
otherwise, but only to the extent that such liability or expense incurred by the
Trust, its officers or Trustees or such controlling person resulting from such
claims or demands shall arise out of or be based upon any alleged untrue
statement of a material fact contained in information furnished in writing by
the Sponsor to the Trust specifically for use in the Registration Statement or
the Prospectus or shall arise out of or be based upon any alleged omission to
state a material fact in connection with such information required to be stated
in the Registration Statement or the Prospectus or necessary to make such
information not misleading. This indemnity agreement is expressly conditioned
upon the Sponsor being notified of any action brought against the Trust, its
officers or Trustees or any such controlling person, which notification shall be
given by letter or telegram addressed to the Sponsor at its principal office and
sent to the Sponsor by the person against whom such action is brought, within 10
days after the summons or other first legal process shall have been served. The
failure to notify the Sponsor of any such action shall not relieve the Sponsor
from any liability which it may have to the Trust, its officers or Trustees or
such controlling person by reason of any such alleged misstatement or omission
on the Sponsor's part otherwise than on account of the indemnity agreement
contained in this paragraph. The Sponsor shall have a right to control the
defense of such action with counsel of its own choosing and approved by the
Trust if such action is based solely upon such alleged misstatement or omission
on the Sponsor's part, and in any other event the Trust, its officers and
Trustees or such controlling person shall each have the right to,participate in
the defense or preparation of the defense of any such action at their own
expense.
11. No Shares shall be sold to the Sponsor or by the Trust under this
Contract and no orders for the purchase of Shares shall be confirmed or accepted
by the Trust if and so long as the effectiveness of the Registration Statement
shall be suspended under any of the provisions of the 1933 Act. Nothing
contained in this paragraph 11 shall in any way restrict, limit or have any
application to or bearing upon the Trust's obligation to redeem Shares from any
shareholder in accordance with the provisions of its Declaration of Trust. The
Trust will use its best efforts at
<PAGE>
Signature Broker-Dealer
Services, Inc
October 6, 1994.
Page 7
all times to have Shares effectively registered under the 1933
Act.
12. The Trust agrees to advise the Sponsor immediately:
(a) of any request by the SEC for amendments to the
Registration Statement or the Prospectus or for additional
information;
(b) in the event of the issuance by the SEC of any stop order
suspending the effectiveness of the Registration Statement or the
Prospectus under the 1933 Act or the initiation of any proceedings for
that purpose;
(c) of the happening of any material event which makes untrue any
statement made in the Registration Statement or the Prospectus or which
requires the making of a change in either thereof in order to make the
statements therein not misleading; and
(d) of all action of the SEC with respect to any amendments to the
Registration Statement or the Prospectus which may from time to time be
filed with the SEC under the 1933 Act or the 1940 Act.
13. Insofar as they concern the Trust, the Trust shall comply with all
applicable laws, rules and regulations, including, without limiting the
generality of the foregoing, all rules or regulations made or adopted pursuant
to the 1933 Act, the 1940 Act or by any securities association registered under
the 1934 Act.
14. The Sponsor may, if it desires and at its own cost and expense, appoint
or employ agents to assist it in carrying out its obligations under this
Contract, but no such appointment or employment shall relieve the Sponsor of any
of its responsibilities or obligations to the Trust under this Contract.
15. (a) The Sponsor shall from time to time employ or associate with it
such persons as it believes necessary to assist it in carrying out its
obligations under this Contract.
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 8
(b) The Sponsor shall pay all expenses incurred in connection with its
qualification as a dealer or broker under Federal or state law.
(c) The Trust shall pay all expenses incurred in connection with (i)
the preparation, printing and distribution to shareholders of the Prospectus and
reports and other communications to shareholders, (ii) future registrations of
Shares under the 1933 Act and the 1940 Act, (iii) amendments of the Registration
Statement subsequent to the initial public offering of Shares, (iv)
qualification of Shares for sale in jurisdictions designated by the Sponsor, (v)
qualification of the Trust as a dealer or broker under the laws of jurisdictions
designated by the Sponsor, (vi) qualification of the Trust as a foreign
corporation authorized to do business in any jurisdiction if the Sponsor
determines that such qualification is necessary or desirable for the purpose of
facilitating sales of Shares,, (vii) maintaining facilities for the issue and
transfer of Shares and (viii) supplying information, prices and other data to be
furnished by the Trust under this Contract.
(d) The Trust shall pay any original issue taxes or transfer taxes
applicable to the sale or delivery of Shares or certificates therefor.
(e) The Trust shall execute all documents and furnish any information
which may be reasonably necessary in connection with the qualification of Shares
of the Trust for sale in jurisdictions designated by the Sponsor.
16. The Sponsor will render all services hereunder without compensation or
reimbursement, except that the Sponsor shall receive such reimbursement as is
expressly permitted under this Contract.
17. This Contract, and any Supplement, shall become effective with respect
to each Fund on the date specified in each Fund's Supplement, and shall continue
in effect until such time as there shall remain no unsold balance of Shares for
such Fund registered under the 1933 Act, provided that this Contract shall
continue in effect with respect to such Fund for a period of more than two years
from such date specified in such Fund's Supplement only so long as such
continuance is specifically approved at least annually by (a) the Trust's Board
of Trustees or by the
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 9
vote of a majority of such Fund's outstanding voting securities (as defined in
the 1940 Act), and (b) the vote, cast in person at a meeting called for the
purpose of voting on such approval, of a majority of the Trust's Trustees who
are not parties to this Contract or "interested persons" (as defined in the 1940
Act) of any such party. This Contract, and all of its Supplements, shall
terminate automatically in the event of assignment (as defined in the 1940 Act).
This Contract, and/or any and all Supplements, may, in any event, be terminated
at any time, without the payment of any penalty, by vote of a majority of the
Trust's Trustees who are not parties to this Contract or "interested persons"
(as defined in the 1940 Act) and who have no direct or indirect financial
interest in the operation of this Contract or by vote of a majority of the
appropriate Fund's outstanding voting securities (as defined in the 1940 Act)
upon 60 days' written notice to the Sponsor and by the Sponsor upon 60 days'
written notice to the Trust.
18. Except to the extent necessary to perform the Sponsor's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Sponsor, or any affiliate of the Sponsor, or any employee of the
Sponsor to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
19. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Republic Funds" refers to the Trustees under the
Declaration collectively as trustees and not as individuals or personally, and
that no shareholder, Trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
20. This Contract shall be construed and its provisions
interpreted, in accordance with the laws of the Commonwealth of
Massachusetts.
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 10
If the foregoing correctly sets forth the agreement between the Trust and
the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By /S/PHILIP W. COOLIDGE
Title: President
ACCEPTED:
SIGNATURE BROKER-DEALER
SERVICES, INC.
By /S/ PHILIP W. COOLIDGE
Title: President
<PAGE>
SECOND DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC INTERNATIONAL EQUITY FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consists of such separate investment portfolios
as have been or may be established by the Trustees of the Trust from time to
time. A separate class of Shares of beneficial interest of the trust is offered
to investors with respect to each investment portfolio. Republic International
Equity Fund (the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Second Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts the
Contract with respect to the Fund, and the Sponsor hereby acknowledges that the
Contract shall pertain to the Fund, the terns and conditions of such Contract
being hereby incorporated herein by reference. All terms defined in the Contract
and not defined in this Supplement shall have the same meaning herein as
therein.
4. The term "Fund" as used in the Contract shall, for
purposes of this Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect to
the Trust and the Fund on October 6, 1994, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 2
that the Contract and this Supplement shall continue in effect with respect to
the Fund for a period of more than two years from the effective date of this
Supplement only so long as such continuance is specifically approved at least
annually by (a) the Trust's Board of Trustees or by the vote of a majority of
the Funds's outstanding voting securities (as defined in the 1940 Act), and (b)
the vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the Trust's trustees who are not parties to the
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract and this Supplement shall terminate automatically in the event of
assignment (as defined in the 1940 Act). The Contract and this Supplement may,
in any event, be terminated at any time, without the payment of any penalty, by
vote of a majority of the Trust's Trustees who are not parties to this Contract
or "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of this Contract or by vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) upon 60 days' written notice to the Sponsor and by the Sponsor upon 60
days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust and
the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
<PAGE>
SECOND DISTRIBUTION CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
October 6, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC FIXED INCOME FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust") and
you (the "Sponsor") as follows:
1. The Trust is an open-end management investment company organized as a
Massachusetts business trust and consists of such separate investment portfolios
as have been or may be established by the Trustees of the Trust from time to
time. A separate class of Shares of beneficial interest of the trust is offered
to investors with respect to each investment portfolio. Republic Fixed Income
Fund (the "Fund") is a separate investment portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Second Master Distribution
Contract (the "Contract") pursuant to which the Sponsor has agreed to be the
distributor of the Shares.
3. As provided in paragraph 1 of the Contract, the Trust hereby adopts the
Contract with respect to the Fund, and the Sponsor hereby acknowledges that the
Contract shall pertain to the Fund, the terms and conditions of such Contract
being hereby incorporated herein by reference. All terms defined in the Contract
and not defined in this Supplement shall have the same meaning herein as
therein.
4. The term "Fund" as used in the Contract shall, for purposes of this
Supplement, pertain to the Fund.
5. This Supplement and the Contract shall become effective with respect to
the Trust and the Fund on October 6, 1994, and shall continue in effect until
such time as there shall remain no unsold balance of Shares registered under the
1933 Act, PROVIDED
<PAGE>
Signature Broker-Dealer
Services, Inc.
October 6, 1994
Page 2
that the Contract and this Supplement shall continue in effect with respoct to
the Fund for a period of more than two years from the effective date of this
Supplement only so long as such continuance is specifically approved at least
annually by (a) the Trust's Board of Trustees or by the vote of a majority of
the Funds's outstanding voting securities (as defined in the 1940 Act), and (b)
the vote, cast in person at a meeting called for the purpose of voting on such
approval, of a majority of the Trust's trustees who are not parties to the
Contract or "interested persons" (as defined in the 1940 Act) of any such party.
The Contract and this Supplement shall terminate automatically in the event of
assignment (as defined in the 1940 Act). The Contract and this Supplement may,
in any event, be terminated at any time, without the payment of any penalty, by
vote of a majority of the Trust's Trustees who are not parties to this Contract
or "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in the operation of this Contract or by vote of a
majority of the Fund's outstanding voting securities (as defined in the 1940
Act) upon 60 days' written notice to the Sponsor and by the Sponsor upon 60
days' written notice to the Trust.
If the foregoing correctly sets forth the agreement between the Trust and
the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
CUSTODIAN AGREEMENT
BETWEEN
REPUBLIC FUNDS
AND
INVESTORS BANK & TRUST COMPANY
<PAGE>
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian ..........................................1
2. Definitions........................................................1
2.1 Authorized Person...........................1
2.2 Security....................................1
2.3 Portfolio Security..........................1
2.4 Officers' Certificate.......................2
2.5 Book-Entry System...........................2
2.6 Depository..................................2
2.7 Proper Instructions.........................2
3. Separate Accounts.............................................2
4. Certification as to Authorized Persons........................3
5. Custody of Cash...............................................3
5.1 Purchase of Securities......................3
5.2 Redemptions.................................3
5.3 Distributions and Expenses of Fund..........4
5.4 Payment in Respect of Securities............4
5.5 Repayment of Loans..........................4
5.6 Repayment of Cash...........................4
5.7 Foreign Exchange Transactions...............4
5.8 Other Authorized Payments...................4
5.9 Termination.................................4
6. Securities....................................................4
6.1 Segregation and Registration....................4
6.2 Voting and Proxies..............................5
6.3 Book-Entry System...............................5
6.4 Use of a Depository.............................6
6.5 Use of Book-Entry System for Commercial Paper...7
6.6 Use of Immobilization Programs..................8
6.7 Eurodollar CDs..................................8
6.8 Options and Futures Transactions................9
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter.................9
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges...................9
<PAGE>
PAGE
6.9 Segregated Account.............................10
6.10 Interest Bearing Call or Time Deposits.........11
6.11 Transfer of Securities.........................11
7. Redemptions..................................................13
8. Merger, Dissolution, etc. of Fund............................13
9. Actions of Bank Without Prior Authorization..................13
10. Collections and Defaults.....................................14
11. Maintenance of Records and Accounting Services...............14
12. Fund Evaluation..............................................15
13. Concerning the Bank..........................................15
13.1 Performance of Duties;
Standard of Care ................................15
13.2 Agents and Subcustodians with Respect to Property
of the Fund Held in the United States............16
13.3 Duties of the Bank with Respect to Property
Held Outside of the United States................16
13.4 Insurance.........................................20
13.5 Fees and Expenses of Bank........................20
13.6 Advances by Bank.................................20
14. Termination..................................................20
15. Confidentiality..............................................21
16. Notices......................................................21
17. Amendments...................................................22
18. Parties......................................................22
19. Governing Law................................................22
20. Counterparts.................................................22
21. Limitation of Liability......................................22
<PAGE>
CUSTODIAN AGREEMENT
AGREEMENT made as of this 29 day of August, 1995, between REPUBLIC FUNDS, a
Massachusetts business trust (the "Fund") and INVESTORS BANK & TRUST COMPANY
(the "Bank").
The Fund, an open-end management investment company, desires to place and
maintain all of its portfolio securities and cash in the custody of the Bank.
The Bank has at least the minimum qualifications required by Section 17(f)(1) of
the Investment Company Act of 1940 (the "1940 Act") to act as custodian of the
portfolio securities and cash of the Fund, and has indicated its willingness to
so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. BANK APPOINTED CUSTODIAN. The Fund hereby appoints the Bank as custodian
of its portfolio securities and cash delivered to the Bank as hereinafter
described and the Bank agrees to act as such upon the terms and conditions
hereinafter set forth.
2. DEFINITIONS. Whenever used herein, the terms listed below will have the
following meaning:
2.1 AUTHORIZED PERSON. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund by appropriate resolution of its Board of Directors or the Board of
Trustees as the case may be ("the Board"), and set forth in a certificate as
required by Section 4 hereof.
2.2 SECURITY. The term security as used herein will have the same
meaning as when such term is used in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon.
2.3 PORTFOLIO SECURITY. Portfolio Security will mean any Security owned by
the Fund.
<PAGE>
2.4 OFFICERS' CERTIFICATE. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.5 BOOK-ENTRY SYSTEM. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.6 DEPOSITORY. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and Exchange
Commission under Section 17A of the Securities Exchange Act of 1934 ("Exchange
Act"), its successor or successors and its nominee or nominees. The term
"Depository" shall further mean and include any other person authorized to act
as a depository under the 1940 Act, its successor or successors and its nominee
or nominees, specifically identified in a certified copy of a resolution of the
Board.
2.7 PROPER INSTRUCTIONS. Proper Instructions shall mean (i)
instructions (which may be continuing instructions) regarding the purchase or
sale of Portfolio Securities, and payments and deliveries in connection
therewith, given by an Authorized Person as shall have been designated in an
Officers' Certificate, such instructions to be given in such form and manner as
the Bank and the Fund shall agree upon from time to time, and (ii) instructions
(which may be continuing instructions) regarding other matters signed or
initialed by such one or more persons from time to time designated in an
Officers' Certificate as having been authorized by the Board. Oral instructions
will be considered Proper Instructions if the Bank reasonably believes them to
have been given by a person authorized to give such instructions with respect to
the transaction involved. The Fund shall cause all oral instructions to be
promptly confirmed in writing. The Bank shall act upon and comply with any
subsequent Proper Instruction which modifies a prior instruction and the sole
obligation of the Bank with respect to any follow-up or confirmatory instruction
shall be to make reasonable efforts to detect any discrepancy between the
original instruction and such confirmation and to report such discrepancy to the
Fund. The Fund shall be responsible, at the Fund's expense, for taking any
action, including any reprocessing, necessary to correct any such discrepancy or
error, and to the extent such action requires the Bank to act the Fund shall
give the Bank specific Proper Instructions as to the action required. Upon
receipt of an Officers' Certificate as to the authorization by the Board
accompanied by a detailed description of procedures approved by the Fund, Proper
Instructions may include communication effected directly between
electro-mechanical or electronic devices provided that the Board and the Bank
are satisfied that such procedures afford adequate safeguards for the Fund's
assets.
3. SEPARATE ACCOUNTS. If the Fund has more than one series or
portfolio, the Bank will segregate the assets of each series or portfolio to
which this Agreement relates into a separate account for each such series or
portfolio containing the assets of such series or portfolio (and all investment
earnings thereon). Unless the context otherwise requires, any reference in this
Agreement to any actions to be taken by the Fund shall be deemed to refer to the
Fund acting on behalf of one or more of its series, any reference in this
Agreement to any assets of the Fund, including, without limitation, any
Portfolio Securities and cash and earnings thereon, shall be deemed to refer
only to assets of the applicable series, any duty or obligation of the Bank
hereunder to the Fund shall be deemed to refer to duties and obligations with
respect to the individual series, and any obligation or liability of the Fund
hereunder shall be binding only with respect to the individual series, and shall
be discharged only out of the assets of such series.
<PAGE>
4. CERTIFICATION AS TO AUTHORIZED PERSONS. The Secretary or Assistant
Secretary of the Fund will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Fund, will sign a new or amended certification setting forth
the change and the new, additional or omitted names or signatures. The Bank will
be entitled to rely and act upon any Officers' Certificate given to it by the
Fund which has been signed by Authorized Persons named in the most recent
certification.
5. CUSTODY OF CASH. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund, except for cash held by a subcustodian
appointed pursuant to Section 13.2 or Section 13.3 hereof, including borrowed
funds, delivered to the Bank, subject only to draft or order by the Bank acting
pursuant to the terms of this Agreement. Upon receipt by the Bank of Proper
Instructions (which may be continuing instructions) or in the case of payments
for redemptions and repurchases of outstanding shares of common stock of the
Fund, notification from the Fund's transfer agent as provided in Section 7,
requesting such payment, designating the payee or the account or accounts to
which the Bank will release funds for deposit, and stating that it is for a
purpose permitted under the terms of this Section 5, specifying the applicable
subsection, the Bank will make payments of cash held for the accounts of the
Fund, insofar as funds are available for that purpose, only as permitted in
subsections 5.1-5.9 below.
5.1 PURCHASE OF SECURITIES. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or, against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs, registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper) of
purchase of the securities received by the Bank before such payment is made, as
confirmed in the Proper Instructions received by the Bank before such payment is
made.
5.2 REDEMPTIONS. In such amount as may be necessary for the repurchase
or redemption of common shares of the Fund offered for repurchase or redemption
in accordance with Section 7 of this Agreement.
<PAGE>
5.3 DISTRIBUTIONS AND EXPENSES OF FUND. For the payment on the account
of the Fund of dividends or other distributions to shareholders as may from time
to time be declared by the Board, interest, taxes, management or supervisory
fees, distribution fees, fees of the Bank for its services hereunder and
reimbursement of the expenses and liabilities of the Bank as provided hereunder,
fees of any transfer agent, fees for legal, accounting, and auditing services,
or other operating expenses of the Fund.
5.4 PAYMENT IN RESPECT OF SECURITIES. For payments in
connection with the conversion, exchange or surrender of Portfolio Securities or
securities subscribed to by the Fund held by or to be delivered to the Bank.
5.5 REPAYMENT OF LOANS. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any portfolio
securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 REPAYMENT OF CASH. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
5.7 FOREIGN EXCHANGE TRANSACTIONS. For payments in connection with
foreign exchange contracts or options to purchase and sell foreign currencies
for spot and future delivery which may be entered into by the Bank on behalf Of
the Fund upon the receipt of Proper Instructions, such Proper Instructions to
specify the currency broker or banking institution (which may be the Bank, or
any other subcustodian or agent hereunder, acting as principal) with which the
contract or option is made, and the Bank shall have no duty with respect to the
selection of such currency brokers or banking institutions with which the Fund
deals or for their failure to comply with the terms of any contract or option.
5.8 OTHER AUTHORIZED PAYMENTS. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, naming the person or persons to whom such
payment is to be made, and either describing the transaction for which payment
is to be made and declaring it to be an authorized transaction of the Fund, or
specifying the amount of the obligation for which payment is to be made, setting
forth the purpose for which such obligation was incurred and declaring such
purpose to be a proper corporate purpose.
5.9 TERMINATION: upon the termination of this Agreement as hereinafter set
forth pursuant to Section 8 and Section 14 of this Agreement.
<PAGE>
6. SECURITIES.
6.1 SEGREGATION AND REGISTRATION. Except as otherwise provided
herein, and except for securities to be delivered to any subcustodian appointed
pursuant to Section 13.2 hereof, the Bank as custodian, will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 VOTING AND PROXIES. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials with respect to such Securities, such proxies to
be executed by the registered holder of such Securities (if registered otherwise
than in the name of the Fund), but without indicating the manner in which such
proxies are to be voted.
6.3 BOOK-ENTRY SYSTEM. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits of Fund assets
in the Book-Entry System, and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(a) The Bank may keep Portfolio Securities in the Book-Entry
System provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to
the Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry Portfolio Securities which are included with
other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized officers, employees or agents of the Fund. Where securities are
transferred to the Fund's account, the Bank shall also, by book entry or
otherwise, identify as belonging to the Fund a quantity of securities in
fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
<PAGE>
(c) The Bank (or its agent) shall pay for Portfolio Securities
purchased for the account of the Fund or shall pay cash collateral against the
return of Portfolio Securities loaned by the Fund upon (i) receipt of advice
from the Book-Entry System that such Portfolio Securities have been transferred
to the Account, and (ii) the making of an entry on the records of the Bank (or
its agent) to reflect such payment and transfer for the account of the Fund. The
Bank (or its agent) shall transfer securities sold or loaned for the account of
the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for securities sold or payment of the initial cash collateral against the
delivery of Portfolio Securities loaned by the Fund has been transferred to the
Account; and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of Securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation, as defined by Rule 17f-4 under the 1940 Act, of any
transfers to or from the account of the Fund;
(d) The Bank will promptly provide the Fund with any report
obtained by the Bank or its agent on the Book-Entry System's accounting system,
internal accounting control and procedures for safeguarding securities deposited
in the Book-Entry System; and
(e) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of the Book-Entry System by reason of any gross
negligence, willful misfeasance or bad faith of the Bank or any of its agents or
of any of its or their employees or from any reckless disregard by the Bank or
any such agent of its duty to use its best efforts to enforce such rights as it
may have against the Book-Entry System; at the election of the Fund, it shall be
entitled to be substituted for the Bank in any claim against the Book-Entry
System or any other person which the Bank or its agent may have as a consequence
of any such loss or damage if and to the extent that the Fund has not been made
whole for any loss or damage;
6.4 USE OF A DEPOSITORY. Provided (i) the Bank has received a certified
copy of a resolution of the Board specifically approving deposits in DTC or
other such Depository and (ii) for any subsequent changes to such arrangements
following such approval, the Board has reviewed and approved the arrangement and
has not delivered an Officer's Certificate to the Bank indicating that the Board
has withdrawn its approval:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name
of any nominee or nominees used by such Depository;
<PAGE>
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Portfolio Securities to or for the
account of the Fund; and upon any sale of Portfolio Securities, delivery of the
securities will be made only against payment therefor or, in the event Portfolio
Securities are loaned, delivery of Portfolio Securities will be made only
against receipt of the initial cash collateral to or for the account of the
Fund; and
(d) The Bank shall be liable to the Fund for any loss or damage to
the Fund resulting from use of a Depository by reason of any gross negligence,
willful misfeasance or bad faith of the Bank or its employees or from any
reckless disregard by the Bank of its duty to use its best efforts to enforce
such rights as it may have against a Depository. In this connection, the Bank
shall use its best efforts to ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
(ii) Any proxy materials received by a Depository with respect
to Portfolio Securities deposited with such Depository are forwarded immediately
to the Bank for prompt transmittal to the Fund;
(iii) Such Depository immediately forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with the recordkeeping
requirements of Section 31(a) of the 1940 Act and Rule 31(a) thereunder; and
(v) Such Depository delivers to the Bank and the Fund all
internal accounting control reports, whether or not audited by an independent
public accountant, as well as such other reports as the Fund may reasonably
request in order to verify the Portfolio Securities held by such Depository.
6.5 USE OF BOOK-ENTRY SYSTEM FOR COMMERCIAL PAPER. Provided (i) the Bank
has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has received and approved the arrangements,
upon receipt of Proper Instructions and upon receipt of confirmation from an
Issuer (as defined below) that the Fund has purchased such Issuer's Book-entry
Paper, the Bank shall issue and hold in book-entry form, on behalf of the Fund,
commercial paper issued by issuers with whom the Bank has entered into a
book-entry agreement (the "Issuers"). In maintaining its Book-entry Paper
System, the Bank agrees that:
<PAGE>
(a) the Bank will maintain all Book-entry paper held by the Fund
in an account of the Bank that includes only assets held by it for customers;
(b) the records of the Bank with respect to the Fund's purchase of
Book-entry Paper through the Bank will identify, by book-entry, Commercial Paper
belonging to the Fund which is included in the Book-entry Paper System and shall
at all times during the regular business hours of the Bank be open for
inspection by duly authorized officers, employees or agents of the Fund;
(c) the Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) the Bank shall cancel such Book-Entry Paper obligation upon
the maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) the Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book-Entry Paper for the account of the Fund on
the next business day following the transaction; and
(f) the Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper System as the
Fund may reasonably request from time to time.
.
6.6 USE OF IMMOBILIZATION PROGRAMS. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed and approved
the arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.7 EURODOLLAR CDS. Any Portfolio Securities which are Eurodollar
CDs may be physically held by the European branch of the U.S. banking
institution that is the issuer of such Eurodollar CD (a "European Branch"),
provided that such Securities are identified on the books of the Bank as
belonging to the Fund and that the books of the Bank identify the European
Branch holding such Securities. Notwithstanding any other provision of this
Agreement to the contrary, except as stated in the first sentence of this
subsection 6.7, the Bank shall be under no other duty with respect to such
Eurodollar CDs belonging to the Fund, and shall have no liability to the Fund or
its shareholders with respect to the actions, inactions, whether negligent or
otherwise of such European Branch in connection with such Eurodollar CDs, except
for any loss or damage to the Fund resulting from the Bank's own gross
negligence, willful misfeasance or bad faith in the performance of its duties
hereunder.
<PAGE>
6.8 OPTIONS AND FUTURES TRANSACTIONS.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
1. The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions between the Bank, any
broker-dealer registered under the Exchange Act and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), and, if necessary, the
Fund relating to the compliance with the rules of the Options Clearing
Corporation and of any registered national securities exchange, or of any
similar organization or organizations.
2. Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.9 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker of the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
1. The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement among the Fund, the Bank and a Futures Commission
Merchant registered under the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading Commission and/or any Contract
Market, or any similar organization or organizations, regarding account deposits
in connection with transactions by the Fund.
2. The responsibilities and liabilities of the Bank as to
futures, puts and calls traded on commodities exchanges, any Futures Commission
Merchant account and the Segregated Account shall be limited as set forth in
subparagraph (a)(2) of this Section 6.8 as if such subparagraph referred to
Futures Commission Merchants rather than brokers, and Futures and puts and calls
thereon instead of options.
6.9 SEGREGATED ACCOUNT. The Bank shall upon receipt of Proper Instructions
establish and maintain a Segregated Account or Accounts for and on behalf of the
Fund.
<PAGE>
1. Upon receipt of Proper Instructions cash and/or Portfolio Securities
may be transferred into the Segregated Account or Accounts:
(a) in accordance with the provisions of any agreement among the
Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(b) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(c) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(d) for the deposit of any Portfolio Securities which the Fund has
agreed to sell on a forward commitment basis, all in accordance with Investment
Company Act Release No. 10666;
(e) for the purposes of compliance by the Fund with the procedures
required by Investment Company Act Release No. 10666, or any subsequent release
or releases of the Securities and Exchange Commission relating to the
maintenance of Segregated Accounts by registered investment companies; or
(f) for other proper corporate purposes, but only, in the case of
this clause (f), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Board, or of the Executive Committee
signed by an officer of the Fund and certified by the Secretary or an Assistant
Secretary, setting forth the purpose or purposes of such Segregated Account and
declaring such purposes to be proper corporate purposes.
2. Upon receipt of Proper Instructions cash and/or Portfolio
Securities may be withdrawn from the Segregated Account or Accounts.
(a) in accordance with the provisions of any agreements referenced
in (a) or (b) above;
<PAGE>
(b) for sale or delivery to meet the Fund's obligations under
outstanding firm commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(c) for exchange for other liquid assets of equal or greater value
deposited in the Segregated Account;
(d) to the extent that the Fund's outstanding forward commitment
or when-issued agreements for the purchase of portfolio securities or reverse
repurchase agreements are sold to other parties or the Fund's obligations
thereunder are met from assets of the Fund other than those in the Segregated
Account; or
(e) for delivery upon settlement of a forward commitment agreement
for the sale of Portfolio Securities.
6.10 INTEREST BEARING CALL OR TIME DEPOSITS. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11 TRANSFER OF SECURITIES. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that before making any transfer,
exchange, delivery or release under this Section the Bank will receive Proper
Instructions requesting such transfer, exchange or delivery stating that it is
for a purpose permitted under the terms of this Section 6.11, specifying the
applicable subsection, or describing the purpose of the transaction with
sufficient particularity to permit the Bank to ascertain the applicable
subsection, only:
(a) upon sales of Portfolio Securities for the account of the
Fund, against contemporaneous receipt by the Bank of payment therefor in full,
or, against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale of the Portfolio Securities received by the Bank
before such transfer is made, as confirmed in the Proper Instructions received
by the Bank before such transfer is made;
<PAGE>
(b) in exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided
however that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) upon conversion of Portfolio Securities pursuant to their
terms into other securities;
(d) for the purpose of redeeming in kind shares of the Fund upon
authorization from the Fund;
(e) in the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) when such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) for the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, except that in cases where additional collateral is
required to secure a borrowing already made, and such fact is made to appear in
the Proper Instructions, further Portfolio Securities may be released for that
purpose without any such payment. In the event that any such pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender, that an event of deficiency or default on the
loan has occurred, the Bank may deliver such pledged Portfolio Securities to or
for the account of the lender;
(h) for the purpose of releasing certificates representing
Portfolio Securities, against contemporaneous receipt by the Bank of the fair
market value of such security, as set forth in the Proper Instructions received
by the Bank before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
<PAGE>
(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 14 of this Agreement.
As to any deliveries made by the Bank pursuant to subsections (a), (b),
(c), (e), (f), (g), (h) and (i) securities or cash receivable in exchange
therefor shall be delivered to the Bank.
7. REDEMPTIONS. In the case of payment of assets of the Fund held by
the Bank in connection with redemptions and repurchases by the Fund of
outstanding common shares, the Bank will rely on notification by the Fund's
transfer agent of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the Articles and By-laws of the Fund, from assets
available for said purpose.
8. MERGER, DISSOLUTION, ETC. OF FUND. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with another investment company where
the Fund is not the surviving entity, the sale by the Fund of all, or
substantially all, of its assets to another investment company, or the
liquidation or dissolution of the Fund and distribution of its assets, the Bank
will deliver the Portfolio Securities held by it under this Agreement and
disburse cash only upon the order of the Fund set forth in an Officers'
Certificate, accompanied by a certified copy of a resolution of the Board
authorizing any of the foregoing transactions. Upon completion of such delivery
and disbursement and the payment of the fees, disbursements and expenses of the
Bank, this Agreement will terminate.
9. ACTIONS OF BANK WITHOUT PRIOR AUTHORIZATION. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, it will without prior authorization or instruction
of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the
name of the Fund all checks, drafts, or other negotiable or transferable
instruments or other orders for the payment of money received by it for the
account of the Fund and hold for the account of the Fund all income, dividends,
interest and other payments or distribution of cash with respect to the
Portfolio Securities held thereunder;
9.2 Present for payment all coupons and other income items held by
it for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder;
<PAGE>
9.4 Execute as agent on behalf of the Fund all necessary ownership
and other certificates and affidavits required by the Internal Revenue Code or
the regulations of the Treasury Department issued thereunder, or by the laws of
any state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any state;
9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for
definitive securities.
10. COLLECTIONS AND DEFAULTS. The Bank will use all reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any Portfolio Security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. MAINTENANCE OF RECORDS AND ACCOUNTING SERVICES. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with the
applicable rules and regulations of the 1940 Act and will furnish the Fund daily
with a statement of condition of the Fund. The Bank will furnish to the Fund at
the end of every month, and at the close of each quarter of the Fund's fiscal
year, a list of the Portfolio Securities and the aggregate amount of cash held
by it for the Fund. The books and records of the Bank pertaining to its actions
under this Agreement and reports by the Bank or its independent accountants
concerning its accounting system, procedures for safeguarding securities and
internal accounting controls will be open to inspection and audit at reasonable
times by officers of or auditors employed by the Fund and will be preserved by
the Bank in the manner and in accordance with the applicable rules and
regulations under the 1940 Act.
The Bank shall keep the books of account and render statements or
copies from time to time as reasonably requested by the Treasurer or any
executive officer of the Fund.
<PAGE>
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
The books and records maintained by the Bank on behalf of the Fund
are the property of the Fund and will be surrendered upon request in accordance
with Section 14.
12. FUND EVALUATION. The Bank shall compute and, unless otherwise directed
by the Board, determine as of the close of business on the New York Stock
Exchange on each day on which said Exchange is open for unrestricted trading and
as of such other hours, if any, as may be authorized by the board the net asset
Value and the public offering price of a share of capital stock of the Fund,
such determination to be made in accordance with the provisions of the Articles
and By-laws of the Fund and Prospectus and Statement of Additional Information
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Fund, the proper exchange and the NASD or such other
persons as the Fund may request of the results of such computation and
determination. In computing the net asset value hereunder, the Bank may rely in
good faith upon information furnished to it by any Authorized Person in respect
of (i) the manner of accrual of the liabilities of the Fund and in respect of
liabilities of the Fund not appearing on its books of account kept by the Bank,
(ii) reserves, if any, authorized by the Board or that no such reserves have
been authorized, (iii) the source of the quotations to be used in computing the
net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the public
offering price on the basis of the net asset value of the shares, and the Bank
shall not be responsible for any loss occasioned by such reliance or for any
good faith reliance on any quotations received from a source pursuant to (iii)
above.
13. CONCERNING THE BANK.
13.1 PERFORMANCE OF DUTIES AND STANDARD OF CARE.
In performing its duties hereunder and any other duties listed on any
Schedule hereto, if any, the Bank will be entitled to receive and act upon the
advice of independent counsel of its own selection, which may be counsel for the
Fund, and will be without liability for any action taken or thing done or
omitted to be done in accordance with this Agreement in good faith in conformity
with such advice. In the performance of its duties hereunder, the Bank will be
protected and not be liable, and will be indemnified and held harmless for any
action taken or omitted to be taken by it in good faith reliance upon the terms
of this Agreement, any Officers' Certificate, Proper Instructions, resolution of
the Board, telegram, notice, request, certificate or other instrument reasonably
believed by the Bank to be genuine and for any other loss to the Fund except in
the case of its gross negligence, willful misfeasance or bad faith in the
performance of its duties or reckless disregard of its obligations and duties
hereunder.
The Bank will be under no duty or obligation to inquire into and
will not be liable for:
(a) the validity of the issue of any Portfolio Securities
purchased by or for the Fund, the legality of the purchases thereof or the
propriety of the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
<PAGE>
(c) the legality of an issue or sale of any common shares of the
Fund or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of the
Fund or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received
by it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Articles, By-laws, any federal or state statutes or any rule
or regulation of any governmental agency.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Bank be liable hereunder or to any third party:
(a) for any losses or damages of any kind resulting from acts of
God, earthquakes, fires, floods, storms or other disturbances of nature,
epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation, the interruption, loss or malfunction of utilities,
transportation, or computers (hardware or software) and computer facilities, the
unavailability of energy sources and other similar happenings or events except
as results from the Bank's own gross negligence; or
(b) for special, punitive or consequential damages arising from
the provision of services hereunder, even if the Bank has been advised of the
possibility of such damages.
13.2 AGENTS AND SUBCUSTODIANS WITH RESPECT TO PROPERTY OF THE FUND HELD
IN THE UNITED STATES. The Bank may employ agents in the performance of its
duties hereunder and shall be responsible for the acts and omissions of such
agents as if performed by the Bank hereunder.
Upon receipt of Proper Instructions, the Bank may employ certain
subcustodians, provided that any such subcustodian meets at least the minimum
qualifications required by Section 17(f)(1) of the 1940 Act to act as a
custodian of the Fund's assets with respect to property of the Fund held in the
United States. The Bank shall have no liability to the Fund or any other person
by reason of any act or omission of such subcustodian and the Fund shall
indemnify the Bank and hold it harmless from and against any and all actions,
suits and claims, arising directly or indirectly out of the performance of such
subcustodian. Upon request of the Bank, the Fund shall assume the entire defense
of any action, suit, or claim subject to the foregoing indemnity. The Fund shall
pay all fees and expenses of such subcustodian.
<PAGE>
13.3 DUTIES OF THE BANK WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE OF
THE UNITED STATES.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Upon
receipt of Proper Instructions, together with a certified resolution of the
Fund's Board of Trustees, the Bank and the Fund may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper
Instructions, the Fund may instruct the Bank to cease the employment of any one
or more such Selected Foreign Sub-Custodians for maintaining custody of the
Fund's assets, and the Bank shall so cease to employ such sub-custodian as soon
as alternate custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Morgan Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and to utilize such
securities depository in connection with settlements of purchases and sales of
securities and deliveries and returns of securities, until notified to the
contrary pursuant to subparagraph (a) hereunder.
(c) Segregation of Securities. The Bank shall identify on its
books as belonging to the Fund the Foreign Portfolio Securities held by each
Selected Foreign Sub-Custodian. Each agreement pursuant to which the Bank
employs a foreign banking institution shall require that such institution
establish a custody account for the Bank and hold in that account, Foreign
Portfolio Securities and other assets of the Fund, and, in the event that such
institution deposits Foreign Portfolio Securities in a foreign securities
depository, that it shall identify on its books as belonging to the Bank the
securities so deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form previously made available to the Fund and shall provide that: (a) the
Fund's assets will not be subject to any right, charge, security interest, lien
or claim of any kind in favor of the foreign banking institution or its
creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (b) beneficial ownership of the
Fund's assets will be freely transferable without the payment of money or value
other than for custody or administration (including, without limitation, any
fees or taxes payable upon transfers or reregistration of securities); (c)
adequate records will be maintained identifying the assets as belonging to Bank;
(d) officers of or auditors employed by, or other representatives of the Bank,
including to the extent permitted under applicable law, the independent public
accountants for the Fund, will be given access to the books and records of the
foreign banking institution relating to its actions under its agreement with the
Bank; and (e) assets of the Fund held by the Selected Foreign Sub-Custodian will
be subject only to the instructions of the Bank or its agents.
<PAGE>
(e) Access of Independent Accountants of the Fund. Upon request of
the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the contrary,
settlement and payment for Foreign Portfolio Securities received for the account
of the Fund and delivery of Foreign Portfolio Securities maintained for the
account of the Fund may be effected in accordance with the customary established
securities trading or securities processing practices and procedures in the
jurisdiction or market in which the transaction occurs, including, without
limitation, delivering securities to the purchaser thereof or to a dealer
therefor (or an agent for such purchaser or dealer) against a receipt with the
expectation of receiving later payment for such securities from such purchaser
or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
<PAGE>
(h) Liability of Selected Foreign Sub-Custodians. Each Foreign
Sub-Custodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Fund from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Sub-Custodian Agreement. The Fund acknowledges
that the Bank, as a participant in Euro-clear, is subject to the Terms and
Conditions Governing the Euro-Clear System, a copy of which has been made
available to the Fund. The Fund acknowledges that pursuant to such Terms and
Conditions, Morgan Guaranty Brussels shall have the sole right to exercise or
assert any and all rights or claims in respect of actions or omissions of, or
the bankruptcy or insolvency of, any other depository, clearance system or
custodian utilized by Euro-clear in connection with the Fund's securities and
other assets.
(i) Liability of Bank. The Bank shall have no more or less
responsibility or liability on account of the acts or omissions of any Selected
Foreign Sub-Custodian employed hereunder than any such Selected Foreign
Sub-Custodian has to the Bank and, without limiting the foregoing, the Bank
shall not be liable for any loss, damage, cost, expense, liability or claim
resulting from nationalization, expropriation, currency restrictions, or acts of
war or terrorism, political risk (including, but not limited to, exchange
control restrictions, confiscation, insurrection, civil strife or armed
hostilities) other losses due to Acts of God, nuclear incident or any loss where
the Selected Foreign Sub-Custodian has otherwise exercised reasonable care.
(j) Monitoring Responsibilities. The Bank shall furnish annually
to the Fund, information concerning the Selected Foreign Sub-Custodians employed
hereunder for use by the Fund in evaluating such Selected Foreign Sub-Custodians
to ensure compliance with the requirements of Rule 17f-5 of the Act. In
addition, the Bank will promptly inform the Fund in the event that the Bank is
notified by a Selected Foreign Sub-Custodian that there appears to be a
substantial likelihood that its shareholders' equity will decline below $200
million (U.S. dollars or the equivalent thereof) or that its shareholders'
equity has declined below $200 million (in each case computed in accordance with
generally accepted U.S. accounting principles) or any other capital adequacy
test applicable to it by exemptive order, or if the Bank has actual knowledge of
any material loss of the assets of the Fund held by a Foreign Sub-Custodian.
(k) Tax Law. The Bank shall have no responsibility or liability
for any obligations now or hereafter imposed on the Fund or the Bank as
custodian of the Fund by the tax laws of any jurisdiction, and it shall be the
responsibility of the Fund to notify the Bank of the obligations imposed on the
Fund or the Bank as the custodian of the Fund by the tax law of any non-U.S.
jurisdiction, including responsibility for withholding and other taxes,
assessments or other governmental charges, certifications and governmental
reporting. The sole responsibility of the Custodian with regard to such tax law
shall be to use reasonable efforts to assist the Fund with respect to any claim
for exemption or refund under the tax law of jurisdictions for which the Fund
has provided such information.
<PAGE>
13.4 INSURANCE. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
13.5. FEES AND EXPENSES OF BANK. The Fund will pay or reimburse the
Bank from time to time for any transfer taxes payable upon transfer of Portfolio
Securities made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Schedule hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided above.
For the services rendered by the Bank hereunder, the Fund will pay to the Bank
such compensation or fees at such rate and at such times as shall be agreed upon
in writing by the parties from time to time. The Bank will also be entitled to
reimbursement by the Fund for all reasonable expenses incurred in conjunction
with termination of this Agreement by the Fund.
13.6 ADVANCES BY BANK. The Bank may, in its sole discretion, advance
funds on behalf of the Fund to make any payment permitted by this Agreement upon
receipt of any proper authorization required by this Agreement for such payments
by the Fund. Should such a payment or payments, with advanced funds, result in
an overdraft (due to insufficiencies of the Fund's account with the Bank, or for
any other reason) this Agreement deems any such overdraft or related
indebtedness, a loan made by the Bank to the Fund payable on demand and bearing
interest at the current rate charged by the Bank for such loans unless the Fund
shall provide the Bank with agreed upon compensating balances. The Fund agrees
that the Bank shall have a continuing lien and security interest to the extent
of any overdraft or indebtedness, in and to any property at any time held by it
for the Fund's benefit or in which the Fund has an interest and which is then in
the Bank's possession or control (or in the possession or control of any third
party acting on the Bank's behalf). The Fund authorizes the Bank, in its sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon against any balance of account standing to the credit of
the Fund on the Bank's books.
14. TERMINATION.
14.1 This Agreement may be terminated at any time without penalty upon
sixty days written notice delivered by either party to the other by means of
registered mail, and upon the expiration of such sixty days this Agreement will
terminate; provided, however, that the effective date of such termination may be
postponed to a date not more than ninety days from the date of delivery of such
notice (i) by the Bank in order to prepare for the transfer by the Bank of all
of the assets of the Fund held hereunder, and (ii) by the Fund in order to give
the Fund an opportunity to make suitable arrangements for a successor custodian.
At any time after the termination of this Agreement, the Fund will, at its
request, have access to the records of the Bank relating to the performance of
its duties as custodian.
<PAGE>
14.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection (14.3), deliver the Portfolio Securities and cash of
the Fund held by the Bank to a bank or trust company of its own selection which
meets the requirements of Section 17(f)(1) of the 1940 Act and has a reported
capital, surplus and undivided profits aggregating not less than $2,000,000, to
be held as the property of the Fund under terms similar to those on which they
were held by the Bank, whereupon such bank or trust company so selected by the
Bank will become the successor custodian of such assets of the Fund with the
same effect as though selected by the Board.
14.3 Prior to the expiration of ninety (90) days after notice
of termination has been given, the Fund may furnish the Bank with an order of
the Fund advising that a successor custodian cannot be found willing and able to
act upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary and an opinion of
counsel to the Fund in form and content satisfactory to the Bank.
15. CONFIDENTIALITY. Both parties hereto agree that any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed to any other person without the consent of the other party,
except as may be required by applicable law or at the request of a governmental
agency. The parties further agree that a breach of this provision would
irreparably damage the other party and accordingly agree that each of them is
entitled, without bond or other security, to an injunction or injunctions to
prevent breaches of this provision.
16. NOTICES. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and mailed or delivered to it at
its office at the address set forth below; namely:
(a) In the case of notices sent to the Fund to:
Republic Funds
c/o Signature Financial Group
6 St. James Avenue
Boston, MA
Attn: James Lelko
<PAGE>
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
89 South Street
Boston, Massachusetts 02111
Attention: Carol Lowd
or at such other place as such party may from time to time designate in
writing.
17. AMENDMENTS. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties, and in the case of the Fund,
such alteration or amendment will be authorized and approved by its Board.
18. PARTIES. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund, authorized and approved by its Board; and provided further
that termination proceedings pursuant to Section 14 hereof will not be deemed to
be an assignment within the meaning of this provision.
19. GOVERNING LAW. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but such
counterparts shall, together, constitute only one instrument.
21. LIMITATION OF LIABILITY. A copy of the Agreement and Declaration of
Trust of the Fund is on file with the Secretary of State of the Commonwealth of
Massachusetts and notice is hereby given that this Agreement has been executed
on behalf of the Fund by an officer of the Fund as an officer and not
individually and the obligations of the Fund arising out of this Agreement are
not binding upon any of the trustees, officers, or shareholders of the Fund
individually but are binding only upon the assets and property of the Fund.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
Republic Funds
By: /S/ PHILIP W. COOLIDGE
Name: Philip W. Coolidge
Title: President
ATTEST: /S/ MOLLY S. MUGLER
Investors Bank & Trust Company
By: /S/ HENRY M. JOYCE
Name: Henry M. Joyce
Title: Director
ATTEST: /S/ CAROL LOWD
DATE: 8/29/95
TRANSFER AGENCY AND SERVICE AGREEMENT
BETWEEN
REPUBLIC FUNDS
AND
INVESTORS BANK & TRUST COMPANY
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TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT effective as of the 29 day of August, 1995 by and between
REPUBLIC FUNDS, on behalf of the portfolios listed on Appendix A hereto, a
Massachusetts business trust (the "Trust"), and INVESTORS BANK & TRUST COMPANY,
a Massachusetts trust company (the "Bank").
WITNESSETH:
WHEREAS, the Trust desires to appoint the Bank as its transfer agent,
dividend disbursing agent and agent in connection with certain other activities,
and the Bank desires to accept such appointment;
WHEREAS, the Bank is duly registered as a transfer agent as provided in
Section 17A(c) of the Securities Exchange Act of 1934, as amended, (the "1934
Act");
WHEREAS, the Trust is authorized to issue shares in separate series, with
each such series representing interests in a separate portfolio of securities
and other assets;
WHEREAS, the Trust intends to initially offer shares in each of the
portfolios listed on Appendix A hereto, (such series, together with all other
series subsequently established by the Trust and made subject to this Agreement
in accordance with Article 17, being herein referred to as the "Funds");
NOW, THEREFORE, in consideration of the mutual covenants herein set forth,
the Trust and the Bank agree as follows:
ARTICLE 1. TERMS OF APPOINTMENT; DUTIES OF THE BANK
1.01 Subject to the terms and conditions set forth in this Agreement, the
Trust on behalf of the Funds, hereby employs and appoints the Bank to act as,
and the Bank agrees to act as, transfer agent for each of the Fund(s)'
authorized and issued shares of beneficial interest ("Shares"), dividend
disbursing agent and agent in connection with any accumulation, open-account or
similar plans provided to the shareholders of the Trust ("Shareholders") and set
out in the currently effective prospectus and statement of additional
information, as each may be amended from time to time, (the "Prospectus") of the
Trust, including without limitation any periodic investment plan or periodic
withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In connection with procedures established from time to time by
agreement between the Trust and the Bank, the Bank shall:
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(i) Receive for acceptance, orders for the purchase of Shares, and
promptly deliver payment and appropriate documentation therefor to
the custodian of the Trust appointed by the Board of Trustees of
the Trust (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance, redemption requests and redemption
directions and deliver the appropriate documentation therefor to
the Custodian;
(iv) At the appropriate time as and when it receives monies paid
to it by the Custodian with respect to any redemption, pay over or
cause to be paid over in the appropriate manner such monies as
instructed by the redeeming Shareholders;
(v) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vi) Prepare and transmit payments for dividends and distributions
declared by the Trust on behalf of a Fund; and
(vii) Create and maintain all necessary records including those
specified in Article 10 hereof, in accordance with all applicable
laws, rules and regulations, including but not limited to records
required by Section 31(a) of the Investment Trust Act of 1940, as
amended (the "1940 Act"), and those records pertaining to the
various functions performed by it hereunder. All records shall be
available for inspection and use by the Trust. Where applicable,
such records shall be maintained by the Bank for the periods and
in the places required by Rule 31a-2 under the 1940 Act.
(viii) Make available during regular business hours all records
and other data created and maintained pursuant to this Agreement
for reasonable audit and inspection by the Trust, or any person
retained by the Trust. Upon reasonable notice by the Trust, the
Bank shall make available during regular business hours its
facilities and premises employed in connection with its
performance of this Agreement for reasonable visitation by the
Trust, or any person retained by the Trust.
(ix) At the expense of and at the request of the Trust, the Bank
shall maintain an adequate supply of blank share certificates for
each Fund providing for the issuance of certificates to meet the
Bank's requirements therefor. Such share certificates shall be
properly signed by facsimile. The Trust agrees that,
notwithstanding the death, resignation, or removal of any officer
of the Trust whose signature appears on such certificates, the
Bank may continue to countersign certificates which bear such
signatures until otherwise directed by the Trust. Share
certificates may be issued and accounted for entirely by the Bank
and do not require any third party registrar or other endorsing
party.
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(x) Issue replacement share certificates in lieu of certificates
which have been lost, stolen, mutilated or destroyed, without any
further action by the Board of Trustees or any officer of the
Trust, upon receipt by the Bank of properly executed affidavits
and lost certificate bonds, in form satisfactory to the Bank with
the Trust and the Bank as obligees under the bond. At the
discretion of the Bank, and at its sole risk, the Bank may issue
replacement certificates without requiring the affidavits and lost
certificate bonds described above and the Bank agrees to indemnify
the Trust against any and all losses or claims which may arise by
reason of the issuance of such new certificates in the place of
the ones allegedly lost, stolen or destroyed.
(xi) Record the issuance of Shares of the Trust and maintain,
pursuant to Rule 17Ad-10(e) under the 1934 Act, a record of the
total number of Shares of the Trust which are authorized, based
upon data provided to it by the Trust, and issued and outstanding.
The Bank shall also provide the Trust on a regular basis with the
total number of Shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of Shares, to monitor the issuance of such Shares or to
take cognizance of any laws relating to the issue or sale of such
Shares, which functions shall be the sole responsibility of the
Trust.
(b) In addition to and not in lieu of the services set forth in the
above paragraph (a) or in any Schedule hereto, the Bank shall: (i) perform all
of the customary services of a transfer agent, dividend disbursing agent and, as
relevant, agent in connection with accumulation, open-account or similar plans
(including without limitation any periodic investment plan or periodic
withdrawal program); including but not limited to maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, receiving and
tabulating proxies, mailing Shareholder reports and prospectuses to current
Shareholders, withholding taxes on all accounts, including nonresident alien
accounts, preparing and filing U.S. Treasury Department Forms 1099 and other
appropriate forms required with respect to dividends and distributions by
federal authorities for all Shareholders, preparing and mailing confirmation
forms and statements of account to Shareholders for all purchases and
redemptions of Shares and other confirmable transactions in Shareholder
accounts, responding to Shareholder telephone calls and Shareholder
correspondence, preparing and mailing activity statements for Shareholders, and
providing Shareholder account information; and (ii) provide a system which will
enable the Trust to monitor the total number of shares sold in each State. The
Trust shall (i) identify to the Bank in writing those transactions and assets to
be treated as exempt from blue sky reporting for each State and (ii) verify the
establishment of transactions for each State on the system prior to activation
and thereafter monitor the daily activity for each State. The responsibility of
the Bank for a Fund's blue sky state registration status is solely limited to
the initial establishment of transactions subject to blue sky compliance by such
Fund(s) and the reporting of such transactions to the Fund(s) as provided above.
(c) Additionally, the Bank shall utilize a system to identify all share
transactions which involve purchase and redemption orders that are processed at
a time other than the time of the computation of net asset value per share next
computed after receipt of such orders, and shall compute the net effect upon the
Fund(s) of such transactions so identified on a daily and cumulative basis.
ARTICLE 2. SALE OF TRUST SHARES
2.01 Whenever the Trust shall sell or cause to be sold any Shares of a
Fund, the Trust shall deliver or cause to be delivered to the Bank a document
duly specifying: (i) the name of the Fund whose Shares were sold; (ii) the
number of Shares sold, trade date, and price; (iii) the amount of money to be
delivered to the Custodian for the sale of such Shares and specifically
allocated to such Fund; and (iv) in the case of a new account, a new account
application or sufficient information to establish an account.
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2.02 The Bank will, upon receipt by it of a check or other payment
identified by it as an investment in Shares of one of the Funds and drawn or
endorsed to the Bank as agent for, or identified as being for the account of,
one of the Funds, promptly deposit such check or other payment to the
appropriate account postings necessary to reflect the investment. The Bank will
notify the Trust, or its designee, and the Custodian of all purchases and
related account adjustments.
2.03 Under procedures as established by mutual agreement between the Trust
and the Bank, the Bank shall issue to the purchaser or his authorized agent such
Shares, computed to the nearest three decimal points, as he is entitled to
receive, based on the appropriate net asset value of the Funds' Shares,
determined in accordance with the prospectus and applicable Federal law or
regulation. In issuing Shares to a purchaser or his authorized agent, the Bank
shall be entitled to rely upon the latest directions, if any, previously
received by the Bank from the purchaser or his authorized agent concerning the
delivery of such Shares.
2.04 The Bank shall not be required to issue any Shares of the Trust where
it has received a written instruction from the Trust or written notification
from any appropriate Federal or State authority that the sale of the Shares of
the Fund(s) in question has been suspended or discontinued, and the Bank shall
be entitled to rely upon such written instructions or written notification.
2.05 Upon the issuance of any Shares of any Fund(s) in accordance with
foregoing provisions of this Section, the Bank shall not be responsible for the
payment of any original issue or other taxes, if any, required to be paid by the
Trust in connection with such issuance.
2.06 The Bank may establish such additional rules and regulations governing
the transfer or registration of Shares as it may deem advisable and consistent
with such rules and regulations generally adopted by transfer agents, or with
the written consent of the Trust, any other rules and regulations.
ARTICLE 3. RETURNED CHECKS
3.01 In the event that any check or other order for the transfer of money
is returned unpaid for any reason, the Bank will take such steps as the Bank
may, in its discretion, deem appropriate to protect the Trust from financial
loss or as the Trust or its designee may instruct. Provided that the standard
procedures, as agreed upon from time to time, between the Trust and the Bank,
regarding purchases and redemptions of Shares, are adhered to by the Bank, the
Bank shall not be liable for any loss suffered by a Fund as a result of returned
or unpaid purchase or redemption transactions. Legal or other expenses incurred
to collect amounts owed to a Fund as a consequence of returned or unpaid
purchase or redemption transactions shall be an expense of that Fund.
ARTICLE 4. REDEMPTIONS
4.01 Shares of any Fund may be redeemed in accordance with the procedures
set forth in the Prospectus of the Trust and the Bank will duly process all
redemption requests.
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ARTICLE 5. TRANSFERS AND EXCHANGES
5.01 The Bank is authorized to review and process transfers of Shares of
each Fund, exchanges between Funds on the records of the Funds maintained by the
Bank, and exchanges between the Trust and any other entity as may be permitted
by the Prospectus of the Trust. if Shares to be transferred are represented by
outstanding certificates, the Bank will, upon surrender to it of the
certificates in proper form for transfer, and upon cancellation thereof,
countersign and issue new certificates for a like number of Shares and deliver
the same. if the Shares to be transferred are not represented by outstanding
certificates, the Bank will, upon an order therefor by or on behalf of the
registered holder thereof in proper form, credit the same to the transferee on
its books. if Shares are to be exchanged for Shares of another Fund, the Bank
will process such exchange in the same manner as a redemption and sale of
Shares, except that it may in its discretion waive requirements for information
and documentation.
ARTICLE 6. RIGHT TO SEEK ASSURANCES
6.01 The Bank reserves the right to refuse to transfer or redeem Shares
until it is satisfied that the requested transfer or redemption is legally
authorized, and it shall incur no liability for the refusal, in good faith, to
make transfers or redemptions which the Bank, in its judgment, deems improper or
unauthorized, or until it is satisfied that there is no basis for any claims
adverse to such transfer or redemption. The Bank may, in effecting transfers,
rely upon the provisions of the Uniform Act for the Simplification of Fiduciary
Security Transfers or the Uniform Commercial Code, as the same may be amended
from time to time, which in the opinion of legal counsel for the Trust or of its
own legal counsel protect it in not requiring certain documents in connection
with the transfer or redemption of Shares of any Fund, and the Trust shall
indemnify the Bank for any act done or omitted by it in reliance upon such laws
or opinions of counsel of the Trust or of its own counsel.
ARTICLE 7. DISTRIBUTIONS
7.01 The Trust will promptly notify the Bank of the declaration of any
dividend or distribution. The Trust shall furnish to the Bank a resolution of
the Board of Trustees of the Trust certified by the Secretary (a "Certificate"):
(i) authorizing the declaration of dividends on a specified periodic basis and
authorizing the Bank to rely on oral instructions or a Certificate specifying
the date of the declaration of such dividend or distribution, the date of
payment thereof, the record date as of which Shareholders entitled to payment
shall be determined and the amount payable per share to Shareholders of record
as of the date and the total amount payable to the Bank on the payment date; or
(ii) setting forth the date of the declaration of any dividend or distribution
by a Fund, the date of payment thereof, the record date as of which Shareholders
entitled to payment shall be determined, and the amount payable per share to the
Shareholders of record as of that date and the total amount payable to the Bank
on the payment date.
7.02 The Bank, on behalf of the Trust, shall instruct the Custodian to
place in a dividend disbursing account funds equal to the cash amount of any
dividend or distribution to be paid out. The Bank will calculate, prepare and
mail checks to (at the address as it appears on the records of the Bank), or
(where appropriate) credit such dividend or distribution to the account of, Fund
Shareholders, and maintain and safeguard all underlying records.
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7.03 The Bank will replace lost checks at its discretion and in conformity
with regular business practices.
7.04 The Bank will maintain all records necessary to reflect the crediting
of dividends which are reinvested in Shares of the Trust, including without
limitation daily dividends.
7.05 The Bank shall not be liable for any improper payments made in
accordance with a resolution of the Board of Trustees of the Trust.
7.06 If the Bank shall not receive from the Custodian sufficient cash to
make payment to all Shareholders of the Trust as of the record date, the Bank
shall, upon notifying the Trust, withhold payment to all Shareholders of record
as of the record date until such sufficient cash is provided to the Bank.
ARTICLE 8. OTHER DUTIES
8.01 In addition to the duties expressly provided for herein, the Bank
shall perform such other duties and functions and shall be paid such amounts
therefor as may from time to time be agreed to in writing.
ARTICLE 9. TAXES
9.01 It is understood that the Bank shall file such appropriate information
returns concerning the payment of dividends and capital gain distributions and
tax withholding with the proper Federal, State and local authorities as are
required by law to be filed by the Trust and shall withhold such sums as are
required to be withheld by applicable law.
ARTICLE 10. BOOKS AND RECORDS
10.01 The Bank shall maintain confidential records showing for each
Shareholder's account the following: (i) names, addresses and tax identification
numbers; (ii) numbers of Shares held; (iii) historical information (as available
from prior transfer agents) regarding the account of each Shareholder, including
dividends paid and date and price of all transactions on a Shareholder's
account; (iv) any stop or restraining order placed against a Shareholder's
account; (v) information with respect to withholdings; (vi) any capital gain or
dividend reinvestment order, plan application, dividend address and
correspondence relating to the current maintenance of a Shareholder's account;
(vii) certificate numbers and denominations for any Shareholders holding
certificates; (viii) any information required in order for the Bank to perform
the calculations contemplated or required by this Agreement; and (ix) such other
information and data as may be required by applicable law.
10.02 Any records required to be maintained by Rule 31a-1 under the 1940
Act will be preserved for the periods prescribed in Rule 31a-2 under the 1940
Act. Such records may be inspected by the Trust at reasonable times. The Bank
may, at its option at any time, and shall forthwith upon the Trust's demand,
turn over to the Trust and cease to retain in the Bank's files, records and
documents created and maintained by the Bank in performance of its service or
for its protection. At the end of the six-year retention period, such periods
and documents will either be turned over to the Trust, or destroyed in
accordance with the Trust's authorization.
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10.03 Procedures applicable to the services to be performed hereunder may
be established from time to time by agreement between the Fund(s) and the Bank.
The Bank shall have the right to utilize any shareholder accounting and
recordkeeping systems which, in its opinion, qualifies to perform any services
to be performed hereunder. The Bank shall keep records relating to the services
performed hereunder, in the form and manner as it may deem advisable.
ARTICLE 11. FEES AND EXPENSES.
11.01 For performance by the Bank pursuant to this Agreement, the Fund(s)
agree to pay the Bank an annual maintenance fee for each Shareholder account as
set out in the initial fee schedule attached hereto. Such fees and out-of-pocket
expenses and advances identified under Section 11.02 below may be changed from
time to time subject to mutual written agreement between the Fund(s) and the
Bank.
11.02 In addition to the fee paid under Section 11.01 above, the Fund(s)
agree to reimburse the Bank for out-of-pocket expenses or advances incurred by
the Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund(s) including, without limitation, any equipment or supplies
specifically ordered by the Trust or required to be purchased by the Trust, will
be reimbursed by the Fund(s).
11.03 The Fund(s) agree to pay all fees and reimbursable expenses within
thirty days following the mailing of the respective billing notice. Postage for
mailing of dividends, proxies, Fund reports and other mailings to all
shareholder accounts shall be advanced to the Bank by the Fund(s) at least seven
(7) days prior to the mailing date of such material.
ARTICLE 12. REPRESENTATIONS AND WARRANTIES OF THE BANK
The Bank represents and warrants to the Trust that:
12.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
12.02 It is empowered under applicable laws and by its charter and by-laws
to enter into and perform this Agreement.
12.03 All requisite corporate proceedings have been taken to authorize it
to enter into and perform this Agreement.
12.04 It has and will continue to have access to the necessary facilities,
equipment and personnel to perform its duties and obligations under this
Agreement.
ARTICLE 13. REPRESENTATIONS AND WARRANTIES OF THE TRUST
The Trust represents and warrants to the Bank that:
13.01 It is a corporation duly organized and existing and in good standing
under the laws of the State of its incorporation as set forth in the preamble
hereto.
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13.02 It is empowered under applicable laws and by its charter documents
and by-laws to enter into and perform this Agreement.
13.03 All proceedings required by said charter documents and by-laws have
been taken to authorize it to enter into and perform this Agreement.
13.04 It is an open-end investment trust registered under the 1940 Act.
13.05 A registration statement on Form N-1A (including a prospectus and
statement of additional information) under the Securities Act of 1933 and the
1940 Act is currently effective and will remain effective, and appropriate state
securities law filings have been made and will continue to be made, with respect
to all Shares of the Trust being offered for sale.
13.06 When Shares are hereafter issued in accordance with the terms of the
Prospectus, such Shares shall be validly issued, fully paid and nonassessable by
the Fund(s).
ARTICLE 14. INDEMNIFICATION
14.01 Except as set forth in subparagraph (f) hereof, the Bank shall not be
responsible for, and the Trust shall indemnify and hold the Bank harmless from
and against, any and all losses, damages, costs, charges, counsel fees,
payments, expenses and liability arising out of or attributable to:
(a) All actions taken or omitted to be taken by the Bank or its agent
or subcontractors in good faith in reliance on or use by the Bank or its agents
or subcontractors of information, records and documents which (i) are received
by the Bank or its agents or subcontractors and furnished to it by or on behalf
of the Fund(s), (ii) have been prepared and/or maintained by the Fund(s) or any
other person or firm on behalf of the Fund(s), and (iii) were received by the
Bank or its agents or subcontractors from a prior transfer agent.
(b) Any action taken or omitted to be taken by the Bank in connection
with its appointment in good faith in reliance upon any law, act, regulation or
interpretation of the same even though the same may thereafter have been
altered, changed, amended or repealed.
(c) The Fund(s)' refusal or failure to comply with the terms of this
Agreement, or which arise out of the Funds' lack of good faith, negligence or
willful misconduct or which arise out of the breach of any representation or
warranty of the Fund(s) hereunder.
(d) The reliance on, or the carrying out by the Bank or its agents or
subcontractors of any instructions or requests, whether written or oral, of the
Fund(s).
(e) The offer or sale of Shares by the Trust in violation of any
requirement under the federal securities laws or regulations or the securities
laws or regulations of any State that such Shares be registered in such State or
in violation of any stop order or other determination or ruling by any federal
agency or any State with respect to the offer or sale of such Shares in such
state.
(f) In addition to any other limitation provided herein, or by law,
indemnification under this Agreement shall not apply to actions or omissions of
the Bank or its trustees, officers, employees, agents or subcontractors in cases
its own gross negligence, willful misconduct, bad faith, reckless disregard of
its duties or their own duties hereunder, knowing violation of law or fraud.
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14.02 The Bank shall indemnify and hold the Fund(s) harmless from and
against any and all losses, damages, costs, charges, counsel fees, payments,
expenses and liability arising out of or attributed to any action or failure or
omission to act by the Bank as a result of the Bank's lack of good faith,
negligence, willful misconduct, knowing violation of law or fraud.
14.03 At any time the Bank may apply to any officer of the Trust for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable and
shall be indemnified by the Trust for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel except for a
knowing violation of law. The Bank, its agents and subcontractors shall be
protected and indemnified in acting upon any paper or document furnished by or
on behalf of the Fund(s), reasonably believed to be genuine and to have been
signed by the proper person or persons, or upon any instruction, information,
data, records or documents provided the Bank or its agents or subcontractors by
machine readable input, telex, CRT data entry or other similar means authorized
by the Fund(s), and shall not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund(s). The
Bank, its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the proper
manual or facsimile signatures of an officer of the Trust, and one proper
countersignature of any former transfer agent or registrar, or of a co-transfer
agent or co-registrar.
14.04 In the event either party is unable to perform its obligations under
the terms of this Agreement because of acts of God, strikes, interruption of
electrical power or other utilities, equipment or transmission failure or damage
reasonably beyond its control, or other causes reasonably beyond its control,
such party shall not be liable to the other for any damages resulting from such
failure to perform or otherwise from such causes.
14.05 Neither party to this Agreement shall be liable to the other party
for consequential damages under any provision of this Agreement or for any act
or failure to act hereunder as contemplated by this Agreement.
14.06 In order that the indemnification provisions contained in this
Article 14 shall apply, upon the assertion of a claim for which either party may
be required to indemnify the other, the party seeking the indemnification shall
promptly notify the other party of such assertion, and shall keep the other
party advised with respect to all developments concerning such claim. The party
who may be required to indemnify shall have the option to participate with the
party seeking indemnification in the defense of such claim. The party seeking
indemnification shall in no case confess any claim or make any compromise in any
case in which the other party may be required to indemnify it except with the
other party's prior written consent, which consent shall not be unreasonably
withheld.
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ARTICLE 15. COVENANTS OF THE TRUST AND THE BANK
15.01 The Trust shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Trustees of the Trust
authorizing the appointment of the Bank and the execution and delivery of this
Agreement.
(b) A copy of the charter documents and by-laws of the Trust and all
amendments thereto.
(c) Copies of each vote of the Trustees designating authorized persons
to give instructions to the Bank, and a Certificate providing specimen
signatures for such authorized persons.
(d) Certificates as to any change in any officer or Director of the
Trust.
(e) If applicable a specimen of the certificate of Shares in each Fund
of the Trust in the form approved by the Trustees, with a Certificate as to such
approval.
(f) Specimens of all new certificates for Shares, accompanied by the
Trustees' resolutions approving such forms.
(g) All account application forms and other documents relating to
shareholder accounts or relating to any plan, program or service offered by the
Trust.
(h) A list of all Shareholders of the Fund(s) with the name, address
and tax identification number of each Shareholder, and the number of Shares of
the Fund(s) held by each, certificate numbers and denominations ( if any
certificates have been issued), lists of any account against which stops have
been placed, together with the reasons for said stops, and the number of Shares
redeemed by the Fund(s).
(i) An opinion of counsel for the Trust with respect to the validity of
the Shares and the status of such Shares under the Securities Act of 1933.
(j) Copies of the Fund(s) registration statement on Form N-1A as
amended and declared effective by the Securities and Exchange Commission and all
post-effective amendments thereto.
(k) Such other certificates, documents or opinions as may mutually be
deemed necessary or appropriate for the Bank in the proper performance of its
duties.
15.02 The Bank hereby agrees to establish and maintain facilities and
procedures reasonably acceptable to the Trust for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of, such certificates,
forms and devices.
15.03 The Bank shall keep records relating to the services to be performed
hereunder, in the form and manner as it may deem advisable. To the extent
required by Section 31 of the 1940 Act and the Rules thereunder, the Bank agrees
that all such records prepared or maintained by the Bank relating to the
services to be performed by the Bank hereunder are the confidential property of
the Trust and will be preserved, maintained and made available in accordance
with such Section and Rules, and will be surrendered to the Trust on and in
accordance with its request.
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15.04 The Bank and the Trust agree that all books, records, information and
data pertaining to the business of the other party which are exchanged or
received pursuant to the negotiation or the carrying out of this Agreement shall
remain confidential, and shall not be voluntarily disclosed to any other person,
except as may be required by law.
15.05 In case of any requests or demands for the inspection of the
Shareholder records of the Trust, the Bank will endeavor to notify the Trust and
to secure instructions from an authorized officer of the Trust as to such
instruction. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to exhibit the Shareholder records to such person.
ARTICLE 16. Term of Agreement
16.01 This Agreement shall become effective on the date hereof (the
"Effective Date") and shall continue in effect for twelve months from the
Effective Date ( the "Initial Term") and from year to year thereafter with
respect to each Fund, provided that subsequent to the Initial Term, this
Agreement may be terminated by either party at any time without payment of any
penalty upon ninety (90) days written notice to the other. In the event such
notice is given by the Trust, it shall be accompanied by a resolution of the
Board of Trustees, certified by the Secretary, electing to terminate this
Agreement and designating a successor transfer agent.
16.02 Should the Trust exercise its right to terminate, all out-of-pocket
expenses associated with the movement of records and material will be borne by
the Trust. Additionally, the Bank reserves the right to charge for any other
reasonable expenses associated with such termination.
ARTICLE 17. ADDITIONAL FUNDS
17.01 In the event that the Trust establishes one or more series of Shares
in addition to the initial series with respect to which it desires to have the
Bank render services as transfer agent under the terms hereof, it shall so
notify the Bank in writing, and if the Bank agrees in writing to provide such
services, such series of Shares shall become a Fund hereunder.
ARTICLE 18. ASSIGNMENT
18.01 Except as provided in Section 18.03 below, neither this Agreement nor
any rights or obligations hereunder may be assigned by either party without the
written consent of the other party.
18.02 This Agreement shall inure to the benefit of and be binding upon the
parties and their respective permitted successors and assigns.
18.03 The Bank, may without further consent on the part of the Trust,
subcontract for the performance of any of the services to be provided hereunder
to third parties, including any affiliate of the Bank, provided that the Bank
shall remain liable hereunder for any acts or omissions of any subcontractor as
if performed by the Bank.
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ARTICLE 19. AMENDMENT
19.01 This Agreement may be amended or modified by a written agreement
executed by both parties.
ARTICLE 20. MASSACHUSETTS LAW TO APPLY
20.01 This Agreement shall be construed and the provisions thereof
interpreted under and in accordance with the laws of the Commonwealth of
Massachusetts.
ARTICLE 21. MERGER OF AGREEMENT AND SEVERABILITY
21.01 This Agreement constitutes the entire agreement between the parties
hereto and supersedes any prior agreement with respect to the subject hereof
whether oral or written.
21.02 In the event any provision of this Agreement shall be held
unenforceable or invalid for any reason, the remainder of the Agreement shall
remain in full force and effect.
21.03 This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original; but such counterparts shall together,
constitute only one instrument.
ARTICLE 22. NOTICES
22. 01 Any notice or other instrument in writing authorized or required by
this Agreement to be given to either party hereto will be sufficiently given if
addressed to such party and mailed or delivered to it at its office at the
address set forth below:
For the Funds: Republic Funds
c/o Signature Financial Group, Inc.
6 St. James Avenue, 9th Floor
Boston, MA 02116
Attention: James Lelko
For the Bank: Investors Bank & Trust Company
P.O. Box 1537
Boston, Massachusetts 02205-1537
Attention: Carol Lowd
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf under their seals by and through
their duly authorized officers, as of the day and the year first above written.
Republic Funds
Name: /S/ PHILIP W. COOLIDGE
Title: President
ATTEST: /S/ MOLLY S. MUGLER
Investors Bank & Trust Company
Name: /S/ KEVIN J. SHEEHAN
Title: President
ATTEST:
DATE: 8/29/95
<PAGE>
APPENDIX A
Republic U.S. Government Money Market Fund
Republic New York Tax Free Money Market Fund
Republic New York Tax Free Bond Fund
Republic International Equity Fund
Republic Fixed Income Fund
Republic Equity Fund
FT4115A
FORM OF SERVICE AGREEMENT
The Republic Funds [DATE]
6 St. James Avenue
Boston, MA 02116
Gentlemen:
We wish to enter into an Agreement with you to service
shareholders of, and administer shareholder accounts in, Republic Funds (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940 (the "Act") which has six or more separate investment portfolios:
Republic U.S. Government Money Market Fund, Republic New York Tax Free Money
Market Fund, Republic New York Tax Free Bond Fund, Republic Fixed Income Fund,
Republic International Equity Fund and Republic Equity Fund, together with any
future investment portfolios that may be added as a series of the Trust.
The terms and conditions of this Agreement are as follows:
1. We shall provide shareholder and administrative services
for shareholders of the Trust who are also our clients ("clients"), which
services may include, without limitation and to the extent we are permitted by
applicable statute, rule or regulation: (a) providing necessary personnel and
facilities to establish and maintain certain shareholder accounts and records,
as requested from time to time by the Trust; (b) assisting in processing
purchase and redemption transactions; (c) arranging for the wiring of funds; (d)
transmitting and receiving funds in connection with client orders to purchase or
redeem Trust shares; (e) verifying and guaranteeing client signatures in
connection with redemption orders, transfers among and changes in
client-designated accounts; (f) providing periodic statements showing a client's
account balances and, to the extent practicable, integrating such information
with other client transactions otherwise effected with or through us; (g)
furnishing (either separately or on an integrated basis with other reports sent
to a client by us) periodic and annual statements and confirmations of all
purchases and redemptions of Trust shares in a client's account; (h)
transmitting proxy statements, annual reports, and updating prospectuses and
other communications from the Trust to clients; and (i) such other services as
the Trust or a client reasonably may request. We shall provide such office space
and equipment, telephone facilities and personnel (which may be all or any part
of the space, equipment and facilities currently used in our business, or all or
any personnel employed by us) as is necessary or beneficial for providing
information and services to shareholders of the Trust.
2. Neither we nor any of our employees or agents shall be
authorized to make any representation concerning shares of the Trust except
those contained in the then current Prospectuses for the Trust, copies of which
will be supplied by you to us; and we shall have no authority to act as agent
for the Trust.
<PAGE>
The Republic Funds
Page 2
3. In consideration of the services and facilities described
herein, we shall be entitled to receive from you fees to be paid periodically
(but in no event less frequently than semiannually) as set forth in Schedule A
attached hereto; provided that such fees shall not exceed during any period the
amount payable at an annual rate of 0.25% of the average daily net assets of the
Trust represented by shares owned by clients with whom we maintain a servicing
relationship.
It is agreed that we may impose certain conditions on clients,
in addition to or different from those imposed by the Trust, such as requiring a
minimum initial investment or charging clients direct fees for the same or
similar services as are provided hereunder by us as agent (which fees either may
relate specifically to our services with respect to the Trust or generally over
services not limited to those with respect to the Trust). We shall bill clients
directly for such fees. In the event we charge clients such fees, to the extent
permissible by applicable statutes, rules and regulations, we shall make
appropriate prior written disclosure (such disclosure to be in accordance with
all applicable laws) to clients both of any direct fees charged to clients and
of the fees received or to be received by us from the Trust pursuant to this
Agreement. It is understood, however, that in no event shall we have recourse or
access to the account of any shareholder of the Trust except to the extent
expressly authorized by law or by such shareholder, or to any assets of the
Trust, for payment of any direct fees referred to in this Agreement.
4. To the extent requested by the Trust from time to time, we
agree that we will provide the Treasurer of the Trust with a written report of
the amounts expended by us and the purposes for which such expenditures were
made. Such written reports shall be in a form satisfactory to the Trust and
shall supply all information necessary for the Trust to discharge its
responsibilities under applicable laws and regulations.
5. We shall maintain records in a form acceptable to you and
in compliance with applicable laws and the rules and regulations of the
Securities and Exchange Commission including, but not limited to, the
record-keeping requirements of Section 31(a) of the Act and the rules
thereunder. Such records shall be deemed to be the property of the Trust and
will be made available, at the Trust's request, for inspection and use by the
Trust, representatives of the Trust and governmental bodies. We agree that, for
so long as we retain any records of the Trust, we will meet all reporting
requirements pursuant to the Act with respect to such records.
6. We shall maintain accurate and complete records with
respect to services performed by us in connection with the purchase and
redemption of shares. Such records shall be maintained in a form satisfactory to
you and in compliance with the requirements of Rules 17a-3 and 17a-4 under the
Securities Exchange Act of 1934, as amended, pursuant to which any dealer of the
shares must maintain certain records. All such records maintained by us shall be
the property of such dealer and will be made available for inspection and use by
you or such dealer upon the request of either. We shall file, and furnish to you
<PAGE>
The Republic Funds
Page 3
and any such dealer, copies of all reports and undertakings required by the
Securities and Exchange Commission pertaining to the above transactions in
compliance with the said rules. If so requested by any such dealer, we shall
confirm to such dealer its obligations under this paragraph by a writing
reasonably satisfactory to such dealer. The Trust shall specify to us, as we
shall periodically review with the Trust, the records to be maintained and the
procedures to be followed by us in complying with this paragraph.
7. The Trust will indemnify and hold us harmless from all
losses, claims, damages, liabilities or expenses from any claim, demand, action
or suit (collectively, "Claims") (a) arising in connection with misstatements or
omissions in the Trust's Prospectuses, actions or inactions by the Trust or any
of its agents or contractors or the performance of our obligations hereunder and
(b) not resulting from (i) our bad faith or negligence, or that of our officers,
employees or agents, or (ii) our breach of applicable law, or any breach by our
officers, employees or agents, or (iii) our actions or those of our officers,
employees or agents which exceed our legal authority or our authority hereunder,
or (iv) any error or omission committed by us, our officers, employees or agents
with respect to the purchase, redemption and transfer of clients' shares or our
verification or guarantee of any client signature. Notwithstanding anything
herein to the contrary, you will indemnify and hold us harmless from any and all
losses, claims, damages, liabilities or expenses (including reasonable counsel
fees and expenses) resulting from any Claim as a result of our acting in
accordance with any written instructions reasonably believed by us to have been
executed by any person duly authorized by the Trust, or as a result of acting in
reliance upon any instrument or stock certificate signed, countersigned or
executed by a person duly authorized by the Trust, excepting only our gross
negligence or bad faith.
In any case in which you may be asked to indemnify or hold us
harmless, you shall be advised of all pertinent facts concerning the situation
in question and we shall use reasonable care to identify and notify you promptly
concerning any situation which presents or appears likely to present a claim for
indemnification against you. You shall have the option to defend us against any
Claim which may be the subject of indemnification hereunder. In the event that
you elect to defend against such Claim, the defense shall be conducted by
counsel chosen by you and satisfactory to us. We may retain additional counsel
at our expense. Except with your prior written consent, we shall not confess any
Claim or make any compromise in any case in which you will be asked to indemnify
us.
8. Without limiting your rights under applicable law, we will
indemnify and hold you harmless from all Claims (a) resulting from (i) our bad
faith or negligence, or that of our officers, employees or agents, or (ii) our
breach of applicable law, or any breach by our officers, employees or agents, or
(iii) our actions or those of our officers, employees or agents which exceed our
legal authority or our authority hereunder, or (iv) any error or omission
committed by us, our officers, employees or agents with respect to the purchase,
redemption and transfer of clients' shares or our verification or guarantee of
any client signature, and (b) not resulting from actions in accordance with
<PAGE>
The Republic Funds
Page 4
written instructions reasonably believed by us to have been executed by any
person duly authorized by the Trust or in reliance upon any instrument or stock
certificate reasonably believed by us to have been genuine and signed,
countersigned or executed by a person duly authorized by the Trust.
In any case in which we may be asked to indemnify or hold the
Trust harmless, we shall be advised of all pertinent facts concerning the
situation in question and the Trust shall use reasonable care to identify and
notify us promptly concerning any situation which presents or appears likely to
present a claim for indemnification against us. We shall have the option to
defend the Trust against any Claim which may be the subject of indemnification
hereunder. In the event that we elect to defend against such Claim, the defense
shall be conducted by counsel chosen by us and satisfactory to the Trust. The
Trust may retain additional counsel at its expense. Except with our prior
written consent, the Trust shall not confess any Claim or make any compromise in
any case in which we will be asked to indemnify the Trust. The indemnities
granted by the parties in this Agreement shall survive the termination of this
Agreement.
9. This Agreement may be terminated by the Trust, without the
payment of any penalty, at any time upon not more than 60 days' nor less than 30
days' notice, by a vote of a majority of the Board of Trustees who are not
"interested persons" of the Trust (as defined in the Act) or by "a vote of a
majority of the outstanding voting securities" (as defined in the Act) of the
Trust. We may terminate this Agreement upon not more than 60 days' nor less than
30 days' notice to the Trust. Notwithstanding anything herein to the contrary,
this Agreement may not be assigned and shall terminate automatically without
notice to either party upon any assignment. Upon termination hereof, the Trust
shall pay such compensation as may be due us as of the date of such termination.
10. Our appointment as shareholder servicing agent hereunder
is nonexclusive, and the parties hereto recognize and agree that, from time to
time, the Trust may enter into other shareholder servicing agreements, in
writing, with other financial institutions.
11. The Declaration of Trust establishing the Trust, filed on
July 17, 1984, a copy of which, together with all amendments thereto (the
"Declaration"), is on file in the Office of the Secretary of the Commonwealth of
Massachusetts, provides that the name of the Trust refers to the trustees under
the Declaration collectively as trustees and not as individuals or personally,
and that no shareholder, trustee, officer, employee or agent of the Trust shall
be subject to claims against or obligations of the Trust to any extent
whatsoever, but that the Trust estate only shall be liable.
12. This Agreement may be changed or amended only by written
instrument signed by both parties.
<PAGE>
The Republic Funds
Page 5
13. This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York. This
Agreement may be executed simultaneously in two or more counterparts, each of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
Very truly yours,
Name (Please print or type)
City/State/ZIP Code
Date: By:
NOTE: Please return both signed copies of this Agreement to the Republic
Funds. Upon acceptance, one countersigned copy will be returned for
your files.
Accepted:
The Republic Funds
Date: By:
FT4115A
Address
MASTER ADMINISTRATIVE SERVICES CONTRACT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
June 30, 1989
as amended and restated August 28, 1995
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust and consists of one or more separate investment
portfolios as may be established and designated by the Trustees from time to
time (the "Funds"). This Master Administrative Services Contract (this
"Contract") shall pertain to such Funds as shall be designated in supplements to
this Contract ("Supplements"), as further agreed by the Trust and the Sponsor. A
separate series of shares of beneficial interest in the Trust is offered to
investors with respect to each Fund. The Trust engages in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objective and restrictions specified in the
currently effective Prospectus (the "Prospectus") relating to the Trust and the
Fund included in the Trust's Registration Statement, as amended from time to
time (the "Registration Statement"), filed by the Trust under the Investment
Company Act of 1940 (the "1940 Act") and the Securities Act of 1933 (the "1933
Act"). Copies of the documents referred to in the preceding sentence have been
furnished to the Sponsor. Any amendments to those documents shall be furnished
to the Sponsor promptly. The Trust has entered into a Master Investment Advisory
Contract (and Supplements thereto) (the "Advisory Contract") with Republic
National Bank of New York, N.A. (the "Adviser") providing for investment
management services and a Master Distribution Contract (and Supplements thereto)
(the "Distribution Contract") with you. The Trust also has adopted a Master
Distribution Plan (and Supplements thereto) (the "Plan") pursuant to Rule 12b-1
under the 1940 Act.
2. (a) The Sponsor shall provide all management and administrative
services reasonably necessary for the operation of the Trust and the Funds,
other than those investment management and administrative services which are to
be provided by the Adviser pursuant to the Advisory Contract or by any other
persons engaged to perform transfer agency, custodial or other services pursuant
to a written contract with the Trust. The Trust may retain Service Organizations
(as defined in the Prospectus) to provide certain administrative services, such
as maintaining shareholder accounts and records, to the Trust. The Sponsor shall
make periodic reports to the Trust's Board of Trustees on the performance of its
<PAGE>
Signature Broker-Dealer
Services, Inc.
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obligations under this Contract, other than those services provided to the Trust
by Service organizations retained in accordance with the previous sentence.
(b) The Sponsor shall, at its expense, (i) provide the Trust
with office space and office facilities reasonably necessary for the operation
of the Trust and the Funds, (ii) employ or associate with itself such persons as
it believes appropriate to assist it in performing its obligations under this
Contract and (iii) provide the Trust with persons satisfactory to the Trust's
Board of Trustees to serve as officers of the Trust, including a president, a
secretary and a treasurer (and one or more vice presidents if the business of
the Trust so requires). The Sponsor shall pay the entire compensation of all of
the Trust's officers and the entire compensation of the Trustees of the Trust
who are affiliated persons of the Sponsor and the compensation shall not be
deemed to be expenses of the Trust for purposes of paragraph 5 hereof.
(c) Except as provided in subparagraph (b) and in the Advisory
Contract, the Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliated with
the Sponsor or the Adviser or any of their affiliates; taxes and governmental
fees; interest charges; fees and expenses of the Trust's independent accountants
and legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of shares of each Fund), transfer agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, redeeming, registering and
qualifying for sale shares of beneficial interest in the Trust; expenses of
preparing and printing share certificates, prospectuses and reports to
shareholders, notices, proxy statements and reports to regulatory agencies; the
cost of office supplies, including stationery; travel expenses of all officers
and Trustees who are not affiliated with the Sponsor; insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
shareholders' meetings; organizational expenses; extraordinary expenses; and
reimbursements to the Sponsor in accordance with the Plan.
3. The Sponsor shall give the Trust the benefit of the Sponsor's best
judgment and efforts in rendering services under this Contract. As an inducement
to the Sponsor's undertaking to render these services, the Trust agrees that the
Sponsor shall not be liable under this Contract for any mistake in judgment or
in any other event whatsoever, provided that nothing in this Contract shall be
deemed to protect or purport to protect the Sponsor against any liability to the
Trust or its shareholders to which the Sponsor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Sponsor's duties under this Contract or by reason of the Sponsor's
reckless disregard of its obligations and duties hereunder.
4. In consideration of the services to be rendered by the Sponsor under
this Contract, the Trust shall pay the Sponsor a monthly fee with respect to
each Fund on the last business day of each month, based upon the average daily
value of the net assets of that Fund during that month at annual rates set forth
in a Supplement with respect to that Fund. If the fees payable to the Sponsor
pursuant to this paragraph 4 begin to accrue before the end of any month or if
<PAGE>
Signature Broker-Dealer
Services, Inc.
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this Contract terminates before the end of any month, the fees for the period
from that date to the end of that month or from the beginning of that month to
the date of termination, as the case may be, shall be prorated according to the
proportion that the period bears to the full month in which the effectiveness or
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of each Fund shall be computed in the manner specified in its
Prospectus for the computation of net asset value. For purposes of this
Contract, a "business day" is any day the New York Stock Exchange is open for
trading.
5. If the aggregate expenses of every character incurred by, or
allocated to, each Fund in any fiscal year, other than interest, taxes,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, payments under that Fund's Distribution Plan and any
extraordinary expense (including, without limitation, litigation and
indemnification expense), but including the fees provided for in paragraph 4 and
under the Advisory Contract ("includable expenses"), shall exceed the expense
limitations applicable to that Fund imposed by state securities law or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Sponsor shall pay that Fund an amount equal to 50% of that excess.
With respect to portions of a fiscal year in which this Contract shall be in
effect, the foregoing limitations shall be prorated according to the proportion
which that portion of the fiscal year bears to the full fiscal year. At the end
of each month of the Trust's fiscal year, the Sponsor will review the includable
expenses accrued during that fiscal year to the end of the period and shall
estimate the contemplated includable expenses for the balance of that fiscal
year. If, as a result of that review and estimation, it appears likely that the
includable expenses will exceed the limitations referred to in this paragraph 5
for a fiscal year, the monthly fees payable to the Sponsor under this Contract
for such month shall be reduced, subject to a later reimbursement during that
fiscal year to reflect actual expenses, by an amount equal to 50% of a pro rata
portion (prorated on the basis of the remaining months of the fiscal year,
including the month just ended) of the amount by which the includable expenses
for the fiscal year (less an amount equal to the aggregate of actual reductions
made pursuant to this provision with respect to prior months of the fiscal year)
are expected to exceed the limitations provided in this paragraph 5. For
purposes of the foregoing, the value of the net assets of each Fund shall be
computed in the manner specified in paragraph 4, and any payments required to be
made by the Sponsor shall be made once a year promptly after the end of the
Trust's fiscal year.
6. This Contract, and any Supplement, shall become effective with
respect to a Fund only when approved by vote of a majority of (i) the Board of
Trustees of the Trust, and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in this Contract, cast in person at a meeting called for the
purpose of voting on such-approval. This Contract and any Supplement shall
continue in effect with respect to a Fund until the last day of the calendar
year next following the date of effectiveness specified in a Supplement to the
Contract, and thereafter shall continue automatically for successive annual
<PAGE>
Signature Broker-Dealer
Services, Inc.
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periods ending on the last day of each calendar year, provided such continuance
is specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in this Contract, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Contract and all of its
Supplements may be terminated at any time, without payment of any penalty, by a
vote of a majority of the outstanding voting securities of each Fund (as defined
in the 1940 Act) or by a vote of a majority of the Trustees of the Trust who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in this Contract on 60 days' written notice to the
Sponsor or by the Sponsor on 60 days' written notice to the Trust. This Contract
and all of its Supplements shall terminate automatically in the event of
assignment (as defined in the 1940 Act).
7. Except to the extent necessary to perform the Sponsor's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Sponsor, or any affiliate of the Sponsor, or any employee of the
Sponsor, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
8. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Republic Funds" refers to the Trustees under the
Declaration collectively as Trustees and not as individuals or personally, and
that no shareholder, Trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
9. This Contract shall be construed and its provisions interpreted in
accordance with the laws of the Commonwealth of Massachusetts.
<PAGE>
Signature Broker-Dealer
Services, Inc.
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If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By /S/ PHILIP W. COOLIDGE
Title:
ACCEPTED:
SIGNATURE BROKER-DEALER
SERVICES, INC.
By /S/ PHILIP W. COOLIDGE
Title:
FT4229
<PAGE>
ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
The Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
Signature Broker-Dealer October 6, 1994
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
RE: REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic New York Tax Free Money Market Fund (the "Fund") is a separate
investment portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Master
Administrative Services Contract (the "Contract") dated June 30, 1989, pursuant
to which the Sponsor has agreed to provide management and administrative
services
to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.15% of the average daily value of net assets of the Fund for
Fund assets up to $100 million, 0.12% for Fund assets from $100 million to $200
million, 0.09% for Fund assets from $200 million to $500 million, and 0.07% for
Fund assets in excess of $500 million.
<PAGE>
Signature Broker-Dealer
Services, Inc.
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6. This Supplement and the Contract shall become effective
with respect to the Fund on October 6, 1994, and shall continue in effect with
respect to the Fund until the last day of the calendar year next following such
date, and thereafter shall continue automatically for successive annual periods
ending on the last day of each calendar year, provided such continuance is
specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the Contract or this Supplement, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Contract and
this Supplement may be terminated with respect to the Fund at any time, without
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act), or by vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the Contract
or this Supplement on 60 days' written notice to the Sponsor, or by the Sponsor
on 60 days' written notice to the Trust. The Contract and this Supplement shall
terminate automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing correctly set forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
THE REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Title:
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
Title:
FT4110
<PAGE>
ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
Signature Broker-Dealer
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
RE: REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic U.S. Government Money Market Fund (the "Fund") is a separate investment
portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Master
Administrative Services Contract (the "Contract") dated June 30, 1989, pursuant
to which the Sponsor has agreed to provide management and administrative
services
to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.20% of the average daily value of net assets.
6. This Supplement and the Contract shall become effective
with respect to the Fund on June 30, 1989, and shall continue in effect with
respect to the Fund until the last day of the calendar year next following such
date, and thereafter shall continue automatically for successive annual periods
ending on
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Services, Inc.
Page 2
the last day of each calendar year, provided such continuance is specifically
approved at least annually by a vote of a majority of (i) the Trust's Board of
Trustees and (ii) the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust and who have no direct or indirect financial interest
in the Contract or this Supplement, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Contract and this Supplement may
be terminated with respect to the Fund at any time, without payment of any
penalty, by vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act), or by vote of a majority of the Trustees of the
Trust who are not "interested persons" (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the Contract or this Supplement on
60 days' written notice to the Sponsor, or by the Sponsor on 60 days' written
notice to the Trust. The Contract and this Supplement shall terminate
automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing correctly set forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Title:
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
Title:
FT4110A
<PAGE>
ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
The Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
Signature Broker-Dealer October 6, 1994
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
RE: REPUBLIC NEW YORK TAX FREE BOND FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic New York Tax Free Bond Fund (the "Fund") is a separate investment
portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Master
Administrative Services Contract (the "Contract") dated June 30, 1989, pursuant
to which the Sponsor has agreed to provide management and administrative
services
to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.20% of the average daily value of net assets of the Fund for
Fund assets up to $100 million, 0.17% for Fund assets from $100 million to $200
million, 0.13% for Fund assets from $200 million to $500 million, and 0.10% for
Fund assets in excess of $500 million.
<PAGE>
Signature Broker-Dealer
Services, Inc.
Page 2
6. This Supplement and the Contract shall become effective
with respect to the Fund on October 6, 1994, and shall continue in effect with
respect to the Fund until the last day of the calendar year next following such
date, and thereafter shall continue automatically for successive annual periods
ending on the last day of each calendar year, provided such continuance is
specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the Contract or this Supplement, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Contract and
this Supplement may be terminated with respect to the Fund at any time, without
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act), or by vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the Contract
or this Supplement on 60 days' written notice to the Sponsor, or by the Sponsor
on 60 days' written notice to the Trust. The Contract and this Supplement shall
terminate automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing correctly set forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Title:
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
Title:
FT4110A
<PAGE>
ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
Republic Funds
Six St. James Avenue
Boston, Massachusetts 02116
Signature Broker-Dealer April 7, 1995
Services, Inc.
Six St. James Avenue
Boston, Massachusetts 02116
RE: REPUBLIC EQUITY FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic Equity Fund (the "Fund") is a separate investment portfolio of the
Trust.
2. The Trust and the Sponsor have entered into a Master
Administrative Services Contract (the "Contract") dated June 30, 1989, pursuant
to which the Sponsor has agreed to provide management and administrative
services
to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.20% of the average daily value of net assets of the Fund for
Fund assets up to $100 million, 0.17% for Fund assets from $100 million to $200
million, 0.13% for Fund assets from $200 million to $500 million, and 0.10% for
Fund assets in excess of $500 million.
6. This Supplement and the Contract shall become effective with
respect to the Fund on April 7, 1995, and shall continue in effect with respect
<PAGE>
to the Fund until the last day of the calendar year next following such date,
and thereafter shall continue automatically for successive annual periods ending
on the last day of each calendar year, provided such continuance is specifically
approved at least annually by a vote of a majority of (i) the Trust's Board of
Trustees and (ii) the Trustees who are not "interested persons" (as defined in
the 1940 Act) of the Trust and who have no direct or indirect financial interest
in the Contract or this Supplement, by vote cast in person at a meeting called
for the purpose of voting on such approval. The Contract and this Supplement may
be terminated with respect to the Fund at any time, without payment of any
penalty, by vote of a majority of the outstanding voting securities of the Fund
(as defined in the 1940 Act), or by vote of a majority of the Trustees of the
Trust who are not "interested persons" (as defined in the 1940 Act) and who have
no direct or indirect financial interest in the Contract or this Supplement on
60 days' written notice to the Sponsor, or by the Sponsor on 60 days' written
notice to the Trust. The Contract and this Supplement shall terminate
automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing correctly set forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By: /S/ PHILIP W. COOLIDGE
Title:
Accepted:
Signature Broker-Dealer
Services, Inc.
By: /S/ PHILIP W. COOLIDGE
Title:
FT4199F
SECOND MASTER ADMINISTRATIVE SERVICES CONTRACT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 21, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Dear Sirs:
This will confirm the agreement between the undersigned (the "Trust")
and you (the "Sponsor") as follows:
1. The Trust is an open-end investment company organized as a
Massachusetts business trust and consists of one or more separate investment
portfolios as may be established and designated by the Trustees from time to
time (the "Funds"). This Second Master Administrative Services Contract (this
"Contract") shall pertain to such Funds as shall be designated in supplements to
this Contract ("Supplements"), as further agreed by the Trust and the Sponsor. A
separate series of shares of beneficial interest in the Trust is offered to
investors with respect to each Fund. The Trust engages in the business of
investing and reinvesting the assets of each Fund in the manner and in
accordance with the investment objective and restrictions specified in the
currently effective Prospectus (the "Prospectus") relating to the Trust and the
Fund included in the Trust's Registration Statement, as amended from time to
time (the "Registration Statement"), filed by the Trust under the Investment
Company Act of 1940 (the "1940 Act") and the Securities Act of 1933 (the "1933
Act"). Copies of the documents referred to in the preceding sentence have been
furnished to the Sponsor. Any amendments to those documents shall be furnished
to the Sponsor promptly. The Trust has entered into a Master Investment
Management Contract (and Supplements thereto) (the "Management Contract") with
Republic National Bank of New York (the "Adviser") providing for investment
management services and a Second Master Distribution Contract (and Supplements
thereto) (the "Distribution Contract") with you.
2. (a) The Sponsor shall provide all management and administrative
services reasonably necessary for the operation of the Trust and the Funds,
other than those investment management and administrative services which are to
be provided by the Adviser pursuant to the Management Contract or by any other
persons engaged to perform transfer agency, custodial or other services pursuant
to a written contract with the Trust. The Sponsor shall make periodic reports to
the Trust's Board of Trustees on the performance of its obligations under this
Contract.
(b) The Sponsor shall, at its expense, (i) provide the Trust with
office space and office facilities reasonably necessary for the operation of the
<PAGE>
Signature Broker-Dealer
Services, Inc.
November 21, 1994
Page 2
Trust and the Funds, (ii) employ or associate with itself such persons as it
believes appropriate to assist it in performing its obligations under this
Contract and (iii) provide the Trust with persons satisfactory to the Trust's
Board of Trustees to serve as officers of the Trust, including a president, a
secretary. and a treasurer (and one or more vice presidents if the business of
the Trust so requires). The Sponsor shall pay the entire compensation of all of
the Trust's officers and the entire compensation of the Trustees of the Trust
who are affiliated persons of the Sponsor and the compensation shall not be
deemed to be expenses of the Trust for purposes of paragraph 5 hereof.
(c) Except as provided in subparagraph (b) and in the
Management Contract, the Trust shall be responsible for all of its expenses and
liabilities, including compensation of its Trustees who are not affiliates with
the Sponsor or the Adviser or any of their affiliates; taxes and governmental
fees; interest charges; fees and expenses of the Trust's independent accountants
and legal counsel; trade association membership dues; fees and expenses of any
custodian (including maintenance of books and accounts and calculation of the
net asset value of shares of each Fund), transfer-agent, registrar and dividend
disbursing agent of the Trust; expenses of issuing, redeeming, registering and
qualifying for sale shares of beneficial interest in the Trust; expenses of
preparing and printing share certificates, prospectuses and reports to
shareholders, notices, proxy statements and reports to regulatory agencies; the
cost of office supplies, including stationery; travel expenses of all officers
and Trustees who are not affiliated with the Sponsor; insurance premiums;
brokerage and other expenses of executing portfolio transactions; expenses of
shareholders' meetings; organizational expenses; extraordinary expenses; and
reimbursements to the Sponsor in accordance with the Distribution Contract.
3. The Sponsor shall give the Trust the benefit of the Sponsor's best
judgment and efforts in rendering services under this Contract. As an inducement
to the Sponsor's undertaking to render these services, the Trust agrees that the
Sponsor shall not be liable under this Contract for any mistake in judgment or
in any other event whatsoever, provided that nothing in this Contract shall be
deemed to protect or purport to protect the Sponsor against any liability to the
Trust or its shareholders to which the Sponsor would otherwise be subject by
reason of willful misfeasance, bad faith or gross negligence in the performance
of the Sponsor's duties under this Contract or by reason of the Sponsor's
reckless disregard of its obligations and duties hereunder.
4. In consideration of the services to be rendered by the Sponsor under
this Contract, the Trust shall pay the Sponsor a monthly fee with respect to
each Fund on the last business day of each month, based upon the average daily
value of the net assets of that Fund during that month at annual rates set forth
in a Supplement with respect to that Fund. If the fees payable to the sponsor
pursuant to this paragraph 4 begin to accrue before the end of any month or if
this Contract terminates before the end of any month, the fees for the period
from that date to the end of that month or from the beginning of that month to
the date of termination, as the case may be, shall be prorated according to the
proportion that the period bears to the full month in which the effectiveness or
<PAGE>
Signature Broker-Dealer
Services, Inc.
November 21, 1994
Page 3
termination occurs. For purposes of calculating the monthly fees, the value of
the net assets of each Fund shall be computed in the manner specified in its
Prospectus for the computation of net asset value. For purposes of this
Contract, a "business day" is any day the New York Stock Exchange is open for
trading.
5. If the aggregate expenses of every character incurred by, or
allocated to, each Fund in any fiscal year, other than interest, taxes,
brokerage commissions and other portfolio transaction expenses, other
expenditures which are capitalized in accordance with generally accepted
accounting principles, payments under that Fund's Distribution Contract and any
extraordinary expense (including, without limitation, litigation and
indemnification expense), but including the fees provided for in paragraph 4 and
under the Management Contract ("includable expenses"), shall exceed the expense
limitations applicable to that Fund imposed by state securities law or
regulations thereunder, as these limitations may be raised or lowered from time
to time, the Sponsor shall pay that Fund an amount equal to 50% of that excess.
With respect to portions of a fiscal year in which this Contract shall be in
effect, the foregoing limitations shall be prorated according to the proportion
which that portion of the fiscal year bears to the full fiscal year. At the end
of each month of the Trust's fiscal year, the Sponsor will review the includable
expenses accrued during that fiscal year to the end of the period and shall
estimate the contemplated includable expenses for the balance of that fiscal
year. If, as a result of that review and estimation, it appears likely that the
includable expenses will exceed the limitations referred to in this paragraph 5
for a fiscal year, the monthly fees payable to the Sponsor under this Contract
for such month shall be reduced, subject to a later reimbursement during that
fiscal year to reflect actual expenses, by an amount equal to 50% of a pro rata
portion (prorated on the basis of the remaining months of the fiscal year,
including the month just ended) of the amount by which the includable expenses
for the fiscal year (less an amount equal to the aggregate of actual reductions
made pursuant to this provision with respect to prior months of the fiscal year)
are expected to exceed the limitations provided in this paragraph 5. For
purposes of the foregoing, the value of the net assets of each Fund shall be
computed in the manner specified in paragraph 4, and any payments required to be
made by the Sponsor shall be made once a year promptly after the end of the
Trust's fiscal year.
6. This Contract, and any Supplement, shall become effective with
respect to a Fund only when approved by vote of a majority of (i) the Board of
Trustees of the Trust, and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in this Contract, cast in person at a meeting called for the
purpose of voting on such approval. This Contract and any Supplement shall
continue in effect with respect to a Fund until the last day of the calendar
year next following the date of effectiveness specified in a Supplement to the
Contract, and thereafter shall continue automatically for successive annual
periods ending on the last day of each calendar year, provided such continuance
is specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
<PAGE>
Signature Broker-Dealer
Services, Inc.
November 21, 1994
Page 4
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in this Contract, by vote cast in person at a meeting called
for the purpose of voting on such approval. This Contract and all of its
Supplements may be terminated at any time, without payment of any penalty, by a
vote of a majority of the outstanding voting securities of each Fund (as defined
in the 1940 Act) or by a vote of a majority of the Trustees of the Trust who are
not "interested persons" (as defined in the 1940 Act) and who have no direct or
indirect financial interest in this Contract on 60 days' written notice to the
Sponsor or by the Sponsor on 60 days' written notice to the Trust. This Contract
and all of its Supplements shall terminate automatically in the event of
assignment (as defined in the 1940 Act).
7. Except to the extent necessary to perform the Sponsor's obligations
under this Contract, nothing herein shall be deemed to limit or restrict the
right of the Sponsor, or any affiliate of the Sponsor, or any employee of the
Sponsor, to engage in any other business or to devote time and attention to the
management or other aspects of any other business, whether of a similar or
dissimilar nature, or to render services of any kind to any other corporation,
firm, individual or association.
8. The Declaration of Trust establishing the Trust, filed on April 22,
1987, a copy of which, together with all amendments thereto (the "Declaration"),
is on file in the Office of the Secretary of the Commonwealth of Massachusetts,
provides that the name "Republic Funds" refers to the Trustees under the
Declaration collectively as Trustees and not as individuals or personally, and
that no shareholder, Trustee, officer, employee or agent of the Trust shall be
subject to claims against or obligations of the Trust to any extent whatsoever,
but that the Trust estate only shall be liable.
9. This Contract shall be construed and its provisions interpreted in
accordance, with the laws of the Commonwealth of Massachusetts.
If the foregoing correctly sets forth the agreement between the Trust
and the Sponsor, please so indicate by signing and returning to the Trust the
enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By /S/ PHILIP W. COOLIDGE
President
ACCEPTED:
SIGNATURE BROKER-DEALER
SERVICES, INC.
By /S/ PHILIP W. COOLIDGE
President
FT4128A
<PAGE>
SECOND ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 21, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC FIXED INCOME FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Trust") and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established.by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic Fixed Income Fund (the "Fund") is a separate investment portfolio of
the Trust.
2. The Trust and the Sponsor have entered into a Second Master
Administrative Services Contract ("the Contract") dated November 21, 1994,
pursuant to which the Sponsor has agreed to provide management and
administrative services to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.05% of the average daily value of net assets of the Fund up
to $100 million, and 0.00% of the average daily value of net assets of the Fund
over
<PAGE>
Signature Broker-Dealer
Services, Inc.
November 21, 1994
Page 2
$100 million; provided, however, that the minimum annual fee for each Fund shall
be $25,000 (payable ratably each month).
6. This Supplement and the Contract shall become effective
with respect to the Fund on November 21, 1994, and shall continue in effect with
respect to the Fund until the last day of the calendar year next following such
date, and thereafter shall continue automatically for successive annual periods
ending on the last day of each calendar year, provided such continuance is
specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the Contract or this Supplement, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Contract and
this Supplement may be terminated with respect to the Fund at any time, without
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act), or by vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the Contract
or this Supplement on 60 days' written notice to the Sponsor, or by the Sponsor
on 60 days written notice to the Trust. The Contract and this Supplement shall
terminate automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing currently set forth the agreement between the
Trust and the Sponsor, please so indicate by signing and returning to the Trust
the enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By /S/ PHILIP W. COOLIDGE
President
ACCEPTED:
SIGNATURE BROKER-DEALER
SERVICES, INC.
By /S/ PHILIP W. COOLIDGE
President
FT4128A
<PAGE>
ADMINISTRATIVE SERVICES CONTRACT SUPPLEMENT
Republic Funds
6 St. James Avenue
Boston, Massachusetts 02116
November 21, 1994
Signature Broker-Dealer
Services, Inc.
6 St. James Avenue
Boston, Massachusetts 02116
Re: REPUBLIC INTERNATIONAL EQUITY FUND
Dear Sirs:
This will confirm the agreement between the undersigned (the
"Trust") and Signature Broker-Dealer Services, Inc. (the "Sponsor") as follows:
1. The Trust is an open-end management investment company,
organized as a Massachusetts business trust, and consists of such separate
investment portfolios as have been or may be established by the Trustees of the
Trust from time to time. A separate class of shares of beneficial interest of
the Trust is offered to investors with respect to each investment portfolio.
Republic International Equity Fund (the "Fund") is a separate investment
portfolio of the Trust.
2. The Trust and the Sponsor have entered into a Second Master
Administrative services Contract ("the Contract") dated November 21, 1994,
pursuant to which the Sponsor has agreed to provide management and
administrative services to the Trust as set forth in that Contract.
3. As provided for in paragraph 1 of the Contract, the Trust
hereby adopts the Contract with respect to the Fund and the Sponsor hereby
acknowledges that the Contract shall pertain to the Fund, the terms and
conditions of such Contract being hereby incorporated herein by reference. All
terms defined in the Contract and not defined in this Supplement shall have the
same meaning herein as therein.
4. The term "Fund" as used in the Contract shall, for purposes
of this Supplement, pertain to the Fund.
5. As provided in paragraph 4 of the Contract and subject to
further conditions as set forth therein, the Trust shall with respect to the
Fund pay the Sponsor a monthly fee on the last business day of each month based
upon the average daily value of the net assets of the Fund during that month at
an annual rate of 0.05% of the average daily value of net assets of the Fund up
to $100 million, and 0.00% of the average daily value of net assets of the Fund
over
<PAGE>
Signature Broker-Dealer
Services, Inc.
November 21, 1994
Page 2
$100 million; provided, however, that the minimum annual fee for each Fund shall
be $25,000 (payable ratably each month).
6. This Supplement and the Contract shall become effective
with respect to the Fund on November 21, 1994, and shall continue in effect with
respect to the Fund until the last day of the calendar year next following such
date, and thereafter shall continue automatically for successive annual periods
ending on the last day of each calendar year, provided such continuance is
specifically approved at least annually by a vote of a majority of (i) the
Trust's Board of Trustees and (ii) the Trustees who are not "interested persons"
(as defined in the 1940 Act) of the Trust and who have no direct or indirect
financial interest in the Contract or this Supplement, by vote cast in person at
a meeting called for the purpose of voting on such approval. The Contract and
this Supplement may be terminated with respect to the Fund at any time, without
payment of any penalty, by vote of a majority of the outstanding voting
securities of the Fund (as defined in the 1940 Act), or by vote of a majority of
the Trustees of the Trust who are not "interested persons" (as defined in the
1940 Act) and who have no direct or indirect financial interest in the Contract
or this Supplement on 60 days' written notice to the Sponsor, or by the Sponsor
on 60 days written notice to the Trust. The Contract and this Supplement shall
terminate automatically in the event of assignment (as defined in the 1940 Act).
If the foregoing currently set forth the agreement between the
Trust and the Sponsor, please so indicate by signing and returning to the Trust
the enclosed copy hereof.
Very truly yours,
REPUBLIC FUNDS
By /S/ PHILIP W. COOLIDGE
President
ACCEPTED:
SIGNATURE BROKER-DEALER
SERVICES, INC.
By /S/ PHILIP W. COOLIDGE
President
FT4128A
ADMINISTRATIVE SERVICES PLAN
ADMINISTRATIVE SERVICES PLAN, dated as of October 6, 1994, of the
Republic Funds, a Massachusetts business trust (the "Trust"), with respect to
each series of the Trust indicated on Appendix A, hereto (each a "Fund" and
collectively the "Funds").
WITNESSETH:
WHEREAS, the Trust is engaged in business as an open-end management
investment company and is registered under the Investment Company Act of 1940
(collectively with the rules and regulations promulgated thereunder, the "1940
Act"); and
WHEREAS, the Shares of Beneficial Interest ($0.001 par value) of the
Trust (the "Shares") are divided into several series; and
WHEREAS, the Trust desires to adopt this Administrative Services Plan
(the "Plan") in order to provide for certain administrative services to the
Trust and holders of Shares of each Fund; and
WHEREAS, the Trust desires to include each Fund under the Transfer
Agency and Service Agreement between the Trust and Investors Bank & Trust
Company (the "Transfer Agent"), where by the Transfer Agent will provide
transfer agency services to the Fund (the "Transfer Agency Agreement"); and
WHEREAS, the Trust desires to include the Fund under the Custodian
Agreement between the Trust and Investors Bank & Trust Company (the
"Custodian"), whereby the Custodian will provide custodial services to the Trust
with respect to each Fund (the "Custodian Agreement"); and
WHEREAS, the Trust desires to enter into a supplement to its
Administrative Services Contract with Signature Broker-Dealer Services, Inc., a
Delaware corporation, as administrator of the Trust (the "Sponsor"), whereby the
Sponsor will provide certain administrative and management services for each
Fund (the "Administrative Services Contract"); and
WHEREAS, the Trust also desires to enter into shareholder servicing
agreements (in such form as may from time to time be approved by the Board of
Trustees of the Trust) with certain financial institutions and securities
brokers, as shareholder servicing agents ("Shareholder Servicing Agents"),
whereby each Shareholder Servicing Agent will, as agent for its customers,
provide certain services to shareholders of each Fund (the "Shareholder
Servicing Agreements"); and
WHEREAS, the Board of Trustees of the Trust, in considering whether the
Trust should adopt and implement this Plan, has evaluated such information as it
deemed necessary to an informed determination as to whether this Plan should be
adopted and implemented and has considered such pertinent factors as it deemed
necessary to form the basis for a decision to use assets of each Fund for such
purposes, and had determined that there is a reasonable likelihood that the
<PAGE>
adoption and implementation of this Plan will benefit the Trust and that Fund
and its shareholders.
NOW, THEREFORE, the Board of Trustees of the Trust hereby adopts this
Plan for the Trust with respect to each Fund, on the following terms and
conditions:
1. As specified in the Transfer Agency Agreement, the Transfer Agent
shall perform transfer agency functions for the Fund and act as dividend
disbursing agent for the Fund. The Trust shall pay to the Transfer Agent such
compensation from the assets of the Fund as may from time to time be agreed to
by the Trust and the Transfer Agent.
2. As specified in the Custodian Agreement, the Custodian shall
safeguard and control the cash and securities of the Fund, handle receipt and
delivery of securities for the Fund, determine income and collect interest on
the investments of the Fund, maintain books of original entry for the Fund and
other required books and accounts, calculate the daily net asset value of Shares
of the Fund and, in general, act as the custodian of the assets of the Trust
pertaining to the Fund, but the Custodian shall have no power to determine the
investment policies of the Trust or to determine which securities the Trust will
buy or sell on behalf of the Fund. The Trust shall pay to the Custodian such
compensation as may from time to time be agreed to by the Trust and the
Custodian.
3. As specified in the Administrative Services Contract the Sponsor
shall provide all management and administrative services reasonably necessary
for the operation of the Trust and the Fund, other than those investment
management and administrative services which are to be provided by the Trust's
investment adviser pursuant to its Investment Advisory Contract with the Trust
or by any other persons engaged to perform transfer agency, custodial or other
services pursuant to a written contract with the Trust. Pursuant to the
Administrative Services Contract, the Sponsor shall, at its expense, (i) provide
the Trust with office space and office facilities reasonably necessary for the
operation of the Trust and the Fund, (ii) employ or associate with itself such
persons as it believes appropriate to assist it in performing its obligations
under the Administrative Services Contract and (iii) provide the Trust with
persons satisfactory to the Trust's Board of Trustees to serve as officers of
the Trust. As consideration for services performed under the Administrative
Services Contract, the Trust shall periodically pay to the Sponsor a monthly fee
from the assets of the Fund based upon the average dally value of the net assets
of the Fund during that month and identified on Appendix A hereto.
4. As specified in each Shareholder Servicing Agreement, each
Shareholder Servicing Agent shall, as agent for its customers who purchase
Shares of the Fund, perform certain shareholder account, administrative and
service functions for such customers, including, among others: answering
customer inquiries regarding the manner in which purchases and redemptions of
Shares may be effected, and with regard to certain other matters pertaining to
the Trust or the Fund; assisting customers in designating and changing dividend
options, account designations and addresses; providing necessary personnel and
facilities to maintain certain shareholder accounts and records, as specified
from time to time by the Trust; assisting in processing purchase and redemption
transactions; arranging for the wiring of funds; transmitting and receiving
funds in connection with customer orders to purchase and redeem Shares;
verifying and guaranteeing shareholder signatures in connection with redemption
orders and transfers and
<PAGE>
changes in shareholder-designated accounts; furnishing periodic statements
showing customer account balances, monthly and annual statements and
confirmations of purchases and redemptions of Shares in a customers account;
transmitting proxy statements, annual reports, updating prospectuses and other
communications from the Trust to shareholders of the Fund; receiving, tabulating
and transmitting to the Trust proxies executed by customers with respect to
annual and special meetings of shareholders of the Fund; and providing such
other related services as the Trust or a shareholder may request. Each
Shareholder Servicing Agreement shall provide that the Shareholder Servicing
Agent shall provide all personnel and facilities necessary in order for it to
perform the functions described in this paragraph with respect to its customers
who purchase Shares of the Fund. As consideration for services performed under
the Shareholder Servicing Agreements, the Trust shall periodically pay to each
Shareholder Servicing Agent a fee from the assets of the Fund, payable on a per
account, per level of activity, plus expenses formula from time to time agreed
to by the Trust and such Shareholder Servicing Agent; provided, however, that
such fee from the assets of the Fund shall not exceed for any period an amount
payable at an annual rate as identified on Appendix A hereto of the Fund's
average daily net assets represented by Shares of the Fund owned during such
period by investors with whom the Shareholder Servicing Agent maintains a
servicing relationship. Each Shareholder Servicing Agent will be permitted to
charge its customers direct fees for the same or similar services as provided
pursuant to a Shareholder Servicing Agreement.
5. Nothing herein contained shall be deemed to require the Trust to
take any action contrary to its Declaration of Trust or By-Laws or any
applicable statutory or regulatory requirement to which it is subject or by
which it is bound, or to relieve or deprive the Board of Trustees of the Trust
of the responsibility for and control of the conduct of the affairs of the
Trust.
6. This Plan shall become effective upon (a) approval by a vote of at
least a "majority of the outstanding voting securities" of the Fund, and (b)
approval by a vote of the Board of Trustees of the Trust and vote of a majority
of the Trustees who are not "interested persons" of the Trust and who have no
direct or indirect financial interest in the operation of the Plan or in any of
the agreements related to the Plan (the "Qualified Trustees"), such votes to be
cast in person at a meeting called for the purpose of voting on this Plan.
7. This Plan shall continue in effect indefinitely, provided, that such
continuance is subject to annual approval by a vote of the Board of Trustees of
the Trust and a majority of the Qualified Trustees, such votes to be cast in
person at a meeting called for the purpose of voting on continuance of this
Plan. If such annual approval is not obtained, this Plan shall expire on the
later to occur of August 31, 1996 or the date which is 15 months after the date
of the last approval.
8. This Plan may be amended at any time by the Board of Trustees of the
Trust, provided, that (a) any amendment to increase materially the amount to be
expended from the assets of the Fund for the services described herein shall be
effective only upon approval by a vote of a "majority of the outstanding voting
securities" of the Fund, and (b) any material amendment of this Plan shall be
effective only upon approval by a vote of the Board of Trustees of the Trust and
a majority of the Qualified Trustees, such votes to be cast in person at a
meeting called for the purpose of voting on such amendment. This Plan may be
<PAGE>
terminated at any time with respect to the Fund by vote of a majority of the
Qualified Trustees or by a vote of a "majority of the outstanding voting
securities" of the Fund.
9. The Treasurer of the Trust shall provide the Board of Trustees of
the Trust, and the Board of Trustees of the Trust shall review, at least
quarterly, a written report of the amounts expended under the Plan and the
purposes for which such expenditures were made.
10. While this Plan is in effect, the selection and nomination of
Qualified Trustees shall be committed to the discretion of the Trustees who are
not "interested persons" of the Trust.
11. For the purposes of this Plan, the term "interested person" and
"majority of the outstanding voting securities" are used as defined in the 1940
Act. In addition, for purposes of determining the fees payable to the
Administrator and each Shareholder Servicing Agent, the value of the net assets
of the Fund shall be computed in the manner specified in the Trust's
then-current prospectus and statement of additional information applicable to
Shares of the Fund.
12. The Trust shall preserve copies of this Plan, and each agreement
related hereto and each report referred to in paragraph 9 hereof (collectively
the "Records"), for a period of six years from the end of the fiscal year in
which such Record was made and each such Record shall be kept in an easily
accessible place for the first two years of said record-keeping.
13. This Plan shall be construed in accordance with the laws of the
Commonwealth of Massachusetts and the applicable provisions of the 1940 Act.
14. If any provision of this Plan shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Plan shall not
be affected thereby.
FT4111
<PAGE>
APPENDIX A
<TABLE>
<CAPTION>
FUND ADMINISTRATION FEE* SHAREHOLDER DATE ADDED
SERVICING FEE TO THE
ADMINISTRATIVE
SERVICES PLAN
<S> <C> <C> <C>
Republic U.S. Government
Money Market Fund 0.20% 0.20% 10/6/94
Republic New York Tax
Free Money Market Fund 0.15% to $100 million 0.25% 10/6/94
0.12% $100 million - $200 million
0.09% $200 million - $500 million
0.07% over $500 million
Republic New York
Tax Free Bond Fund 0.20% to $100 million 0.50%** 10/6/94
0.17% $100 million - $200 million
0.13% $200 million - $500 million
0.10% over $500 million
Republic Equity Fund 0.20% to $100 million 0.50%** 4/7/95
0.17% $100 million - $200 million
0.13% $200 million - $500 million
0.10% over $500 million
</TABLE>
*Administration fee for Republic New York Tax Free Money Market Fund, Republic
New York Tax Free Bond Fund and Republic Equity Fund includes non transaction-
based custody fees as described in the prospectus.
**Not anticipated to exceed 0.25%
FT4111
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Independent Auditors"
in the Statement of Additional Information in Post-Effective Amendment No. 35 to
the Registration Statement (Form N-1A, No. 33-7647) of Republic Funds.
We also consent to the incorporation by reference therein of our reports on the
financial statements included in the Annual Reports dated December 8, 1995 for
Republic International Equity and Republic Fixed Income Portfolios of Republic
Portfolio Trust.
/S/ ERNST & YOUNG
ERNST & YOUNG
January 19, 1996
Grand Cayman, Cayman Islands
<PAGE>
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the references to our firm under the captions "Financial
Highlights" in the Prospectus and "Independent Auditors" in the Statement of
Additional Information in Post-Effective Amendment No. 35 to the Registration
Statement (Form N-1A, No. 33-7647) of Republic Funds.
We also consent to the incorporation by reference therein of our reports on the
financial statements included in the Annual Reports dated November 10, 1995 for
Republic U.S. Government Money Market Fund, and December 8, 1995 for Republic
Equity Fund, Republic New York Tax Free Bond Fund, Republic New York Tax Free
Money Market Fund, Republic International Equity Fund, and Republic Fixed Income
Fund portfolios of Republic Funds.
/S/ ERNST & YOUNG
ERNST & YOUNG
January 19, 1996
Boston, Massachusetts
FT4068A
AMENDED AND RESTATED MASTER DISTRIBUTION PLAN
WHEREAS, Republic Funds (the "Trust") is registered as an open-end
management investment company under the Investment Company Act of 1940 (the
"Act") and is authorized to issue shares of beneficial interest in separate
series with each such series representing interests in a separate portfolio of
securities and other assets (a "portfolio"); and
WHEREAS, the Trust employs Republic National Bank of New York (the
"Adviser") to render investment management services with respect to such
separate investment portfolios (the "Funds") as the Trustees shall establish and
designate from time to time; and
WHEREAS, the Trust intends to employ Signature Broker-Dealer Services,
Inc. (the "Sponsor") to distribute securities of the funds and to render certain
management and administrative services necessary for the operation of the Trust;
and
WHEREAS, the Trust intends to enter into a Master Administrative
Services Contract (and Supplements thereto) with the Sponsor and to reimburse
the Sponsor for (1) expenses incurred in connection with advertising and
marketing its shares and (2) payments to broker-dealers or other financial
intermediaries (other than banks) ("Financial Organizations") for services
rendered in the distribution of the Trust's shares and for the provision of
certain shareholder services with respect to the Trust's shares; and
WHEREAS, the Board of Trustees of the Trust has determined to adopt
this Amended and Restated Master Distribution Plan (the "Plan") and has
determined that there is a reasonable likelihood that the Plan will benefit the
Trust and its shareholders.
NOW THEREFORE, the Trust hereby adopts the Plan on the following terms
and conditions:
1. The Plan shall pertain to such Funds as shall be designated from
time to time by the Trustees of the Trust in any Supplement to the Plan
("Supplement").
2. The Trust will reimburse the Sponsor for costs and expenses incurred
in connection with the distribution and marketing of shares of the Fund and for
the provision of certain shareholder services. Such distribution and shareholder
servicing costs and expenses would include (i) advertising by radio, television,
newspapers, magazines, brochures, sales literature, direct mail or any other
form of advertising, (ii) expenses of sales employees or agents of the Sponsor,
including salary, commissions, travel and related expense, (iii) payments to
broker-dealers and financial institutions for services in connection with the
provision of personal services and shareholder account maintenance services and
the distribution of shares, including fees calculated with reference to the
average daily net asset value of shares held by shareholders who have a
brokerage
<PAGE>
or other service relationship with the broker-dealer or institution receiving
such fees, (iv) costs of printing prospectuses and other materials to e given or
sent to prospective investors (including costs and fees incurred in registering
shares of the fund in the states in which it is to be sold) and (v) such other
similar services as the Trustees determine to be reasonably calculated to result
n the sale of Funds shares.
The Sponsor will be reimbursed for such costs, expenses or payments on
a monthly basis, subject to an annual limit of each Fund's average daily net
assets as shall be set forth with respect to a Fund in any Supplement to the
Plan. Payments made out of or charged against the assets of the Fund must be in
reimbursement for distribution services rendered for or on behalf of the Fund or
for personal services or shareholder account maintenance services rendered to
the Fund's shareholders. The Sponsor also may receive and retain brokerage
commissions with respect to portfolio transactions for the Fund to the extent
not prohibited by the Fund's Prospectus or Statement of Additional Information.
3. As consideration for providing (or causing to be provided) personal
services and shareholder account maintenance services, the Sponsor may pay
Financial Organizations a fee at an annual rate up to 0.25% of the average daily
net assets of the Fund for its then-current fiscal year, and be reimbursed
therefore under the terms of this Plan.
4. The Trust shall pay all costs and expenses in connection with
preparation, printing and distribution of the Trust's prospectuses and the
implementation and operation of the Plan.
5. The Plan shall not take effect with respect to a Fund until it has
been approved by a vote of at least a majority (as defined in the Act) of the
outstanding voting securities of that Fund. With respect to the submission of
the Plan for such a vote, it shall have been effectively approved with respect
to a Fund if a majority of the outstanding voting securities of each Fund votes
for approval of the Plan, notwithstanding that the matter has not been approved
by a majority of the outstanding voting securities of the Trust. The Plan shall
take effect with respect to any other Fund established in the Trust provided the
Plan is approved with respect to such portfolio as set forth in this paragraph
and provided the Trustees have executed a Supplement as set forth in paragraph
1.
6. The Plan shall not take effect with respect to a Fund until it has
been approved, together with any related Agreements and Supplements, by votes of
a majority of both (a) the Board of Trustees of the Trust and (b) those Trustees
of the Trust who are not "interested persons" of the Trust (as defined in the
Act) and have no direct or indirect financial interest in the operation of the
Plan or any agreements related to it (the "Plan Trustees"), cast in person at a
meeting (or meetings) called for the purpose of voting on the Plan and such
related agreements.
7. The Plan shall continue in effect so long as such continuance is
specifically approved at least annually in the manner provided for approval of
the Plan in paragraph 6.
8. Any person authorized to direct the disposition of monies paid or
payable by the Trust pursuant to the Plan or any related agreement shall provide
to the Trust's Board of Trustees, and the Board shall review, at least
quarterly,
<PAGE>
a written report of the amounts so expended and the purposes for which such
expenditures were made.
9. Any agreement related to the Plan shall be in writing and shall
provide: (a) that such agreement may be terminated with respect to a Fund at any
time, without payment of any penalty, by vote of a majority of the Plan Trustees
or by vote of a majority of the outstanding voting securities of a Fund, on not
more than 60 days' written notice to any other party to the agreement, and (b)
that such agreement shall terminate automatically in the event of its
assignment.
10. The Plan may be terminated at any time, without payment of any
penalty, with respect to each Fund, by vote of a majority of the Plan Trustees
or by vote of a majority of the outstanding voting securities of that Fund.
11. The Plan may be amended at any time by the Board of Trustees
provided that (a) any amendment to increase materially the costs which a Fund
may bear for distribution pursuant to the Plan shall be effective only upon
approval by a vote of a majority of the outstanding voting securities of the
Fund and (b) any material amendments of the terms of the Plan shall become
effective only upon approval as provided in paragraph 6 hereof.
12. While the Plan is in effect, the selection and nomination of
Trustees who are not interested persons (as defined in the Act) of the Trust
shall be committed to the discretion of the Trustees who are not interested
persons.
13. The Trust shall preserve copies of the Plan and any related
agreements and all reports made pursuant to paragraph 8 hereof for a period of
not less than six years from the date of the Plan, the agreements or such
report, as the case may be, the first two years of which shall be in an easily
accessible place.
Amended and Restated: August 28, 1995.
FT4068
<PAGE>
REPUBLIC FUNDS
Distribution Plan Supplement
Republic U.S. Government Money Market Fund
WHEREAS, Republic Funds (the "Trust") is an open-end investment company
organized as a Massachusetts business trust and consists of one or more separate
investment portfolios as may be established and designated by the Trustees from
time to time; and
WHEREAS, a separate class of shares of beneficial interest of the Trust
is offered to investors with respect to each investment portfolio; and
WHEREAS, the Trust had adopted a Master Distribution Plan ("Plan")
which provides that it shall pertain to such investment portfolios as shall be
designated from time to time by the Trustees of the Trust in any Supplement to
the Plan; and
WHEREAS, Republic U.S. Government Money Market Fund (the "Fund") is a
separate investment portfolio of the Trust;
NOW THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided in paragraph 1 of the Plan, the Trust hereby
adopts the Plan on behalf of the Fund, the terms and
conditions of such Plan being hereby incorporated herein by
reference;
2. The term "Fund" as used in the Plan shall refer to the Fund;
and
3. As provided in paragraph 2 of the Plan, the Sponsor shall be
reimbursed for such costs and expenses as set forth in the
Plan, subject to an annual limit with respect to the Fund of
0.50% of the Fund's average daily net assets.
FT4108
<PAGE>
REPUBLIC FUNDS
Distribution Plan Supplement
Republic New York Tax Free Money Market Fund
WHEREAS, Republic Funds (the "Trust") is an open-end investment company
organized as a Massachusetts business trust and consists of one or more separate
investment portfolios as may be established and designated by the Trustees from
time to time; and
WHEREAS, a separate class of shares of beneficial interest of the Trust
is offered to investors with respect to each investment portfolio; and
WHEREAS, the Trust had adopted a Master Distribution Plan ("Plan")
which provides that it shall pertain to such investment portfolios as shall be
designated from time to time by the Trustees of the Trust in any Supplement to
the Plan; and
WHEREAS, Republic New York Tax Free Money Market Fund (the "Fund") is a
separate investment portfolio of the Trust;
NOW THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided in paragraph 1 of the Plan, the Trust hereby
adopts the Plan on behalf of the Fund, the terms and
conditions of such Plan being hereby incorporated herein by
reference;
2. The term "Fund" as used in the Plan shall refer to the Fund;
and
3. As provided in paragraph 2 of the Plan, the Sponsor shall be
reimbursed for such costs and expenses as set forth in the
Plan, subject to an annual limit with respect to the Fund of
0.25% of the Fund's average daily net assets.
FT4108
<PAGE>
REPUBLIC FUNDS
Distribution Plan Supplement
Republic New York Tax Free Bond Fund
WHEREAS, Republic Funds (the "Trust") is an open-end investment company
organized as a Massachusetts business trust and consists of one or more separate
investment portfolios as may be established and designated by the Trustees from
time to time; and
WHEREAS, a separate class of shares of beneficial interest of the Trust
is offered to investors with respect to each investment portfolio; and
WHEREAS, the Trust had adopted a Master Distribution Plan ("Plan")
which provides that it shall pertain to such investment portfolios as shall be
designated from time to time by the Trustees of the Trust in any Supplement to
the Plan; and
WHEREAS, Republic New York Tax Free Bond Fund (the "Fund") is a
separate investment portfolio of the Trust;
NOW THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided in paragraph 1 of the Plan, the Trust hereby adopts
the Plan on behalf of the Fund, the terms and conditions of such
Plan being hereby incorporated herein by reference;
2. The term "Fund" as used in the Plan shall refer to the Fund; and
3. As provided in paragraph 2 of the Plan, the Sponsor shall be
reimbursed for such costs and expenses as set forth in the Plan,
subject to an annual limit with respect to the Fund of 0.25% of
the Fund's average daily net assets.
Amended and Restated as of August 29, 1995
FT4108A
<PAGE>
REPUBLIC FUNDS
Distribution Plan Supplement
Republic Equity Fund
WHEREAS, Republic Funds (the "Trust") is an open-end investment company
organized as a Massachusetts business trust and consists of one or more separate
investment portfolios as may be established and designated by the Trustees from
time to time; and
WHEREAS, a separate class of shares of beneficial interest of the Trust
is offered to investors with respect to each investment portfolio; and
WHEREAS, the Trust had adopted a Master Distribution Plan ("Plan")
which provides that it shall pertain to such investment portfolios as shall be
designated from time to time by the Trustees of the Trust in any Supplement to
the Plan; and
WHEREAS, Republic Equity Fund (the "Fund") is a separate investment
portfolio of the Trust;
NOW THEREFORE, the Trustees of the Trust hereby take the following
actions, subject to the conditions set forth:
1. As provided in paragraph 1 of the Plan, the Trust hereby adopts
the Plan on behalf of the Fund, the terms and conditions of such
Plan being hereby incorporated herein by reference;
2. The term "Fund" as used in the Plan shall refer to the Fund; and
3. As provided in paragraph 2 of the Plan, the Sponsor shall be
reimbursed for such costs and expenses as set forth in the Plan,
subject to an annual limit with respect to the Fund of 0.25% of
the Fund's average daily net assets.
Amended and Restated as of August 29, 1995
FT4199D
SCHEDULE OF PERFORMANCE COMPUTATIONS
1. TOTAL RETURN
Quotations of average annual total return for a Fund will be expressed
in terms of the average annual compounded rate of return of a hypothetical
investment in the Fund over periods of 1, 5 and 10 years (or fractional portion
thereof), calculated pursuant to the following formula:
n
P(1+T) =ERV
where P = a hypothetical initial payment of $1,000,
T = the average annual total return,
n = the number of years, and
ERV = the ending redeemable value of a hypothetical
$1,000 payment made at the beginning of the period.
2. 30-DAY YIELD
Quotations of yield for a Fund will be based on all investment income
per share during a particular 30-day (or one month) period (including dividends
and interest), less expenses accrued during the period ("net investment
income"), and are computed by dividing net investment income by the maximum
offering price per share on the last day of the period, according to the
following formula:
a-b 6
Yield = 2 [(--- + 1) - 1]
cd
where a = dividend and nterest earned during the period,
b = expenses accrued for the period (net of
reimbursements),
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends, and
d = the maximum offering price per share on the last
day of the period.
3. TAX-EQUIVALENT YIELD
Any tax equivalent yield quotation of a Fund shall be calculated as
follows. If the entire current yield quotation for such period is tax-exempt,
the tax equivalent yield will be the current yield quotation divided by 1 minus
a stated income tax rate or rates. If a portion of the current yield quotation
is
<PAGE>
not tax-exempt, the tax equivalent yield will be the sum of (a) that portion of
the yield which is tax-exempt divided by 1 minus a stated income tax rate or
rates and (b) the portion of the yield which is not tax-exempt.
4. 7-DAY YIELD (MONEY MARKET FUNDS)
Quotations of yield for any money market fund will be based on the
investment income per share generated over a particular seven-day period, less
expenses accrued over the period. The income is then "annualized."
YIELD = Base Period Return x 365/7
The effective yield is calculated similarly, but when annualized, the
income earned by the investment during that seven-day period is assumed to be
reinvested. The effective yield will be slightly higher than the yield because
of the compounding effect of this assumed reinvestment.
365/7
EFFECTIVE YIELD = [(Base Period Return + 1) ] - 1
where Base Period Return = the sum of daily dividends declared during the
seven-day period.
RF016
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 007
<NAME> REPUBLIC NEW YORK TAX FREE MONEY MARKET FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-17-1994
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 52,457,495
<INVESTMENTS-AT-VALUE> 52,457,495
<RECEIVABLES> 373,850
<ASSETS-OTHER> 29,570
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 63,860,915
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 208,438
<TOTAL-LIABILITIES> 208,438
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 52,652,477
<SHARES-COMMON-STOCK> 52,652,477
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 52,652,477
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 1,983,859
<OTHER-INCOME> 0
<EXPENSES-NET> 210,066
<NET-INVESTMENT-INCOME> 1,773,793
<REALIZED-GAINS-CURRENT> (13,869)
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 1,759,924
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 1,759,924
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 191,998,598
<NUMBER-OF-SHARES-REDEEMED> 140,393,043
<SHARES-REINVESTED> 1,046,922
<NET-CHANGE-IN-ASSETS> 52,652,477
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 77,177
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 334,167
<AVERAGE-NET-ASSETS> 53,659,095
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.033
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.033
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.41
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC FIXED INCOME FUND AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 008
<NAME> REPUBLIC FIXED INCOME FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 26,119,355
<INVESTMENTS-AT-VALUE> 26,119,355
<RECEIVABLES> 0
<ASSETS-OTHER> 52,565
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 26,171,920
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 43,913
<TOTAL-LIABILITIES> 43,913
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 26,128,007
<SHARES-COMMON-STOCK> 2,384,633
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 26,128,007
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 812,161
<OTHER-INCOME> 0
<EXPENSES-NET> 56,649
<NET-INVESTMENT-INCOME> 755,512
<REALIZED-GAINS-CURRENT> 995,337
<APPREC-INCREASE-CURRENT> 338,733
<NET-CHANGE-FROM-OPS> 2,089,582
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 755,512
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 24,295,445
<NUMBER-OF-SHARES-REDEEMED> 245,291
<SHARES-REINVESTED> 743,683
<NET-CHANGE-IN-ASSETS> 26,128,007
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 107,372
<AVERAGE-NET-ASSETS> 16,557,823
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.46
<PER-SHARE-GAIN-APPREC> 0.96
<PER-SHARE-DIVIDEND> 0.46
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.96
<EXPENSE-RATIO> 0.91
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC INTERNATIONAL EQUITY FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 009
<NAME> REPUBLIC INTERNATIONAL EQUITY FUND
<S> <C>
<PERIOD-TYPE> 10-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> JAN-09-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 34,220,743
<INVESTMENTS-AT-VALUE> 34,220,743
<RECEIVABLES> 26,683
<ASSETS-OTHER> 51,355
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 34,298,781
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 54,752
<TOTAL-LIABILITIES> 54,752
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 34,244,029
<SHARES-COMMON-STOCK> 3,171,731
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 34,244,029
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 300,087
<OTHER-INCOME> 0
<EXPENSES-NET> 82,467
<NET-INVESTMENT-INCOME> 217,620
<REALIZED-GAINS-CURRENT> (93,408)
<APPREC-INCREASE-CURRENT> 1,635,933
<NET-CHANGE-FROM-OPS> 1,760,145
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 69,610
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 32,852,624
<NUMBER-OF-SHARES-REDEEMED> 368,840
<SHARES-REINVESTED> 69,610
<NET-CHANGE-IN-ASSETS> 34,244,029
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 0
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 116,717
<AVERAGE-NET-ASSETS> 21,294,241
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.08
<PER-SHARE-GAIN-APPREC> 0.75
<PER-SHARE-DIVIDEND> 0.03
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.80
<EXPENSE-RATIO> 1.14
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC NEW YORK TAX FREE BOND FUND AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 010
<NAME> REPUBLIC NEW YORK TAX FREE BOND FUND
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> MAY-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 6,433,758
<INVESTMENTS-AT-VALUE> 6,620,124
<RECEIVABLES> 609,546
<ASSETS-OTHER> 81,947
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 7,311,617
<PAYABLE-FOR-SECURITIES> 346,378
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 57,185
<TOTAL-LIABILITIES> 403,563
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 6,908,054
<SHARES-COMMON-STOCK> 665,278
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 6,908,054
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 195,996
<OTHER-INCOME> 0
<EXPENSES-NET> 18,026
<NET-INVESTMENT-INCOME> 177,970
<REALIZED-GAINS-CURRENT> 48,739
<APPREC-INCREASE-CURRENT> 186,366
<NET-CHANGE-FROM-OPS> 413,075
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 177,970
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 8,334,583
<NUMBER-OF-SHARES-REDEEMED> 1,679,949
<SHARES-REINVESTED> 18,315
<NET-CHANGE-IN-ASSETS> 6,908,054
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 9,063
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 86,378
<AVERAGE-NET-ASSETS> 3,916,331
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.25
<PER-SHARE-GAIN-APPREC> 0.38
<PER-SHARE-DIVIDEND> 0.25
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.38
<EXPENSE-RATIO> 0.50
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED OCTOBER 31, 1995 FOR THE REPUBLIC EQUITY FUND AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 011
<NAME> REPUBLIC EQUITY FUND
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> AUG-01-1995
<PERIOD-END> OCT-31-1995
<INVESTMENTS-AT-COST> 20,833,025
<INVESTMENTS-AT-VALUE> 20,987,383
<RECEIVABLES> 82,240
<ASSETS-OTHER> 1,212,364
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 22,281,987
<PAYABLE-FOR-SECURITIES> 138,502
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 51,085
<TOTAL-LIABILITIES> 189,587
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 22,092,400
<SHARES-COMMON-STOCK> 2,157,255
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 22,092,400
<DIVIDEND-INCOME> 89,540
<INTEREST-INCOME> 17,635
<OTHER-INCOME> 0
<EXPENSES-NET> 51,552
<NET-INVESTMENT-INCOME> 55,623
<REALIZED-GAINS-CURRENT> (7,450)
<APPREC-INCREASE-CURRENT> 154,358
<NET-CHANGE-FROM-OPS> 202,531
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 45,346
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 21,934,564
<NUMBER-OF-SHARES-REDEEMED> 0
<SHARES-REINVESTED> 651
<NET-CHANGE-IN-ASSETS> 22,092,400
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 17,481
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 85,885
<AVERAGE-NET-ASSETS> 17,359,825
<PER-SHARE-NAV-BEGIN> 10.00
<PER-SHARE-NII> 0.04
<PER-SHARE-GAIN-APPREC> 0.24
<PER-SHARE-DIVIDEND> 0.04
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 10.24
<EXPENSE-RATIO> 1.47
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL DATA EXTRACTED FROM THE ANNUAL REPORT
DATED SEPTEMBER 30, 1995 FOR THE REPUBLIC U.S. GOVERNMENT MONEY MARKET FUND AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH ANNUAL REPORT.
</LEGEND>
<CIK> 0000798290
<NAME> REPUBLIC FUNDS
<SERIES>
<NUMBER> 006
<NAME> REPUBLIC U.S. GOV'T MONEY MKT. FUND
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1995
<INVESTMENTS-AT-COST> 113,610,700
<INVESTMENTS-AT-VALUE> 113,610,700
<RECEIVABLES> 120,937
<ASSETS-OTHER> 0
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 113,731,637
<PAYABLE-FOR-SECURITIES> 58,468
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 15,197
<TOTAL-LIABILITIES> 73,665
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 113,196,899
<SHARES-COMMON-STOCK> 113,218,042
<SHARES-COMMON-PRIOR> 111,557,380
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 0
<NET-ASSETS> 113,218,042
<DIVIDEND-INCOME> 0
<INTEREST-INCOME> 6,377,771
<OTHER-INCOME> 0
<EXPENSES-NET> 642,995
<NET-INVESTMENT-INCOME> 5,734,776
<REALIZED-GAINS-CURRENT> 0
<APPREC-INCREASE-CURRENT> 0
<NET-CHANGE-FROM-OPS> 5,734,776
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 5,727,567
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 366,028,959
<NUMBER-OF-SHARES-REDEEMED> 356,309,344
<SHARES-REINVESTED> 3,048,453
<NET-CHANGE-IN-ASSETS> 12,775,277
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 221,919
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 858,878
<AVERAGE-NET-ASSETS> 110,959,533
<PER-SHARE-NAV-BEGIN> 1.00
<PER-SHARE-NII> 0.05
<PER-SHARE-GAIN-APPREC> 0
<PER-SHARE-DIVIDEND> 0.05
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 1.00
<EXPENSE-RATIO> 0.58
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
